Top 5 Tax Mistakes $1M+ Businesses Make (and How to Avoid $100K+ in Lost Profit)
Top 5 Tax Mistakes $1M+ Businesses Make
(and How to Avoid $100K+ in Lost Profit)
Running a $1M+ business? These 5 tax mistakes can quietly drain $100K+ every year. See how to stop reactive planning, missed credits, wrong entity structure, and more.
If you’re running a $1M+ business, there’s a good chance at least one of these five tax mistakes is quietly draining $100K or more every year. The good news: each one is preventable.
The quick take
Most big leaks aren’t from missing receipts.
They come from reactive planning, missed credits, and the wrong entity structure.
Fixing even one mistake can free enough cash to hire, buy equipment, or open a new location.
1) Reactive tax planning
Most owners treat taxes like the weather—something that just happens. Books go to the CPA in March and you hope for the best.
The cost? Six figures. I’ve seen owners hit with $200K surprise bills because no one planned ahead.
Mini takeaway: Don’t wait until December. Every major business decision should ask, “What are the tax implications?”
2) Missing deductions and credits
Many owners equate deductions with receipts, but the real money is in advanced strategies:
- R&D credits (even for non-tech businesses)
- Cost segregation on real estate
- QBI deduction optimization
- Bonus depreciation, energy credits, and strategic trusts
Others overspend to chase write-offs—spending $10K to save $3.5K just shrinks wealth.
Mini takeaway: Advanced credits and deductions are six-figure levers. Missing them can cost $25K–$75K a year.
3) Wrong entity structure
Most companies start as LLCs. Fine at $200K. Costly at $1M+.
- LLC: Pays 15.3% self-employment tax on every dollar before income tax.
- S-Corp: Lets you split salary and distributions, cutting payroll taxes dramatically.
- C-Corp: Useful for reinvesting profits, maximizing benefits, or planning an exit.
Mini takeaway: Entity choice isn’t one-and-done. If you haven’t reviewed it in 3+ years, you could be overpaying $50K–$100K annually.
4) Ignoring self-employment tax
Many owners focus only on income tax and forget the 15.3% self-employment tax.
Example: $150K profit = $21K SE tax, even if you leave the money in the business.
Fixes:
- Elect S-Corp status and pay a reasonable salary
- Use multiple entities if appropriate
- Leverage retirement plans to reduce taxable income
Mini takeaway: Plan for SE tax or it blindsides you with $20K–$50K+ bills every year.
5) Poor record keeping
Shoebox receipts. Mixing personal and business accounts. No documentation.
The cost?
- Missed deductions
- Higher accounting fees
- Greater audit risk
- Lower valuations when selling or seeking loans
Mini takeaway: Clean books = clean savings. Proper bookkeeping protects profit and enterprise value.
The $100K+ impact
Combine these leaks:
- Reactive planning: $50K–$100K
- Missed deductions/credits: $25K–$75K
- Wrong entity: $50K–$70K
- Self-employment tax: $5K–$20K
- Poor records: $10K–$25K
That’s $100K+ lost every year. Over 10 years, that’s $1M gone. Reinvested, that’s $5M+ in lost wealth.
Loop closure: These aren’t small mistakes. They’re wealth destroyers.
First steps to fix it
- Review the last 2 years of returns
- Re-evaluate your entity structure
- Get your books clean and automated
- Shift to proactive planning
- Work with a strategist, not just a preparer
Every month you wait is profit you’ll never recover.
Common questions
How far back can I amend returns to fix mistakes?
Generally three years, though some credits and states differ.
What bookkeeping system works best?
Cloud-based tools like QuickBooks Online or Xero with monthly reconciliation.
How do I know if I’m overpaying self-employment tax?
If all profit is subject to the 15.3% tax without S-Corp salary planning, you’re likely overpaying.
What to do next
Simple start: Share this with your controller or CPA and schedule a proactive tax planning session.
Next level: Watch our Wrong Entity Costs Businesses Millions video to dive deeper.
Full service: with HavenStone. We review returns, plug leaks, and help clients save $50K–$200K+ every year.
Don’t let the IRS be your biggest expense. Fix these five mistakes, keep your profits, and turn tax savings into long-term wealth.