End-of-Year Tax Planning Strategies with Gary Milkwick

Summary

Small Business Quick WINS Episode Summary: End-of-Year Tax Planning Strategies with Gary Milkwick

Podcast Information:

• Title: Small Business Quick WINS w/ Jay Schwedelson Presented By Thryv
• Host: GURU Media Hub
• Guest: Gary Milkwick, Chief Financial Officer at 1-800-Accountant
• Release Date: November 14, 2024

Introduction

In the episode titled "End-of-Year Tax Planning Strategies," host Jay Schwedelson welcomes Gary Milkwick, the CFO of 1-800-Accountant and a Certified Public Accountant (CPA). The focus of the conversation centers on strategic tax planning for small business owners as the fiscal year draws to a close. Gary brings his extensive experience from both large-scale accounting at PricewaterhouseCoopers (PwC) and hands-on work with small businesses, providing listeners with actionable insights to optimize their tax positions.

Guest Background

Gary Milkwick shares his journey into accounting, highlighting his early exposure to the field through his father, a CPA. This foundational experience led him to work at PwC, where he handled accounts for massive corporations. A pivotal moment arose when he transitioned back to working alongside his father, allowing him to engage directly with small business owners. This shift underscored the significant impact that tailored tax planning can have on smaller enterprises.

Gary Milkwick [01:51]: "I really enjoyed working with small business owners. That was the key difference... I saw the value that tax planning could help these small business owners."

Key Tax Planning Strategies Before Year-End

Gary delves into several critical tax strategies that small business owners should consider implementing before December 31 to maximize their tax benefits.

1. Entity Structuring: S Corporation Election

   For businesses operating as LLCs, making an S Corporation election can substantially reduce self-employment taxes. Gary explains that without this election, all business profits are subject to a 15.3% self-employment tax. By electing S Corporation status, owners can potentially save approximately half of this tax liability.

   Gary Milkwick [03:21]: "If you set up an LLC and have not made an S corporate election, all of your profits are subject to self-employment tax. By doing the S election, you could save roughly half of that."

   This decision must be made before the end of the year to apply the benefits to the current fiscal year. For new businesses, ensuring that this election is in place can lead to significant tax savings.

2. Accelerated Depreciation: Section 179 and Section 168

   Accelerated depreciation allows businesses to deduct a larger portion of equipment and asset costs in the current year rather than spreading them over several years. Gary highlights the 2018 tax cuts that introduced accelerated depreciation options, which are gradually being phased out.

   Gary Milkwick [05:15]: "If you buy equipment or a vehicle before the end of the year, you can take immediately 60% of that as a deduction this year. Next year, it drops to 40%."

   Investing in business assets before year-end can result in substantial tax deductions, enhancing cash flow and reducing taxable income.

3. Retirement Planning: Solo 401(k) Setup

   Establishing or contributing to a retirement plan such as a Solo 401(k) can provide significant tax advantages. Contributions made before the year-end not only set aside funds for retirement but also lower the current year's taxable income.

   Gary Milkwick [06:20]: "Setting up a Solo 401(k) can put money aside for retirement and offers big tax benefits if done before the end of the year."

4. Home Office Deduction

   Small business owners operating from home can take advantage of the home office deduction, which allows for the deduction of a portion of household expenses proportional to the workspace used for business activities.

   Gary Milkwick [07:54]: "There are two methods for the home office deduction. The standard method calculates a percentage of your home expenses, while the simplified method allows for a flat $5 per square foot deduction."

   Ensuring that this deduction is accurately claimed can lead to additional tax savings.

The Importance of Year-Round Tax Planning

Gary emphasizes that effective tax planning is not a once-a-year task but a continuous process. Many small business owners rely solely on bookkeepers who may not provide comprehensive tax strategies. 1-800-Accountant differentiates itself by offering year-round tax consulting, ensuring that business owners are always aware of opportunities to minimize their tax liabilities.

Gary Milkwick [11:43]: "Tax planning is a year-round process. The actual planning is the piece that really provides value to people."

1-800-Accountant Services Overview

Gary provides an overview of 1-800-Accountant's services, highlighting their ability to cater to a diverse range of small businesses across various industries and geographies. With hundreds of specialized accountants, the firm matches clients with professionals who have relevant experience in their specific industry and region.

Gary Milkwick [10:02]: "We match clients based on geography and industry. For example, if you're in California running a restaurant, we'll find someone with experience in that specific sector."

The company's focus remains on businesses with annual revenues under $5 million, ensuring personalized and relevant accounting support.

Conclusion

The episode concludes with a strong endorsement of proactive tax planning and the comprehensive services offered by 1-800-Accountant. Gary encourages listeners to reach out for tailored tax strategies that can lead to significant savings and improved financial health for their businesses.

Gary Milkwick [13:21]: "The best place to get in touch with us is 1-800-accountant.com. We'll connect you with someone who can help."

Jay Schwedelson wraps up by urging listeners to apply the discussed strategies and consider professional tax planning services to enhance their business growth and financial stability.

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Notable Quotes:

• Gary Milkwick [03:21]: "If you set up an LLC and have not made an S corporate election, all of your profits are subject to self-employment tax. By doing the S election, you could save roughly half of that."

• Gary Milkwick [05:15]: "If you buy equipment or a vehicle before the end of the year, you can take immediately 60% of that as a deduction this year. Next year, it drops to 40%."

• Gary Milkwick [11:43]: "Tax planning is a year-round process. The actual planning is the piece that really provides value to people."

Key Takeaways:

• S Corporation Election: Small business owners with LLCs should consider making an S election to reduce self-employment taxes.
• Accelerated Depreciation: Investing in business assets before year-end can lead to significant tax deductions through accelerated depreciation.
• Retirement Planning: Establishing retirement plans like Solo 401(k)s before the end of the year offers substantial tax benefits.
• Home Office Deduction: Properly claiming home office expenses can provide additional tax savings.
• Year-Round Tax Planning: Continuous tax consulting ensures that businesses are always optimized for tax efficiency.

Connect with Gary Milkwick:

• Website: 1-800-accountant.com
• Phone: [phone]
• Social Media: Available through the company's social channels

Implementing these strategies can position small business owners for enhanced financial performance and reduced tax liabilities, setting the stage for sustained growth in the competitive marketplace.

Transcript

[Gary Milkwick]

Foreign.

[Jay Schwedelson]

Welcome to Small Business Quick Wins, presented by Thrive.

[Podcast Host]

This podcast is exclusively designed for small business leaders like you.

[Jay Schwedelson]

Prepare to get invaluable insights from every episode, equipped with actionable tips made for immediate implementation in your business. Tune in as we teach our firsthand lessons from fellow small business owners and thought leaders. I'm your host, Jay Schwedelson. Over the last 25 years, I've grown multiple small businesses that have generated over $300 million in revenue. Along the way, I've learned pitfalls to avoid and quick wins that can transform your business immediately. I'm excited to share it all, so if you're ready to win on Main street, let's dig into this episode.

[Podcast Host]

Welcome back to Small Business Quick Wins, presented by Thrive, and we have a fantastic guest here. Today. We're going to talk about things you could do with your taxes, things that you could do with your end of your planning for your small business from your finances and accounting standpoint. And we have Gary Milkwick here. Who's Gary? Gary is the chief financial officer at 1-800- accountant. And you probably have heard of 1-800- accountant because they've helped over a hundred thousand small businesses in the United States. They operate in all 50 states. And Gary's a real smart dude. He's not only the CFO of 1-800-account, but he's a CPA himself. So he's gonna be able to share lots of cool stuff. So, Gary, welcome to the show.

[Gary Milkwick]

Thanks. Great to be here.

[Podcast Host]

Awesome. All right, before we get into what small business owners should be thinking about as we go into the end of year for tax preparation, how did Gary become Gary? What's your deal?

[Gary Milkwick]

Well, so I grew up kind of in an accounting household. My dad was a cpa. So, you know, at an early age, middle school, high school, I was doing the accounting jobs. Well, when my friends were working at retail, I was, I was reconciling banks accounts and things like that. But so, so after school, I ended up working at a gigantic accounting firm, PricewaterhouseCoopers. You know, one of the large working with massive companies. And then through a twist of fate, I ended up going back to work with my dad again. And, you know, I really enjoyed working with small business owners. That was the, the, the key difference there, you know, working at PwC, it was gigantic corporations where you're talking to somebody who's, you know, boss's boss's boss's boss might actually care about the company, you know, so it was a totally different thing working with small business Owners and I saw the value that, that tax planning and, and things could help with, with these small business owners.

[Podcast Host]

That is awesome. And you know, the nice thing about small business owners is that they can move quickly. You tell them something about something they could change and it could impact their business and they can make that move like today. And that's what I hope that we can get out of this now. So we talk about tax planning. So there are certain things that if you do it before December 31 as opposed to on January 1, can really have an impact on your small business. So I want to jump into those. What are some of those tactics that maybe small business owners are not aware of that they should be thinking of literally right now?

[Gary Milkwick]

Yeah, there's a lot of things that to think about before the end of the year. You know, we often have people come to us at the beginning of a year and it's like, well, if you would have just done X, Y and or Z before the end of the year, you know, we could have done something. But, but now it's kind of too late. There's, there's different things that, that you can do before the end of the year. So for example, if you have a brand new business and you set up an LLC in 2024, for example, you may or may have not made what's known as an S election, an S election. Without getting into too terribly much detail, I mean we could do a whole show based on that. But if you set up an LLC and you're not sure if you did, if you should do an S election, if you have profits in your business for 2024 and you set up your LLC in 2024 and have not done an S corporate election, you will want to explore that. You have time before the end of the year to do that and set up payroll that you would need to do to do that. But it's a way to save basically about half of your self employment tax. You know. You know, if you're a, if, if you're a small business owner with an LLC and you have not made any sort of S election, your. All of your profits are subject to self employment tax. So for example, if you made $100,000 in your business, all of that subject to 15.3% self employment tax, that's 15 grand. Just by setting up an, you know, doing the S election, you, you could save roughly half of that. So that one decision could save you, you know, seven to $8,000. If you do it and get it all set up before, before the end of the year, if you didn't do it, you know, you could get it set up for next year. But. But again, if we're talking about things you could do before the end of the year, that's an entity structuring thing that, that you could do.

[Podcast Host]

Now, let's say, for example, you have a business, you got an H Vac company, you're 10 years in, you set up some of these things. What can. What can you do if you already have a business kind of chugging along before the end of the year?

[Gary Milkwick]

So if you've got a business that's already up and going, one of the big things that you can do is take advantage of the accelerated depreciation that's in effect in the 2018 tax cuts. You know, there's always been what's known as Section 179 depreciation, which is accelerated. But in the 2018 tax cuts, there's what's known as acceleration or Section 168 depreciation. And that's kind of ramping down over the past five years. So. So this year, if you buy things before the end of the year, you buy a piece of equipment, you buy a vehicle, you know, you buy a van for your business, you can take immediately 60% of that as a deduction in the current year. So if you're thinking of holding off and doing that in the next. Or, you know, just doing that in the next few months, do it before the end of the year, you'll get 60%. Next year, it goes down to 40% accelerated depreciation. So that's one thing that you could do, you know.

[Podcast Host]

So in general, because, you know, when you say some of these codes and numbers and things, I think a lot of small business owners are like, oh, this is where I get into that place where I don't know anybody's talking about. And you get a little nervous.

[Gary Milkwick]

Yeah.

[Podcast Host]

But the reality of it is, in really basic terms, if there's something that you think you're gonna buy that's significant in 2025, buy it now. Number one, you get the expense on your books. Number two, you get the bigger depreciation. I mean, is that really the very, very basic message when you boil it all down?

[Gary Milkwick]

Yeah, there's. So that's one of the things, right. There's timing differences. So if you're looking to buy things in the next few months. Yeah, buy them now. Because not only is that like a normal thing that you look at from year to year, but particularly this year, when the Accelerated depreciation is scheduled to decrease in the next year. You know, do it now rather than later when you get a smaller deduction in the future year. There's also other things that are kind of time sensitive, like setting up retirement planning. That's another thing that we see clients all the time, they say, what else can I do to reduce my taxes? A lot of it revolves around retirement planning, too. If you're already taking all the deductions that you can, you know, setting up a solo 401k, you know, if you're, if you're an H vac company and you want to set up a, you know, do something to put money aside for retirement that also has big tax benefits and that's important to do before the end of the year. If you're looking to, to do that.

[Podcast Host]

Let's say I am a, I don't know, a lawyer working from home or something like that. Right. Some sort of. I have a home office.

[Gary Milkwick]

Yep.

[Podcast Host]

Is there any kind of tax planning deduction, whatever I could do related to some of the expenses I have for the fact that I work out of my home, or is that just not okay to do?

[Gary Milkwick]

Yeah, yeah, absolutely. There's a home office deduction. There's two methods to do this. One is you take the percentage of your home office and you basically, on the tax return, multiply that percentage by your, you know, your rent, your utilities, you know, your electricity, sewer, water, HOA dues, any of that stuff, and you can take a percentage of that. And then there's also a simplified method where the IRS just says, okay, we're going to give you, you know, if you don't want to go to all the work of gathering all that information. And this, this happened, what, seven or eight years ago, I believe. But they said, well, okay, we'll give you just basically $5 a square foot as a deduction for your, your home office. So that's the simplified version of the home office deduction. But absolutely, if you, if you are working out of your home, there's a home office deduction available to you.

[Podcast Host]

So would you say in general, I mean, it's very generalized statement because you guys have worked with literally a hundred thousand businesses. When you all start working with a small business, would you say it's like a hundred percent of the time you are able to say, by the way, you're missing out on this tax benefit. You're not doing this, like, for the, for most small business owners, are they probably missing some stuff that's probably pretty easy to Implement, I would say just.

[Gary Milkwick]

From my direct experience working with clients. It's, it may not be a hundred percent, but it's, if not, it's 98%, you know, you know, every now and then I'll have, I'll have business owners come to me and they're losing money already or something like that. And it's like, okay, if you're not paying taxes in the first place, you know, there may be some credits or something we can get you. But, but if you're making money in your business, you're generating profits, then almost always there is something that I am able to say, oh, if you just did this or think about this, there's something that they could do to save money on taxes. Almost always.

[Podcast Host]

So. All right, now I want to give you a big softball question here. So talk to me about what 1-800 accountant does. Do you just take on any small business, any size, any industry? What do you all actually do?

[Gary Milkwick]

Yeah, I mean, at this point we have enough accountants that we have specialty in many, many industries. So, so just about any small business, I mean, we have hundreds of accountants now. So, you know, at the beginning we kind of focused on, you know, consultants, real estate, and you know, a couple of other industries. But at this point we have such a wide variety of accountants with varying backgrounds and experiences will match up the client based on geography and industry. So for example, if you're, you know, in California and you have a restaurant, you know, we'll find someone who has experience with California restaurants in our, in our kind of employee roster and we'll get you going that way. So yeah, it's, it's, at this point it's basically any small business. Now obviously, as you get larger, you know, we're not, you're, we're, we're focused on small businesses, not, you know, if you come have a, you know, $100 million a year manufacturing company, that's out of our wheelhouse, generally speaking. But you know, if you're, if your revenues are less than $5 million, just about any industry, we've got people covered.

[Podcast Host]

Well, listen, I think this is super valuable because I think small business owners out there are doing one of two things. They are either like having a bookkeeper that handles their invoicing and stuff also do their taxes. And there's no way that that person is a tax expert like the people that are part of, or maybe they're paying a boatload for someone to help them out just to do their taxes. But it's not this like year round Thinking and that's, you would, you would say, you know, your tax planning is a year round thing. It's not just in that moment to make sure you file your taxes.

[Gary Milkwick]

Absolutely. And honestly, you hit on one of the things that we see all of the time. You know, when we set the company up and started doing this, the idea was not to try to, you know, peel, you know, clients away from existing accountants because it was, you know, that's a sticky relationship. It's a, it's a big, there's high switching costs to change accountants. And so we were focusing on brand new businesses. But over the years, especially after Covid, when I think the latest numbers I saw were about 400,000 accountants left, the profession either retired or changed. And there's just not, not many people coming in to fill those roles. And so now we're seeing lots of people come to us and that you hit on the exact complaint that most have that do switch to us, which is, you know, my accountant does my tax return, but they don't really give me any guidance on things I can do to decrease my taxes. And like you said, it's a, it's a year round process. You know that, that tax consulting year round proactive process is, is kind of what I consider kind of the meat of our service is, is the actual planning. You know, at some point AI is probably going to do the actual prep. You know, like there's robots are going to do the, the actually putting in numbers and calculating your returns. But the actual planning is the piece that, that really provides the value to people.

[Podcast Host]

Yeah, I totally feel that it is a year round thing because sometimes some of the stuff you do takes you a year to kind of like get it all in place. So I encourage everybody to check out 100 accountants. Also get connected with Gary. We're going to put all of his information in the show notes. Gary, how do people follow you, get to know you, connect with you? Where they, where should they do that?

[Gary Milkwick]

You know, honestly the best place to get in touch with us is, is 1-800 accountant.com so just 1-800- accountant.com. we also have, you know, all the social media channels up and running that we interact with people through. Or you can just call, you know, if you're old fashioned, want to, want to give us a call 1-800-222-6868, which is the first several letters of accountant and that, you know, we'll, we'll get you hooked up with, with somebody that can help.

[Podcast Host]

Amazing. All right, we're going to put this all in the show Notes Gary this is some great tips to say. Thanks for being here.

[Gary Milkwick]

Thanks for having me.

[Jay Schwedelson]

Well, that was fun and great news. You got way more where that came from.

[Podcast Host]

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[Jay Schwedelson]

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