Nesha Pai, a Charlotte CPA and small business owners, is also a speaker, podcast host, author, and entreprenuer. Follow her work here: neshapai.com or pick up a copy of her book, Overcoming Ordinary Obstacles, today.
How much money should people realistically set aside each year to pay for their taxes come April?
This varies based on one’s individual tax bracket, but I usually like a nice average like 30%. If you are a business owner, you want to make sure you are using a tax paying vehicle, like taking W2 salary, in order to pay in federal and state taxes throughout the year.
How do people know their tax bracket and tax rate?
You can Google it and find it from a reputable finance site OR go to www.irs.gov Depending upon how one files (Single, Married, Head of Household, Married, Filing Separately) the brackets and rates differ.
What’s the difference between a tax credit and a tax deduction?
Tax credits directly reduce the amount of tax you owe, giving you a dollar-for-dollar reduction of your tax liability. Tax deductions, on the other hand, reduce how much of your income is subject to taxes. The amount of deductions you take could take you down into the next lower tax bracket. Planning deductions throughout the year is wise.
How often throughout the year should I be talking with my CPA about taxes?
For business owners, If not quarterly, no less than twice a year. I like anywhere between March and June and then again in the fall to make sure you are planning ahead for what is to come on April 15th filing.
What are the three best things to do to prepare for filing your taxes/for tax season?
Keep organized records. If you are an individual (non-business owner), keep a manilla folder and/or an electronic folder to house all tax-related documents throughout the year. Ask your tax CPA for a checklist/organizer to make sure you cover all the items needed. For business owners, it is imperative you have an accounting software that is maintained throughout the year (a good one is Quickbooks) to capture all of your business financial transactions.
What is the major benefit to having a CPA help with your taxes?
A good CPA will know what you can deduct and what cannot so will be able to help you from leaving money on the table. Oftentimes, they can be creative to find ways to help reduce your tax liability. As a business owner, you definitely need to have a relationship with one before you make your first dollar so that you know how to capture all of your revenue/expenses.
What is one thing you see people get wrong often when trying to file their own taxes?
The tax filing process is only easy if you literally have one W2 to file and you are single, living in a rented space. Anything beyond that may make your filing complicated and you will benefit using a CPA. Most people don’t understand the IRS or state rules so they may be leaving money on the table or not fill out the form correctly.