Proper tax planning and a solid plan must make economic sense. I once attended a practice management seminar many years ago and I heard a comment about tax planning that resonates with me to this day. The statement was, and I am paraphrasing, ” many tax planning actions are making economic decisions for tax reasons that we would otherwise not make and the problem is that unless we have a 100+% tax bracket those decisions are bad decisions”. We at Fragnoli and Company, CPAs in Brentwood, TN hold to that philosophy. I can’t count how many times a client will call me and ask me if they should acquire a piece of equipment or incur a certain business expense to reduce their tax position. I always ask if they would buy the equipment or incur the expense if tax considerations did not apply. They usually don’t know how to respond or why I am asking that question. The answer becomes obvious when I explain it more clearly to them. If the only reason for spending the capital is for the tax benefit how does it make economic sense if the benefit is say 35% tax savings. You spend a $1,000 to save $350 and would not have incurred the expense except for the tax benefit, that’s is a bad economic decision.
We as taxpayers are inundated with articles and news reports on television about high and rising tax rates and how it is impacting us in our homes and in business. It is only human to want to act to reduce taxes in every way possible. However, we cannot let our disdain for high taxes lure us into making bad economic decisions. Of course, if my client intends on buying that piece of equipment or incurring a certain business expense regardless, then we look at the timing of incurring the transaction, when it will yield the better tax benefit and when the transaction needs to be incurred for business purposes regardless, and then include it in the full tax plan. There are many variables in a well constructed tax plan and the planning process can yield so many benefits to the taxpayer which can pay for the cost of the planning services multiple times over. I frequently tell my clients that tax compliance is the required service; but, tax planning is where we can pay for our services multiple times over. Let us be a profit center, not a cost. We at Fragnoli and Company, CPAs would love the opportunity to meet with you to discuss your personal, business and estate tax positions and provide you with a comprehensive taxp plan. Visit our website at jfragnolicpa.com or give us a call at (615) 307-0705. For your convenience we have attached the following link providing the current individual tax rates and a simple tax calculator.