Maximizing Tax Benefits Through Quarterly Planning for MSPs
Tax planning is a year-round strategy, not just something to consider when tax season rolls around. In our recent Stride Services webinar, Morgan Holmes, CPA, discussed the critical importance of quarterly tax planning for MSPs (Managed Service Providers) and how it can lead to substantial savings and enhanced cash flow management.
Here are the key takeaways from the session:
1. Why Move to Quarterly Tax Planning?
Many MSPs are accustomed to annual tax planning, thinking that reviewing their tax strategies once a year is sufficient. However, as Morgan explained, a quarterly tax planning approach allows businesses to stay agile, responsive to changes in their operations, and proactive in minimizing tax liabilities.
Key Benefits of Quarterly Tax Planning:
- Maximizing Tax Deductions: By reviewing your financials every quarter, MSPs can capture deductions as they occur, ensuring nothing is missed at the year’s end.
- Avoiding Large, Unexpected Tax Bills: Quarterly planning helps you stay on top of your tax obligations, reducing the likelihood of facing an overwhelming tax bill during filing season.
- Seizing Tax Opportunities: Changes in tax laws, capital investments, or staffing adjustments can open doors for tax-saving opportunities that annual planning may miss.
Example: If your MSP purchases new software in Q1 but waits until year-end to review the financials, you might miss out on depreciation adjustments. A quarterly review, on the other hand, ensures you catch these deductions right away.
2. The Hidden Costs of Annual Tax Planning
Morgan highlighted a critical downside to relying on annual tax planning: missed opportunities. The financial landscape of an MSP can change drastically from month to month, and annual planning can leave thousands of dollars in potential tax savings on the table.
Key Insight:
- Annual tax planning is inherently reactive. Quarterly tax planning, on the other hand, allows for ongoing course corrections that keep your business positioned to take full advantage of tax-saving strategies.
For example, if you hire additional staff or invest in new infrastructure mid-year, waiting until the end of the year to address these changes can mean missed deductions or opportunities for tax credits.
3. Proactive Adjustments Lead to Better Results
Morgan emphasized that tax planning is not just about saving on taxes but also about cash flow management. By looking at your tax position quarterly, you can make informed decisions that ensure your MSP is in the best financial position possible.
How This Works:
- Adjusting Entity Structure: Changing your entity status mid-year can have significant tax implications. A quarterly review would allow you to assess whether converting to an S-Corp, for instance, would benefit your bottom line.
- Retirement Contributions: By aligning your retirement strategy with quarterly reviews, you can make tax-deductible contributions at strategic points throughout the year, reducing taxable income.
Quick Tip: MSPs should schedule tax consultations after major financial decisions, such as purchasing new equipment, expanding services, or even restructuring contracts with clients. This ensures that tax-saving opportunities are identified and implemented promptly.
4. Preparing for the End of the Year—Without the Panic
One of the major advantages of quarterly tax planning is that it alleviates the year-end scramble to reconcile accounts, adjust for deductions, and ensure compliance with tax regulations. Morgan underscored that many MSPs who adopt a quarterly approach report a more relaxed, manageable year-end experience.
Key Insight:
- When you review your tax strategy every quarter, there are no surprises come tax season. You’ve already adjusted for any major financial shifts, maximized deductions throughout the year, and made necessary tax payments, all without rushing to beat deadlines.
5. Commonly Overlooked Opportunities in Quarterly Planning
MSPs often overlook certain tax-saving opportunities simply because they aren’t reviewing their financials regularly enough. Morgan shared some of the most commonly missed deductions and credits that can significantly improve an MSP’s cash flow when caught early through quarterly planning:
- Depreciation and Section 179: With quarterly planning, you can track asset purchases and apply accelerated depreciation immediately, rather than waiting until year-end.
- R&D Tax Credits: MSPs involved in technology development or process improvements may qualify for research and development tax credits. Identifying qualifying activities quarterly ensures you’re claiming these credits on time.
- Employee Retention Credit (ERC): During the pandemic, many businesses were eligible for this credit, but quarterly tax planning allowed them to claim the credit as they went rather than waiting for a significant return at year’s end.
6. MSP Growth and Quarterly Adjustments
Morgan pointed out that many MSPs experience rapid growth, whether through client acquisitions, expansion into new markets, or investment in new technology. These changes can significantly impact tax liabilities, making quarterly reviews even more critical.
Example: An MSP that purchases a competitor might acquire significant fixed assets, which can be eligible for bonus depreciation or Section 179 deductions. By reviewing these purchases on a quarterly basis, the MSP can apply the proper tax treatment right away, boosting cash flow and ensuring they’re on track for maximum tax savings.
Final Thoughts
Quarterly tax planning is the key to staying ahead of financial challenges and optimizing your tax strategy. By reviewing your financials every quarter, MSPs can avoid year-end surprises, maximize deductions, and keep cash flow healthy.
If your MSP is still relying on annual tax planning, it’s time to make the switch.
For further details or to revisit the discussions from our webinar, watch the full video by clicking the button below or contact our experts directly at Stride Services for personalized advice.
Maximizing Tax Benefits Through Quarterly Planning for MSPs
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This Stride Live Webinar is hosted by Stride Services. Stride is a comprehensive financial solutions provider, specializing in outsourced bookkeeping, accounting, tax, and advisory services for Managed Service Providers.
If you’re interested in being a featured guest on our Live Webinars or if there’s a subject matter expert you’d like us to interview, please CLICK HERE and let us know!
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Show Notes + Transcript:
Casey Seaborn: Email: casey.seaborn@stride.services
LinkedIn: https://www.linkedin.com/in/casey-seaborn-stride/
Morgan Holmes: Email: morgan.holmes@stride.services
LinkedIn: https://www.linkedin.com/in/morganfholmes/
Webinar Transcript:
