As year-end approaches, mortgage companies have a limited window to address tax planning opportunities, review payroll and accounting records, and complete elections or payments that may be required before the new tax year begins. For accrual-method taxpayers and pass-through entities, including partnerships and S corporations, certain timing and election requirements make an early review especially important. 

Some actions cannot wait until the tax return process begins. Leadership teams should work with their tax advisors now to identify required elections and payments, confirm that payroll and reporting records are complete, and model the effect of potential planning decisions. Reviewing these items before December 31 can help companies identify time-sensitive actions while preparing for tax reporting, book-to-tax considerations, and owner-level planning in the year ahead. 

The following areas should be part of that year-end review. 

1. Evaluate Pass-Through Entity Tax (PTE/PTET) Elections and Payments

For partnerships, S corporations, and other pass-through businesses, state PTE/PTET elections can be an important part of state tax planning. Many states have adopted elective entity-level income taxes as a workaround to the federal state and local tax (SALT) deduction limitation, allowing the pass-through to deduct state income taxes at the entity level and providing credits or exclusions to the owners. 

Start by identifying the states where the business has filing obligations, employees, offices, property, sales, or other activities, as well as states where owners or shareholders reside. Then determine which states offer PTE elections and whether elections or payments are required before year-end. Also confirm whether a PTE election affects nonresident withholding, composite returns, or other state compliance obligations.  

Deadlines, eligibility requirements, rates, payment rules, and tax treatment all vary by state. These elections can also have federal and state tax implications for both the entity and its owners, so modeling the potential results before making an election is important. Consider how PTE elective taxes may affect qualified business income (QBI) computations, owner tax credits, and basis. 

For example, Utah requires a pass-through entity to make its SALT election (aka PTE election colloquially) by electronically filing the SALT Report and making the required payment by the last day of the PTE’s taxable year. For a calendar-year taxpayer, that means December 31. 

Because PTE/PTET rules vary by state, reach out to your Richey May tax professional for help evaluating your options and making sure elections or payments are completed on time. 

2. Reassess Your Company’s State Tax Footprint

A mortgage company’s state tax footprint can change during the year. Hiring or relocating employees, expanding into new markets, adding contractors, opening offices, acquiring property, or serving customers in additional states may create new filing obligations. 

These activities can affect: 

• Income or franchise tax 
• Employer withholding 
• Sales and use tax 
• State registrations 
• Apportionment calculations 
• PTE elections and payments 
• Other state compliance requirements 

Confirm that the company has properly registered in each applicable state, including Secretary of State, income or franchise tax, employer withholding, sales and use tax, and PTE/PTET accounts. Because many states require separate registrations for these taxes, it is important to confirm that all accounts are established and that the correct account numbers and electronic payment requirements are documented. 

Maintain a centralized list of state account numbers and tax IDs. Having this information organized helps ensure returns use the correct account numbers and state payments are properly matched to the company’s account. This also facilitates timely estimated tax and PTE payments and reduces the risk of misapplied or missing payments. 

3. Review Accrued Bonuses and Shareholder Compensation

Companies should review accrued bonuses, shareholder compensation, management fees, and other amounts owed to owners or related parties before year-end. This review is especially important for accrual–method entities with cash-basis owners or related parties, because special timing rules may apply. 

For an accrual-basis business, an expense accrued on the books may not be deductible in the year accrued. Taxpayers must consider the all-events test and short-term deferral rules, but special related-party rules can defer the deduction until the payment is included in the recipient’s income. This related-party criteria can effectively require the business to match its deduction with the recipient’s income inclusion in the same year when related–party rules apply. This means S-corporations cannot deduct accrued shareholder compensation in the year accrued unless also paid in that year, so it is important to review before year-end for payment considerations where available. 

Review accrued bonuses to shareholder-employees, related-party compensation, management fees, and other accrued amounts. Determine whether the company must make any payments before December 31 to support the intended tax treatment. 

S corporations should also evaluate whether they have paid shareholder-employees reasonable compensation for the services they performed. The IRS requires S corporations to pay reasonable compensation to shareholder-employees before making non-wage distributions. Best practice is to document services and review benchmarks to analyze whether compensation is reasonable. Because S corporation income generally is not subject to self-employment tax, the IRS may reclassify distributions as wages when shareholder compensation is unreasonably low relative to the services provided. 

4. Review Fringe Benefits for the Over 2% S-Corporation Shareholders

Before processing final year-end payroll, determine whether the company has properly reported benefits provided to shareholders who own more than 2% of an S corporation. Key areas to review include:  

Accident and health insurance premiums 

Premiums paid by the company on behalf of more than 2% shareholders are required to be included in the shareholders’ W-2 taxable wages. As long as the premiums are paid for coverage in a health insurance plan for employees and dependents generally, these payments are not subject to Social Security or Medicare taxes, but they are still subject to income tax withholding. This exclusion is only available for group policies available to employees in general or a specific class of employees. 

Group-term life insurance premiums 

The cost of the first $50,000 of coverage for over 2% shareholders cannot be excluded from income; the entire premium amount for coverage under the employer’s group term life plan is taxable and subject to Social Security and Medicare (but not income tax withholding or FUTA). 

Health Savings Account (HSA) contributions  

Company and employee HSA contributions for over 2% shareholders are generally treated as taxable wages subject to normal withholding. The shareholder may then claim an individual deduction for eligible HSA contributions on their Form 1040, subject to HSA rules. 

Shareholder-owned life insurance policies  

Premiums paid by the corporation on policies owned by, or payable to, shareholders are usually treated as additional non-cash compensation. 

Personal Use of Company Vehicles  

Personal use of a company vehicle is taxable to the employee. For over 2% shareholders, valuation methods and fringe–benefit limitations should be reviewed carefully. 

Cafeteria Plans 

An over 2% S-Corporation shareholder is not eligible to participate in a cafeteria plan, such as a Section 125 flexible spending account plan. 

5. Complete a Payroll and Information-Reporting Review

Before year-end, review payroll records to ensure taxable benefits and other compensation items have been properly captured, including those for the over 2% shareholders. The review should include:  

• Bonuses and commissions 
• Expense reimbursements 
• Personal use of company vehicles 
• Group-term life insurance 
• Shareholder health insurance 
• Retirement plan contributions 
• Other taxable fringe benefits  

Companies should also begin gathering information for Forms W-2 and 1099. Form 1099-NEC generally must be filed with the IRS and furnished to the recipient by January 31 following the year in which reportable non-employee compensation was paid. Late or incorrect Forms W–2 and 1099 can trigger IRS penalties, so validating vendor status and collecting Forms W–9 before year–end is important. 

Document Personal Use of Company Vehicles 

One of the most common taxable fringe benefits is the personal use of company-owned vehicles. Commuting to and from work and other personal use of a company vehicle generally must be included in taxable wages and is subject to income tax withholding, Social Security, and Medicare taxes.  

The IRS allows several valuation methods (such as the cents‑per‑mile, lease value, or commuting valuation rules) and permits employers to use a special 12‑month “benefit year” (for example, November 1–October 31) to help determine the annual value in time for year‑end reporting and W‑2 preparation. 

To calculate the taxable amount, companies typically need information on total miles driven, business miles, and personal miles (including commuting), along with details about the vehicle and how it is used. Employers can choose whether to withhold income tax on this fringe benefit, but must withhold Social Security and Medicare taxes and properly report the benefit on Forms W‑2 and 941. 

Review Other Noncash Fringe Benefits  

In addition to company autos, year‑end payroll review should consider other noncash compensation that may need to be included in W‑2 wages. Examples include: 

• Group-term life insurance coverage over $50,000 
• Individual social club memberships paid by the company 
• Noncash awards and prizes, including business trips 

Except for certain statutory fringes and de minimis benefits, noncash compensation is generally taxable when provided, and improper reporting can lead to penalties for failure to withhold, late deposit of payroll taxes, and interest charges. 

A year‑end review of noncash compensation paid during the year can help ensure that all taxable items are correctly captured in payroll and information reporting. 

6. Evaluate Fixed Assets and Planned Purchases

Before December 31, review major equipment, machinery, technology, vehicles, leasehold improvements, and other capital assets placed in service (and acquired) during the year, and consider whether any additional purchases should be made before year-end.  

Federal cost-recovery rules may permit substantial first-year deductions for qualifying property, including bonus depreciation and elections to expense eligible assets under Section 179. However, businesses should not purchase and place in service assets solely for a tax deduction. Evaluate cash flow, financing costs, business needs, state tax treatment, and whether accelerating a deduction is beneficial based on the company’s overall tax position.  

For pass-through entities, significant first-year depreciation and Section 179 expenses will flow through to owners, affecting their basis, loss limitations, and ability to use current and future losses. 

7. Review Retirement Plan Contributions and Opportunities

Year-end is a good time to review employee and employer retirement plan contributions. Review employee deferrals, employer matching and profit-sharing contributions, catch-up contributions, and any required plan actions. Leadership teams should also consider whether the company would benefit from adopting a new retirement plan or amending an existing plan. 

Because some employer contributions can be made after year-end, depending on the plan and applicable rules, businesses should identify opportunities now and confirm the applicable deadlines. For example, certain employer contributions may be deductible if made by the due date (including extensions) of the employer’s tax return, as long as the plan was adopted by the return due date (including extensions). 

8. Update Estimated Tax Payments

Compare year-to-date taxable income and projected full-year results with the company’s estimated tax payments. 

Pass-through businesses should consider both the entity-level tax position, including any applicable elective PTE taxes, and the owners’ expected tax liability. C corporations should compare federal and state estimated payments with projected taxable income. 

An updated year-end projection can help leadership teams identify potential underpayments or overpayments, manage estimated tax penalty exposure, and model year-end deductions, compensation, purchases, and other tax-planning strategies. 

Year-End Tax Action Checklist for Mortgage Leaders

Before December 31: 

• Confirm whether PTE elections or payments require year-end action. 
• Compare the company’s state registrations with its current business footprint. 
• Review accrued bonuses, shareholder compensation and related-party payments. 
• Document reasonable compensation for S corporation shareholder-employees. 
• Confirm that payroll captures taxable employee and shareholder benefits. 
• Gather company vehicle and other noncash benefit information. 
• Resolve missing Forms W-9 and vendor classification questions. 
• Evaluate planned asset purchases against operational needs and cash flow. 
• Review retirement plan decisions and contribution timing. 
• Update company and owner-level tax projections. 
• Assign a responsible owner and deadline to each unresolved item. 

Make Year-End Tax Planning a Priority

Effective year-end tax planning requires coordination across leadership, finance, payroll, human resources, and outside advisors. Begin by separating items that require action before December 31 from those that can wait until tax return preparation but require planning now. Then assign responsibility, gather the necessary information, and confirm each applicable deadline. 

A structured year-end tax review can help prevent missed elections, payroll reporting issues, state compliance problems, and lost tax-planning opportunities. 

Richey May’s mortgage banking tax professionals can help your company evaluate year-end elections, compensation, state obligations and other tax planning opportunities. Contact your Richey May tax professional or email info@richeymay.com for more guidance.