As the end of the year approaches, many people are thinking about ways to reduce their tax liability by taking advantage of deductions, credits, and deferrals. But a narrow focus on current-year tax minimization misses the larger point. Year-end tax planning, while important, is just one component of a comprehensive tax and financial strategy.

Proactive, year-round tax service allows you to align your strategies with long-term goals–whether that’s minimizing tax liabilities over a three-year horizon, managing cash flow for expansion, or positioning yourself for a successful exit. 

Cautionary Tales: The High Cost of Tax Shortcuts

A reactive, year-end-only approach can lead to missed benefits, increased risk, and lost opportunities. The following examples illustrate how a shortsighted approach can backfire.

The Bonus Depreciation Trap: A business purchased $1 million of machinery and took 100% bonus depreciation, creating a large loss that flowed through to the owner’s personal return. However, the excess business loss limitation prevented the owner from using most of the deduction in the current year, deferring it instead of producing the immediate tax savings he had anticipated. 

The Basis Limitation Blind Spot: A cash-basis S corporation borrowed $750,000 from the bank at year-end to prepay expenses and accelerate deductions. This strategy created a large tax loss that flowed through to the shareholder. However, because the shareholder had not personally contributed or loaned funds to the corporation, there was insufficient stock or debt basis to absorb the full loss. As a result, a significant portion of the deduction was suspended. The shareholder was left owing the bank for the borrowed funds, but without the expected benefit of immediate tax savings—highlighting how borrowing to accelerate deductions can backfire when basis limitations aren’t considered.

The Multi-state Mess: A business with small amounts of income in several states assumed it wasn’t worth the effort to file returns outside its home state. Because no return was ever filed, the statute of limitations never started running. Eventually, the business started receiving nexus questionnaires from the states. What began as “minimal” exposure turned into a tax bill nearly five times larger than if the business had filed properly from the start.

Your Year-Round Tax Playbook: 5 Smart Strategies

Regular touchpoints with your tax advisor enable you to integrate your tax compliance with a forward-thinking strategy, which creates immediate tax savings while building a roadmap for stronger financial growth for many years.

Here are five strategies that distinguish comprehensive tax planning from year-end scrambling:

  1. Nexus Studies: Mitigate exposure by proactively complying with state and local tax filing responsibilities and taking advantage of the three-year statute of limitations that kicks in once a tax return is filed.
  2. Tax Incentives: Capture under-the-radar tax benefits, such as the Research and Experimentation (R&E) credit, which often have complex requirements and strict timelines to qualify.
  3. Income & Deduction Timing: Model various scenarios based on expected future tax brackets to determine the optimal time to accelerate or defer income and deductions, minimizing your multi-year tax liability.
  4. Expense Analysis: Boost cash flow and profit margins by taking a deep dive into your top expense categories, which often reveals overlooked deductions and operational efficiencies. 
  5. Tax-Efficient Gifting: Strategically time the amount and nature of annual gifts to maximize annual exclusion amounts and allow assets to appreciate outside of your taxable estate.

Your CPA Should Be Your Co-Pilot, Not Just a Tax Filer

If you’re only talking to your CPA during tax season, you’re missing out. Once seen as seasonal tax preparers—someone you scramble to see in March or April—modern accounting firms partner with you in your financial journey, advising on everything from choosing a business entity to tax-efficient intergenerational wealth transfer.

Copeland Buhl—Your Year-Round Tax Planning Firm

Bringing your overall tax picture into focus requires holistic and integrated planning. Copeland Buhl’s team of experienced tax and business advisors are ready to help you achieve your business and personal goals, including optimizing your tax position today and for the long term. Contact us to learn more about our comprehensive, integrated year-round tax services and to start exploring how we can add value to your overall financial picture.