My six-year-old grandson loves to tell us jokes when we Skype with him. A recent question was, “Why do chickens sit on their eggs?” I’ll let you ponder that for a moment, but this type of question from him reminds me that we can easily overlook the most basic questions because they become so routine that we never stop to really think about them.
As we wrapped up another tax season, I had to think: Did we stop to think about the most basic elections on our tax returns? Did we even consider what the result would be if we used the married filing separate tax status instead of married filing jointly? For our corporate entities, did we consider whether we should elect to be taxed as a flow-through S corporation or whether it would be better to be a C corporation? Should we continue to have our LLCs taxed as partnerships, or should we elect to be treated as corporations? Should we elect cash basis for tax, or would we be better off using the accrual method?
It seems that an annual meeting with Wipfli professionals should include a session on tax strategies. Even the most basic elections should be on the table to discuss. A checklist of elections in place and possible changes or new elections and strategies should be considered and documented. Documentation is key, in that it gives you the ability to look backward to see how your decisions have impacted you. It also lets you look forward to see where your tax decisions are expected to take you. Optimizing your tax strategy is an ongoing process. New laws and regulations are constantly impacting our decisions. Yesterday’s strategy might not be the best solution going forward. Review it often. Start with the basics. We invite you to take the first step by contacting WipfliFiPractice@wipfli.com or your Wipfli relationship executive.
Oh, and the answer to the chicken question: Because they don’t have any chairs. (Grandparents treat that as the funniest thing they’ve ever heard.)