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!
Getting Tax Smart in a 3 Step Process
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Over the last week I, along with 10 million others π, saw Dan Koe's X article on how to change habits realistically. If you didn't see it, it's worth the read ‡οΈ
This resonated because one theme that constantly comes up in new client calls is a dissonance of tax efficiency. Business owners are unsure if they are being the most efficient they can be and want help from someone who has walked that path. π€·ββοΈ But being tax confident is not something you can buy. It means ownership and comprehension of the most impactful parts of your tax plan. If one of your goals in 2026 π is to become better at understanding taxes and how to avoid them, here's a helpful path to follow: Identify the Biggest VariableWe want to eliminate surprises in tax. π No one likes them. And to business owners, the primary variable that drives surprises is how much taxable income the business will make. βοΈ If we can get this number right, the only other variable that really matters is tax law - which changes much slower. So it may sound counterintuitive, but if you want good tax planning we need to start where the variables that impact taxes begin - the financials. If you don't use a budget or have a projection into the next year, it makes it challenging to accurately predict cash flow impacts of taxes for the next 12-18 months. π΅βπ« Revisit Tax StructureNext up is tax structure, and we look at two drivers π€ to get it right:
Income streams are important to get in the right entities. For example, income that is eligible for a qualified business income (QBI) deduction ποΈ may need to be directed through a S-Corp to maximize that deduction. Similarly, a S-Corp can help mitigate self-employment tax πββοΈ on profit distributions over a reasonable salary. Each of these items can save hundreds of thousands of dollars π΅ in tax over the life of a business owner. Balance sheets - a topic near and dear to my heart, but neglected by many tax pros - are equally important. Understanding how the entity will be capitalized π¨βπ©βπ¦βπ¦, what assets will be retained inside the business π₯οΈ, and how much and what type of debt will be used π§ all drives which entity type to use. For example, if you're raising capital to buy real estate π«, a S-Corp is very likely not the right choice. Because S-Corps are limited on the type of shareholders, and variation in how they can receive return on capital (no profits interest), partnerships are the most common choice here. On the other hand, if the business is a cash cow π and there's no tangible appreciating property, a S-Corp may be just the right vehicle. Know Your Tax AvatarThis takes time to develop and where the experience of the tax pro really matters. βοΈ What do we mean by Tax Avatar? What we're trying to get down to is "what are the tax strategies someone in my situation normally uses." Business owners want to be put in a bucket πͺ£ with other taxpayers and be told what everyone else is doing. πββοΈ We've addressed that by creating Taxpayer-based Avatars and Event-based Avatars that we can reference π when planning out tax strategy options for current or potential new clients. Our taxpayer-based avatars π€΅ββοΈ are:
For each of these, we've tagged anywhere from 5 to 20 tax strategies to reference when creating tax plans. Our event-based avatars π§βπΌ are:
Same thing as the taxpayer-based avatars, each of these has 5-10 strategies tagged to it for quick reference. The problem is there is no standard here. π So you are at mercy of your tax pro to βοΈ identify opportunities, and βοΈ execute on them. It's not an easy lift, from experience. The best question to ask here is "what do other people in my situation do." When we get asked that, we can reference our working list of common strategies for that taxpayer or events as ideas. The TakeawayStart at the top. πΌ If you want to pay less tax, get better financials and create a budget. Then tighten up on structure and tax strategies that other taxpayers similar to you use. As always, reply to this email for feedback or if you want to talk more about working together for tax strategy and compliance. Don't forget to read Dan's article linked up top, it's great advice for how to meaningfully change behavior. Hoping all the best for everyone in 2026 and beyond. And also, go Texans! π π«‘ Meme Cleanser π§Ό
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The Plug [Newsletter]
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!
This is it. We've reached K1 season again π - where returns are rushed out before March 31 only to sit with the LP's CPAs until October 14th at which time all the questions come. But how can you, as either a LP, GP, or an advisor, look at the K1 in March and tell if something is off? π€·βοΈ I'm glad you asked. Today, we're jamming on 5 things β to check when you first get the K1: Debt classification and allocation Distribution and contribution amounts Capital account ending balance QBI allocated...
One of the most confusing parts of the recent tax bill that passed in July was the different effective dates. π Some parts were effective retroactively, some immediately, and others not until 2026. With a new tax filing season barreling down upon us, I wanted to share a reminder of the items that impact 2025 π - with a focus on small business and individuals. Note this is not a comprehensive list, so as always chat with your tax pro for specific impacts to you! Individual Provisions No Tax on...
In the world of small business and private real estate, accounting is a necessity π€ - but good accounting is a luxury. π One of the differences in a seasoned business owner π΄ and novice π©πΌ is how seriously they take the need for smart people on the accounting team. Because accounting salaries are usually far less than the sales team is making, it's an opportunity for leverage πͺ - and is much more than a "sunk cost" or "cost of doing business." Here are a few ways I've seen firsthand how...