Tax Reduction Podcast

Episode 12. 5 Top Year End Tax Strategies

• Boris Musheyev, CPA • Episode 12

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As the year rapidly approaches its close, it's time for business owners to gear up their tax planning.

This episode is crafted with insights directly from your peers - uncovering the rest of the top 5 tax strategies that every business owner should know as they wrap up the fiscal year.

What's Inside:
➡️Strategies for Buying a Business: Delve into the tax implications and advantages of acquiring a business. This strategy is particularly beneficial for entrepreneurs considering expansion or new ventures.
➡️Navigating Pass-Through Entity Taxation: A deep dive into the world of pass-through entity taxation. Discover how it affects your business and how to use it to your advantage, especially for S-corp and similar entity structures.
➡️Owner Health Insurance Tax Strategy: Uncover how to effectively leverage health insurance for significant tax savings. This strategy is a game-changer for business owners looking to optimize their expenses.
➡️S-Corp Owner Tax Strategy: Tailored advice for S-corp owners. Learn specific strategies to maximize your tax benefits and reduce liabilities as the year ends.


🚀 Take Your Tax Planning to the Next Level!
Whether you're a seasoned entrepreneur or newly venturing into the business world, these top 5 strategies are essential for your year-end tax planning. Get ahead of the game and ensure you're making the most of your financial decisions.

I've put together this FREE resource for you:

7 Write-Offs Every S-Corporation Business Owner MUST Know
🆓 Download FREE PDF here: https://7taxwriteoffs.com/

Ready to start saving money on your taxes?
☎️ Schedule your FREE Tax Advisory Session: https://taxplanningcall.com/

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P.S. When you sign up for Gusto, you get a $100 Visa gift card

*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, ...

Speaker 1:

What are the top five tax strategies that you, as a business owner, can use before the year is over? I will dive into the top five tax strategies that I think will be beneficial to you and, based on all the questions I get from a lot of business owners today, it's going to be delivered to you by a tax advisor. Ready, let's go.

Speaker 2:

Welcome to the Tax Reduction Podcast for Money-Making Entrepreneurs with Boris Mousheev. Boris has helped entrepreneurs across the United States collectively save millions of dollars in taxes with the power of tax planning and advisory. The only way you, the business owner, can save money on taxes is by using proactive tax strategies, and this podcast is all about saving you money on taxes. Boris will share with you in-depth and easy to understand tax reduction strategies that you can implement in your business within 30 days or less. Let's jump into today's episode.

Speaker 1:

Cool, let's get started. So over here we've got top five tax strategies, especially what I consult a lot and advise clients before year end. We're going to talk about S-Selection and why it's important. You might already have an S-Corporation or you don't have an S-Corporation, whatever that may be, but we're going to dive into having a salary, health insurance, retirement and pass-through entity taxation as part of the S-Corporation strategy. We're also going to talk about Section 179. There's been some limitations this year on bonus depreciation 80%. Does that mean that you now cannot take 100% deduction on some of the equipment and machinery that you purchase for the business? No, we're going to dive deep into that. We're going to talk about loss harvesting, something that has to do with your stocks if you own stocks buying in other business yes, I've included this tax strategy. I recently was speaking to a new client of ours and we're actually strategizing. He's got a lot of cash coming into the business. He wants to buy in other businesses. Is that tax deductible? We're definitely going to talk about that. And we're going to talk about pre-paying expenses.

Speaker 1:

Let's start with an S corporation election. Okay, awesome, let's talk about S election. First of all, there are business owners that I speak to till now, until like December, until the end of the year, and they're like yeah, I think I'm an S corporation and I am an S corporation and we actually do confirm in some cases that they are they have no reasonable compensation. Let me explain why. This is a tax strategy for you when you don't have a salary from the business, from an S corporation. Specifically, there's a line seven under 1120 S of your S corporation tax return that asks for reasonable compensation. If that box, if that line, is zero, irs will most likely pick it up for an audit. And when they will pick it up for an audit, they will look at how much distributions you took out and they will add everything back as a salary, which will cost and result in you overpaying and self-employment taxes.

Speaker 1:

Now what you wanna do before the year is over figure out are you paying yourself a salary from your S corporation. First of all, if you're not sure whether you are an S corporation or not, confirm that with your tax advisor. Hopefully you have a tax advisor. The second of all, the second thing you wanna do is, first of all, make sure you have a salary before your end. Write a paper check salary. Right. When I say paper check. There's no money that physically has to exchange from business to personal, because you already took out distributions, most likely throughout the year. Keep IRS off your back. Make sure you have a reasonable compensation to pay your salary.

Speaker 1:

Now, when you have a reasonable compensation, that opens up an opportunity for additional tax strategies as an S corporation owner. First of all, you can funnel your health insurance through your W2. So when you own more than 2% of your S corporation, irs allows you what I like to call to double dip into your health insurance deduction. Not only will you get a deduction for paying your health insurance premiums, regardless of whether you have an employees or not or whether you offer health insurance to them or not. If you paying for your own health insurance, you can get a deduction on a health insurance when you put it into your W2. On top of that, it will be deducted from your salary so you don't pay payroll taxes on it. That's why I say it's a double dip tax deduction Super, super important.

Speaker 1:

The next thing is retirement. When you have a reasonable compensation in your S corporation, you can activate retirement benefits for yourself as a business owner, because if you have an S corporation and you don't have a salary because you didn't know you've been operating without it at. I can met quite a few business owners. Then you can put money away into retirement to get a tax deduction, can put money away into the SAP IRA, you can put money away into a solo 401k, because the percentage of the contributions and the way the contributions work all depends on your reasonable compensation. Ladies and gentlemen, if you're working with a tax preparer, you are not working with a tax advisor, and they guarantee you right now you're overpaying in taxes by a lot. Let me ask you how much do you think you overpaid last year? And I know you know the answer to that question and I multiply it by the last five years Definitely. So what you want to do in this case, especially before year end, don't just rely on your tax preparer. Give them a call. Hope for them to call you back. Hope is not a tax strategy. Call a tax advisor. Speak to a tax advisor about strategies like this.

Speaker 1:

Now we also have a pass through entity taxation. Pass through entity taxation. Okay, excuse me, pass through entity taxation. That's correct. Ooh, I got lost there for a second. Now this is a voluntary tax. It was enacted by the states. After tax cuts and jobs act was passed, most states enacted it. It was already in place before that with a couple of states. Now what happened is that when tax cuts and jobs act was passed, how much you can deduct on your personal taxes for state and local taxes is only $10,000, okay, that is how much you can deduct.

Speaker 1:

Pass through entity taxation is a voluntary tax that your state is giving you a gift, right? It says, hey, why don't you pay this tax that you never paid before in your business profits? We're gonna give you a credit on your personal taxes and now you get an extra business tax deduction. This is the most underlook strategy. Now, in most states, you have to have an S corporation, okay, to do this, not a single member LLC, whatever that may be.

Speaker 1:

I'm not speaking for all the states, okay, every state has a different category of what applies for it and how to apply for this and when is the election. It's a pretty complicated thing, but it's actually pretty simple if you have a tax advisor For us, with our clients, we make sure that every client is on a PTE tax strategy. Election is made, voluntary taxes paid and some states you can still make an election before year end and as long as you pay the tax before December 31st, to give you this amazing tax deduction. Literally, it's a gift from the IRS. Okay, now let's talk about section 179 and the rest of the stuff right after this break.

Speaker 2:

If you have a tax preparer and you do not have a tax advisor, the only way you can save money on taxes is by using proactive tax planning strategies that only a tax advisor can give you. The tax preparer is put together a free PDF for you, the business owner Seven tax write-offs every S-Corporation business owner must know. In this PDF you can find seven tax strategies that you can start using in your business to instantly start saving money on taxes. Click on the link in the description below for a free download.

Speaker 1:

All right, welcome back. Now let's talk about section 179. Now here's the thing, right. Everybody knows that bonus depreciation in 2023 is now 80%, it's going to 60% and then it's going to 40%.

Speaker 1:

Oh my goodness right. And a lot of people are like, oh, let me buy a car, can only write off 80% of the car, that's more than 6,000 pounds, and all of these shorts and reels and all this misinformation that you see. Well, it's not really misinformation, but the way they talk about it, like, hey, any car can be written off and so forth, and it's only 80% bonus depreciation disaster no, let me just stop you, right? Let's think about this for a second. If you're buying machinery or equipment for your business, materials for your business, I don't know, office equipment, whatever that may be you can still use a section 179. Section 179 has been around for a while and you could still take 100% depreciation deduction on your equipment that you buy in the business. Not talking about the vehicles okay, we're not talking about the vehicles today. We're talking about equipment. Okay, as long as it's under a certain threshold I think for 2023, it's like a million and change as long as the equipment, all of that total is under a million dollars, you can take 100% deduction. You don't need to necessarily start using bonus depreciation and only be limited to 80%. Another thing about bonus depreciation what a lot of accountants don't seem to understand, because I've seen those mistakes on the returns is that when you take a bonus depreciation on certain equipment, some states do not allow bonus depreciation. I'll speak, for example, for the state of New York, since I'm from New York. When you take a bonus depreciation, whether it was last year of 100% or this year of 80%, state of New York says nope, we don't recognize that, we're going to add it back to your income and we'll take a regular depreciation, whatever. That may be five or seven years, okay. And if you just unclick the bonus depreciation box on your tax return and click section 179, it will be allowed on the state as well. Right? So really you have to strategize. Okay, obviously, you don't have to prepare your own return to check off the box. You've got to speak to a tax advisor. Okay, make sure you do this with a tax advisor.

Speaker 1:

Buying equipment before year-end is a huge tax strategy. I'm not saying buy equipment that you don't need. Like a lot of people, I get a call sometimes from clients and like, hey, can I just go ahead and buy a car and buy an equipment? I'm like, well, do you need it? Not really, I just want to get a tax deduction. Don't buy it. Okay, don't buy it, because next year, if you end up not using it and you want to sell it, you're going to have what's called a depreciation recapture pay the taxes back. What do you need? That headache? Okay, only buy equipment if you need it. Now I always ask my clients hey, is there going to be an equipment next year that you're going to buy and you're going to need it next year? They're like, yes, I'm like, all right, let's talk about and let's strategize. If you need to buy this year instead, maybe bonus depreciation of 80% might help you, or section 179 and 100%. How do we approach that? Will you be in a higher bracket next year or in a higher bracket lower year? So definitely speak to your tax advisor, but you can certainly take advantage of section 179 to take 100% deduction on equipment or any similar items.

Speaker 1:

Now the next top five okay, loss harvesting. Interest rates went up this year. Stock market has not been doing as great. A lot of people have lost the money on their stocks. Now we have this law that if you buy any stocks at a loss, what happens? Let's say you lost $100,000 on a stock market. You can only deduct $3,000 in the first year and then every year going forward, it just gets carried forward. Wow, now this law, I believe, was enacted, this limitation was enacted, if I'm not mistaken, sometimes in 1980s, I think. Okay, and it's never been adjusted for inflation. So if you lose a half a million dollars in a stock market and you don't have any other gains like to offset those losses, then the only deduction you can take is $3,000 this year, $3,000 next year and so forth.

Speaker 1:

Loss harvesting meaning like hey, how can I harvest my losses If you've got a portfolio of stocks that you have a gain and stocks that you have losses? And if you were thinking about selling these stocks that have losses, remember you will only be limited to $3,000 losses unless you also sell stocks that have a gain. Let's say you've got unrealized gain of $100,000, then you have an unrealized loss of $90,000. So if you sell your portfolio with the loss of $90,000 of your stocks, you only can take $3,000 deduction. But if you sell $100,000, make $100,000 gain on this stock gain and sell this one at $90,000 loss, you can take the entire $90,000 against that gain. That is called loss harvesting.

Speaker 1:

Now don't go out, start selling stocks and all of that stuff. Definitely speak to your tax advisor, because this is super, super important for you to save money on taxes as a business owner. You always wanna look for strategic ways to be able to save money on taxes. Okay, super, super important. Don't just work with a tax preparer that puts the right numbers in the right boxes. What you need is a tax advisor. All right, let's talk about buying another business and then prepaying expenses, and we're gonna talk about that right after this break.

Speaker 2:

If all your accountant does is taxes, you may be overpaying in taxes by thousands of dollars every year. Every week, Boris releases a tax strategy on his podcast so that you, the business owner, can pay less in taxes every single year. Be sure to subscribe to our podcast to be notified when a new tax strategy is released. If you're ready to work with a tax advisor on your tax strategy and planning, be sure to schedule your call by heading over to wwwtaxplanningcallcom. Again, that's wwwtaxplanningcallcom.

Speaker 1:

All right, welcome back. Let's talk about the last top five tax strategies. The last two of the top five, which is buying a business and prepaying expenses. Now you might be like Boris, what do you have? A tax strategy of buying a business. And you know, I've been talking to a new client of ours for tax advisory and he's like listen, boris, I don't know what the hell happened. I made tons of money this past year and I'm looking at a big profit. So, despite of all the strategies that we came up, he's like Boris, what if I buy another business? How is that gonna work? And I'm like oh, you know what? That's a great idea. Let's brainstorm. Now he took a proactive approach, right? He got a tax advisor and he spoke with a tax advisor instead of going into it blindly. So let's talk about how buying another business can actually save you money on taxes, or will it? So here's the thing.

Speaker 1:

There's two types of purchases. There is something that's called an asset purchase and a stock purchase. Stock purchase let's just get that out of the way. Stock purchase is just like you buying a stock in a stock market. Okay, you bought a stock. You're not gonna write off what you bought, okay, so you just buying a stock purchase, right, a stock in that business, that's it. You acquire the entire business. You bought a stock, that's it. Now there's something that is called an asset purchase, where you're buying a business with all of its assets and that is really, really important because it could be a huge tax strategy for you when you're buying a business Because, remember, if it has assets, those assets could qualify for what I said earlier, for either section 179 or bonus depreciation of 80 percent or 100 percent if we use section 179.

Speaker 1:

That depends. It really depends how the purchase agreement is structured. A lot of times I advise my clients hey, make sure to attorney some. Both sites talk it to each other. The purchase agreement should have a list of assets. Sometimes they say, yeah, equipment, this one thing, another, look at that very short. We have them break it down, because then we want to use that information to our advantage to write it off. Because if you're buying a business with assets, those assets could be a write off for you, even at 100 percent.

Speaker 1:

Let's say you bought a million dollar business, okay, got a million dollars. Let's say it has a good will of $300,000, $700,000 worth of assets. Well, can all those assets be written off? Yes, they may be. Okay, it also depends how much equity you have in the business and how much you put that into that business when you bought it, how much you financed to buy this business.

Speaker 1:

There's a lot of things obviously play into this equation, but you can do this with a tax advisor. That's exactly how we strategize with client he's seller financing it almost the entire purchase with a little bit down. And I said hey, with a little bit down, you might not be able to deduct all the equipment that you're going to buy there. How about we strategize in how we can put in more of your money into the business to create that basis to be able to take those deductions? Okay, this is a strategy. He was so blown away. He's like man, this is amazing, right? So he's looking to on top of all the tax strategies that we did in the tax plan, on top of all of that, he's not going to be like buying another business and obviously he's an educated person. So I'm not just saying go and buy any business that there's out there and so you can save money on taxes.

Speaker 2:

Never do that.

Speaker 1:

But this client happens to be an educated person about buying that business and you know he's done his due diligence. So I thought this was an amazing strategy to share with you guys. Last but not least of top five is prepaying your expenses. Now can you prepay your expenses before you're in? Great strategy, but you got to be cautious, okay. Now, when I say you have to be cautious, what does that mean exactly? Okay, first of all, remember when you're prepaying your expenses. When you're prepaying your expenses, you're basically saying I'm not going to pay them next year, so you may not have those deductions next year. You may take them all this year, and that's totally okay If you have a strategy behind it. In some cases where I advice clients on this tax strategy, I said, hey, let's use this strategy if you're going to be in a higher bracket this year than next year, because sometimes it happens that certain business owners in certain industries right, they get, you know, some big client this year, like big client made paid a lot of money or big project or big contract and they got paid really hefty for it. Like, yeah, I am not having that project next year, I'm not having that contract next year, so, on a lot higher bracket this year. We need to make sure. We need to see how we can lower the taxable income legally this year with prepaying some of the expenses. Now, can prepaying expenses also hurt you? Yes, prepay too much expenses. You're in the same bracket this year, next year. You're not going to have that expense next year unless next year you prepare again, okay.

Speaker 1:

Another thing that I've heard people say oh, I received checks from customers but I'm not going to deposit them. I'll wait until year end. That's what my friend did. Well, the IRS says if you the money is already in your possession, that is considered income. Okay, it may not be deposited, but it's considered income. So don't be one of those people, because you will also not only first will not be in compliance, but at the same time you're pushing this income to the next year.

Speaker 1:

Are you going to be in a higher bracket next year? Lower bracket? What's your strategy behind it? Okay? What's your strategy behind prepaying expenses? That's why prepaying expenses, whatever that may be, some type of this strategy speak to your tax advisor. Don't just go ahead and do it by yourself. Any tax strategy. Any time you want to save money on taxes, it's good that you get educated. It's totally normal. But when it comes to implementing tax strategies, especially because you are a profitable business owner, I always recommend work with a tax advisor, not just tax preparer, not somebody who puts the right numbers in the right boxes, and God forbid if your bookkeeper is your tax preparer. Okay, anyways, I hope this was really helpful to you guys and till the next time.

Speaker 2:

That's it for today's episode. Be sure to check out the description below for some free tax reduction resources that Boris put together for you. If you're ready to work with a tax advisor on your tax planning, be sure to schedule your call by heading over to wwwtaxplanningcallcom. That's wwwtaxplanningcallcom. And be sure to subscribe to our podcast to be notified when the next strategy is released.