How many times have we been told that communication is the key to a good marriage or a good friendship? In the business world, we are told that communication is the key to success. I am a big believer in the power of open communication. It’s one of the main reasons that Guardian Accounting Group has a flat fee structure. We never want our clients to be afraid of talking to us about a tax situation because of an hourly fee. Clients are encouraged to call us with all their tax questions and concerns so that small problems do not become big ones.

Here is a quick test to see if you have good communication with your accountant.

Do they know what your overall profit and loss is for the year? If not, ask yourself why you haven’t shared that information. If you don’t talk to them about your profit/loss, how are they going to be able to help you when tax time rolls around? This discussion becomes much more important if you are successful in your trading and making a profit. If I don’t know about a client’s gains until I see the 1099 in February, my hands are tied. There is absolutely nothing that can be done retroactively to reduce their taxes at that point. There isn’t a worse feeling in the world to an accountant when they could have helped a client save money…if they had only known.

I would like to share a story to illustrate how good communication with your accountant can save you thousands of dollars in taxes.  Robert (not his real name), who came to us a year ago with over $700,000 in trading gains, was looking for ways to reduce his taxes. After a few more discussions, we implemented several strategies to help him keep more of his trading gains. Here are just a few:

SOLO 401(K) PLAN

We put him and his wife on payroll, creating earned income from his trading. The earned income enabled us to establish and contribute the maximum amount ($23,000 each) to a solo 401(k) plan. The net result was approximately $11,000 in tax savings!

HIRING HIS KIDS

Robert had three kids living at home. Our recommendation to hire them to perform various tasks (with proper documentation) in his trading business at $6,000 each resulted in tax savings of over $6,000!

ESTIMATED TAX PAYMENTS

Because Robert is a profitable trader, we educated him on making estimated tax payments to the IRS . The IRS charges a penalty to taxpayers who underpay their taxes. Robert started making quarterly tax payments to the IRS, resulting in around $4,000 in tax penalty savings!

Robert implemented several more strategies that ended up bringing his total tax savings to around $27,000. It gets even better. As long as Robert keeps these strategies in place, he’ll keep saving on his taxes every year. In four years, he’ll have saved over $100,000 in taxes. All because he took the time to call an accountant who deals with traders and have a conversation with them about his profit and loss statement.  

Here is my best advice for you as we enter the fourth quarter. If you haven’t done so already, get your profit and loss statement out and discuss it with your accountant. See if there are strategies that you can still take advantage of before December 31. Are you paying tax penalties every year? Find out if you should be making estimated tax payments to the IRS. Dig deep to find any hidden deductions you may be missing.

Remember we all have to pay taxes, but you don’t have to leave a gratuity!

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