What Are the Benefits of Tax Projections?
April 21st, 2022 | 6 min. read
Do you hear from your annual tax accountant at all outside of tax season? Do they check in with you or work on tax planning with you? If not, then you likely don't have any sort of tax projection in place. This means that you have no idea what your tax season is going to look like ahead of time. This is an especially big deal if you've just received a big tax bill that your accountant didn't properly warn you about.
Tax projection is not required, of course, but if you had the opportunity to look into a crystal ball, wouldn't you take it? At CSI Accounting & Payroll, we've worked with our small business clients year-round for over 50 years to ensure their taxes go off without a hitch.
Other small business owners who asked us about tax planning and tax projections wanted to know:
- What is tax planning?
- What are tax projections?
- When should you get a tax projection?
- What does a tax projection do?
Start with Tax Planning
Businesses are required to keep detailed financial records, so many opt for basic bookkeeping. Monthly accounting provides more; it generates monthly financial statements to help you understand how you're performing in real-time. That way, you can more accurately evaluate your business' health and guide decisions.
Tax planning is so much more than tax preparation and filing, and your accountant holds much more value than the amount that they can save you in taxes. All year long, tax planning monitors your tax situation to help reduce the stress of tax season and legally minimize your tax liability. Your tax return only records history, but tax planning focuses on the moment.
With CSI Accounting & Payroll's monthly accounting and tax planning, your information is up-to-date and ready for tax season. We're proactive and have periodic meetings to make sure we're on the same page. At the end of each tax planning meeting, you should have a tax projection. Our plan? We want our clients to know what their taxes will look like many months ahead of time.
What is Tax Projection?
A real tax projection is a complex process of adjusting your last tax return for changes that you know are occurring in the current year, and these inputs are used to calculate your estimated tax return ahead of time. If an annual accountant is just comparing a prior tax return to this year's tax return, it's not a proper tax projection based on complete and accurate data.
As an example, when the monthly accountants at CSI perform tax projections, we compare this year's first quarter to last year's to see your percentage increase. We'll also ask you why the numbers may have gone up and if you expect this to continue for the rest of the year. This helps us get tax estimates on what you can pay throughout the year so you don't have a large sum to pay at the end of the year. This helps you plan for a much smoother tax season.
You might be asking, "Why haven't I heard of tax projection before?" If you work with a big-name financial institution, they likely won't mention it because most legally can't give tax advice. An annual tax accountant also probably won't mention it because they don't work with you year-round, unlike a monthly accountant.
When Should I Get a Tax Projection?
As mentioned above, CSI Accounting & Payroll wants to ensure our clients know what their taxes will look like ahead of time. Major discussions about tax planning and getting a tax projection often occur in the Fall because more is known about the current year's finances at that point, and it still gives you time to apply the projection to the upcoming tax season. Most businesses will be looking at two or more tax projections per year.
Essentially, if there's been a large change in your finances or a change to tax laws, you'll want to get a tax projection. Business owners with complex operations may even want to look into multiple projections per year if they run into fluctuations in their finances during that time. A truly great accounting partner may even perform a tax projection when you sign on as a client.
What Does a Tax Projection Do?
A tax projection can help avoid making tax decisions that would pay off in the short-term but cost you big in the long-term. If done correctly, a tax projection can take a set of assumptions to help you reduce your tax liability, eliminate tax season surprises, and guide your business decision-making by keeping you aware of your finances and how they apply to the upcoming tax season.
If you work with CSI, your monthly accountant will use a tax projection, along with all of your other relevant financial information, to guide you to your financial and tax goals. They can also help you maintain your current personal and business lifestyle by using real data to help you feel secure in your everyday choices. Not to mention, you can contact us as much as you want for no extra fee!
Ready to learn more?
If you dreaded getting your tax return in the past because you had no idea what you might owe, hopefully learning about tax projections helped you breathe a sigh of relief. Being able to map out the process of tax planning, tax projections, and making your estimated tax payments throughout the year is a great way to see that there are alternatives to annual tax accounting, which may not be providing you with the insights you need.
Don't walk into tax season with your eyes closed! If you'd like to discuss starting year-round tax planning with tax projections, you can schedule a free consultation by clicking the button below.
If you're not ready to commit to a consultation yet, be sure that you're fully informed about what monthly accounting costs first! Click the image below to learn more.
This article was composed by a member of our staff who interviewed our experts to get the facts straight. Any uncited information found here came straight from a knowledgeable accountant or payroll specialist.