End of Year Tax Planning

About the Video

The discussion centers on why end-of-year tax planning is critical for business owners, especially as the holiday season approaches. Bringing a Certified Public Accountant (CPA) on board during this period can make a significant impact by maximizing tax savings and reducing liabilities before the year closes. This strategic planning ensures business owners take advantage of available deductions and credits, optimizing their financial position ahead of the new year.

Prefer to read? A full transcript is provided below.

Cort: 

Hello and welcome to another edition of Wealthy and Wise. I’m your host, Cort Christie, here at NCH Studio, and we have a very special guest today. Our guest is Jack Cohen of Campbell Jones and Cohen, a CPA firm. Jack is an old friend, somebody who I really think is one of the best tax preparers, strategists, and advocates for individuals with any kind of tax issues.

Jack, welcome to the program today.

Jack:

Thank you very much for having me again Cort. Another year has gone by. 

Cort:

I know. It’s like didn’t I just have you on recently?

Jack:

It would seem like you did. But I think it was probably a year ago. 

Cort:

It’s been a while, for sure. Well, here we are, Jack. Coming to the end of the 2024 tax year. And, there are always lots of people who miss out on people who are doing their work, doing their business, and not thinking about taxes this time of the year. Because it isn’t tax time, but it should be a time when you’re thinking about taxes. Tell us why people should be thinking about taxes in November of 2024.

Jack:

So if anybody remembers Rocky and Bullwinkle, there was the Wayback Machine, but that was only in the cartoons. And so, unfortunately, too many people start thinking about their taxes after the year is over. But that’s actually not great planning. What you’re supposed to do is think about it before the end of the year and a great time to do it would be like a November timeframe.

And the reason I say that is because if you’re in business, you probably already have the financial information for the first ten months of the year. And so if you got together with your CPA and wanted to strategize things that you could do for 24, well, you already have ten months. You kind of just have to project out the other two months.

And there’s a lot of things that you can think about in those two months and you still have a little time to do them. So that’s what you have to do. You have to kind of think ahead and not behind. 

Cort:

So you’re not going to get into the Wayback Machine in March or April. 

Jack:

It was Rocky and Bullwinkle only.

Cort:

That was a great cartoon. I love Rocky and Bullwinkle. All of our young listeners have no idea what we’re talking about here. 

So. All right. So we’ve got an opportunity this time of the year right now to basically do a look into what’s going on ten months of the year, as you mentioned. And, you know, there’s a lot of things to pay attention to because you don’t want to end the year missing out on the opportunities. What are some of the top opportunities that people should be thinking about at the end of the year?

Jack: 

Sure, I will help you. But when I talk to clients, one of the first questions I ask them is tell me, did anything unusual happen in 2024? Did you buy anything? Did you sell anything? Anything significant where money was involved? That being said, there are a number of things that I think you need to think about before the end of the year. An easy example would be if you’re in business, do you need to buy any equipment for your business?

Now I have a theory that you’re not supposed to go out and spend money just to get a tax deduction. Conversely, if you need something for your business, why do you want to wait until February of the next year? Get it this year, and you’ll get a deduction upfront. I mean, it’s common sense and that equipment could be everything for mechanical equipment for your business or even an automobile if you need it for your business.

It’s exactly why by the way, if you look at car sales in November, December, especially, what more expensive vehicles? All the magazines are full of, that’s telling you, hey, buy our car, get a 179 deduction, and get to write off like, you know, $100,000. 

Cort:

Well, that’s probably one of the most, I guess, sexy things for people to think about when it comes to any kind of year-end tax planning is, hey, if my company can buy a car for us, then let’s take advantage of that.

And how does that work? You know, can you pay for a car entirely? Can we do car leases? What do we recommend for individuals to take advantage of the 179? 

Jack:

Sure. So the first thing to say is 179 is only available when you purchase it. If you lease it, that doesn’t apply. And so having to be an automobile dealer in my day, I know a little bit about the automobile business, but the first thing I would ask the clients, would be to look it that from a financial standpoint and forget taxes for a second.

Does it make more sense to buy or does it make more sense to lease? And the things you consider are, you know, how often you normally keep vehicles, the kind of mileage you put on? For example, if you put a lot of miles on a car, perhaps a lease wouldn’t work. Okay. And the next part of the critical decision is, is this potential vehicle that you want to buy, are you going to use it for business?

Is it going to be 100% for business use, which obviously makes it a lot easier. And then I tell them about the difference between how to get a bigger deduction for your vehicle than normal. And so what happens is the IRS breaks vehicles down into two categories. There are cars that you have to kind of amortize over a period of five years.

But if the vehicle has a gross vehicle weight of 6,000 pounds or more, for tax purposes, the IRS calls it a truck and trucks get a far more favorable tax treatment, which allows you to write up not entirely the whole cost of the vehicle, but a large percentage of it. And so the GMC Suburbans and the big expeditions.

And so again, if you buy it before the end of the year and you use it for business, you’ll get a huge deduction on that year’s return of course. And so it is a big deal. I mean you know we go in the car dealers and we argue for the best deal.

If it’s a business deduction, it could be worth, I don’t know, 30, 40 thousand dollars. I mean, if a deduction or 50 or 60, I mean, we’re talking some serious money here. 

Cort:

So if you’re looking for a new vehicle, this is your opportunity. You know, you can come out right now or go out there, start negotiating deals, finding the right dealer.

But you might be able to really write off a lot a large percentage of that vehicle. As long as you’re over 6,000 pounds?

Jack:

6000 gross vehicle weight. And by the way, not that anybody asked gross vehicle weight is not the weight of the vehicle. Gross vehicle weight is the weight of the vehicle, plus passengers plus a full tank of gas.

So the actual vehicle can actually be less than 6000. But the gross vehicle weight is more than the 6000.

Cort:

Interesting. That’s good to know. So it’s a great opportunity. What are there things that you kind of help your clients focus on where they’re looking at the end of the year coming up and approaching and they’re going to have a tax liability and they want to reduce the tax?

Jack:

Sure. Well, the next two things are kind of tied together, and that has to do with officers compensation and it has to do with pension plans. So what I tell my clients, not universally, but pretty much is that the IRS rules, is you have to take a reasonable salary throughout the year. But what I tell the clients to do is take a little bit of a lower salary throughout the year.

And then when we get to November and December, that’s when we’ll throw it up. And here’s what I do. I take a look at how much money, so how much profit the company will have for the year. And then I compare it to how much salary they take in throughout the year. And if the salary is low, we have them give themselves a bonus.

Okay, so you always want to make your salary as low as possible, but still reasonable. And there’s no upside in giving them too much salary earlier in the year, cause I can’t get it back. So you threw it up in November or December, but the other part of that is that if you have a pension plan like a 401k and a profit sharing, those contributions will depend on your salary.

So it’s kind of a balancing act. We’re looking at the lowest but still reasonable salary and we’re looking for clients to be able to put in money to a pension plan. And so to kind of go back to your question, what are the things we could do? Many times it could be setting up 401k or a profit sharing or even doing something as simple as having a traditional IRA.

I like pension plans because it’s a tax deduction. Money has time value and it’s still your money. It’s your left hand giving your right hand the money, but you get a tax deduction for it. How could you go wrong? 

Cort:

Which is fantastic, right? And it grows tax-free, You don’t have to take it out for a very long.

Jack: 

Right. And that’s another thing. People always say, well, you know, Jack, we have to pay tax on it eventually. Well, you know, maybe a meteor will hit the earth in the meantime and none of this will make any difference. But money has time value, and a deduction today is still worth more than you have to worry about putting it into income 20 years from now.

And they can keep even raising the age for required minimum distributions. I think it’s up to 73 now. And so yeah I like deductions today absolutely 

Cort:

And I always think that pension plans for 401K plans to the most traditional. That you know when you start thinking about the ability in a small closely held company for the company to match on top of what you’re contributing.

I mean we’re talking about being able to put I don’t know what the caps are today, 50, 60 thousands a year?

Jack:

I think it’s like 66,000 I think is the cap.

Cort:

It’s a lot of money. 

Jack:

It is a lot of money for a small company. And if you’re really doing well and you can do it, they have what are known as defined benefit plans where you can put in 280,000.

And so there’s a lot of different opportunities with pension plans. But the key, the key is you have to think about it ahead of time. You just can’t wait till December 31st to do this. 

Cort:

And when I think about defined benefit plans, which are really quite an amazing way of contributing a ton, if you’ve got the profit in your business, you’ve got to have some certain things done by the end of the year that don’t just happen overnight.

It’s not about signing it. 

Jack:

It takes time to set up the plans.

Cort:

So you’ve got to get on it. Now would be the perfect time. 

Jack:

Absolutely.

Cort:

There was interest in the case recently. I don’t remember at what level the case came out, but it was indicating that potentially now we are able to tap into 401s for student loan debt and some medical stuff.

Jack:

Yes, I read that.

Cort:

I don’t know how that’s going to flush out. 

Jack:

Well, it would be just a way of getting the money out of the plan, perhaps without maybe to at least if not taxable, certainly not being penalized because, remember, in most plans to avoid the penalty, you have to be 59 and a half years old to take it out, still pay the tax, but at least no penalty.

But you’re right, I did read that they would allow you to use money for that. So I think I think the government is kind of kind of liberalizing this thing. And again, it’s a win-win because it helps it helps the economy. It’s good for everybody. 

Cort:

Pay down some debt. Help people pay bills, flexible.

Jack:

Absolutely.

Cort:

And not slap a 10% penalty on you for just tapping your 401k.

Jack:

Yeah. And you know even when you want to take it out before you’re 59 and a half, there are some situations where you can still avoid the penalty: medical, moving, losing your job. The government is actually liberalizing that area I think a lot because it’s a win for them too. 

Cort:

It’s good to know we had one individual that’s I would say a client of ours who was going through a bankruptcy and they had access to their 401k and we were having a discussion about it.

And, you know, they had some obligations that weren’t going to be flushed off or discharge in bankruptcy, but they didn’t have the money. And so they just took a $50,000 loan out of their 401k plan. It was just a great way for them to, you know, quickly use that money. And a lot of people don’t realize you can borrow from your own 401k.

Jack:

It is still your money. I mean, how could you lose? It’s the left hand given the right-hand money, you get a huge tax deduction. Tell me where the problem is. 

Cort:

Exactly. What about just simple HSA plans for individuals at the end of the year as well if they haven’t thought about it?

Jack:

Sure. Again, I think sometimes if you’re if you’re employed by another company, you kind of have to go back to the company because sometimes the companies as a benefit will do like an HSA or you can do it on your own.

And I think the deduction you’re allowed for that is I think for a family it’s about maybe like seven grand or something like that. So it’s not like a huge changer. But I mean, but, you know, it’s funny, though, on that same point, saving taxes doesn’t necessarily have to be a grand slam. It could be say, a single. I save a little here, I save a little here, I save a little here. And at the end, it adds up. I mean, it’s not like you’re getting a product back for paying tax. Okay. I’m just saying it’s a one-way street. They get the money. You don’t get it back. 

Cort:

You know, one of the questions and things that come up often and I know you know this, but I was like putting it out is, you know, people have a lot of fear about the IRS.

So we talk about these tax planning strategies and maybe I buy myself a large vehicle at the end of the year or I start coming up with aggressive pension plans to benefit me. But, you know, how do you I guess, explain to somebody who’s sort of a layperson when it comes to taxation, the IRS, you know, how they should view the IRS?

Jack:

Well, I mean, let’s face it, they say the IRS has a voluntary compliance system. That’s not totally true, because if you don’t comply, I mean, they do occasionally put people in jail for tax evasion. And so but this is going to sound really crazy Cort. I really honestly believe most people are honest. I really do. 

Most people, don’t want to overpay their taxes. They want their tell up to the line, not over it. They want to comply, but of course they want to pay the least amount of tax possible. And there are many things in the tax law that are not always black and white, and there’s a lot of gray areas and a lot of judgment involved. And so, sure, I would like to tax, but I would like the clients to be afraid, a little afraid of the IRS because I don’t want them to do anything that’s totally wacky.

And I try and explain that to them. And I would say most clients are incredibly understanding and they and they actually want to do the right thing. They don’t want to pay any more than what they have to. But  they do listen to me. I honestly believe that. And they’d be foolish not to listen because as we both know, we’ve done scientific surveys with the exception of my two marriages.

I’m right 100% of the time. I’m saying that’s a pretty good record. We can take out number wife number one and wife number two on that and a thousand here. So they really, really should listen to me. And they do. 

Cort:

Absolutely. I know they do. And I think, you know, we’ve had, you know, a couple hundred thousand clients come through our doors over the last 35 years.

And when you think of the conversations that we had around taxation and you kind of see people get edgy and comfortable, it’s not the most sexy conversation about,

Jack:

No… who likes taxes?

Cort:

Right. But, you know, it’s your money. And so if you can take advantage of tax opportunities that would reduce your tax burden, absolutely. Everyone should. You know, and as you mentioned, of course, there’s people that violate the law.

I mean, we’re still in we’re not cashless yet in this society. We’re not far off. But there are still plenty of businesses that do it in cash. And there’s some people that don’t always report all the cash. 

Jack:

Of course, Of course. 

Cort:

But besides that, you know, that’s really kind of one of those areas where maybe the IRS still has, you know, people that are not doing what they should.

I think for the most part is people shouldn’t fear the IRS. They should respect the IRS.

Jack:

I think that’s a great way to put it. And I think what you said also proves the point, though, that and I’ve seen this before, where most people should not be doing their own tax returns. I mean, I’ve seen some crazy stuff where people could well afford to pay a CPA to do the tax return, and they just don’t.

And I had one guy who came to us and he had all the corporate returns done by CPAs, and he did his personal returns, I think in tax and  I didn’t say a deduction and tax. He was off by like 50 or $75,000. It’s not something that you should do yourself, not because you can’t. But the question is, will you do the best job possible?

Everybody should stay in their lane is where I’m going with this. And the truth is there’s I think, a little biased here, but I think we’re worth it. And the people who go to like the big box tax preparers I mean it’s that input is what it is. I can make a living just off of what I see happens there.

But again, for some people that’s fine. But if you have any kind of a I don’t want say a complicated return, but if you have a business, if you have rental properties, hire a CPA. And I say that even if it’s not me, how do you like that?

Cort:

I will tell you, I’ve gone to those big boxes before. I’ve seen what they do. And the sad part is when I knew more answers to the questions that were coming up that they couldn’t answer.

Jack:

That is never a sign that’s. 

Cort:

Why didn’t that call, Jack? 

Jack:

You know my biggest competitor these days is Cort? TikTok. Because people see TikToks and they see something on tax and they’ll call me. I’m like, now I got to compete with TikTok and Facebook. 

Cort:

They got more ideas than you.

Jack:

I’m just telling you, this is terrible.

Cort:

Well, one of the most important things folks that are listening today is you need to get ahead of it at the end of the year before the year ends because you won’t be able to pay out a bonus efficiently identify whether you took enough salary, and fund your pension plans, buy a vehicle buyy office equipment so you can write it off because who wants to pay extra tax?

The best time of year to do your planning is right now. You can’t do it in January for 2024 when we’re in 2025. This is the time Jack Cohen with Campbell Jones and Cohen is an absolute legend around our offices.

And like I said, I’ve known Jack for a very long time. He’s a dear friend of mine, and we trust him with our clients at NCH. And so if you’re looking for a team that is full of experts, including Jack, then you want to talk to NCH. Talk to one of our consultants. We’ll make sure that you efficiently get over to Jack’s office.

We’re kind of the process.

Jack:

The funnel and the funnel.

Cort:

The funnel to get people over there. And of course, Jack’s got an incredibly successful firm all on his own without us. But we love what he and his team do over there and they know how to do it. They know how to do it right For real estate investors, small business owners, and large business owners.

We’re just talking about the size of some of his clients, even though a lot of them are smaller business owners. He’s got every size business within his organization.

Jack:

As I like to say, from the casinos to the pole dancers and everybody in between. And we are in Las Vegas, folks. That travel is a part of the scene here. So thank you, Jack, for being on the program. Appreciate it. 

Jack:

You’re very welcome Cort.

Cort:

Thank you to all of you for tuning in to another edition of Wealthy and Wise, and make sure you click the link below. We’ve got the NCH year-end business checklist there. It’s free. It just kind of goes through everything. You should be thinking about what taxes and just making sure your registrations are up to date for your business entity.

Click the link, Get the download please like, and subscribe to help us spread the word about what we’re doing out here to help small business owners be more successful. Thanks for tuning in.

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DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.