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Tax Tips & Strategies
October 4, 2023 at 7:00 AM

1. The truth about Tax Refunds - A refund signifies a yearly interest-free loan to the IRS. Conversely, if a taxpayer owes the IRS, the IRS charges interest and penalties if not paid by the due date. (The IRS recently started paying interest if a refund is owed and not released to the taxpayer by April 15th or the due date.)

  • The optimal situation is to break even, meaning only a minimal amount should be owed or refunded - between $100-$300 is optimal. If a taxpayer receives a refund they must wait, depending on when they file their taxes over a year for the use of their money. Instead change your withholding with your employer (Form W-4), have less money deducted from your paychecks.
  • I understand some taxpayers use their refund as a type of savings account to use for vacation or to buy a car. A better use would be to open a 3, 6, 12 -month Certificate of Deposit or high interest savings account and earn interest. With today's automation, bank accounts can be set to automatically deposit a preset amount of money from each paycheck to an interest-earning account. Compounding interest is the ideal savings account (see Passive Income).

2. Cancellation of Debt (COD) - " My credit card company forgave my $3,500 debt and gave me this Form 1099-C. I do not know what it is." The IRS considers COD income that must be reported when filing taxes. This form is only issued for debt exceeding $600.

3. IRA withdrawals - " I quit my job and cashed in my IRA. I am younger than 59 1/2 but I already paid the taxes." The IRS will assess a 10% penalty when the taxes are filed.

a. If you have a 401(k) roll it over to a Roth IRA before you leave a company.

4. It is only a raise if the amount is above the yearly inflation percentage. If inflation is 2% a year, a 2% raise is not a raise but a Cost-of-Living Adjustment. Negotiate wisely.

5. A misconception is the need for a DUNS (Duns & Bradstreet) Number. I have prepared over 1,500 business tax returns in all fields. I have prepared one business return that had a DUNS number. When I asked the owner why he had it, he could not explain why he needed it. In the second year of his business, I was preparing the dissolution paperwork. The client spent $30,000 in expenses the first year only to close the business the second year. To me, a DUNS number is an unnecessary expense to a new business unless the business is doing business with the federal government. "The federal government uses the DUNS number to track how federal money is allocated."

Regular cash inflow to a business bank account will establish positive business credit.

Update: The 4 levels of Business Credit

  • 3 Types of Credit - Personal, Business, Corporate
  • Business Credit is tied to Personal Credit
  • 3 Business Credit Bureaus
  • 4 Tiers of Business Credit, 100 Levels each
  • Vendor Credits Tier 1
  • Business Credit Cards do not report to Credit Bureaus

How Businesses Attain the Cash Flow Needed (Coming Soon).

6. Donation Guidelines - People are always shocked by the difference between their valuation of a donated item and the IRS'.

2021 Donation Guidelines

Stop listening to advice from nonaccountants about situations affecting your financial health.

Statements clients have said to me:

"I heard on FB I should not have a QuickBooks account until my business makes $100,000".

QuickBooks is ideal for small to midsized firms with small inventories.

"My mortgage lender said we would receive a huge tax deduction if we buy a house now so we rushed to close before the year ended."

Mortgage interest is deductible and was beneficial before the 2018 Tax Cuts & Jobs Act this is no longer true as the itemized deduction total usually does not exceed the Standard Deduction threshold.

2023 Standard Deduction

  • MFJ or QW $27,700
  • Single $13,850
  • HOH $20,800
  • MFS $13,850
"I went to a seminar held by three lawyers who told me to form my business as a C-Corporation for asset protection."

One, C-Corporations are better suited for businesses with large amounts of capital e.g., $100,000, $250,000.

Two, you must pay yourself as a W-2 employee meaning you must pay on time, quarterly payroll taxes, or risk being assessed a $10,000 penalty.

Three, you must hold an annual meeting of the Board of Directors and record the monthly/annual meeting.

Four, if your business is a start-up, record-keeping, tax preparation, and a variety of other issues are simpler if your business is formed as a Limited Liability Company (LLC). An LLC shields your personal assets from liability.

Five, until recently a lot of CPAs have little experience with C-corporation tax preparation, and many are unfamiliar with the correct way to prepare the tax return (e.g., shareholder loan interest expense -AFR rate, Section 1244 losses).

"I went to a real estate (flipping houses) seminar with my daughter. They prepare all the paperwork needed to open a business. They formed a Partnership and two S-corporations for us. The company had me write a promissory note to myself so the business would pay back my initial $50,000 investment as soon as I file my business' first tax return. "

So many things are wrong here:

  • The exorbitant amount charged for information that can probably be found for free on the internet, or a book, or from an hour consultation with an accountant.
  • There is no need for a start-up business to form three separate organizations- too complex, states fees, payroll obligations, bookkeeping, among other things multiplied by three.
  • The initial investment in an S-corporation is considered a Shareholder Loan. An interest earning account must be set-up by the business to ensure repayment of this loan (promissory note).
  • Small corporations or S-corporations function similarly to C-corporations except the income or loss flows through to the personal tax return (1040) as does partnership income. Thus, raising your income and moving it to a higher tax bracket if the business is profitable or lowering your income if the businesses has a loss for the year. Again, a shareholder must pay themselves a reasonable salary as a W-2 employee.
  • S-corps and Partnerships are flow-through entities meaning a shareholder/owner cannot file their personal tax return until the business return is filed first.

There is no need to pay anyone an exorbitant amount of money to start a business.

"You can have your business purchase 100% of the cost for a new Mercedes truck."

I keep seeing videos from non-accountants on Instagram about how to start a business with partially true information. The primary focus of a start-up should be financing and advertising to attract customers.

According to the IRS, The Tax Cuts and Jobs Act (TCJA) allows unlimited 100% first-year bonus depreciation for qualifying new and used assets (including eligible vehicles) that are acquired and placed in service between September 28, 2017, and December 31, 2022.

However, for a used asset to be eligible for 100% first-year bonus depreciation, it must be new to the taxpayer (you or your business entity).

Heavy SUVs, pickups, and vans are treated for tax purposes as transportation equipment. So, they qualify for 100% first-year bonus depreciation and Sec. 179 expensing if used more than 50% for business. This can provide a huge tax break for buying new and used heavy vehicles.

However, if a heavy vehicle is used 50% or less for business purposes, you must depreciate the business-use percentage of the vehicle’s cost over a six-year period.

Some Qualifying Questions:

  1. Do you also have a personal vehicle?
    • If not the percentage of business use is calculated using business mileage versus nonbusiness. This calculation is used for the depreciation percentage also. The IRS requires a written record as proof.
  2. Is this vehicle strictly for business?
    • Is there a logo painted on the side?
    • Is it parked at the end of each business day and a personal vehicle is used?
    • You are a plumber, landscaper, delivery service (e.g. Amazon, UPS, florist), mobile mechanic, pool cleaner and have a need for a company vehicle for you and your employees.

2023 Standard Mileage Rate

  • Business $0.655
  • Medical/Moving $0.22
  • Charitable $0.14

According to the IRS, a business expense is something ordinary and necessary – expenses that are commonplace in your trade or profession and which are helpful for your business.

7. Hire a bookkeeper - Scenario: you just started a business. You took an accounting class in college. You want to save money. You have a QuickBooks account. There are negative numbers on the financial statements. "Being cheap is very expensive" . the less organized your books the more time it takes an accountant to prepare the financial statements thus charging more (see Things Your CPA Will Not Tell You). Even if it is just once a year hire a bookkeeper (certified) to clean up your books before filing taxes and most importantly make sure to reconcile the end-of-year account balances to match the tax return. (I will write another post on how to find a competent bookkeeper. Beware there are many posers).

TAX STRATEGIES (to reduce your tax liability)

1. End of year contributions - If you have a traditional IRA or Health Savings Account (HSA) and have not contributed before filing your taxes, contribute the maximum amount. Traditional IRA and HSA contributions are deductible.




  • < Age 50 $6,500
  • >= Age 50 $7,500

401(K) PLANS or SAR-SEPS - $22,500

403(B) PLANS - $22,500

SIMPLE, SEC. 408 - $15,500

SECTION 457(B)(2) - $22,500

Health Savings Account (HSA) or High Deductible Health Plan Contribution Limits

2. Simplified Employer Pension (SEP) IRA - if you are a sole proprietor or entrepreneur and receive at least $650 of compensation from your business, open a SEP IRA before filing your taxes to reduce taxable income.

3. Line of Credit to quickly pay off a mortgage or car loan - Scenario: You have a business or a source of recurring income (e.g., W-2, 1099). Open a personal line of credit for say $10,000. Use the line of credit for expenses but also to make monthly mortgage payments. For example, if your mortgage payment is $1300 a month. Use your regular bank account to make this payment and the line of credit to make additional payments monthly. Make sure you specify that these payments are for the principal amount, not the mortgage interest. Use your income/revenue to pay down the line of credit monthly. Rinse, repeat. Several clients have used this method to pay off their mortgages in five to ten years. This strategy is useful even when not using a line of credit, make two loan payments a month to pay down the principal quicker. Either split the monthly payment in two or pay the monthly payment and an additional one in the same month.

4. One strategy to consider if you make large contributions to charity consider donating appreciated long-term held securities (i.e., stocks, bonds, options, futures). You would get a charitable deduction for the fair market value of the securities and not have to report the capital gain/loss income.

5. Another strategy to consider with a low mortgage and minimal medical expenses and $10,000 in charitable contributions consider using the standard deduction going forward and loading up this year's contributions with the next few years or put into a donor-advised fund (or if over 70 1/2 to use as part of your RMD for charity).

6. Do NOT commingle your personal expenses with your business expenses!

"Sometimes courts will hold an LLC or corporation's owners, members, and shareholders personally liable for business debts. When this happens it's called "piercing the corporate veil."
  • You spent all this money to set up your LLC to protect your personal assets from liability or creditors should the business be unable to pay its debts or be sued, yet you do not have separate bank accounts.
  • You use your business bookkeeping system to also track your personal expenses or have your personal bank account or credit card linked thus invalidating the separation of your personal assets from your business assets.
  • I understand that Startups may need to use personal money to fund their business. The best method is to transfer the funds from a personal account to a business account (categorized as Owner's Investment, Partner's Contribution, or Shareholder Loan)
  • If you do not have a business credit card yet, get a second personal credit card and use that for only business expenses.
  • If you do not have a business bank account, open a debit card account. Use this account for business expenses only.
  • Also, if you are commingling expenses, it will take your bookkeeper, tax preparer, or accountant longer to clean up your books or prepare your tax return thus costing you more in bookkeeping or tax preparation fees.


How to Make Your Tax Return Easier to Do:

20 Reasons for Filing an Extension: