Tax Moves that put $ Back in Your Pocket

Need a new CPA for your 2021 taxes?

In the December 2021 issue of “Solutions we offered several ideas to wrap-up your 2021 tax situation for maximum advantage.  Looking forward, what will your business do to best take advantage of tax planning opportunities in 2022?  


Do you may want more from your CPA than simply preparation of your tax returns and estimated payments?

It’s January and you realize that 2021 tax returns will be due soon.  Once again, you might be reflecting upon some discontent with your current CPA.  Maybe you feel that the fees for tax preparation services just don’t measure up with the service received.  Or perhaps their annual tax preparation services are acceptable, but you can’t help but wondering “Isn’t there something more?  My colleagues brag about how their CPA really helps them – why doesn’t mine do more for my business?”

If you’re considering a move to another CPA firm, now is the time to begin interviews – and we’d like to invite you to consider MyCFO! (Click here for 10 questions to ask when interviewing a tax accountant.)

Yes, we do a fantastic job in tax preparation and would be happy to do your business and personal tax returns for 2021.  But MyCFO does so much more than tax compliance – we are exceptional in tax planning. This combination is why so many businesses choose MyCFO to prepare their 2021 tax returns.

Here are examples of how MyCFO helps our clients as their tax accountant:

Avoiding surprises on quarterly payments: This busy client came to MyCFO needing a better way to project quarterly tax payments.  The husband runs a contractor business, while the wife manages over a dozen rental units owned by the couple.  Income for the property management side is fairly easy to project, but the contractor business varies widely from year-to-year.

Typically, CPAs only project tax payments based on the prior year.  This works reasonably well when income stays the same or increases slightly.  But if income goes way up (and not enough has been set aside for taxes) or way down (and affording the pre-planned quarterly payment is a major strain), this can cause some unexpected surprises.

MyCFO set up a system, which we review annually with the client, in which specific percentages of rent and contractor income are set aside on a monthly basis just for taxes.  This system has proven to be accurate within a few percentage points, so that the client doesn’t have to worry about tax payments.

Multi-state taxation: When expanding your business across state boarders, complying with state taxation laws may not always be obvious but tax surprises can be major obstacles. In this case, our new client (with online sales comprising 25% of revenues) did not really view themselves as a multi-state business, but the state tax authorities told them otherwise.  We helped them out of the current tax situation with minimal fines, then built them an effective an affordable framework for future compliance. 

Mergers and acquisitions tax planning: 

Multiple partners, loans, and tax implications: When selling or buying a business, tax planning can make a massive impact on your net payout as a seller, or future depreciation write-offs for the buyer.  A common issue is determining whether the purchase will be an asset vs. stock sale, which when fully understood, can usually be structured to make economic sense for both parties.

In this case, our client’s ownership was composed of three partners, each with loans to the business of different amounts, and an earnout (i.e., part of purchase price paid in future) to consider.  Not only was a calculation of payout/partner necessary, but structuring the deal to minimize taxes for the sellers was of paramount importance.

Lawyers often ask MyCFO to look at their M&A transactions.  However, a common mistake is waiting to call us until the deal is too far down the road.  We encourage all parties, and their legal counsel to contact us early in the process so that we can help with proper structuring of the deal and negotiations, i.e., before both seller and buyer think a deal is struck, then it must be unwound and re-done because of tax implications.

Succession planning: impact on taxation: With the current federal estate tax exemption at over $12 million, you might not think transferring your small-to mid-size business to your children will have tax ramifications.  But for many states, think again.  In Massachusetts, the estate tax applies to estates worth more than $1 million, with the progressive rate toping out at 16%.  

Recently, our client came to us with several succession planning issues (keyman life insurance, board direction for a younger family member who was to succeed owner, debt inherited from the company and related ability to qualify with the bank for the loan, etc.) but one of the most important was fairness in distribution of overall assets to different children.  

The daughter wasn’t interested in the business and had a different career, while the son was going to take it over (this is a common issue for many of our clients).  As such, other assets to be distributed (such as residential real estate and stocks) could be more easily converted to cash, which if given to the daughter would allow to live a very nice life with substantial security.  On the other hand, the son would own a business that may never be sold (so the unrealized value would not help him at all for many years to come, if he ever sold it) and his lifestyle would completely depend on the salary and excess profits from the business.  It didn’t seem fair to the owner, but he didn’t want any strife between his children.  

To make matters more complicated, the daughter’s portion would be fully taxable in Massachusetts, while the son’s interest in the business would not be taxed until a gain (i.e., sale) was realized.

Based on the owner’s directives (which are typically highly subjective in these cases), MyCFO arranged a business valuation, which helped with proper proportioning of the estate, determined the after-tax benefit for the daughter, and helped the business owner to select which non-business assets should be distributed to each child.

In this case, the owner felt that since the son was taking on the father’s “business legacy” – but would essentially own a “dead asset” that had no realizable worth until sold – it was only equitable to give the son other assets that would allow him to live at approximately the same lifestyle of the daughter.

Structuring for complex business transactions: As your business grows, you may decide to form a number of related companies.  Typically, the motivation may be liability/risk management, marketing or even valuation and eventual sale of the business.  However, tax benefits and structuring are often left as an afterthought, which leads to unintended consequences.

In this case, our client’s family business that was decades old had expanded through vertical integration.  The related companies were not only in the same industry, at different stages of production, but several operated out-of-state.  As the next generation of family members was transitioning into ownership, it was important to know the profitability of each operation. Part of MyCFO’s solution was to form a management company, under which all related companies were held.  This made the profit picture clearer and allowed for an effective business valuation to take place, so that ownership could be fairly distributed.  Of course, taxation was considered in the process, as the multi-state aspect of some of the companies impacted their overall profitability.  We also consulted with the client on tax issues related to future buyout options for family members looking to leave the business.

Real estate transactions: Cashing out on your residential rental and commercial real estate properties seems wonderful until the tax bill arrives.  MyCFO helps our clients to use all available avenues to minimize or defer the related capital gains tax, which can vary depending on your situation.

A popular option to delay such taxation is through a 1031 exchange.  Taking this application one step further, investing the proceeds of a 1031 exchange in a Delaware Statutory Trust has other tax benefits worth considering.  A DST is an investment trust which holds one or more pieces of real property, allowing investors to have a fractional ownership interest in the property held by that trust.  DSTs offer the same tax advantages of real estate that an investor would own and manage themselves. Depreciation and amortization are passed along to DST investors by their proportionate share. In situations in which the building value is substantially more than land value, investors may have essentially tax-free income due these write-offs.

As your CPA, MyCFO applies our decades of experience in innovative tax planning and preparation.  If this is the kind of innovative thinking and client-focus that you’d like to see for your tax accountant, contact us to discuss preparing your 2021 returns.