Filing Is Not a Tax Strategy
So you filed your taxes and owe more than you thought. It’s the fourth quarter with 3 minutes left to go. There are a couple of plays you could do to win the game. Do you know what they are? Most entrepreneurs hand their CPA a folder and trust the number that comes back and you should unless you vetted your CPA upfront. Nobody asks what wasn't found. Here's what I mean.
There are some retirement investments, HSA and strategies like cost segregation studies that can be done retroactively up until the April 15 tax deadline. Most entrepreneurs don't know this is available because their CPA never brings it up. They file what they're given, don’t ask additional questions and you might be stuck with a bill. Compliance without strategy is still compliance. It's just expensive compliance.
Consider also your entity structure. When do you change it? Why would you? That question has three different answers: a tax answer, an exit answer, and a liability answer. Most people are only getting one of the three from whoever they're paying to advise them based on what they know and not their experience. Watching someone go through and guiding them through and eight figure exit aren’t the same level of experience.
And if you're not ready to file correctly by April 15th, file an extension. An extension is not an admission of failure but it does need to be filed correctly to avoid fees. Let’s see what we can learn from what your CPA didn’t tell you.
The Question Behind the Question
A compliance mindset is if it got done and nothing bad happened. It was filed on time, no audit or penalty. I get it, when you're running a company, the goal is just to close the loop.
But here's the question underneath the question: How much of what you built last year actually stayed with you?
If you like metrics, you’ll like this. Profit is calculated by subtracting total expenses from total revenue. What about your marginal and effective tax rate? Effective Tax Rate is the total tax divided by total taxable income. Marginal Tax Rate, however, is the rate applied to the next dollar of income. It helps determine the tax impact of raises or deductions.
The version of you that has an integrated team around this knows that number. The version of you managing it alone usually finds out in April, when it's too late to change it. But maybe it’s not too late.
Asking the Right Questions Even When You Aren’t the Expert
One of the heaviest things about managing your own wealth is the belief that you need to know everything. That if you don't understand every deduction, every entity option, every depreciation schedule, you're falling behind and being taken advantage of.
You don't need to know all of it. You need to know enough to ask better questions of the people who do. Evaluating their ability to perform at the highest level. It’s the same as employees but with your wealth advisement, it’s outsourced.
'What did we consider and reject this year?' is a better question than 'Did you find everything?'
'When was my entity structure last evaluated against my current income and exit timeline?' is a better question than 'Is my LLC still fine?'
The peace isn't in knowing every answer. It's in having the right team around you and trusting that you've built a process worth trusting. You don't carry the weight alone when the system is working. That's what we're building toward. To add the championship team shares with you what was considered and rejected before you have to ask because they help advise you not to perform for you. Let’s tackle that before next year, stay focused with me here.
The Pre-Filing Deduction Review: 5 Questions to Ask Before April 15th
This isn't about learning tax law. It's about knowing which questions to bring to your CPA. Run through these before anything gets submitted. Or get a second set of eyes before you file.
1. Ask your CPA directly: 'What deductions did we consider and reject this year — and why?' Most CPAs won't volunteer this. Asking forces a real conversation about what was evaluated, not just what was captured. If they can't answer it, that's data. Consider retirement accounts and HSA investments where appropriate. Keep in mind that cash put to retirement is also cash you can’t reinvest into your business. If your business is growing, consider the reinvestment than the retirement depending on age, risk tolerance and situation.
2. If you own any real estate: Ask whether a cost segregation study has been completed on every property. If not, ask whether one can still be applied to this year's return before filing. In many cases, it can. The study reclassifies assets from long-life to short-life depreciation — accelerating your deduction significantly. However, just because you can offset taxes doesn’t mean you should without knowing the repercussions of the decision. Talk to a tax strategist and a wealth manager with experience of real estate investment, or message me directly.
3. Review your entity structure: When was it last evaluated? Does it still reflect your current income level, your risk exposure, and your eventual exit? An entity built for a $500K business may be the wrong vehicle for a $3M business and the wrong structure entirely for a business you intend to sell. This is a conversation, not a filing. Check also how you are paying yourself from your business. That also dictates how you are taxed.
4. Pull your depreciation schedule: Verify it hasn't defaulted to straight-line depreciation when accelerated options (Section 179, bonus depreciation) were available. This is one of the most commonly uncaptured opportunities on a high-income entrepreneur's return.
5. If you're not ready, extend: Any taxes owed are still due April 15th but to file it can be extended. This means you need all of your documentation in order to know your projected tax amount and it does not extend payment deadlines but it gives you time to file accurately rather than fast. Don't file to file, file when it's right.
COPY-PASTE: Questions to Send Your CPA This Week
Hey [Name] — before we finalize the filing, I want to make sure we've covered a few things:
What deductions did we consider and decide against this year?
Have we looked at a cost segregation study on [property address]? Can it still apply to this return? What advisement would you have on if I should perform one?
When was my entity structure last reviewed against my current income and exit plans?
Is my depreciation schedule using accelerated methods where available?
If we're not ready to file with confidence by the 15th, can we extend?
ALTERNATIVE INVESTMENT SPOTLIGHT
Cost Segregation: The Study Most Real Estate Owners Have Never Ordered
If you own commercial property, rental property, or any real estate used in your business, and you've never had a cost segregation study done, this is the one conversation worth having before April 15th.
Here's how it works. When you purchase or construct a building, the IRS defaults to depreciating the entire asset over 27.5 years (residential) or 39 years (commercial). A cost segregation study breaks the property into its components think flooring, lighting, landscaping, fixtures, parking and reclassifies those shorter-life assets to 5, 7, or 15-year depreciation schedules.
That acceleration moves deductions from the future into the present. For a qualifying property, the first-year impact can be significant. It can be completed on properties you already own, not just ones you're purchasing. And in many cases, it can be applied retroactively through a 481(a) adjustment — meaning prior years' uncaptured depreciation can be caught up in the current return without amending.
The study itself typically pays for itself. Typically can be $3,000 to $5,000 in price and should come with a completed 3115 form. You know my story of how I had to pay my CPA extra to finish mine. Through our service, we offer them in house and they are verified by a CPA not just performed by an outside party. Ask your favorite real estate professional who they use and why they like them or reach out to me through our service or I have a few one off companies I know.
If your CPA has never brought this up, it doesn't mean you don't qualify. It may mean they don't specialize in it. This is worth a direct question before you file. I know someone who saved $100k on taxes last year and it was the best decision for him and his investments so don’t sleep on this!
WANT TO GO DEEPER?
Reply AUDIT and we'll pull your last return and show you what's been missed.
Maybe nothing has been missed but you don’t know unless you do know.
Four Tools for This Week
Tool 1 | IRS Form 4562 — Pull your current depreciation schedule and verify what method is being used on each asset. This is the document that shows whether you're on straight-line or accelerated. Ask your CPA for it. |
Tool 2 | Cost Segregation Study Request — Ask your CPA or a specialist: 'Do I have any real estate that qualifies for a cost seg study, and can it still apply to this year's return?' That one question can open a significant conversation. |
Tool 3 | IRS Form 4868 — The automatic extension form. Filing it gives you until October 15th on your personal return. Your CPA can submit it electronically in minutes. Any balance owed is still due April 15th, but it buys you time to file correctly. |
Tool 4 | Entity Review Checklist — Ask when your entity structure was last evaluated. Key questions: Has your income level changed significantly? Do you have real estate inside an entity it shouldn't be in? Are you planning an exit in the next three to five years? Each one changes the answer. |
QUESTION FOR YOU
When your CPA presents your return this year, will you ask what they considered — and rejected — before arriving at that number?
Most people don't. Most people sign and move on. The ones who ask that question are the ones who start building a real process and a real team around their wealth. This is also true in your business with your employees. Keep asking and asking deeper questions.
QUICK TIP OF THE WEEK
If you own any real estate and have never had a cost segregation study done, make that one phone call before April 15th. The depreciation window on a prior-year catch-up closes when you file.
THIS WEEK I'M READING / THINKING ABOUT
After a 9 month hiatus I’m going to relaunch the podcast. I’ll make an episode as to why I paused and what I learned. I’ll also outline who I'll be talking to and what I'll be discussing. Subscribe before it’s released.
BEFORE YOU GO
This is the first week of Tax Month. The IRS isn’t scary and your CPA probably knows what they are doing. Now, if you don’t think they do know it’s time to make a change. Not sure what that change is for you. Maybe it’s a second set of eyes. (some are willing to do for free or $250 to review) Maybe it’s a new CPA. Maybe it’s strategic planning to reduce your taxes or offset the taxes you do have.
More next week.
— Paul
P.S. — I’ve been playing with the format and content. I intend to share information that you can not only learn but also take action on. With our limited time on this earth, let’s create, not consume. Carpe diem.