Getting green with the ten-minute tax tune-up

By Fraser Allport

Installing energy and water saving “green” improvements has many tax incentives for your property. But the bigger picture is to understand why taxes are such an important part of your life and the “Go Green” movement.

In my 28 years in business, I have consistently seen people either over-pay or under-pay their income taxes. There is no other bill in your life where you would do this. Income taxes are your largest single expense, and it is important to note that income taxes are a variable expense that can be proactively managed. By the time you give your receipts to your accountant, it is too late to do tax planning. At that point, all that your accountant can do is tally the numbers and calculate the damage. Job # 1 is for both you and your accountant to be proactive and start tax planning at the beginning of the year, not the end of it.

Think of a three lane highway. The person going 95 miles per hour is committing a crime. This person is intentionally under-paying their Income Taxes, and they are going to get hurt and caught. The person who needlessly over-pays their taxes is going 45 miles per hour in a 55 mile per hour zone. They are going slower than need be either because they do not know all of their legal and rightful tax deductions within the IRS Tax Code; or they just irrationally fear the IRS as a bogeyman. I urge people to drive 55 – do not over-pay or underpay your taxes. And never the fear the IRS if you are doing nothing wrong. The IRS is not the enemy. The enemy is lack of tax planning, and lack of being proactively involved in your own tax matters. If you want to pay the correct amount of taxes … Find a proactive accountant who continually brings you new suggestions, and get yourself involved in the process too.

Managing your taxes is neither difficult nor a full-time job. There are three simple rules to follow regarding Income Tax Planning :

Understand The Big Picture: Income taxes are the largest single variable expense in your life, consuming 30% to 40% of your income. Taxes are by far the largest expense in your Life. Taxes are also a recurring expense – The Forever Bill. Saving a dollar on your taxes is the best return on investment for you because Income Tax reduction is the single most effective method for increasing cash flow right to your bottom line. The Smart Money has known this all throughout History – Wealth is about turning Taxes into Assets. Recapturing an otherwise-lost tax dollar that you were going to needlessly over-pay is the best way to increase cash flow and get liquid. Over-paying your Income Taxes is an entirely inexcusable and avoidable waste of precious cash. Think about it – A tax dollar in your pocket versus needlessly over-paid ?  Would you over-pay any other bill in your Life?

Get Proactive: Tax Planning is neither boring nor time-consuming. There are inexpensive tax newsletters that you can subscribe to that will be the most profitable 30 minutes that you will spend each week reading. Most people abdicate their taxes to their accountant, and abdicating any responsibility is unwise. Delegate, but don’t abdicate. Don’t blame your accountant – Challenge them with questions and your input. If you want to trim the excess fat from your tax bill … Get Involved !  It’s Teamwork, and saving tax money will become both fun and a critical boost to your bottom line.

Build A Winning Team : If you and your accountant do not see eye to eye, then find a new accountant. If your accountant does not proactively bring you new ideas, find one who does. I have never understood why people are hesitant to challenge or replace their accountant when they are unhappy with the accountant’s work, or lack thereof. What would you do if one of your employees consistently disappointed you, year after year ? That’s right – You would find someone better. Proactive tax planning takes a Team. On every winning team, chemistry and personal relationships are critical. Find an accountant who is simpatico with you, listens to you, and who continually brings you the latest tax updates. Don’t blame or bemoan your accountant. Just make them accountable and involved. A great accountant will welcome this approach and rise to it. You have a very important relationship with your accountant – Managing the expense that consumers 30% to 40% of your working life, for the rest of your life. It’s not unreasonable of you to expect a great working relationship with your accountant that makes you happy with the annual results. After all, isn’t that why you pay them ?

I’ll help you get started on proactively managing your Income Taxes. Below is the “ Ten Minute Tax Tune-Up ” that I have used for years to simplify tax matters for clients. It is an easy starting point for determining if you are paying the correct amount of taxes.

The Ten Minute Tax Tune-Up – Tax Savings Worksheet

1)      Gross Business Income

2)      Business Expenses

3)      Net Pre-Tax Business Income

4)      Combined State and Federal Income Tax Bracket

5)      Non-deductible Lifestyle Costs / Consumption. What you spend every year to lead your life.

6)      Adjusted Gross Income is the income that you would report on your personal 1040 to pay for the lifestyle that you chose in # 5. You arrive at AGI by dividing Lifestyle Costs by the inverse of your tax bracket. Let’s assume a federal tax bracket of 35%. The inverse of your tax bracket is .65. So divide .65 into your Lifestyle Cost ( which is # 5 above ).

7)      # 6 is the income that you need to bring home to fund your lifestyle costs. Any Net Pre-Tax Business income in excess of # 6 is available for pre-tax investing.

Call me and I’ll walk you through the Tax Tune-Up the first time. It’s easy once someone guides you through the steps. And it’s profitable time well-spent, because it will reduce your Income Taxes – the legal way. Once learned, this Tax Tune-Up will serve as a guidepost for paying the correct amount of income taxes for the rest of your Life.

What does the Ten Minute Tax Tune-Up have to do with Going Green? Well, if you can reduce your Income Taxes … then you will have more Green to spend on making your property more Green. And  Going Green will garner you all sorts of Tax incentives, which will save you more money on your taxes.   A comprehensive and strategic understanding of The Go Green Revolution is to appreciate the fact that Going Green and Taxes are inextricably woven together.

Fraser Allport is the owner of Energy, Water and Taxes, a green company that focuses on helping businesses lower their bills through the use of green technologies. To learn more about Fraser, visit his Web site or click here to read more about Fraser on BrowardNETOnline.com.

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