Another year has come and gone, and it’s time to turn your attention to taxes: not only the preparation of your 2014 return, but also planning for the year ahead. What comes to mind when you hear the term tax planning? You may think it’s about saving your receipts and keeping track of your expenses and income. But it’s much more than that.
Tax planning is the art of keeping as much of your hard-earned money as you legally can.
Most business owners use a paid tax preparer. Filing a tax return can be complicated, and each year there are new rules that may impact your business—this year, for example, you must report health insurance information to be in compliance with the Affordable Care Act. There are a lot of respectable professionals who can help you, but let me tell you a little secret: if you just drop off a box of receipts to your tax preparer, you are probably overpaying your taxes. Read on to learn how getting personally involved with the planning process can help.

Planning Through the Year
One fact many people overlook is that over a lifetime, taxes are often the single greatest expense they will have. This is especially true for business owners. That’s why it’s so important to consider your tax planning as a vital part of your overall financial planning. In order to get the greatest return on your investment, you have to be able to reduce your tax bill as much as possible.
Tax planning is something you can do—no, make that something you must do—throughout the year, even if you only file your income taxes once a year. There are three goals you should aim for in your planning:
• Use tax-law provisions to your full advantage.
• Maximize all the tax breaks available by law.
• Accelerate and increase all available tax credits and tax deductions.
Here are just a few of the hundreds of tax-saving options that businesses and individuals often miss. However, just like making treatment plans for your clients, every person’s situation is different—you should seek a professional in your local area to customize a tax plan to fit you.

Independent Contractors/Practice Owners
First, are you operating your practice under the right type of business entity? Most people start as sole proprietors, then, as their practice grows, they may establish a limited liability company (LLC) or corporation. Many business owners are operating with entities that were appropriate when they first started their practice, but may not work as effectively in their current situation. Ask your tax professional to review whether your business entity is right for you.
Another area often missed is not making the most of family employment. If you have children or grandchildren who help in a home practice (perhaps handling reception duties, cleaning, or laundry), officially hiring them can be a great way to cut taxes on your income. When your child becomes your employee, his or her first $6,200 of earned income is taxed at zero. That’s because it’s the standard deduction for a single taxpayer—even if the child is your dependent. The next $9,075 is taxed at just 10 percent, allowing you to shift a lot of income downstream. Setting up an IRA for the child may create even more savings, as well as setting a good example for financial planning. Of course, you have to pay family members a reasonable wage for the service they perform. Legally, a “reasonable wage” is what you’d pay a commercial vendor for the same service, with an adjustment made for the child’s age and experience.
The home office deduction is probably the most misunderstood deduction in the entire tax code. For years, taxpayers feared claiming this deduction would raise a flag for an IRS audit. But Congress has relaxed the rules, so now it’s far easier for legitimate home practitioners to claim this deduction without attracting unjustified suspicion. Your home office qualifies as your principal place of business if you use it “exclusively and regularly for administrative or management activities of your trade or business” and you have no other fixed location where you conduct substantial administrative or management activities. Even if your hands-on treatments are provided in another location, you probably qualify if you take care of the administrative work at home.

Employees
If you are an employee (defined by the IRS as anyone who receives a W-2), there is not a lot of planning you need to do, beyond looking for deductions to claim. If you don’t have a substantial amount of deductions, don’t worry about itemizing them: the government gives you a $12,400 married/$6,200 single write-off without itemizing. Here, however, are a few itemized deductions you may want to consider:
• If you have a high-deductible health insurance plan, consider a Health Savings Account (HSA). You put money into this account to pay medical expenses, but you also receive a tax deduction for the money you put in. It’s a way to get back some of your out-of-pocket costs on your medical bills.
• Look into which of your retirement contributions are deductible. If your employer has a retirement plan in which they match a portion of your contribution, make sure you contribute at least enough to receive the matching funds. For other retirement savings, consider a traditional or Roth IRA.
• If you are still paying off a student loan, the interest on this loan may be deductible.
• If you have medical expenses that exceed 10 percent of your adjusted gross income, anything over that limit is deductible. Keep an eye on your medical expenses throughout the year, and if you’re getting close to the 10 percent minimum, it can be worthwhile to spend money on elective medical expenses, like dental checkups, in the same year to boost you over that line and get a write-off.
• The same is somewhat true of your employee business expenses. These are also deductible, but only the amount that exceeds 2 percent of your adjusted gross income.

Knowledge is Power
By knowing and understanding important tax laws and regulations, you can avoid some potentially huge mistakes that could cost you significant amounts of money. One of the best ways to prevent these kinds of mistakes is to seek professional tax planning help.
You need to develop a business relationship with someone who can be a tax planner beyond simply preparing tax returns. Set up a meeting to discuss your situation and find out what you can do to minimize the tax you pay. Look for someone who knows your industry, or at least someone who knows small businesses. Tax-planning professionals have a wealth of knowledge and experience in tax planning, accounting, and consulting that will not only save you money once a year, but will also help you understand your numbers and keep more of your hard-earned money in your pocket.

Larry Kopsa is a certified public accountant and former salon owner who is now a partner of Kopsa Otte, the only CPA firm that specializes in salons and spas. He works with clients across the country, speaks at events worldwide, has written numerous articles, and has worked with Milady to develop financial tools for salon and spa owners. Visit www.kopsaotte.com for more information.

Editorial Note: The information provided here does not constitute accounting, financial, legal, or tax advice, and is offered as an informational service only. Those seeking specific advice should contact a professional advisor. No liability whatsoever is assumed in connection with the use of this information.