Income Tax Preparation Tips: Legal Tax Loophole Advice by Jeff Brooks CPA in Scottsdale, AZ


By Jeffrey Brooks, CPA, CFP, MBA for JBrooks Wealth Advisors, PC, a Professional CPA and CFP Firm  602-292-2009  Please consult with your professional tax CPA regarding your specific circumstances!

The legal tax loophole is getting cash into your business bank account that is not taxable because it  did not come from your business operations AND you have enough deductible expenses to pay BEFORE your business’ year-end!



If your business could get an additional $200,000 from bank loans and from your personal funds to pay off $200,000 of unpaid deductible expenses for the current year and prepay next year’s expenses like rent and health insurance, you could save up to $100,000 in personal taxes!

Having enough cash is just like a blood transfusion to a bleeder!


But you ask, “could I prepay unknown next year travel expenses on my credit card and get a deduction for travel for the current year?”


In my opinion, these expenses would not be deductible unless you had an invoice or an estimated amount in writing because you had not committed for travel at the end of the year.  You do  not get a deduction for overpaying your business credit card. But if you have a lease that extends beyond next year, I think you possibly could get the deduction for your business in the current year by prepaying the following year’s rent expense.

IRS states that prepaying of expenses cannot distort the next years taxable income. However, what is and what isn’t distorting has not been defined.  It is clear to me that distortion takes place when business revenue has never exceeded $50,000 a year and  in the next year you prepay $120,000 of rent.

You will need to discuss the deductibility of prepaying expenses with your CPA tax professional because you could make the mistake of prepaying too much in expenses for the following year in the current tax year resulting in wasting or minimizing the usefulness of tax deductions.

If Taxpayer A prepays too much in expenses to the point that his personal taxable income is negative or results in being in the lowest tax bracket, Taxpayer A will have wasted tax deductions.


I recommend looking at the current tax year and the next tax year to see what percentage tax bracket you will be in each year. For example if Taxpayer A obtained a big contract on December 1, 2014 that was going to make 2015 a much higher income tax year, it might  be best to NOT prepay expenses 2015 expense in 2014 and instead consider prepaying 2016 expenses in 2015.  For example if 6 months of 2016 rent was prepaid in 2015 along with the 12 months rent for 2014, Taxpayer A would get a deduction for 18 months of rent in 2015.

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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JBrooks Wealth Advisors, PC.

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Address: 4647 N 32nd Street, Suite B245
Phoenix, Arizona 85018
Phone: 602-292-2009