I've been a CPA for nearly 20 years - serving private small business and real estate the entire time. I take the lessons learned in serving and now running a small business and share them here. For business owners, investors, and advisors looking to lower their cost of capital, subscribe for delivery straight to your inbox π Also on YouTube at PlugAccountingandTax!
$15k in Fees to $400k in Tax Savings in 1 Year
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We just finished a group of returns for a new client we onboarded last year and all-in got about $400k of tax back in his pocket with a few changes we identified. It's a big win π for him and us - so wanted to share what we did. The Meeting and ReviewAll of our new clients get their prior returns reviewed as a part of onboarding - and even prior to that to confirm scope. But after a chat with this client, we determined he was a good fit for a deeper dive - a tax gameplan we do where we look at not only what's been done but what can be done in the future. Side bar - CPAs and tax pros have an urgency to be positioning themselves as strategy-based rather than compliance-based. Compliance will continue to get automated and commoditized, but the bad advice will only increase and that will drive up the value of experience-based practical strategy π§ . In this exercise of looking at his prior returns, current year activity, and future plans we identified a few ways to help save significantly on taxes: S-Corp Acquisition Interest ExpenseHe had recently bought-out another shareholder for 7 figures. Since he bought shares of a S-Corp, he wasn't eligible for step-up in basis (dang). But there was a small classification change we made to help that sting less. Many tax pros will default to having that interest expense as "investment interest" expense - able to offset investment interest income. But absent significant interest income this will get limited out and not be very beneficial. Using interest tracing rules, an acquirer of S-Corp stock that he is active in is actually able to deduct the interest expense from acquisition debt against the income from that S-Corp. π Making this switch saved him multiple six figures in prior years, current year, and future years taxes. Qualified Business Income DeductionThere was a unique way he had structured the business driving a loss on the amount of QBI deduction (20% of K1 income). One entity had all the payroll (W2) with some profit, and the other entity had little to no payroll but significant profit. When that income flows to his personal return, the forms work to see if there is enough W2 to take the QBI deduction. In his case, it got limited on the high profit business because there wasn't enough W2. π’ But his ownership in these two entities was now eligible for aggregation - meaning we could now use the W2 in the low profit company to take more QBI in the higher income company. This resulted in like $300k of more eligible QBI - or $100k+ of tax savings every year. Cost Seg and Another AggregationHe had a third entity that owned the business warehouse. He'd bought it 7 years ago and had just been taking straight-line depreciation on it. We connected him with our sister company RE Cost Seg for a free quote - yielding like $800k of additional bonus eligible depreciation. When we brought this up, he said his last few CPAs had told him since the rental property didn't make much money, it wouldn't really help him since it would stay passive. But that's not the case - there are a few exceptions in the tax code that deal with passive losses from rentals. And one of them is when ownership between two entities is identical. We made the aggregation election under this exception and were able to take that bonus depreciation against his significant income. This was like $200k+ of tax savings for knowing the exceptions. The TakeawayWe actually had several conversations about his concerns that there was so much tax savings in year 1. He was paying so much less in tax that it made him nervous. π But after showing our work and backing up our strategies, he got on board and saw it was just a good return on investment. They don't all work out like this - but many do. I've mentioned it before but we recently made (most of) these types of strategies open access on our website where you can peruse your tax profile, current year profile, and check out some of the high impact strategies that other people in your position use. This was a win and cheers to many more. π«‘ Group Chat Worthy Posts π₯π²
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I've been a CPA for nearly 20 years - serving private small business and real estate the entire time. I take the lessons learned in serving and now running a small business and share them here. For business owners, investors, and advisors looking to lower their cost of capital, subscribe for delivery straight to your inbox π Also on YouTube at PlugAccountingandTax!
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