Year-End Tax Planning

Posted Saturday, November 1, 2025

Year-End Tax Planning

Key Takeaways

  • Cash is king. Deductions rarely save a full dollar; don’t torch liquidity to “save taxes.” Keep dry powder first, optimize taxes second.
  • Match tax deductions to the income spike. Time big tax moves—bonus timing, purchases, cost seg—into your higher-income year so each tax deduction does the most work per dollar. In other words, align bigger deduction with bigger marginal tax rate.
  • Most tax strategies take cash, effort, and risk. Real savings usually require you to part with money, materially participate, and accept audit/financial risk—no “secret club,” just trade-offs.
  • Don’t get tax FOMO. Everyone swears they “don’t pay taxes,” but that’s usually cocktail chatter, not reality. Let FOMO push you to plan smarter, not chase myths or lose sight of the real goal: enjoying life while building lasting wealth.
  • Deferral isn’t avoidance. 401k’s and depreciation shift taxes to later; they’re IOUs that can bite (recapture, RMDs with tax hits) unless the time value and wealth building justify the tax deferral. Said differently, deploy the extra cash in wealth-building initiatives since that cash isn’t really yours (but it is a free loan in a sense).
  • Plan for next year now. If 2026 income rises, increase S Corp salary and withholding sooner than later, update PTET and franchise estimates, and adjust to your new cash flow early—avoids underpayment pain and “got used to it” lifestyle creep.
  • Deduct what you already spend. Turn existing budgets (travel, vehicles, insurance prepaids) into legitimate business deductions instead of inventing new spending just to chase a tax deduction (or what some people like to call write-off).

end of year tax planningThe holidays are coming and people start thinking about year-end moves to minimize their taxes. Every day between Christmas and New Year’s Day we field a zillion questions on year-end tax planning. While some ideas are great, there are pitfalls and sucker-holes. We’ll talk about tax deductions in general. We’ll talk about last-minute tax moves. And Yes, we’ll talk about automobiles. They always seem to top the list of good ideas (or at least most business owners think so).

Also, we have separate Tax Reduction and Advanced Tax Strategies articles that is more aimed at general tax reduction strategies and not necessarily year-end tax moves. However, there is a lot of overlap.

There are two big objectives with end-of-year tax planning-

  • Make some moves before December 31,
  • Make plans for 2026.

Please don’t forget the “make plans for 2026” part since big changes in business income or other events in your life need to be addressed early, and perhaps before April 15, 2026 for Q1’s estimated tax payment. As such we will talk about this first.

2026 Outlook for Your Business

If your business income is going to be higher in 2026 than 2025, then we should get a jump on your business tax planning with these considerations. Remember, there is no such thing as an accounting emergency; only poor planning.

Franchise or Business Tax

California is an easy target, but there are several other states which impose a franchise tax or some sort of “pleasure to do business in our state” tax. Additionally, these taxes are similar to income taxes where they must be paid quarterly in advance otherwise underpayment penalties and interest might be incurred.

Pass-Through Entity Tax (PTET)

PTET in a nutshell is the ability to pay your “human” state income taxes with business funds and thereby create a tax deduction for the business and eventually you as the owner. We discuss this in greater detail later. For now, there are two possible PTET dangers here so please pay attention- first, if 2026 is the first year of your pass-through entity such as an S corporation or partnership, and you want to participate in your state’s PTET program, then business tax planning is a must. Payments must be made on time (April, June, September, December) and in some cases, a timely registration and election must be made. For example, if you don’t register or “elect in” for New York by March 15, then you are out of luck for all of 2026 (there is some legislation that might extend this for New Yorkers to September 15).

Second, if 2026 is going to be more profitable than 2025, then your PTET payments need to be increased to prevent underpayment penalties and interest. For example, you converted from W-2 to 1099 contractor in the summer of 2025, and 2026 is going to be the first full-year with your new contractor status, a business tax plan needs to be updated to account for your increased 2026 PTET payments (and likely your franchise tax or business tax imposed by the state).

With the passage of the One Big Beautiful Bull Act on July 4, 2025, the state and local tax limit is now $40,000 for those households with $500,000 or less in income. Above that, it phases down to $10,000. We mention this because the PTET deduction remains valuable for many business owners with S Corps and partnerships.

Payroll Processing

If your business profit will jump up in 2026 as compared to 2025, then we must adjust your reasonable salary to accommodate for this change. More importantly, we must adjust your federal and state income tax withholdings. If we wait until tax planning season (May, June, July), two bad things happen- first, you get used to this new cash flow and start spending it, and second, the compression of waiting too long makes catching up painful.

Sooner than later is the motto.

January Business Tax Planning

January is a great time to update your 2026 business tax plan, but only if there is a material difference between 2025 and 2026. If you call up and say, “hey, my business is going to be up 5%, can I get an updated business tax plan?” We will say “Yes, absolutely… but let’s wait until summer.” January business tax planning is very compressed, and therefore we kindly want to reserve it for those who truly need it.

Otherwise, if you are curious about your Q1 or Q2 franchise or business tax, or your PTET payment, please use 2025 as a proxy for 2026 until we can tweak with an updated business tax plan in the summer.

Here is a comparison table for your perusal-

‌ 2025 2026
IRA 7,000 7,500
Roth IRA Income Limits 150,000 single Update in Dec
‌ 236,000 married Update in Dec
401k Employee 23,500 24,500
HSA Contribution 4,300 self 4,400 self
‌ 8,550 family 8,750 family
Social Security Wage Limit 176,100 184,500
Standard Deduction 15,750 single 16,100 single
‌ 31,500 married 32,200 married
Gift Limit 19,000 19,000
Foreign Income Exclusion 130,000 132,900
Mileage Deduction 70 cents Update in Dec

Tax Planning Services

Explore tax planning questions to optimize financial decisions for business and retirement.

Tax Reduction Article

Discover practical strategies for tax reduction/avoidance to maximize your financial savings.

Am I Doing Everything?

Read how income ranges, deductions, and tax credits impact tax liability and savings potential.

Advanced Tax Strategies

Many of these aggressive tax strategies hinge on fine legal distinctions: how much you participate, who takes the risk, and whether there’s a reasonable expectation of profit.

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Secret Tax Deduction Club

Contrary to popular belief, there is no secret tax deduction club that only a few of us know about, and even fewer talk about. This isn’t fight club, OK? Thanks to all the internets, the speed and volume of data simply puts all ideas and thoughts on the forefront. Are there small tricks or overlooked strategies out there? Sure. Do some tax accountants project their own risk aversion into your decision-making? Absolutely. At WCG CPAs & Advisors, we strike a balance- pushing every legitimate advantage while keeping you firmly within ethical and defensible tax positions.

But please do not call us and let us know that your neighbor… the one with two homes and a yacht… does not pay taxes. Stop believing everything heard at a cocktail party or from your produce clerk.

Rant over. We swim confidently in the gray waters—with plenty of white and just a few streaks of black. Our job is to lay out the options, the arguments, and the counter-arguments so you can make informed choices. It’s your life and your tax return; we’re simply here to guide you through it with clarity, ethics, and a healthy dose of candor.

All tax reduction strategies require at least one of the following, and oftentimes all three-

  1. Cash to part with
  2. Effort to expend (material participation)
  3. Risk to absorb, either audit, financial or both

Keeping Up With The Jones’s

Two households, making the exact same income, might have wildly different tax liabilities based on the myriad of variables such as children, mortgage interest, charitable donations, available tax credits, and, Yes, the proficiency of the tax professionals involved.

As household incomes travel through the ranges, a lot of things happen. The first $100,000 in income for most households is well-sheltered with itemized deductions and low tax brackets. The next $100,000 in income sees certain tax credits go away, higher tax brackets and fewer available tax deductions such as IRAs and other things (what we call income phase-outs). In other words, if you go from $100,000 to $200,000 in household income, you will pay way more than double in taxes (you could easily see 2.5 to 3.0 times more). Yuck! The next $100,000 and beyond is completely naked, and is generally purely taxable (unless some tax reduction tactics are deployed). Super yuck!

Tax FOMO

A lot of people hear all these really cool things that people do to save taxes, and suddenly they have tax FOMO. Fear of Missing Out. Sure, the party next door seems to be rockin’ and you weren’t invited. Yeah, you probably are missing out on some good times. Oh well.

But don’t take that anxiety and apply it to taxes. People will tell you they don’t pay any taxes. These are they same people that tell you about how much money they won in Vegas too. 43% or so of the U.S. population does not pay income taxes- not because they know a secret that you don’t, but rather their household income plus tax credits for having children and other stuff results in no tax.

Are there things you can do? Maybe. As we’ve said, anything worth while takes cash, effort and / or risk. Is the whole world passing you by on the tax-free express train? No.

Tax FOMO is a good thing- it makes you stop and think, and perhaps act. But it shouldn’t be debilitating or so consuming that you lose touch of enjoying life and building wealth.

Marginal Tax Rates

2026 tax ratesQuick lesson on tax deductions. When you write a check and it has a tax savings element (401k, IRA, charity, etc.) it is not a dollar-for-dollar savings. For example, if you are in the 22% marginal tax bracket, you must write a check for $4,000 just to save $880 in taxes. Keep this in mind as you read this information on year-end tax savings. Also keep in mind that cash is king, and that perhaps paying a few more taxes today with the added flexibility of cash in the bank can be comforting.

Another way to look at it is this- most people say “I want to save taxes” but really what they are saying is “I want to save cash.” In other words, most people are in the cash-saving business not the tax-saving business. If we can do both, great. However, most tax-savings moves take cash, and cash is what you want to keep. So, keep this concept in mind as review some of the year-end tax moves listed below.

Also!

Tax deductions and tax deferrals are not the same. Tax deferrals are tax bombs later in life; little IOU’s to the IRS and they will eventually call in the chit. But if you use the immediate tax savings to build wealth, then a tax deferral is worth it. Deferring taxes to pay for a cruise vacation might not always be the best approach (then again, live a little!).

Wait, there’s more!

Just because you go $1 into the next tax bracket does not mean all your dollars are taxed at that rate. So, if you are trying to thread the needle with a Roth conversion to not fly too close to the sun out of fear of blowing up your tax world, don’t sweat it too much. Sure, if you push $25,000 into the 32% marginal tax bracket when you could have delayed until next year, that is an 8% x $25,000 or a $2,000 mistake. Sidebar- the 8% is 32% less 24%.

Building Wealth

At the end of your life, you’ll measure your financial success on the wealth you built not the tax you saved. We agree that a part of wealth building includes tax savings, but be careful not to sacrifice wealth for the thrill of a tax deduction (or deferral). Here is an example- let’s say you stuff all your available cash into a tax-advantaged retirement account such a 401k. A few years go by and a great rental property comes on the market but your cash is all tied up in a 401k. So, you sacrificed potential building of wealth by not having an intermediate investment strategy for the sake of tax deferrals.

Don’t let the tax tail wag the wealth dog!

Income and Tax Deduction Alignment

We discuss this concept throughout this article, but we want to make it front and center early. Ideally, you want to align your tax deductions with your income, or your income with your deductions. What are we talking about?

First Example

You had a bang-up year. You just crushed it, and a big bonus is coming your way. Your company asks you if you want to be paid in December or January. Why do you care? If you push this bonus in 2026, it might be taxed at a lower tax rate if your business or work productivity returns to a normal orbit. Don’t confuse bonus withholdings versus tax- many companies will over-withhold on bonuses intentionally, but that doesn’t mean you are taxed differently.

Second Example

You had a bang-up year just like the example above. Do you perform that cost segregation study on your short-term rental property this year, or next? It depends, right? If 2026 is going to have more taxable income than 2025, then perhaps you wait. Alternatively, if you have plans to add more rentals in 2026 because interest rates are decreasing and the real estate market is loosening up a bit, then perhaps 2026 is protected with these new rentals and a cost segregation study applied to 2025 makes sense.

Sidebar: If 2025 is the only your rental property will qualify for the short-term rental loophole (for example, you won’t materially participate in 2026), then you don’t really have a choice- cost seg now and deduct.

Third Example

2025 was a good year, but 2026 is going to be much better. It could be that your business is taking off or you will have a full-year of being in business, or something to push your marginal tax rate up in 2026. In this example, and in the interest of aligning income and deductions, wait until 2026 for that big purchase or tax move.

The net-net to all this year-end tax planning is to consider this year compared to next, exercise some restraint and align your tax deductions with your income.

The Trick

Here’s the trick. The Holy Grail if you will. You need to find a way to deduct money you are already spending. Read that again. For example, if you have a travel budget then you are already comfortable with a certain amount of money leaving your person, let’s find a way to deduct it. Automobile depreciation? Same thing. You are already comfortable with automobiles losing thousands of dollars in value especially in the early years; so let’s find a way to make this degradation in value a tax windfall.

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Small Business Tax Deductions

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Rental Property Tax Deductions

Mortgage interest, property taxes, HOA dues and management fees are easy. What about travel? Improvements?

CRNA Tax Deductions

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The left button above is labeled Tax Deductions and Fringe Benefits which is an excerpt of Chapter 11 from our S Corp book. The next button is from our latest book, I Just Got a Rental, What Do I Do? The CRNA button is for our growing group of Certified Registered Nurse Anesthetists. These examples are more aimed at small business owners, but there might be some things you can do on your individual tax return. Remember that the greatest trick the devil ever pulled was convincing the world he didn’t exist. The second greatest trick was finding a way to deduct the expense. You gotta love The Usual Suspects. Classic!

Too Much SALT

The deduction for what you pay in state and local income, sales and property taxes is also getting squeezed. This is commonly referred to as SALT deductions (State And Local Tax). People commonly say SALT deductions and property taxes. Property taxes are inclusive of state and local tax… it is like saying drugs and alcohol. Alcohol is a drug. SALT deductions include all taxes imposed by your state or local jurisdiction. This was defined as such by the Revenue Act of 1913 and later clarified in 1964. Riveting. But somehow we’ve managed to say SALT deductions and property taxes as separate items. At least it is not as bad as saying ATM Machine or ABS Brakes. Who says that? We digress…

The Tax Cuts and Jobs Act of 2017, back when Despacito was the big hit, limited the amount of SALT deductions on Schedule A of your Form 1040 (individual tax return) to $10,000. With the passage of the One Big Beautiful Bill, SALT is now up to $40,000 for those married tax filers with $500,000 or less in adjusted gross income (AGI). Therefore, if you have property taxes of $15,000 and California income tax of $30,000, you are only able to deduct $40,000 of this $45,000. This leaves $5,000 on the table, or about $1,200 if you are in the 24% marginal tax bracket.

This example is not uncommon since for you to have $30,000 in California income tax, the household would have about $400,000 in taxable income. But if your household income is suddenly $600,000, then your SALT limit is $10,000 (yeah, quite the cliff) and your California tax might be $49,000ish. So, suddenly PTET and great SALT work around are back in business.

As alluded to, there is a work-around for business owners of S Corporations and Partnerships, or what we call pass-through entities or PTEs. About 37 states are allowing business owners to make a tax payment to the state based on net business income. This does two things-

  • first, it reduces the amount of business income subject to federal income tax (your ultimate tax deduction), and
  • second, the state provides a credit for this amount and reduces your state income tax calculation on your Form 1040 (some states don’t provide a direct tax credit, but rather decrease your taxable income by the amount of business profits… Georgia does this, for example, and you arrive at the same spot as a tax credit).

The IRS took note of the workaround, but understood it was perfectly legit. The IRS through Notice 2020-75 states,

Certain jurisdictions described in section 164(b)(2) have enacted, or are contemplating the enactment of, tax laws that impose either a mandatory or elective entity-level income tax on partnerships and S corporations that do business in the jurisdiction or have income derived from or connected with sources within the jurisdiction. In certain instances, the jurisdiction’s tax law provides a corresponding or offsetting, owner-level tax benefit, such as a full or partial credit, deduction, or exclusion.

The IRS continues by stating this practice is permitted under the notice until it can legislate this practice into regulations. Also, there are all kinds of rules, and not every business owner will benefit from making a pass-through entity tax election. As such, the tax planning for determining the efficacy of using this tax deduction is challenging.

Wow. That was a lot of gibberish, huh? Talk to your favorite tax pro at WCG CPAs & Advisors, and make sure you understand this amazing workaround for tax deductions being truncated by SALT limits. The cocktail party fodder term is “PTET election” or “SALT workaround,” where PTET stands for pass-through entity tax. There are some devils in the details, and not all states work the same. Yes, we are as surprised as you are.

Pass-Through Entity Tax Deduction

Read our blog post on the pass-through entity deduction for some additional information.

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Short-Term Rental Loophole

This topic bears special treatment. Yes, it is explained in our tax reduction article and we have an entire chapter on it in our rental property book, I Just Got A Rental, What Do I Do? Many high W-2 income earners come to us in the fourth quarter, and say, “I got a bunch of RSUs this year, and I am wanting to buy a short-term rental property this year to get the tax deduction.”

Slow down, turbo.

Yes, a short-term rental can be a wonderful tax deduction but here are some considerations-

  • You must have an average guest stay of 7 days or less. While technically you only need one guest stay, having at least two to obtain a true average is best. As such, you better get than STR online by the first week of December. Next,
  • You must materially participate otherwise your rental losses are considered passive, and therefore not deductible. 500 hours test is nearly impossible between October and November. 100 hours, and no one did more than you test is do-able. Most real estate investors use the substantially all test. Keep this in mind as the days tick off heading towards December 31. Next,
  • You likely need a cost segregation study to accelerate your depreciation with bonus depreciation. This is not too hard, and you can easily wait until tax time to knock this out. Next,
  • Purchase a short-term rental because it is a good investment. As we’ve said throughout the article, build wealth first, and tax deduct second. If you find an STR and do all the things, and at the end of it all you have a crappy rental that is upside down each month by a mile, what have you done to yourself? You’ve boxed yourself in because you chased a good tax deduction predicated upon a lousy investment. Don’t have tax FOMO (as we talked about).

Purchasing a short-term rental can easily yield $100,000 to $150,000 tax deduction- but know the rules and do it right. Get a subscription to AirDNA and do some homework. Correction, do lots of homework. Need some help? Ask WCG CPAs & Advisors’ rental expert pod (the REP).

short-term rental loophole

Short-Term Rental Loophole

Learn more about the benefits, challenges and pitfalls of the short-term rental loophole.

Marriage: STR Meets Bonus

Read our blog post titled The Perfect Tax Marriage: Short-Term Rentals Meet Bonus Depreciation

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Rental Property Tips, Tricks, And Hacks

Each tip, trick or hack has just a few words describing the move. We are following the mini skirt rule- short enough to keep it interesting, but long enough to cover the topic. Most of these are expanded in various sections of our rental book.

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Hummer Loophole and 100% Bonus Depreciation

Let’s talk about the Hummer Loophole, as they say. At some point, long ago, in a galaxy far far away, businesses could buy heavy trucks such as pickup trucks and Hummers and deduct them 100%. Was this a loophole of sorts? Yes. Does Congress and the IRS like loopholes? No, not really, unless it benefits them. Oh well, this loophole must benefit them because 100% bonus depreciation is back for 2025.

How does this work?

For heavy vehicles, those with a gross vehicle weight of over 6,000 pounds, you can deduct the first $31,300 of the cost in 2025 under Section 179. Next, you deduct the remaining amount using 100% bonus depreciation. When bonus was 80% in 2023 and 60% in 2024, you would do Section 179 first, bonus second and first-year typical depreciation next, for a total first year tax deduction. For 2025 through 2030, this last step is no longer needed.

Sidebar: Vehicles are considered listed property under IRC Section 280F, which means business use must exceed 50% to snag Section 179 or bonus depreciation. Drop to 50% or below, and Section 179 gets recaptured (ouch). Bonus depreciation can get clawed back too, but typically it’s less painful since it’s recalculated as straight-line depreciation.

The problem remains with luxury passenger vehicles weighing under 6,000 pounds. Those limits are $20,200 for the first year using bonus depreciation, or $12,200 if you elect out (so, an $8,000 delta). Some luxury passenger vehicles weigh over 6,000 pounds and therefore are considered heavy vehicles. For example, the new 2025 Porsche Cayenne has a gross vehicle weight rating of 6,239 to 6,470 pounds, and is totally sexy.

Having said all this, buy a business vehicle because it makes operational sense (or at least has a purpose). We don’t buy vehicles solely for the tax deduction benefit. You are still parting with cash. Cash is king.

Next Year

We cannot stress this enough! While we’ve mentioned it before in various ways, another consideration is your income in 2025 versus 2026. If you are going to have a better year in 2026, then delay your tax deduction until January 1. Why pile on tax deductions in a low-income year? Silly. Conversely, if 2025 is unusually high, then Yes, pile on those tax deductions. Either way, have a plan! Don’t be shortsighted. Don’t save taxes just because you can- make sure it is the right move over your lifetime and not just today.

Refund Kept by the IRS

Some taxpayers have their refunds kept by the IRS because of back taxes, or other obligations such as student loans. In these situations, you can put yourself in a “tax due” position by decreasing your withholdings on your pay checks and putting more money in your pocket today. Yes, you will still owe whatever it is you owe, but at least the extra cash you pay in the form of excess income taxes withheld won’t be used to accelerate your debt payoff.

401k / IRA

The simplest way to save taxes… err, defer taxes… is to contribute to your 401k plan or traditional IRA. You save taxes and pay yourself in the meantime. Remember this as well- this is an IOU to the IRS. When you retire and are forced to withdraw this money, you will be taxed on it. IRA and Roth IRA contributions are due Wednesday, April 15, 2026 (the typical filing deadline for individual tax returns Form 1040), no exceptions. SEP IRAs remain the same, but can also be extended to September 15 or October 15, depending on which tax return you extended (1065/1120S – Sep 15, 1040/1120 – Oct 15).

2025 limit for your 401k is $23,500 + $7,500 for catch-up, hold the mayo. Max total 401k is $70,000 ($23,500 employee + $46,500 employer). IRAs are $7,000 plus $1,000 catch-up.

2026 projections are $24,500 for employee 401k contributions + $8,000 for catch-up,  and $7,500 for IRAs with $1,100 catch-up. These are projections at this time.

Ages 60-63 catch-up: A higher limit applies for individuals aged 60, 61, 62, or 63 during the calendar year, which is projected to be $11,500 (some forecasts suggest $12,000). This brings the potential total employee contribution for this age group to $36,000.

Important Note for High Earners

Starting in 2026, if your wages from the prior year (2025) exceeded $150,000, any catch-up contributions you make must be designated as Roth (after-tax) contributions. If your employer’s plan does not offer a Roth option, you might not be able to make catch-up contributions at all (Roth 401k was available as early as January 2001… tell your employer to get with the times).

Business Owners

SEP IRAs are old school. Lousy contribution limits. No Roth options. A 401k plan is much better. Ask how we can help.

Roth Conversions

Perhaps you should have us review the conversion of your traditional IRA into a Roth IRA. Yes, pay more taxes today, but perhaps your 2025 income is lower and it makes sense. Or your income is on a rocket trajectory, and this year is the only year it makes sense. Remember that it is usually easier to pay for taxes during your wage-earning years than when you are 80 years old and only have savings to “dip into.” It would be lovely to live in a tax-free world at 80… at least for federal income taxes.

Charity

Writing a check to your church is good. Don’t forget the theater, educational organizations, and others. Also, what is not just good, but actually great, is donating to Goodwill, Salvation Army, Arc Thrift, etc. Donating items from the hollows of your closet doesn’t require cash since that money is already spent. Keep in mind that some states, such as Arizona, offer huge tax credits (much better than tax deductions) for donations to schools and charities.

Don’t forget a qualified charitable distribution. A QCD is a direct transfer of funds from your IRA to a qualified charity. QCDs can be counted toward satisfying your required minimum distributions (RMDs) for the year, as long as certain rules are met.

Donor Advised Fund

You donate significant assets such as cash or securities or both to a donor advised fund. You get an immediate tax deduction for the fair market value, but those assets are not immediately donated to any one charity. This allows for two wonderful things: first, playing on the income-deduction matching principle mentioned earlier, you can make a massive donation during a uniquely high-income year.

Second, you can then take your tax-deducted donation, and spread it out over multiple years while enjoying the tax benefit now.

Here is another consideration involving math: let’s say your itemized deductions add up to $17,000 yet the standard deduction is $31,500 (for the 2025 tax year)… or a difference of $14,500. You could donate $14,000 each year with no additional tax benefit (Yes, the state might give some) since you would be using the standard deduction versus an itemized deduction ($31,500 vs. $17,000) on Schedule A. Do this for 10 years… and your $140,000 does not move the tax needle at all. Zippo. Nadda.

But! You donate $140,000 to a donor advised fund (DAF), you get $109,500 at your marginal tax rate as cash in pocket ($109,500 x 24% is $26,280 in cash). You still get the itemized deduction bump of $14,500 to arrive at the standard deduction for 9 more years, your charity gets $14,000 each year as desired, and you are $26,280 richer. Real money, folks!

Profit Harvesting

This is an oldie but a goodie. Speaking of liking cash: sell some of your profitable stocks along with your dogs. Not literally your dogs, but your under-performing securities. Sell enough to create a $3,000 gain and sell some more to add a $6,000 loss, and presto! You’ve pulled out some cash, yay, and created a $3,000 loss and tax deduction.

Here is another variant to the above year-end tax move: you sell securities whose price is stable yet is lower than what you paid. You use these losses to reduce the capital gains on securities you sold previously (profit harvesting). You wait 30 days to prevent wash sale triggers and re-purchase the securities that were sold at a loss (only if you believe it will eventually rebound in a timeframe that makes sense given inflation and other economic conditions).

Given market conditions now, this is a strong year-end strategy. There is another trick where you borrow against your unrealized gains. It is not necessarily a year-end tax move, however.

Tax Reduction Article

Discover practical strategies for tax reduction/avoidance to maximize your financial savings.

advanced tax strategy

Advanced Tax Strategies

Learn about structured equipment leases, oil and gas interests, and other complex tax strategies.

Tax Planning Services

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Pay Bills Earlier

You can pre-pay certain expenses up to 12 months such as rent, insurance premiums, professional fees, stock up on some office supplies, etc. The “12-month rule” lets you deduct a prepaid future expense in the current year (but there are some rules). You want to pre-pay business expenses in years of high income where the following year is going to be less. To pre-pay just to pre-pay without a plan is flailing.

Our Reducing Taxes webpage as more information.

Automobiles

Here we are on everyone’s favorite topic. Buckle up… A question we entertain almost daily is “I want to save taxes. Should I have the company buy me a car?” Our auto-attendant replies with, “Do you need a car?” If you answer with “Yes” the auto-attendant replies with, “Hold please.” If your “Yes” is not quick or mumbled, or if there is any recognition of hesitation, the auto-attendant is unhappy and will send you to our call center in Hawaii.

We digress. There are only a few questions you need to ask yourself when considering a car purchase. Are you the type of person who buys new? How long do you typically keep your cars? Is the car 100% business use? How many miles do you plan to drive? There is a decision tree you can review on our website (see below). Back up for a bit. Remember our previous discussions about tax deductions, and how only a fraction of the money you spend is returned to you? So, back to our auto-attendant, “Do you need a car?” If the answer is “Yes” because your bucket of bolts is getting exceedingly dangerous, then Yes, buy a much-needed car out of a sense of safety. If the answer is “Not really, but I want to save taxes,” then don’t. Two rules to live by-

  • Cash is King (keep it!)
  • Depreciation is a tax deferral not a tax avoidance system (typically)

There might be some other external forces at play. For example, if you need a car next year but your income is ridiculously and unusually high in the current tax year, then reducing your income now makes sense. Again, tax modeling and planning is critical.

We leave room for the “I just wanna new car for no real reason since needs and wants occupy the same space in my brain.” Live life. Not everything has to make financial sense or be argued in a spreadsheet. Here is some more information-

Auto Purchase Questionnaire

Check to hold automobile title as an individual or business based on our questionnaire.

Automobiles in Businesses

Learn the pros, cons, and tax impacts of automobile purchases for your business!

Luxury Cars As Marketing

Taxpayers in the Cohen, Berry, and Avery cases claimed marketing deductions for luxury cars. All three lost.

Tax Planning with Depreciation Recapture

Please understand that depreciation is a tax deferral system rather than a tax avoidance system. Huh? When you sell or dispose of an asset, you might have to pay tax on the portion that was depreciated.

For example, you buy a $200,000 piece of machinery and use Section 179 depreciation to deduct the entire $200,000 in the first year. Five years later you sell the equipment for $150,000 because you slapped some new paint on it and you are a shrewd negotiator with your buyer. You will now have to recognize $150,000 of taxable ordinary income. Yuck. But there is a silver lining- depreciation recapture is taxed at your marginal tax rate. So, if are going to have a low income year and you were planning on selling the machinery anyway, you could have depreciated your asset during 37% marginal tax rate years just to pay it all back at a much lower rate. Bonus! Tax planning is a must. How many times have we mentioned that?

For investment and rental property owners, there is an added bonus to depreciation recapture. It is capped at 25% regardless of your marginal tax rate. You can also kick this depreciation recapture can down the road with a Section 1031 exchange (also referred to as a like-kind exchange). A Section 1031 like-kind xchange in most situations allows the deferral of depreciation recapture and capital gains by purchasing another investment property. And if you think you know what a 1031 like-kind exchange is, try learning about a reverse 1031 exchange- where you buy the replacement property first. Yup. It exists.

Income Shifting

This one gets a little tricky. Let’s say you are a commercial real estate agent, and you sell a lease and collect a $10,000 commission. But there are provisions that if the tenant breaks the lease within three years, you have to pay some of the $10,000 back. Accountants would call this “Unearned Revenue” and we can kick this revenue into the subsequent years. So if you collect money today and there is a bona fide chance you might lose it, then perhaps you should consider accrual based accounting and defer some of this income. Again, this gets tricky.

Paying Bonuses

If you’re Ebenezer Scrooge then you’re done reading. If you are paying out year-end bonuses, then keep reading. This might be a no-brainer, but make sure paychecks that are for bonuses are dated for 2024. Keep in mind too that usually in a cash-based accounting world, the check date is when the expense is recognized. As such, a pay period in December that is paid out in January is usually next year’s deduction.

Tax Reduction Article

Discover practical strategies for tax reduction/avoidance to maximize your financial savings.

Am I Doing Everything?

Read how income ranges, deductions, and tax credits impact tax liability and savings potential.

Tax Planning Services

Explore tax planning questions to optimize financial decisions for business and retirement.

Tax Planning Season

Tax planning season is here! Let's schedule a time to review tax reduction strategies and generate a mock tax return.

Tax Planning Services
Bookkeeping Services

Tired of maintaining your own books? Seems like a chore to offload?

Accounting Services

Professional End of Year Tax Consultation

Did you want to chat about end of year tax strategies? Need to review your options and make an informed tax planning decision? Let’s chat!

The tax advisors, business consultants and rental property experts at WCG CPAs & Advisors are not salespeople; we are not putting lipstick on a pig expecting you to love it. Our job remains being professionally detached, giving you information and letting you decide within our ethical guidelines and your risk profiles.

We see far too many crazy schemes and half-baked ideas from attorneys and wealth managers. In some cases, they are good ideas. In most cases, all the entities, layering and mixed ownership is only the illusion of precision. As Chris Rock says, just because you can drive your car with your feet doesn’t make it a good idea. In other words, let’s not automatically convert “you can” into “you must.”

Let’s chat so you can be smart about it.

We typically schedule a 20-minute complimentary quick chat with one of our Partners or our amazing Senior Tax Professionals to determine if we are a good fit for each other, and how an engagement with our team looks. Tax returns only? Business advisory? Tax strategy and planning? Rental property support?

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Text WCG Offices

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Call Our Team

Need to speak to a tax professional now? Give us a call 719-387-9800 and we'll get you connected.

Chat with a tax pro

Chat With a Tax Pro

Taxes can be tricky. Chat with a WCG human now and get questions answered.

After almost 6 years with this CPA group, there is NO ONE else we would trust to do our taxes.

L. Matisek

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We've worked with multiple bookkeepers and accountants over the years and WCG has completely blown us away.

N. Sellden

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As a novice business entrepreneur they provided me with the tools to both structure and tax my business efficiently

Mayon Hight

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They've made my taxes a breeze and are worth every dime I pay them for the peace of mind their services provide.

Lynn Shannon

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The good folks at WCG have impressed me, as being highly competent, patient & friendly.

Fred LeBlanc

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They've made my complicated business life simple and I'd recommend them to anyone with a slightly complicated-to-overwhelmingly complicated tax strategy!

Nic J

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For nearly nine years, I have had the privilege of working with WCG and their team of exceptionally knowledgeable and experienced CPAs.

Alex Hickman

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Amanda - WCG CPA - You guys have been invaluable in helping us get this business and tax planning setup properly and executed correctly.

Lance Dodd

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WCG is extremely knowledgable, timely and attune to the unique aspects of our businesses.

Carl Protsch

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WCG CPAs are professional and a pleasure to work with.

Nakapan P.

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They go beyond the call of duties to assist me not only with Tax return matters but with any questions on other personal and company tax matters.

Juan Mayorga

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I've always dreaded tax season, but WCG has made things so easy, even as we changed to an S corp. So happy we found them!

Paige de Kock

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It was great to find an accounting firm eager to take on new clients, answer initial questions in depth, and support our “keep it simple” philosophy.

Stuart B.

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Working with WCG was so easy, shout out to Sally Rhoades who handled my complicated tax situation this year wonderfully and was available for all my questions.

Stefani Cinto

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I am so thankful to be a client of WCG CPAs & Advisors.

Carol Kersten

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It's a wonderful and rare treat to find a company like WCG these days with their high level of service, personal approach, and deep knowledge of accounting.

Jeffree Hilton

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Such a great firm. Great communicators, great attention to detail and overall great people.

Jeff Owens

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