I recently had a meeting with one of our clients. The client company is doing very well and, naturally, they wanted to talk about how to minimize their tax as their year-end is getting nearer. We knew that tax saving would be a major subject in the meeting but partly because I was occupied with other things, I did not spend enough time for my home work.
As expected, the president of the company asked me, as CPA, to to provide some advice on reducing their tax. I could not give realistic or feasible ones but mentioned only those general things like buying properties, insurance policies or buying things that can be expensed immediately. Frankly, I have to admit I failed spectacularly to convince the president what I had to propose.
The CEO knew much more about in and out of the company, of course. One of their director was retiring. They were waiting to pay his retirement money until the refund of one of their insurance policy would come from the insurance company. I knew that, too! The president asked if the company could pay the retirement money before the refund comes. Of course, the answer is YES!.
Then he asked if they could write off some of their bad debt that have been on their book for some time. Again, the answer was yes.
With his suggestions, the taxable income became almost as half at it was originally presented. And those items are all basic. Paying expenses that have to be paid anyway, writing off accounts receivable that are now broke or bankrupt, or writing off inventories or things are not in use any more. They are really basic things. I should not have missed them.
I think I realized again the importance of know-your-clients rule. If you want to save income tax of you clients, you need to know your client very well, including things that are happening very recently too. And you need to stare the balance sheet. There must be a hint.