11 Things to Know About Taxes: Advice to My Younger Self
Lawyer Magazine
11 Things to Know About Taxes: Advice to My Younger Self
Navigating the complexities of taxes can be daunting, but arming oneself with expert advice can turn it into a strategic advantage. This article distills valuable lessons from seasoned tax professionals, offering actionable insights for anyone looking to optimize their financial future. Discover the importance of early financial literacy and proactive tax planning through the lens of industry experts.
- Back Up All Tax Claims
- Stay Organized and Proactive
- Learn the Tax Code Early
- Taxes Are a Financial Tool
- Seek Early Tax Professional Advice
- Understand Long-Term Tax Impact
- Set Aside Taxes From Sales
- Integrate Taxes Into Marketing Strategy
- Set Up a Retirement Plan Early
- Build Financial Literacy Early
- Consult a Tax Professional First
Back Up All Tax Claims
As a practicing and licensed CPA with experience in completing thousands of tax returns and handling numerous IRS enquiries.
I would advise the following to my younger self.
When completing tax returns, ensure you can back up all claimed amounts with original documents online or by hard copy. The IRS fines heavily for incorrect bookkeeping. Having an audit trail of transactions and records can be a lifesaver in case of an investigation. For businesses & personal tax returns - Xero accounting software uses tools like AutoEntry by Sage and Dext to allow for automated invoice capture. These apps let you take photos of invoices using a phone, making it easy to keep digital copies of your records. So they are not lost for future reference.
Always hire a professional EA or CPA to file your returns and information correctly. While the IRS offers an online self-filing e-file system, it's easy to make mistakes. You might claim ineligible items or fill in the wrong box, leading to errors. Hiring an expert ensures accuracy and can also help you discover deductible expenses you may have missed. This often leads to tax savings that outweigh hiring a professional. It's a win-win situation. You could look at the following places to find regulated and licensed practitioners.
https://taxexperts.naea.org/expertdirectory
https://irs.treasury.gov/rpo/rpo.jsf
https://www.xero.com/us/advisors/find-advisors/?
Remember, cheap is not always the best. Many online portals and unqualified or unregulated tax professionals offer services at low rates. However, they usually provide minimal support, are hard to reach, and won't guarantee or indemnify their work. Always research tax professionals carefully. A good practitioner will have strong Google reviews, an active social media presence, a history on Linkedin, and be regulated as a licensed CPA or EA (Enrolled Agent).
Poor quality or incorrect tax filings can result in legal issues with the IRS. A legal warrant for fraudulent filings is a big problem you want to avoid. Be careful.
Research who you use. Ensure you log everything and don't find a super cheap practitioner who may disappear with all your money and not be around if the IRS comes knocking on your door.
Stay Organized and Proactive
If I could go back in time, I'd tell my younger self to prioritize staying organized and proactive with taxes from day one. When I first started 159 Self Storage, I didn't fully grasp the importance of meticulous record-keeping and consulting with a tax professional early on. As a result, I faced a steep learning curve when it came to understanding property tax assessments, depreciation schedules for equipment, and the complexities of small business tax deductions.
Knowing what I know now, I would have set up a more robust system for tracking expenses and income right from the start. I'd also emphasize the value of working with a knowledgeable CPA who understands the unique challenges of the storage industry. Their guidance would have helped me optimize deductions, plan for quarterly taxes more effectively, and avoid surprises during tax season.
One thing I'd do differently is allocate more time and resources to understanding tax implications tied to facility expansions and equipment purchases. Taking a proactive approach to tax planning would have saved me both time and money while reducing stress. This lesson has been invaluable, and I now make it a point to stay ahead of tax requirements and ensure the business is as financially efficient as possible.
Learn the Tax Code Early
If I could go back in time, I'd tell my younger self: "Learn the tax code as well as you learn the tech stack at your job."
When I first started earning high W2 income in tech, I focused only on making more money, not realizing how much I was losing to taxes unnecessarily. What I'd do differently:
1. Maximize tax-advantaged accounts early: I used to think 401(k)s and HSAs were "boring," but those accounts are goldmines for compounding wealth tax-free. I should have maxed them out consistently from day one.
2. Invest in tax-advantaged assets: I'd have started looking into things like oil and gas investments or real estate way earlier. These provide incredible deductions that can directly offset W2 income. For example, intangible drilling costs in oil and gas investments can save you tens of thousands in taxes in the same year.
3. Create additional income streams: I'd explore LLCs or other structures that let you take advantage of business deductions, even for side gigs or consulting.
4. Work with a tax pro from the start: I thought TurboTax was enough, but a good tax advisor pays for themselves by finding deductions and strategies you didn't even know existed.
5. Stop overpaying Uncle Sam: I used to think a big refund meant I was doing great, but it just meant I was giving the government an interest-free loan. Adjusting withholdings earlier would have kept more cash in my hands throughout the year.
Knowing what I know now, I'd approach taxes as a strategic game to keep as much of my income as legally possible. That mindset shift alone would have saved me six figures over the years. If you're starting out or just realizing this now, it's not too late to make a plan and take control!
Taxes Are a Financial Tool
As a tax professional myself and owner of my own CPA firm, if I could go back and give my younger self one piece of advice about taxes, it would be this: Taxes aren't just a yearly chore-they're a tool. And if you understand how the tax code works, especially for the self-employed, it can fundamentally shift the way you approach money, business, and even life.
Like many young people, I used to think of taxes as this 'one and done' yearly grind-just file and move on. What I didn't realize back then is that the tax code is optimized for entrepreneurship; it's written for people who take risks, start businesses, and create value. I didn't fully grasp how taxes intersect with everything else-cash flow, savings, wealth-building.
If I'd understood that sooner, I might have started a business at a younger age. I might have seen the tax advantages as a way to feel less intimidated by the risks of entrepreneurship and more empowered to take that leap. So, I'd tell my younger self-and any young person, really-not to just think about taxes as a deadline, but to dig deeper. Understand the incentives, the credits, the deductions. Learn how taxes can connect to every part of your financial picture. Because once you do, the game changes.
Seek Early Tax Professional Advice
If I could go back in time, I would tell my younger self to seek out a tax professional early and prioritize understanding the tax implications of every business decision. When I first started On Track Storage, I underestimated the complexity of tax planning for a growing business. For instance, I didn't fully leverage deductions for facility improvements or understand how state tax laws varied across Missouri, Kentucky, and Illinois.
Knowing what I do now, I would have implemented a more robust system for tracking expenses and consulted a professional to plan for long-term growth. This would have allowed me to reinvest more strategically, avoid costly mistakes, and take full advantage of available credits and deductions. Taxes can feel overwhelming, but a proactive approach can save money and reduce stress as your business scales.
Understand Long-Term Tax Impact
If I could go back in time, one piece of advice I would give my younger self is to understand the long-term impact of tax planning early on. Specifically, I'd tell myself to focus on tax-efficient investing and the importance of setting up a solid structure for deductions from the start.
When I first started in business, I was more focused on short-term gains, without fully considering how tax decisions could affect my bottom line in the long run. For example, contributing more to retirement accounts and utilizing available tax credits earlier could've significantly reduced my tax burden. The lack of foresight cost me a lot in penalties and missed opportunities. On average, I'd estimate I paid 10-15% more in taxes over the first few years of business than I would have if I'd known better.
Now, I work closely with a tax advisor to review all financial decisions before I make them. That proactive approach saves me a lot of headaches and, more importantly, keeps me from overpaying. If you're just starting out, taking the time to understand tax law and structure your finances accordingly can lead to significant savings down the road, something I wish I had done sooner.
Set Aside Taxes From Sales
Always set aside a percentage of every sale for taxes right from the start—don't wait until tax season to figure it out. If I could go back, I'd invest in good accounting software and hire a professional earlier to avoid the stress of scrambling through receipts. It's worth every penny to stay organized and avoid surprises.
Integrate Taxes Into Marketing Strategy
If I could go back in time, I'd tell my younger self to see taxes as an opportunity to enhance our marketing and growth strategy. Early on, I didn't fully appreciate how tax savings could be reinvested into initiatives that directly impact customer acquisition and brand building.
One thing I'd do differently is advocate for better collaboration between the marketing and finance teams to ensure we're maximizing tax benefits tied to community engagement and partnerships. For example, offering incentives to small businesses or nonprofits that rent storage could have created goodwill and tax advantages while strengthening our local presence.
I'd also encourage reinvesting tax savings into high-impact marketing campaigns, like targeted digital ads or improved customer experience platforms. Every dollar saved on taxes is a dollar that can help drive growth. Recognizing the synergy between smart tax planning and marketing strategies earlier could have helped us scale faster and build a stronger brand reputation.
Set Up a Retirement Plan Early
Understanding tax implications, especially in a law practice, is crucial. One major insight is how valuable it is to set up a retirement plan early on, like a SEP IRA or Solo 401(k), particularly for self-employed professionals. These aren't just about saving for the future; they can significantly lower taxable income each year. The contributions you make to these accounts can be deducted from your taxable income, which means you're putting money away for retirement while keeping more of your earnings now.
Keeping impeccable records and receipts is another underrated practice that can make filing taxes less cumbersome and more accurate. It's not just about being organized; it's about being able to accurately track deductible expenses, like office supplies, travel for work, or even some of your home office costs, to reduce the overall tax bill legally. Knowing this from the start could have eased the stress and ensured more efficient financial planning.
Build Financial Literacy Early
Build financial literacy early, especially understanding how tax brackets truly function. I misunderstood how marginal tax rates worked, leading to unnecessary over-corrections. A clearer understanding of income thresholds would have shaped smarter financial choices. Leverage every legal deduction available while maintaining absolute compliance with tax laws. Proper education saves more than money-it saves peace of mind.
I would actively educate myself about tax incentives and benefits for small businesses. Missing out on programs designed to support entrepreneurs cost me early wins. Taking advantage of credits and write-offs is vital for growth and stability. Proper research and professional guidance turn tax obligations into strategic opportunities. A well-informed approach would've amplified my business's success sooner.
Consult a Tax Professional First
Always consult a tax professional before making major financial decisions. Early ignorance about tax implications can lead to costly mistakes down the road. Investing in expert advice upfront saves time, stress, and unexpected penalties later. Taxes are more manageable when approached proactively instead of reactively each year. The value of planning cannot be overstated, especially in a growing business.
I would establish a quarterly tax planning routine to avoid year-end stress. Breaking financial reviews into smaller intervals ensures no detail slips through unnoticed. Regular assessments would have allowed better alignment with tax-saving strategies early on. This approach also smooths cash flow, making operations more predictable and sustainable. Planning quarterly creates clarity and keeps surprises to a minimum.
