Today, we’re diving into the most frequently asked questions about accounting, tax planning, and financial advice! Whether you’re a small business owner, freelancer, or just trying to make sense of your personal finances, these are questions you’re probably wondering about. So, let’s get right into it!
<h2>Do I Really Need a CPA?</h2>
One of the most common questions I get is: Do I really need a CPA, or can I do my taxes on my own?
The answer depends on your individual situation. For example, if you’re a single individual with a straightforward W-2 job and no major deductions, like if you run a business, you bought an electric car, or if you had stocks and bonds that were being sold during the year, you can likely handle your taxes yourself by using online software.
For simple tax filings, you can use the IRS website at www.irs.gov and take advantage of their trusted do-it-yourself tax returns.
However, once things get more complex — like if you own a business, have multiple income streams, or are dealing with investments, rental properties, or major life changes—a CPA can make a huge difference in how much tax you pay.
As CPAs, we don’t just file your taxes, we help you create a tax strategy to save money in the long run.
Here are a few examples of how we can help you:
- If you own a business, a CPA will guide you through deductions you might not know about, like home office expenses, equipment depreciation, or health insurance premiums.
- If you have multiple streams of income, such as freelance work, investments, or rental properties, we can help make sure each source is reported correctly, and any potential deductions are maximized.
- If you’ve gone through major life changes—like getting married, having kids, or buying a home—we can advise on how to adjust your tax strategy to benefit from credits like the child tax credit or mortgage interest deductions.
- For those planning for the future, CPAs can help with retirement account contributions, self-directed IRAs, or even estate planning, ensuring you’re not only saving now, but setting yourself up for financial stability down the road.
So, while tax software works for some, a CPA’s expertise becomes essential when your situation involves more moving parts. We make sure you’re not missing out on often overlooked opportunities to save and ensure your taxes are done right!
Question #2 – What’s the Best Way to Save Money on Taxes?
What’s the best way to save money on taxes?
The key to saving on taxes is proactive planning. One common issue I see is small business owners waiting until year-end to think about taxes. This is a big mistake! While we can help at that point, we can’t go back in time to fix missed opportunities. That’s why it’s important to start early and be intentional with your deductions throughout the year.
When I meet with small business owners, I dig deep into their day-to-day activities. We discuss everything, from their home office setup to any renovations they’ve made that could qualify for deductions. Often, they haven’t kept proper records or have missed valuable deductions, like home office expenses or per diem allowances for themselves and their employees when traveling.
Many also overlook contributions to retirement accounts, such as a self-directed IRA, which can be a powerful tool for tax savings. The same goes for charitable donations—these are easily forgotten but can make a big difference in reducing taxable income.
For individuals who aren’t self-employed, tracking donations and maximizing contributions to 401(k) plans are some of the most effective ways to reduce your tax burden.
A CPA can help ensure you’re maximizing these deductions legally, so you’re not leaving money on the table.
Question #3 – How Should I Handle My Business Finances?
A question I hear a lot from new entrepreneurs is: How should I handle my business finances?
My number one tip: always separate your business and personal finances. This is super important for understanding the financial health of your business and avoiding unnecessary complications.
Many clients don’t realize that mixing personal and business funds can create a mess, especially if you’re ever audited. Plus, if you’re operating as a corporation, failing to keep finances separate can result in the corporate veil being pierced, which means you could lose the legal protections of your corporation.
Think of your business’s bank account as its lifeline. Every transaction that goes through that account keeps the business “alive” and distinct from your personal finances. So, don’t mix them up! Open a separate business bank account and get a business credit card. If that’s not possible right away, designate one of your personal cards strictly for business expenses, and use it only for that.
Doing this will make tax time so much easier, and it’ll help you keep track of income and expenses accurately throughout the year. On top of that, using accounting software like QuickBooks can be a game-changer.
It helps automate invoicing, expense tracking, and reporting, giving you more time to focus on running your business while staying organized.
Question #4 – What Is the Difference Between a Tax Deduction and a Tax Credit?
Alright, let’s clear up the confusion around tax deductions vs. tax credits.
A tax deduction reduces your taxable income, meaning you’re taxed on a smaller amount. For instance, if you earn $50,000 and claim a $2,000 deduction, like the home office deduction, you’ll only be taxed on $48,000. It lowers the income on which you pay taxes, but it doesn’t reduce the tax amount directly.
Now, a tax credit works differently. It directly reduces the amount of tax you owe, dollar for dollar. For example, if you owe $1,500 in taxes but have a $500 energy credit, you subtract that directly, and now you only owe $1,000. Pretty cool, right?
One thing to keep in mind: a deduction doesn’t give you a refund or eliminate taxes entirely—it just lowers your taxable income. On the other hand, credits can reduce what you owe or even result in a refund if they’re refundable credits.
And finally, what are the most common mistakes people make during tax season?
This is a big one! The most common mistakes I see are waiting until the last minute to get organized, not keeping accurate records, and missing out on key deductions—especially if you have a business, rental properties, or other investments.
Often, income is reported, but expenses aren’t properly tracked, which can result in paying more taxes than necessary.
Another common mistake is filing too early! Believe it or not, some people file before receiving all their forms, like 1099s or corrected W-2s, which can lead to errors and the need to amend returns later.
So, the key is to stay organized, take your time, and if it feels overwhelming—don’t hesitate to reach out to a CPA.
Many CPA firms also offer year-round accounting or bookkeeping services, which can make a big difference in maintaining your records and tracking expenses.
A good CPA will help you stay organized throughout the year, ensuring you can optimize your tax liability when tax season comes around.
Free Complimentary Consultation
If you don’t already know me, my name is Sonia Narvaez. I’m a licensed CPA and wealth-building strategist with over 25 years of experience.
If you have any questions about how to take advantage of the latest tax savings strategies, don’t hesitate to contact us.
To get your FREE complimentary consultation with a member of my team, simply click this scheduling link, and pick the time that works best for you. We would love to help and meet with you.