Year-End Tax Planning: Essential Strategies Every Business Owner Needs Before December 31st
Originally published on the We Are Lake Norman podcast - Episode featuring Andrew McMillan of REH CPAs
As we approach the final quarter of the year, business owners across the Lake Norman area are facing a critical deadline that could save them thousands of dollars in taxes. The key? Acting before December 31st.
In a recent episode of the We Are Lake Norman podcast, I sat down with Andrew McMillan, partner and fractional CFO at REH CPAs, to discuss the most effective year-end tax strategies that business owners often overlook. Andrew's insights could be the difference between a painful tax bill and significant savings come April.
The Clock is Ticking: Why Year-End Planning Matters
"It's kind of funny because on the CFO side we're trying to make you more profitable, trying to grow your revenue and add to the bottom line. And then it's like, oh, maybe we did too much - so now we're trying to find ways to mitigate your taxes," Andrew explains.
The reality is that once January 1st hits, most of your tax-saving opportunities disappear. That's why Andrew emphasizes the importance of acting now, while you still have cards to play.
Low-Hanging Fruit: Equipment and Software Purchases
One of the easiest strategies Andrew recommends is evaluating your business equipment needs. "Do you need new computers, software, vehicles, trucks for your business, or large equipment purchases? Just do an inventory of what you have and see what you may need in the future."
However, Andrew offers an important caveat: "The tax rate isn't 100%. You spend $5,000 on something, it might save you $2,000 or $3,000 in taxes depending on your tax rate." The goal is strategic spending on items your business actually needs, not wasteful purchases.
Pro tip: If you pay for software monthly, consider prepaying annually to accelerate the deduction into this tax year.
The Vehicle Deduction: What You Need to Know
Business vehicle purchases are popular year-end strategies, but Andrew warns there are specific requirements:
Weight requirement: The vehicle must be over 6,000 pounds gross vehicle weight rating (GVWR)
Business use: You must use it for business at least 50% of the time
Legitimate business purpose: Simply commuting from home to office doesn't qualify
"You can't just buy an $80,000 vehicle and slap a bumper sticker on it for your business," Andrew notes. "You need to actually be using it the majority of the time for your business."
The LLC vs. S-Corp Decision That Could Save You 15.3%
One of the most impactful discussions in our conversation centered on business structure and taxation. Many business owners don't realize that simply forming an LLC doesn't change how they're taxed.
"When you create an LLC, you've essentially just created an entity at the Secretary of State level, but if you're the only owner, you're still taxed the same way you would even if you didn't have it," Andrew explains.
The problem? Self-employment tax - an additional 15.3% on top of your regular income tax.
The S-Corp Solution
An S-Corporation election can help manage this burden by allowing you to:
Pay yourself a reasonable W-2 salary (subject to payroll taxes)
Take additional profits as distributions (not subject to self-employment tax)
Andrew typically sees this strategy make sense once businesses reach $50,000-$80,000 in annual profit, though it comes with additional compliance requirements and costs.
Retirement Planning: A Double Win
"Another big one that clients really take advantage of is retirement planning," Andrew shares. Business owners can maximize retirement contributions through:
401(k) plans
SEP-IRAs
Simple IRAs
Sometimes this requires paying yourself a bonus before year-end to increase your W-2 wages enough to maximize these contributions.
The Fractional CFO Perspective: Cash Flow is King
Beyond tax planning, Andrew's fractional CFO work reveals a common problem: profitable businesses struggling with cash flow. His recommendation? Create a cash flow forecast.
"Forecast what you think your revenues are going to be for the next three to six months and forecast what you think your expenses are going to be. Then you can see what cash is remaining and whether you're going to be in a cash pinch three months from now."
Don't Wait Until April: The Extension Trap
Many business owners file extensions, but Andrew warns about a critical misunderstanding: "The extension only extends the due date for the tax return. It doesn't extend the due date for the tax to be due. The taxes are still due April 15th."
If you owe money and don't pay by April 15th, interest and penalties start accruing immediately - even if you're on extension.
Taking Action: Your Next Steps
Andrew's advice for business owners is clear:
Get your books current - You can't make good decisions without knowing your profit
Work with a CPA to run tax projections and planning scenarios
Act before December 31st - Most opportunities disappear after year-end
Focus on legitimate business needs - Don't spend money just for tax savings
The Bottom Line
As Andrew puts it, "Taxes are hard. We're experts in it, we do a lot of it, but it's still hard. It's really hard to make good decisions for a business owner when we're working with information that's just not complete."
The key is planning ahead with accurate information and professional guidance. With the right strategy implemented before December 31st, you could save thousands in taxes while positioning your business for success in the coming year.
Ready to optimize your year-end tax strategy? Contact Andrew McMillan and the team at REH CPAs to discuss your specific situation. Don't let another year pass without maximizing your tax savings.
Listen to the full episode of We Are Lake Norman on Apple Podcasts, Spotify, or your favorite podcast platform to hear all of Andrew's insights and strategies.
About the Podcast: We Are Lake Norman features conversations with local business owners, entrepreneurs, and community leaders in the Lake Norman area. Hosted by Ryan Webber of Webber Marketing, the show highlights the stories and expertise that make our community unique.
Connect with us:
Ryan Webber - Webber Marketing: www.webbermarketing.com
Andrew McMillan - REH CPAs: www.rehcpas.com
Listen to We Are Lake Norman: Available on all major podcast platforms
This podcast is produced by Webber Marketing.
