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Thinking about converting your C Corporation to an S Corporation? Before making the switch, do you know about the Built-In Gains (BIG) Tax—and how it could cost you thousands if you don’t plan ahead?

In this episode, Mike Jesowshek breaks down the Built-In Gains (BIG) Tax, a critical consideration for business owners converting from a C Corporation to an S Corporation. He explains why this tax exists, how it prevents businesses from avoiding double taxation, and the conditions under which it applies. Mike walks through key scenarios where the BIG Tax may or may not apply, how to calculate it, and the best strategies for minimizing or avoiding it.

[00:00 - 03:30] Understanding the Built-In Gains (BIG) Tax

• Mike introduces the BIG Tax and its purpose in preventing tax avoidance.
• What is the difference of taxation for C Corps versus S Corps?
• Owners need to be aware of BIG Tax before making an S Corp election.

[03:31 - 11:15] Calculating the BIG Tax & IRS Considerations

• Mike shares the three key conditions that trigger the BIG Tax.
• Fair market value vs. adjusted basis determines built-in gains.
• Mike discusses the step-by-step breakdown of how to calculate the BIG Tax.
• Proper asset valuation at the time of conversion is critical.

[11:16 - 14:00] Strategies to Avoid the BIG Tax

• Hold onto assets for at least five years to bypass taxation.
• Time asset sales in loss years to offset taxable gains.
• Utilize NOL (Net Operating Loss) carryovers from the C Corp.

[14:01 - 17:32] When the BIG Tax Does NOT Apply and Final Considerations

• Mike shares scenarios where business owners don’t have to worry about the BIG Tax.
• BIG Tax is not a reason to avoid an S Corp election—planning is key.
• What is the importance of documentation and fair market value assessments?

Notable Quotes:

“The BIG Tax exists to stop business owners from electing S Corp status right before a liquidation or sale to dodge double taxation.” - Mike Jesowshek, CPA

“Holding onto your assets for five years after converting to an S Corp is the simplest way to avoid the Built-In Gains Tax.” - Mike Jesowshek, CPA

“The BIG Tax is important to understand, but it’s not a reason to avoid an S Corp election. With the right planning, an S Corp is still a powerful tax-saving strategy.” - Mike Jesowshek, CPA

Check out this episode’s blog post: https://www.taxsavingspodcast.com/blog/beware-of-hidden-built-in-gain-big-taxes-when-transitioning-to-s-corporation

Click here to book a demo call or you can visit https://taxelm.com/demo/

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Podcast Host: Mike Jesowshek, CPA - Founder and Host of Small Business Tax Savings Podcast

Join TaxElm: https://taxelm.com/

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Podcast Website: https://www.TaxSavingsPodcast.com

Facebook Group: https://www.facebook.com/groups/taxsavings/

YouTube: www.TaxSavingsTV.com

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Have you ever considered how advanced tax strategies, from customized retirement contributions to optimizing home office deductions, might lower your overall tax burden?

In this Q&A episode, host Mike Jesowshek answers listener questions on various tax topics. He covers issues ranging from retirement planning strategies, such as after‑tax contributions and Roth conversions in a solo 401(k), to the proper methods for paying oneself as a sole proprietor versus an S corporation. Mike also explains home office deductions, board meeting expenses, handling duplicate tax forms, and business entity conversions.

[00:00 - 05:02] Retirement Contributions and Solo 401(k) Options

• Mike discusses using after‑tax contributions and a Roth conversion in a solo 401(k) for high‑income earners.
• New members receive immediate access to a comprehensive suite of tax-saving tools and consultations.

[05:02 - 10:42] Owner Draws, Home Office Deductions, and Board Meeting Expenses

• Mike explains how to oneself as a sole proprietor using owner draws versus payroll for S corporations.
• Understand that taking money out of a business as an owner draws does not reduce taxable profit.
• Ensure that business spaces are used exclusively for business, and document meetings carefully when using home space.

[10:42 - 15:32] Hiring Family Members, Deducting Mileage Expenses, and Entity Conversion

• Mike discusses claiming mileage expenses when an employee uses a personal vehicle for business.
• Recognize that converting a C corporation back to an LLC may trigger taxable events; professional consultation is advised.

[15:32 - 20:17] Handling Duplicate 1099 Forms and Short-Term Rental Deductions

• Work with the issuer to correct mistakes or offset the extra reporting with a matching expense entry.
• Understand the timing of deductions and whether expenses need to be capitalized based on service start dates.

[20:17 - 27:20] S Corporation and Subsidiary Structures; Home Office with Additional Facility

• Mike details the benefits of an S corporation holding company structure for multiple LLCs and addresses home office deductions when using a separate facility.
• Proper structuring can consolidate profit and loss reporting, and the administrative office rule allows a home office deduction even when an additional business location exists.

Direct Quotes:

"If you are helping out family members, and those family members can also do some work for your business, why not get a business deduction for that help that you want to do anyways?" - Mike Jesowshek, CPA

Check out this episode’s blog post! Visit https://www.taxsavingspodcast.com/blog/tax-q-a-short-term-rentals-1099-confusion-entity-conversions-and-creative-tax-strategies

Click here to book a demo call or you can visit https://taxelm.com/demo/

______

Podcast Host: Mike Jesowshek, CPA - Founder and Host of Small Business Tax Savings Podcast

Join TaxElm: https://taxelm.com/

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Podcast Website: https://www.TaxSavingsPodcast.com

Facebook Group: https://www.facebook.com/groups/taxsavings/

YouTube: www.

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Are you making the most of the new 2025 tax changes, or could a simple tax strategy adjustment save you thousands?

In this episode, Mike breaks down key tax changes for 2025 that small business owners need to know. He covers adjustments to tax brackets, increases in the standard deduction, new mileage rates, retirement contribution limits, and updates to gift and estate tax exclusions. He explains how these changes impact tax planning, emphasizing strategies to optimize deductions and avoid unnecessary tax burdens. Additionally, he highlights potential future tax changes with the incoming administration and the importance of staying updated.

[00:00 - 05:21] Understanding the 2025 Tax Brackets

• Tax brackets adjust annually for inflation, ensuring more income is taxed at lower rates.
• Mike explains how tax brackets work and why crossing into a higher bracket doesn’t mean all income is taxed at that rate.
• Knowing your tax bracket can help with strategic tax planning, such as Roth conversions and deductions.

[05:22 - 10:24] Mileage Deduction Increase for 2025

• Mike discusses when to use the mileage method versus actual expenses for vehicle deductions.
• Choosing the right deduction method (mileage vs. actual expenses) depends on vehicle costs and business mileage.

[10:25 - 14:44] Standard Deduction Updates

• The standard deduction increases to $30,000 for married filers and $15,000 for single filers.
• How can this impact taxpayers deciding between itemized and standard deductions?
• Most taxpayers will benefit from the standard deduction, but strategic "bunching" of itemized deductions can provide tax advantages.

[14:45 - 18:53] Retirement Contribution Limits Increase

• Employee 401(k) contribution limit rises to $23,500, while IRA limits remain at $7,000.
• Maximizing retirement contributions helps reduce taxable income and build financial security.

[18:54 - 21:53] Gift & Estate Tax Changes

• The gift tax exclusion increases to $19,000 per recipient.
• Estate tax exemption rises to $13.99 million, affecting wealth transfer planning.
• Strategic gifting can help reduce taxable estates and transfer wealth efficiently.
• Proactive tax planning ensures business owners take advantage of new tax laws while avoiding potential pitfalls.

Quotes:

“Simply going into a new tax bracket doesn’t mean all of your income is taxed at that higher rate.” - Mike Jesowshek, CPA

“More of your income being taxed at a lower rate is good news—it means you’re keeping more of what you earn.” - Mike Jesowshek, CPA

Click here to book a demo call or you can visit https://taxelm.com/demo/

______

Podcast Host: Mike Jesowshek, CPA - Founder and Host of Small Business Tax Savings Podcast

Join TaxElm: https://taxelm.com/

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Podcast Website: https://www.TaxSavingsPodcast.com

Facebook Group: https://www.facebook.com/groups/taxsavings/

YouTube: www.TaxSavingsTV.com