Ep 744 | 6 Smart Tax Moves Entrepreneurs Should Make Early in the Year

Thank you for joining me today. It's Brian Gubernick, and welcome to the No Days Off podcast, where we believe that every single day brings a new opportunity to get better. Here at No Days Off, we aim to, of course, get better each and every day at something. We talk about leadership and we talk about personal development. We also talk about money and, and ways that we can improve our financial situation. Well, today I want to talk a little bit around money, and I want to do so by analyzing some smart tax moves that I think everybody at, you know, that's part of the No Days Off Nation should be making, especially early in the year, which is where we sit right now. There are very few moments in the year when timing actually matters in tax strategy. The beginning of the year is one of those times. Most entrepreneurs will wait until the third quarter or even the fourth quarter to talk to their CPA, but the window to act may already be closing. So today I want to talk through some tax strategies that I think are better deployed early in the year than, than waiting. And part of the reason I believe they're better to deploy early in the year is because some of these create a compounding effect. In other words, allowing your money to work for you for a greater period of time, thereby increasing over the years. It will increase, increase the actual value of those dollars. These aren't loopholes to me. These are fundamentals, and they're all things that we've discussed here over the past few years, but we're going to package it up in one episode here today. So number 1, an early tax strategy to consider. Is to max out your 401(k) early, but not to create a cash crunch. Let me explain. If you have access to a 401(k), maybe it's a solo 401(k) or a SEP or a traditional, I think this is one of the cleanest tax levers you have. I want to, I want to encourage you to fund that 401(k) early in the year. Because when you do that, it does two things. Number one, it reduces taxable income immediately. And number two, and more importantly, it allows those dollars to compound longer inside, you know, the tax-advantaged account in which you're storing, in which you're storing those dollars. I think the mistake so many people make is they wait until December and then they're scrambling, and they also missed out on 9, 10, 11, 12 months worth of compounding. So your action item: decide what maxed out realistically looks like for you by mid-year, set up your contributions now so it happens automatically, and stress test cash flow so this doesn't create family pressure. I will tell you, for me, early in the year I put 100% of my compensation towards funding my 401(k) maxing it out, and then I'm done for the year and those dollars are already contributed. Now, I don't do that if it creates stress for me financially, right? I'm not trying to, you know, max it out but then not have any dollars in which I, you know, in which I need to, you know, survive or, or, or fund my family, you know, all of our expenses. But if you have the ability to put more in at the front, at the start of the year, do it. Number 2, fully fund your HSA, your health savings account. An HSA is one of only a few, I think, triple tax-advantaged accounts that are available. What do I mean when I say triple tax advantage? Number 1, you get contributions that are deductible. Number 2, the growth is tax-free. And number 3, the withdrawals for qualified expenses are also tax-free. So for entrepreneurs who are healthy physically healthy, and you're not drawing from that HSA all that regularly, this can become another long-term investment account that shockingly grows pretty rapidly over time if it's tied to an index fund or whatever it is you have it tied to. So if you have an HSA, fund that earlier in the year. If you don't have an HSA yet, check out the eligibility because there's a couple things you need to get in place and start it. As I mentioned, fully fund it early in the year and invest the balance in that HSA instead of just letting it sit in cash. Your HSA, if you're a healthy individual, can really, really grow your wealth. Number 3, we talked about it here. Many of you are paying your kids through your business. If that is in fact the case, the children are legitimately working in the business, then max out their Roth IRAs. Remember, you pay the kids, the kids then max their Roth IRA, and this is one of the most powerful long-term wealth moves available. You're shifting your income from a higher tax bracket to, to their very low tax bracket or even zero tax bracket, and then it's being— the money is, or portion of that money is being converted into tax-free growth. That is likely to grow for decades before they even think about touching it. So if you're not paying your kids yet, separate episode, but go investigate, can I pay my kids in my business? Can they be working in the business? If you are in fact paying your kids and maybe you even know that the kids can then turn around and fund their own Roth IRA, do it sooner in the year for all of the reasons that we've already discussed. Now, number 4, number 4, accelerate business expenses intentionally. What do I mean? I think many entrepreneurs expense reactively instead of strategically. So early in the year, you can plan for your equipment purchases or the professional services or vendors that you're going to pay or your education and or coaching. I think this gives you control. Like, that simple planning early in the year gives you control over timing instead of being surprised by it later. Also, if you're in a business that has some seasonality to it, you can position these expenses, or you can pay them early when cash is plentiful versus when things are a little thinner. So your action items would be review expected business purchases for the year and then decide which of those should maybe be front-loaded. Now make sure you're aligning the spending with real ROI, not just shooting for deductions. I mean, you don't want to be paying for something that doesn't give you and your business a very solid return. So align that spending appropriately, but, but make sure for those things that you know you're going to spend, try to front-load them because then you have a bit more control throughout the year. Number 5, this is one that's easily missed. I want you to revisit your entity structure, and I want you to do it early and not late. Entity structure changes don't work well when you're trying to rush them, especially later in the year. So S-corps, the compensation required if you, if you are an S-corp, how you're distributing profits, these require planning and they require pretty clean execution. If you wait until the third quarter or the fourth quarter, you really start to limit your options. So what I want to challenge you to do is ask your CPA one question really early this year, and that question is, is my current entity still optimal for my income level this year? If a change is coming, then you could plan it well before income even spikes. Again, if you wait till later in the year, for example, oh, an S corp's the right structure for me, but you don't do anything about it until the fourth quarter, it's going to create some challenge for you. And then lastly, number 6. Number 6, I want you to review depreciation opportunities right now. If you own assets, be it real estate or vehicles or equipment, your depreciation strategy really matters. And I know, you know, so many of you are really in growth mode right now. And you may not have had, you know, this depreciation opportunity in years past, but it's something you have to pay more attention to now as you've accumulated more assets. So cost segregation, bonus depreciation, standard depreciation— these schedules all have timing implications. So I would take inventory of the assets I own. I'm guessing you're tracking your net worth, so that's probably a good place to start. And then ask if depreciation elections should be made this year, or is there a path to accelerate some depreciation if it in fact serves you? What I'm really aiming to do is to avoid leaving deductions unused simply because we didn't take action. So as we wrap up, here's the bigger point. I think tax strategy works when it's planned, when it's calm, when it's intentional. Not when it's rushed, not when you're reactive, certainly not when you're emotional. In my experience, early-year decisions create options for you. Late-year decisions, they might create some, some challenge and compromise for you. So my final action item, if I'm in your shoes: schedule a proactive tax strategy conversation with the CPA early in the year. Not, not to file, but, but to design. To make sure you're dialed. I think that's how entrepreneurs keep more of what they earn, and they do it without guessing. Now, side note, uh, if you need any tax referrals or anything like that, reach out, reach out to the crew at No Days Off. Uh, we always have good referrals for all sorts of things, tax included. That's all I have for you today, the No Days Off podcast. Thank you so much for listening, and remember, every single day brings a new opportunity to get better. So let's get after it.