The Cost of “It Worked Last Year”
You've been in business for three years now. Maybe four.
Year one was survival mode. You figured out the basics, got your LLC set up, filed your first tax return.
Year two felt smoother. Revenue doubled. The same tax approach worked fine.
Year three? Revenue hit $220,000. You bought a truck. Added another crew. Paid your taxes. Everything worked.
So year four, you stuck with the same strategy.
That makes sense. When something works, why mess with it?
Here's why: Because your business didn't stay the same—and neither should your tax strategy.
A Real Story
A contractor came to me in January. Four years in business. Started as a sole proprietor doing residential work—around $120,000 in year one.
By year four, he was pulling in $240,000. He'd bought a second truck, was running two crews, moved into light commercial work.
His tax strategy? Exactly the same as year one.
He filed as a sole proprietor. Paid self-employment tax on every dollar of profit. Made quarterly estimated payments based on last year's numbers.
It worked. Returns got filed on time. No IRS issues. Cash flow felt fine.
But his tax liability told a different story.
Not because he did anything wrong. But because no one asked: "Is what worked in year one still working in year four?"
What Changed
Year One:
$120,000 revenue, solo operation
Small jobs, simple structure made sense
Year Four:
$240,000 revenue, two crews
Bigger jobs, more equipment
Profit margin doubled
The business had fundamentally changed. The tax strategy hadn't.
The old approach wasn't broken. It still worked. But "working" and "working well" are not the same thing.
What He Was Missing
S-Corp election: At $240K in profit, he could have saved $13,800 annually in self-employment tax. But he'd never revisited entity structure after the initial setup.
Equipment depreciation: He bought a $55,000 truck in November. Section 179 could have let him deduct the full amount in year one. Instead, it's spread over six years—because no one planned for it before year-end.
Retirement contributions: He could have contributed up to $66,000 to a SEP-IRA. He contributed $15,000—same as last year. He left $51,000 in retirement room on the table.
Estimated payments: He based quarterly payments on last year's profit. This year's profit was 30% higher. Result? A $22,000 surprise bill in April and an underpayment penalty.
Total cost of "it worked last year": Roughly $40,000+ over two years.
When to Revisit Your Tax Strategy
Your business changes faster than you think. You need to check in when something shifts:
Revenue crosses $150,000: S-Corp starts making sense. Below that, compliance costs eat up the savings. Above that, you're likely leaving money on the table.
You start using subcontractors: Worker classification matters. 1099 vs. W-2 isn't preference—it's legal distinction with audit risk.
You buy significant equipment: How you time purchases changes what you can deduct and when.
Your profit margin changes: 15% to 30% isn't just "doing better"—it's a fundamental shift in tax strategy.
You expand into another state: Multi-state work triggers nexus and obligations last year's approach doesn't cover.
If any of these happened in the last 12 months, your tax strategy deserves a second look.
The Bottom Line
"It worked last year" isn't wrong. It's incomplete.
Your business in year four isn't the same as year one. The strategy that made sense at $120,000 solo doesn't make sense at $240,000 with two crews.
Tax preparation will always work. Your return gets filed. Nothing breaks.
But tax planning asks: "Is this still the right approach, or are we just repeating what worked before?"
For the contractor I sat down with, the answer was clear. The old approach worked. But it was costing him $13,800 a year.
That's the cost of "it worked last year."
If you're wondering whether your current approach is still working—or just repeating—let's talk.
Leslea Burnett
Enrolled Agent | Founder | Tax Advisor
Simply Balanced Accountants
connect@simplybalancedaccountants.com
(517) 897-2144
