Tax Projections for Houston Businesses and Individuals
Tax projections are a useful forecast and preparation measure for businesses and individuals. Not to be confused with tax planning and preparation services, tax projections provide the following:
- Accurate estimates of your expected tax liabilities
- For business owners – income and expense forecasts
- Hard numbers regarding tax withholding requirements
- Verification that the business or individual is compliant with tax laws
Tax projections are primarily used to calculate tax liabilities and estimate future withholding requirements. They are also a useful tax planning and preparation tool, though, and can be used as a starting point for long-range financial planning.
As an initial information-gathering tool, tax projections are convenient for taxpayers. They require minimal effort on the client’s end and minimal information for an accountant to get started – so taxpayers maximize their tax savings.
What's the Difference Between Tax Projections and Tax Planning?
Tax projections take the taxpayer’s current income, expenses, and other relevant data to forecast their expected liabilities come tax season. This information can be derived from monthly or quarterly income and expense data, so it can be used to project several months in advance. For many businesses and individual taxpayers, this may sound like tax planning, but there are major differences between tax projections and tax planning services, including:
Tax projections are focused on the now, while tax planning focuses on the future – Tax projections offer actionable data that is focused on the near-term and is therefore useful for organizing short-range tax decisions. Tax planning takes a longer view, seeking to reduce tax liabilities over many years for the client.
Tax projections are for compliance, tax planning for long-term tax savings – Tax projections are designed to help taxpayers avoid noncompliance or underpayment penalties – typically only for the current tax year. Tax planning takes a longer-range view and uses advanced forms of analysis to advantageously position taxpayers.
Tax planning services require advanced tax code knowledge – Up-to-date knowledge of the tax code is essential for accurate projections, but tax planning requires a greater degree of familiarity with tax laws. Tax planners are expected to leverage the existing tax code to their clients’ advantage – an approach that demands expert-level knowledge of the IRS internal revenue code.
While there are significant differences between the two, tax planning and tax projections are more effective when combined.
How Do Tax Projections Assist Financial and Tax Planning?
It’s best to think of tax projections as a complement to tax planning. It’s a tool in the CPA’s toolbox, intended to provide clients with a clear idea of where they are now, tax-wise. On their own, they’re helpful for near-term tax planning and compliance. However, tax projections can have a much bigger impact when combined with tax planning services. Here’s how:
Tax projections can be used to run a variety of tax planning “simulations” – If your tax projections are provided by a true tax expert, they can be used to plan a variety of scenarios based on tax-relevant decisions you’re facing. For example, a business owner may need to acquire new equipment – an expense that may be deferred or accelerated for tax-saving purposes. Tax projections can identify how to best time this equipment purchase.
Tax projections can identify potential tax planning strategies – Tax planning experts have a number of strategies they can deploy to minimize their client’s tax liabilities – like leveraging additional deductions, timing expenses or income, setting up retirement accounts and more. Tax projections can provide insight into which tax planning strategies are most likely to be effective for a particular business or individual.
Tax projections can streamline tax preparation services during tax season – Tax projections are similar to putting together a standard tax return and therefore can give people and companies a head start on their tax preparation. When deadlines approach, it will be easier to complete all tax forms and ensure filing is done on time.
Why Tax Projections Should be Managed by a Certified Public Accountant (CPA)
Tax projections are beyond the scope of most small business owners. Few have the expertise and even fewer have the time. As such, most small business owners partner with a tax expert to forecast their future tax liabilities. If your company is in the same position, here is why it is worth partnering with a certified public accountant:
- A CPA maintains up-to-date knowledge of the IRS tax code – CPAs are certified tax experts. Their job is to know tax laws inside and out, and to predict how those laws may change in the future. While many people claim to be tax experts, CPAs have demonstrated their knowledge through extensive training, education, and success with previous clients. Further, CPAs are required to complete continuing education courses that ensure their knowledge remains current.
- A CPA can provide additional services beyond tax projections – CPAs can do much more than project a client’s taxes. They can provide a full range of accounting, bookkeeping, tax preparation, and tax planning services, ensuring their clients are able to fully leverage the IRS code to their advantage. CPA firms can provide all of these services in-house, improving their cost efficiency and effectiveness.
- A CPA can be proactive in optimizing their client’s tax situation – Reputable CPAs keep their clients’ interests in mind when important dates or changes to the tax code are coming up. They work to prepare their clients and ensure there are no costly surprises when tax season rolls around. In this way, CPAs provide peace of mind to individuals and businesses, as they can rest assured that their CPA has all tax concerns covered.
A CPA can provide valuable tax projection services, but their true worth is in the specialized tax-related knowledge they bring to businesses and individuals. If you are partnered with a reputable CPA firm, they will apply this knowledge in ways that provide ongoing value for your organization.
Maintain Tax Compliance and Minimize Tax Liabilities with Tax Projections
Tax projections help Houston business owners stay on target with their tax compliance and withholding processes – protecting taxpayers from expensive underpayment penalties. That alone is worth it, but tax projections can do more than provide a snapshot for companies—they can also be used to guide tax planning strategies, helping taxpayers make optimal tax-related decisions well into the future.
