Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
You can't claim any more taxwrite offs after December 31st.
(00:04):
Once the new year arrives, yourtax situation is locked in
stone.
What if I told you that's notcorrect?
That even though 2024 has ended,there's still a powerful tax
strategy you can use right now.
One that could save youthousands on last year's taxes.
In the next few moments, we'regoing to discuss how just one
strategy can reduce your taxbill by thousands.
(00:25):
The IRS guidelines onimplementing the strategy and
some real life examples on thecorrect and incorrect way on
going about it.
This would be a good time to saythat this isn't about finding
more receipts or creating fakepurchases.
It's about restructuring howyour business pays taxes
completely legal.
And with the IRS is fullblessing.
When you run a business, thereare two common sets of taxes,
(00:48):
and within those taxes, thereare four different types of
taxes you need to consider.
The first set is income taxes.
Like everyone, you pay federalincome tax, and depending on
where you live, you might alsopay state income tax.
That's familiar territory formost people.
The second set, not so much.
This is what we call payrolltaxes, social security and
(01:09):
Medicare.
Here's where it is expensive forbusiness owners.
You're paying both sides ofthese taxes while employees only
pay half.
You're covering both theemployer and employees portions
that adds up to 15.
3 percent on every dollar youearn.
Let me share a real example thathappened just last month.
But first, my name is Davian.
(01:30):
I'm a licensed certified publicaccountant.
I formerly worked with the IRS,in the European stock market and
with over 70 differentbusinesses spanning over 17
different industries.
My ultimate goal is to help yousave time and money while
building wealth and legacy.
So don't procrastinate this taxseason.
Click the link in thedescription and let us help get
you from where you're at towhere you want to be.
(01:51):
Now let's jump back into thevideo.
Okay, so I got a new client lastmonth.
Let's call him Marcus.
He came to me frustrated abouthis taxes.
His business had brought inabout 126, 000 in net income,
and he was shocked at how muchhe was quoted in paying taxes.
Just in payroll taxes alone, hewas looking at over 19, 000
(02:15):
before even touching income tax.
That's when we discussed astrategy using something the IRS
calls late election reliefoutlined specifically in Revenue
Procedure 2013 30.
By following this procedureexactly, I'm saving him over 9,
000 in payroll taxes alone, noteven mentioning some of the
(02:36):
other strategies we'veimplemented, even though 2024 is
already over.
Now, before we dive into howthis works, let me explain
something crucial about how theIRS views business income.
The IRS has a fundamentalprinciple called the Assignment
of Income Doctrine.
This isn't just some theory,it's written directly into the
(02:56):
IRS manual section 4104327 andreferenced in Official IRS
Guidance Chief Counsel Advice2016 34022.
Think of it like this, the IRSwants to know who really earned
the money.
They ask a simple question.
Who actually did the work thatgenerated this income?
It's like when you were a kid.
If you did your chores andearned your allowance, your
(03:18):
sister couldn't claim that moneywas hers just because you put it
in her piggy bank.
Understanding this principle iscrucial because it directly
affects when and how you canmake the selection.
The IRS has specific rules abouttiming to ensure businesses
aren't just making this choicefor tax benefits without
actually operating properly.
(03:39):
These timing rules are laid outin Revenue Procedure 2013 30 and
they give us some very specificguidelines.
The IRS says you have 3 yearsand 75 days from your desired
start date to make theselection.
In plain English, if you wantthis to work for tax year 2024,
you technically have until early2027.
But waiting that long createsunnecessary risk.
(04:01):
The IRS doesn't just want to seeeligibility, they want to see
intent.
They're looking for evidencethat you meant to operate this
way from the start.
To qualify under RevenueProcedure 2013 30, you need to
meet four specific conditions.
Number one, your business needsto have been eligible for this
election on January 1st, 2024.
(04:21):
Number two, you need to show youintended to operate this way.
Number three, you need to filethe right paperwork within the
deadline.
And number four, you need whatthe IRS calls reasonable cause.
Let me break down that lastpoint.
The IRS has actually given usexamples of what counts as a
reasonable cost.
Maybe you didn't know aboutthese tax benefits.
(04:43):
Maybe your tax professional madea mistake.
The key is documenting whyyou're filing late and showing
you're fixing it promptly.
Now we're getting to a criticalpart that trips up many business
owners.
The IRS requires you to payyourself what they call a
reasonable salary.
With this, you have to runpayroll.
(05:04):
However, if you didn't runpayroll in 2024, you're not
automatically disqualified.
The IRS allows for retroactivepayroll processing.
Think about that for a second.
You can actually go back and setup payroll for 2024 right now,
but this is crucial.
You need to do it correctly.
The IRS outline specificrequirements in their technical
(05:24):
advice memoranda.
You'll need to file Form 941 foreach quarter of 2024.
Issue yourself a W2 for 2024.
Pay all applicable payrolltaxes, and document how you
determine your salary amount.
Going back to Marcus's case, wedetermined his reasonable salary
should be$56,700 out of his$126,000 net income.
(05:47):
We didn't pull this number outof thin air, though.
We used industry standards, roleresponsibilities and IRS
guidelines to reach this figure.
This is where we introduce theFletcher case.
Fletcher made several criticalmistakes that the IRS and tax
court called out specifically.
Unlike Marcus, who dideverything by the book, Fletcher
tried to take shortcuts.
(06:07):
The court's analysis is actuallya blueprint for what not to do.
Let me walk you through theirkey findings.
First, Fletcher kept operatingunder his personal name while
trying to claim his businessearned the money.
The IRS spotted thisimmediately.
Remember that assignment ofincome doctrine we talked about
early?
This is exactly what it'sdesigned to catch.
(06:29):
Second, he didn't follow properdocumentation procedures.
The IRS's Internal RevenueManual, Section 21.
1361 tells us that properdocumentation isn't just
helpful.
It's required.
Every contract, every invoice,every payment needs to show your
business as the true earner ofthat income.
The IRS has given us veryspecific guidance through their
(06:53):
technical advice memoranda abouthow to do this correctly.
They want to see proper incomeattribution, reasonable
compensation structure, andadherence to timing
requirements.
Let me walk you through exactlyhow to make this work.
But first, today's video isbrought to you by Descript.
(07:14):
You know what's the worst partabout editing?
Those endless hours spent tryingto remove every um and uh and
piecing together the perfectflow.
That's exactly why I startedusing Descript, the all in one
platform that's revolutionizinghow to edit and produce videos
and audio.
What makes Descript special ishow it turns your audio into
text, letting you edit yourvideo as easily as editing a
(07:37):
document.
Delete a word from thetranscript, and it disappears
from your video and or audio.
It's that simple.
Plus their AI tools can helpclean up your audio, remove
background noise, and evencreate a realistic version of
your voice for quick fixes.
As someone who values their timeand would rather use it
executing for their clients, Ican tell you that Descript has
(08:00):
cut my editing time in half.
And here's the best part.
You can try it out yourself andget started for free by clicking
my affiliate link in thedescription.
Trust me, your future self willthank you for this one.
Now let's get back to the video.
Let me walk you through thesteps of the S Corp election
coming directly from IRSguidance and Revenue Procedure
(08:23):
2013 30.
First, you need to file Form2553.
This is your S Corp electionform.
The IRS requires specificdetails here.
Your business information, yourtax, your selection, all
shareholder information, and theeffective date you want this to
start.
But here's a critical point.
Most people miss.
You can't just file the form andhope for the best.
(08:45):
The IRS wants to see what theycall contemporaneous
documentation.
That's a fancy way of sayingthey won't proof you are trying
to operate this way all along.
The IRS is technical advice.
Miranda.
It gives us clear guidelinesabout what documentation they're
looking for.
Think of this as building yourcase.
You're showing the IRS thiswasn't just an afterthought.
(09:08):
You'll need business formationdocuments proving eligibility
evidence of intent to operate asan S corporation, proof of
reasonable cause for late filingand documentation of business
operations.
Remember Fleischer's case?
His biggest failure wasn't justmissing documents.
It was that his documents toldthe wrong story.
(09:30):
His paperwork showed he wasoperating as an individual when
he claimed to be operating as abusiness.
One of the key areas wheredocumentation becomes especially
critical is improving yourcompensation is reasonable.
The IRS looks at this moreclosely than any other aspect of
an S corporation election.
(09:51):
Why?
Because this directly ties backto their core concern.
Ensuring business owners aren'tjust using this structure to
avoid taxes, which leads us toone of the most scrutinized
areas.
Reasonable compensation.
The IRS provides specificguidance here in their internal
revenue manual.
When determining your salary,the IRS looks at industry
(10:15):
standards for your role, timedevoted to the business, the
complexity of your work, yourbusiness's gross income, and
much more.
Going back to Marcus's case, weset his salary at 56, 700 based
on those factors and more.
We documented our analysisshowing the IRS exactly how we
(10:35):
reached this number.
This isn't about minimizing yoursalary.
It's about justifying it withreal data.
Now let's address something thatconcerns many business owners.
"How can I do this retroactivelyfor prior years, in this case
tax year 2024?" Revenueprocedure 2013 30 specifically
allows for this, but you need tofollow their process exactly for
(10:57):
the payroll piece.
Calculate your total 2024reasonable compensation.
Process this through a properpayroll system.
Follow all required quarterlytax returns and issue your W two
before the IRS deadline.
The IRS actually expects thiskind of retroactive compliance.
They've built provisions intotheir procedures, specifically
(11:19):
allowing for it, yet they expectyou to do it right and do it
properly.
Now we'll wrap this up with mesharing some critical mistakes I
see business owners make whendoing this themselves or with
someone who isn't following thecorrect steps.
First, not documenting yourreasoning.
The IRS doesn't just want to seewhat you did.
(11:41):
They want to see why you did it.
Keep records of everythingincluding why you chose your
salary amount, why you're filinglate and how you're correcting
any past oversights.
Second, missing filingdeadlines.
While you have that three year,75 day window, certain documents
have stricter deadlines.
Your w-2 for instance, needs tobe filed by january 31st of the
(12:05):
subsequent calendar year, or youcould face penalties starting at
$60.
And third, inconsistentdocumentation.
Every piece of paper needs totell the same story that your
business, not you personally, isconducting operations.
If you're considering thisstrategy for tax year twenty
twenty four, start with thefollowing next steps.
(12:27):
Gather all your 2024 businessdocumentation.
Calculate your reasonablecompensation.
Start preparing your retroactivepayroll documentation.
File form 2553 with yourreasonable cause statement.
Process your retroactivepayroll.
Update any invoices, bookingsystems or business contracts
(12:48):
still in your personal name.
Complete all quarterly payrolltax filings and issue your W2.
Remember, the strategy isn'tabout finding loopholes.
It's about using the tax codeexactly as the IRS intended.
They've given us theseprocedures and guidelines for a
reason.
Think about Marcus.
His tax savings didn't justhappen.
(13:09):
It came from reaching out to meand following these procedures
exactly, documenting everythingproperly and allowing me to
implement this strategy on itsbehalf, the way the IRS expects.
The opportunity is here, butlike any IRS approved strategy,
success lies in the details.
Follow these steps, maintainproper documentation, and you
(13:31):
can take advantage of thisopportunity to significantly
reduce your tax burden, even fortax year 2024.
This article provides generalinformation, not individual tax
advice.
Tax situations vary.
Consult with a qualified taxprofessional like myself for
advice specific to yourcircumstances.
You can't claim any more taxwrite offs after December 31st.
(00:04):
Once the new year arrives, yourtax situation is locked in
stone.
What if I told you that's notcorrect?
That even though 2024 has ended,there's still a powerful tax
strategy you can use right now.
One that could save youthousands on last year's taxes.
In the next few moments, we'regoing to discuss how just one
strategy can reduce your taxbill by thousands.
(00:25):
The IRS guidelines onimplementing the strategy and
some real life examples on thecorrect and incorrect way on
going about it.
This would be a good time to saythat this isn't about finding
more receipts or creating fakepurchases.
It's about restructuring howyour business pays taxes
completely legal.
And with the IRS is fullblessing.
When you run a business, thereare two common sets of taxes,
(00:48):
and within those taxes, thereare four different types of
taxes you need to consider.
The first set is income taxes.
Like everyone, you pay federalincome tax, and depending on
where you live, you might alsopay state income tax.
That's familiar territory formost people.
The second set, not so much.
This is what we call payrolltaxes, social security and
(01:09):
Medicare.
Here's where it is expensive forbusiness owners.
You're paying both sides ofthese taxes while employees only
pay half.
You're covering both theemployer and employees portions
that adds up to 15.
3 percent on every dollar youearn.
Let me share a real example thathappened just last month.
But first, my name is Davian.
(01:30):
I'm a licensed certified publicaccountant.
I formerly worked with the IRS,in the European stock market and
with over 70 differentbusinesses spanning over 17
different industries.
My ultimate goal is to help yousave time and money while
building wealth and legacy.
So don't procrastinate this taxseason.
Click the link in thedescription and let us help get
you from where you're at towhere you want to be.
(01:51):
Now let's jump back into thevideo.
Okay, so I got a new client lastmonth.
Let's call him Marcus.
He came to me frustrated abouthis taxes.
His business had brought inabout 126, 000 in net income,
and he was shocked at how muchhe was quoted in paying taxes.
Just in payroll taxes alone, hewas looking at over 19, 000
(02:15):
before even touching income tax.
That's when we discussed astrategy using something the IRS
calls late election reliefoutlined specifically in Revenue
Procedure 2013 30.
By following this procedureexactly, I'm saving him over 9,
000 in payroll taxes alone, noteven mentioning some of the
(02:36):
other strategies we'veimplemented, even though 2024 is
already over.
Now, before we dive into howthis works, let me explain
something crucial about how theIRS views business income.
The IRS has a fundamentalprinciple called the Assignment
of Income Doctrine.
This isn't just some theory,it's written directly into the
(02:56):
IRS manual section 4104327 andreferenced in Official IRS
Guidance Chief Counsel Advice2016 34022.
Think of it like this, the IRSwants to know who really earned
the money.
They ask a simple question.
Who actually did the work thatgenerated this income?
It's like when you were a kid.
If you did your chores andearned your allowance, your
(03:18):
sister couldn't claim that moneywas hers just because you put it
in her piggy bank.
Understanding this principle iscrucial because it directly
affects when and how you canmake the selection.
The IRS has specific rules abouttiming to ensure businesses
aren't just making this choicefor tax benefits without
actually operating properly.
(03:39):
These timing rules are laid outin Revenue Procedure 2013 30 and
they give us some very specificguidelines.
The IRS says you have 3 yearsand 75 days from your desired
start date to make theselection.
In plain English, if you wantthis to work for tax year 2024,
you technically have until early2027.
But waiting that long createsunnecessary risk.
(04:01):
The IRS doesn't just want to seeeligibility, they want to see
intent.
They're looking for evidencethat you meant to operate this
way from the start.
To qualify under RevenueProcedure 2013 30, you need to
meet four specific conditions.
Number one, your business needsto have been eligible for this
election on January 1st, 2024.
(04:21):
Number two, you need to show youintended to operate this way.
Number three, you need to filethe right paperwork within the
deadline.
And number four, you need whatthe IRS calls reasonable cause.
Let me break down that lastpoint.
The IRS has actually given usexamples of what counts as a
reasonable cost.
Maybe you didn't know aboutthese tax benefits.
(04:43):
Maybe your tax professional madea mistake.
The key is documenting whyyou're filing late and showing
you're fixing it promptly.
Now we're getting to a criticalpart that trips up many business
owners.
The IRS requires you to payyourself what they call a
reasonable salary.
With this, you have to runpayroll.
(05:04):
However, if you didn't runpayroll in 2024, you're not
automatically disqualified.
The IRS allows for retroactivepayroll processing.
Think about that for a second.
You can actually go back and setup payroll for 2024 right now,
but this is crucial.
You need to do it correctly.
The IRS outline specificrequirements in their technical
(05:24):
advice memoranda.
You'll need to file Form 941 foreach quarter of 2024.
Issue yourself a W2 for 2024.
Pay all applicable payrolltaxes, and document how you
determine your salary amount.
Going back to Marcus's case, wedetermined his reasonable salary
should be$56,700 out of his$126,000 net income.
(05:47):
We didn't pull this number outof thin air, though.
We used industry standards, roleresponsibilities and IRS
guidelines to reach this figure.
This is where we introduce theFletcher case.
Fletcher made several criticalmistakes that the IRS and tax
court called out specifically.
Unlike Marcus, who dideverything by the book, Fletcher
tried to take shortcuts.
(06:07):
The court's analysis is actuallya blueprint for what not to do.
Let me walk you through theirkey findings.
First, Fletcher kept operatingunder his personal name while
trying to claim his businessearned the money.
The IRS spotted thisimmediately.
Remember that assignment ofincome doctrine we talked about
early?
This is exactly what it'sdesigned to catch.
(06:29):
Second, he didn't follow properdocumentation procedures.
The IRS's Internal RevenueManual, Section 21.
1361 tells us that properdocumentation isn't just
helpful.
It's required.
Every contract, every invoice,every payment needs to show your
business as the true earner ofthat income.
The IRS has given us veryspecific guidance through their
(06:53):
technical advice memoranda abouthow to do this correctly.
They want to see proper incomeattribution, reasonable
compensation structure, andadherence to timing
requirements.
Let me walk you through exactlyhow to make this work.
But first, today's video isbrought to you by Descript.
(07:14):
You know what's the worst partabout editing?
Those endless hours spent tryingto remove every um and uh and
piecing together the perfectflow.
That's exactly why I startedusing Descript, the all in one
platform that's revolutionizinghow to edit and produce videos
and audio.
What makes Descript special ishow it turns your audio into
text, letting you edit yourvideo as easily as editing a
(07:37):
document.
Delete a word from thetranscript, and it disappears
from your video and or audio.
It's that simple.
Plus their AI tools can helpclean up your audio, remove
background noise, and evencreate a realistic version of
your voice for quick fixes.
As someone who values their timeand would rather use it
executing for their clients, Ican tell you that Descript has
(08:00):
cut my editing time in half.
And here's the best part.
You can try it out yourself andget started for free by clicking
my affiliate link in thedescription.
Trust me, your future self willthank you for this one.
Now let's get back to the video.
Let me walk you through thesteps of the S Corp election
coming directly from IRSguidance and Revenue Procedure
(08:23):
2013 30.
First, you need to file Form2553.
This is your S Corp electionform.
The IRS requires specificdetails here.
Your business information, yourtax, your selection, all
shareholder information, and theeffective date you want this to
start.
But here's a critical point.
Most people miss.
You can't just file the form andhope for the best.
(08:45):
The IRS wants to see what theycall contemporaneous
documentation.
That's a fancy way of sayingthey won't proof you are trying
to operate this way all along.
The IRS is technical advice.
Miranda.
It gives us clear guidelinesabout what documentation they're
looking for.
Think of this as building yourcase.
You're showing the IRS thiswasn't just an afterthought.
(09:08):
You'll need business formationdocuments proving eligibility
evidence of intent to operate asan S corporation, proof of
reasonable cause for late filingand documentation of business
operations.
Remember Fleischer's case?
His biggest failure wasn't justmissing documents.
It was that his documents toldthe wrong story.
(09:30):
His paperwork showed he wasoperating as an individual when
he claimed to be operating as abusiness.
One of the key areas wheredocumentation becomes especially
critical is improving yourcompensation is reasonable.
The IRS looks at this moreclosely than any other aspect of
an S corporation election.
(09:51):
Why?
Because this directly ties backto their core concern.
Ensuring business owners aren'tjust using this structure to
avoid taxes, which leads us toone of the most scrutinized
areas.
Reasonable compensation.
The IRS provides specificguidance here in their internal
revenue manual.
When determining your salary,the IRS looks at industry
(10:15):
standards for your role, timedevoted to the business, the
complexity of your work, yourbusiness's gross income, and
much more.
Going back to Marcus's case, weset his salary at 56, 700 based
on those factors and more.
We documented our analysisshowing the IRS exactly how we
(10:35):
reached this number.
This isn't about minimizing yoursalary.
It's about justifying it withreal data.
Now let's address something thatconcerns many business owners.
"How can I do this retroactivelyfor prior years, in this case
tax year 2024?" Revenueprocedure 2013 30 specifically
allows for this, but you need tofollow their process exactly for
(10:57):
the payroll piece.
Calculate your total 2024reasonable compensation.
Process this through a properpayroll system.
Follow all required quarterlytax returns and issue your W two
before the IRS deadline.
The IRS actually expects thiskind of retroactive compliance.
They've built provisions intotheir procedures, specifically
(11:19):
allowing for it, yet they expectyou to do it right and do it
properly.
Now we'll wrap this up with mesharing some critical mistakes I
see business owners make whendoing this themselves or with
someone who isn't following thecorrect steps.
First, not documenting yourreasoning.
The IRS doesn't just want to seewhat you did.
(11:41):
They want to see why you did it.
Keep records of everythingincluding why you chose your
salary amount, why you're filinglate and how you're correcting
any past oversights.
Second, missing filingdeadlines.
While you have that three year,75 day window, certain documents
have stricter deadlines.
Your w-2 for instance, needs tobe filed by january 31st of the
(12:05):
subsequent calendar year, or youcould face penalties starting at
$60.
And third, inconsistentdocumentation.
Every piece of paper needs totell the same story that your
business, not you personally, isconducting operations.
If you're considering thisstrategy for tax year twenty
twenty four, start with thefollowing next steps.
(12:27):
Gather all your 2024 businessdocumentation.
Calculate your reasonablecompensation.
Start preparing your retroactivepayroll documentation.
File form 2553 with yourreasonable cause statement.
Process your retroactivepayroll.
Update any invoices, bookingsystems or business contracts
(12:48):
still in your personal name.
Complete all quarterly payrolltax filings and issue your W2.
Remember, the strategy isn'tabout finding loopholes.
It's about using the tax codeexactly as the IRS intended.
They've given us theseprocedures and guidelines for a
reason.
Think about Marcus.
His tax savings didn't justhappen.
(13:09):
It came from reaching out to meand following these procedures
exactly, documenting everythingproperly and allowing me to
implement this strategy on itsbehalf, the way the IRS expects.
The opportunity is here, butlike any IRS approved strategy,
success lies in the details.
Follow these steps, maintainproper documentation, and you
(13:31):
can take advantage of thisopportunity to significantly
reduce your tax burden, even fortax year 2024.
This article provides generalinformation, not individual tax
advice.
Tax situations vary.
Consult with a qualified taxprofessional like myself for
advice specific to yourcircumstances.
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