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Tax Planning Success Story
17 December, 2021

A Tax Planning Success Story

Regardless of how you feel about the past year, a fresh one will be here shortly. We express the benefits of tax planning because we know how much it can help people relieve their burden and find new opportunities to create a better tomorrow. Recently a new client bought a dental practice with the plan to sell in two years.

The client had some stock basis issues in the past, causing $100,000 of suspended depreciation deductions. This tight cash flow situation led them to seek us for assistance with a business plan to help alleviate their needs while still meeting forecasted revenue goals and increasing profitability margins.

We first started by increasing his wage to allow maximum 401k deferral savings and profit-sharing contribution (not payable until the due date of the return, plus extensions if the sale is delayed).

The client arranged a $100,000 personal loan for capital to increase his stock basis, allowing deduction of $100,000 of prior suspended losses yielding an ordinary income deduction. This year he’ll distribute the $100,000 and pay off his loan, lowering the stock basis. When he sells the practice, he’ll only pay lower capital gains rates on the $100k, so he saves the 15% difference between ordinary income and capital gain rates.

The lower income makes him eligible for the 20% Qualified Business Income deduction. Ultimately, this strategy is resulting in a $95,000 lower tax liability this year. It’s not easy to know what choices are best for him to use the tax savings, but he has the opportunity now, because of tax planning, to help out where before there were only difficult ones.

Drilldown Solution Can Help Your Small Business Accounting Needs

Our accounting services are designed to reduce your administrative and bookkeeping burdens and provide you with valuable financial benchmarks for your business. This methodology results in keeping you updated and informed.

Our seasoned, highly skilled full-service accounting team at Drilldown Solution will remove your financial pain points with bookkeeping to make managing your money easier. DrillDown Solution has the important tools you require to track expenses, oversee cash flow, and discover financial trends so you can effectively plan for the future of your business.

We have the expert team to help any small business thrive, even under the current COVID-19 pandemic circumstances. We accomplish this success with a three-part system comprised of patient-experience excellence, financial focused operations, and accountability.

Our goal at Drilldown Solution is to put your small business in the best financial position possible, utilizing proactive processes and personal care!

Note: The material and contents provided in this article are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Ed Gabriel, CPA is President of DrillDown Solution and a graduate of Brigham Young University. His clients benefit from over 40 years of experience in maximizing profits, minimizing taxes and putting them in the best financial position possible.