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The Cash You're Burning on Taxes

Nobody would take $50,000 in cash and set it on fire. But a lot of business owners do something surprisingly close to that every year. They pay taxes they didn't actually owe. Not because they're careless. Not because their CPA is bad. Usually because no one was looking closely enough at the right time. There's a distinction that matters here. The taxes you legally owe and the taxes you actually pay are often two different numbers. What you owe is just the cost of doing business. That's fine. The problem is the gap between what you owe and what you end up paying. In our experience, that gap almost always tilts in one direction: you paid too much. It tends to come from two places.

Andrew Harris

Andrew Harris, AIF®

Founding Partner

The first is a lack of planning

Tax law is full of levers that can meaningfully reduce what you owe, but most of them have deadlines that fall well before your return is filed. By April, the window has closed on nearly all of them. If no one is looking ahead during the year, these opportunities simply pass by.

A few examples of what we mean:

  • Entity selection and election timing

  • Owner compensation and distribution structure

  • Retirement plan design and funding

  • Roth conversions

  • Cost segregation studies

  • Bonus depreciation and Section 179 elections

  • Charitable bunching and donor-advised funds

  • Tax loss and tax gain harvesting

  • Pass-through entity tax elections

  • 1031 exchanges

  • QSBS planning

  • Estate and gifting strategies

  • AMT modeling

Not all of these apply to every business owner. All of them should be evaluated, and the ones that fit should be acted on before the window closes.

The second is errors on the return itself

Most people assume that once a return has been filed and accepted by the IRS, the numbers are right. That assumption is wrong more often than you'd expect. A return being accepted means it wasn't rejected. It doesn't mean the math is correct. It doesn't mean every form was filed. It doesn't mean the cost basis on your equity compensation was reported accurately.

Here's a sample of what we regularly find when reviewing prior returns:

  • Backdoor Roth conversions reported as taxable

  • RSU or ESPP income taxed twice

  • Missed QSBS exclusion

  • Charitable contributions omitted

  • Retirement contributions not reflected

  • PTET credits not claimed

  • Form 8606 basis not tracked

  • Net Investment Income Tax miscalculated

  • Additional Medicare Tax missed

  • Gift tax return not filed after 529 superfunding

  • Stepped-up basis missed on inherited assets

  • AMT credit carryover not claimed

None of these errors trigger an IRS notice. They don't result in an audit. They just quietly inflate the amount you owe, and no one ever flags it.

The cost that doesn't show up on any tax form

There's a related problem worth mentioning. Without a clear picture of what you actually owe, it's very hard to make confident decisions about your cash flow. You either keep too much in the business waiting for a tax bill you can't size, or you take too much out and come up short in April. Both happen constantly. Both are avoidable if someone is projecting your real liability during the year, not just your safe harbor estimate.

Why a second set of eyes matters

The IRS isn't going to tell you that you overpaid. Their system catches underpayment, not the other direction. The only way to find money left on the table is to have someone look, ideally someone other than the person who prepared the return in the first place. Two perspectives consistently find what one perspective misses.

It's also worth knowing that there's a limited window to correct these things. Most errors can only be amended within three years of the original filing date. After that, the opportunity is gone.

If you don't currently have someone reviewing both your tax plan and your return, we'd encourage you to find that resource. It doesn't have to be us. What matters is that someone with the right expertise is looking at your situation while there's still time to do something about it.

In our experience, the cost of that review is almost always a fraction of what it finds.