14 Biggest Tax Write Offs for Small Businesses! [What the Top 1% Write-Off]

every year more than 2 million taxpayers overpay on their income taxes and this isn't just pocket change taxpayers are overpaying by close to 1 billion now this could be due to poor tax planning or because they're missing out on some of the biggest business tax write-offs meanwhile the top one percent are using the tax law to their advantage to minimize their tax liability oftentimes leaving us clueless wait how am i paying more taxes than them when they make millions of dollars more than me as a cpa i have recognized a common pattern amongst small businesses and self-employed individuals they are paying way too much in taxes and some of them are missing some of the biggest tax write-offs [Music] hi my name is sherman with life accounting a full service accounting firm that helps small businesses grow and manage their finances in this episode i'm going to give you the biggest tax write-off for small businesses if you can do me a favor by clicking the like button below if this video helps you at all and be sure to subscribe to our channel to make sure you don't miss out on other videos that can help you grow and manage your small business finances also small disclaimer the information i'm providing in this video is for informational purposes only and is not meant to take the place of legal and accounting advice if you want specific accounting advice then be sure to contact your attorney or your cpa now that that's out of the way let's begin okay so i was motivated to create today's episode after speaking to one of my clients my client was a small business in the construction industry he had a fairly successful small business and was doing about seven figures in revenue and he had contractors that he paid to fulfill all of the project work that he was hired to do so eventually tax time came and it was time to file his business taxes it was our first time filing his taxes so we asked to see his financial statements and tax returns from prior years once we reviewed it i was suddenly shocked he was leaving so much money on the table there were so many things wrong for one he reported his total revenue as his income on his tax return in prior years this means that he had deducted absolutely nothing on his tax return for example just to give you some perspective if his revenue was one million dollars and his net income was five hundred thousand dollars then this would have mean he reported the whole 1 million dollars as his income for all prior years so instead of paying like 100 000 in taxes he paid two hundred thousand dollars in taxes i'm sure you can imagine his face when we explained all of this stuff to him unfortunately this was just the beginning of our problem remember all of the subcontractors i told you that he hired to do the work well two problems there not only did he not deduct these expenses but he paid them in cash and had virtually no receipts of the transactions he made with them he had no w-9 forms for his contractors which meant that they received no 1099 forms to even report the income they received and because they did not report it my client obviously could not deduct it anyway this entire situation taught me that many businesses are overpaying on their taxes without even realizing it and while your situation may not be as extreme as this one there may just be one tax write-off you can take away from today's episode to improve your tax situation and put more money in your pockets for this reason i'm going to give you the biggest tax write-offs for you to take advantage of so let's not waste any more time here let's jump right into it first and foremost what in the world is a business tax write-off a business tax write-off also known as tax deductions are eligible expenses that you can deduct from your income for tax purposes which leads me to my next point which is what exactly can businesses write off almost all business expenses that are incurred to operate a business can be written off technically the irs allows you to write off business expenses that are ordinary and necessary to run your business now ordinary means that it is common and accepted in your industry necessary means that it is helpful and appropriate for the nature of your business now of course the irs is not going to make it easy for you there are rules exceptions and exclusions for various types of business write-offs for example if you buy really expensive equipment the irs may require you to depreciate that equipment over his useful life instead of writing off the full cost in the year that you bought it but despite the specific rules and semantics there are still some huge business tax write-offs that you can take advantage of when you fail your next tax return so let's go ahead and begin i'll start with some of the simplest tax write-offs and then i'll graduate us into the more advanced tax write-offs as we go on here tax write-off number one startup and organization expenses for the new businesses watching this video the first tax write-off you should think about is the business startup tax write-off with this tax write-off you can deduct up to five thousand dollars of startup expenses and five thousand dollars of organizational costs startup costs include any amounts paid in connection with creating your business organizational costs include the cost of creating your entity such as the legal fees associated with creating a corporation or partnership for example tax write-off number two office expenses technology and supplies all office tools and technology expenses you incur to operate your business can be written off office expenses may include things like your computers paper pens notebooks and so on your technology expenses may include things like your accounting software such as quickbooks or your merchant account to collect payments from your customers anything tool or technology that is ordinary and necessary to operate your business can and likely should be written off tax write-off number three home office deduction if you use part of your home for your business then you will likely be able to deduct expenses for the business use of your home so your home mortgage interest insurance utilities wi-fi repairs and depreciation are things that you can deduct for your business as long as you're using your home for business use now in order to do this you will need to calculate the portion of your home that is used for business and the portion that is used for personal use the irs will only allow you to write off the portion of your home expenses that are allocated for business use for example if you live in a 1 000 square foot home and your office occupies 250 square feet then hypothetically you can write off 25 of all of your home costs in your business tax return tax write-off number four cell phone and cell phone service expenses if you use your personal cell phone for business purposes then you can also use this as a tax write-off you can write off both the cost of your cell phone and the cost of your cell phone service and the tax year that you incurred those expenses this will work in the same manner that i described with the business use of your home you would have to compute the portion of your cell phone expenses that is used for business versus personal use then you can write off all business use cell phone related expenses tax write-off number five cost of goods sold if you sell products then you can also deduct your cost of goods sold you can deduct your selling cost of products or raw materials storage costs direct labor and factory overhead costs for example if you sell coffee cups you can deduct the cost of each coffee cup that you sell tax write-off number six all labor costs this is very important for all businesses especially service-based businesses you can and likely should deduct all costs that you incur to pay anyone to deliver a service that is specific to your business this includes both employees and contractors make sure you have w-4 forms for all of your employees so you can deduct their w-2 wages from your business income and also make sure that you have w-9 forms from all contractors that you hire to do anything for your business even if it is as simple as hiring a moving contractor to help you move into a new office space this is something that you should write off from your business taxes you just need to keep up with these expenses and issue 1099 forms to your contractors so that they can also recognize the income that you are deducting from your business tax return tax write-off number seven business knowledge this one is something that many business owners neglect and ultimately end up leaving money on the table for the irs you can deduct money from your taxes for every single mile you drive for business use for example in 2020 you could deduct over 50 cents per mile you drove for business use now the key to deducting business mileage is to differentiate this from your personal mileage your business knowledge can be deducted for things like client meetings business conferences and any other business reason it does not however include knowledge used for personal reasons regardless if you simply track your business mileage you can write off more tax dollars that the irs would otherwise receive from you tax write-off number eight business travel you can deduct all of your business travel expenses for example let's say you travel to grand cayman island for a five day business conference but you decide to stay there for 10 days total to also mix in some personal vacation time on the island well in this case you can deduct your full flight expense to get to and from grand cayman island and five days of the lodging expenses that you incurred during the business conference you will not however be able to write off any of your expenses during the other five days that you use for personal enjoyment business tax write-off number nine business meals business meals can also be written off from your business income you can write off 50 of your business meals from your income however you also need to understand how the irs classifies business meals because you just can't write off all of your personal meals and claim them as business tax write-offs you can deduct meals that are deemed ordinary and necessary in the operation of your business for example business meals with your clients or employees can be written off tax write-off number 10 business interest expense if your business has any debt then you can also write off the business interest expense from that debt now many people i talk to confuse this with the total payment you make to your debtors you cannot write off your entire monthly payment because some of that payment is towards your own principles however you can write off the entire portion that the bank earns from issuing that debt to you which in this case is interest expense okay now we're going to move into some of the more advanced tax write-offs that are also things that you should likely plan for in advance in order to take advantage of it so let's get to it business tax write-off number 11 retirement contributions you can write off contributions to qualified retirement accounts such as traditional iras also if you have employees and offer 401k plans you can also write off any contributions that you make into their retirement accounts as well now there are many different types of retirement accounts contribution limits and income limits that may determine your overall tax approach to this however when carefully planned you can write off a fair amount from your tax liability and keep more money in your account tax write-off number 12 health savings contributions health savings accounts are another big tax write-off that can come in handy for your business you can establish health savings accounts which are basically accounts that are used for health related expenses the great part about health savings accounts is that your contributions to them qualify as tax write-offs and as long as you use the account for health-related expenses you effectively avoid paying taxes on this amount together since everyone will likely have health related expenses at some point in their life setting up a hsa is a win-win scenario for tax purposes business tax write-off number 13 write off self-employment taxes now this is an advanced tax write-off and technically it's not really a tax write-off but since you made it to this part of the episode then you deserve this tip as your business income rises technically you must pay self-employment taxes on those earnings up to about 130 000 at the time of this video now if you earn around this range or more then you can possibly reduce your self-employment taxes by simply incorporating into an s-corporation shareholders of s-corporations do not pay self-employment taxes however you are required to pay yourself a reasonable salary based on the services you provide to your business which are subject to taxes related to the self-employment tax however if your reasonable salary is lower than thousand dollars then you will likely save more on self-employment taxes as a result of this switch to learn more about this then watch our video on llc's versus s-corps number 14 pass-through tax deduction when the tax cuts and jobs act passed a new deduction arise called the qualified business income deduction basically it allows business owners to write off up to 20 percent of their business income on their taxes so for example if you made one hundred thousand dollars in business income you could hypothetically write off twenty thousand dollars and save taxes on the now lower amount of business income that you'd be reporting now there are some key rules to be aware of if you want to use this business tax write-off for example it only applies to specific entity types and there are income limits for those who can take advantage of it regardless if you are eligible for this deduction then it can save you thousands of dollars in income taxes depending on your income so these are my 14 biggest tax write-offs for small businesses now let's talk about how to implement this in order to implement any of this you need to have a good accounting system in place that tracks these type of expenses and aggregates the totals for each category for you and if you need help with any of this then our bookkeeping service was designed to help you prepare financial reports like this so you can easily prepare your taxes also if you have any questions on the tax side of this then you can also use our tax planning service to receive a custom tax plan for your business with all that said let's go ahead and recap today's episode today we discussed a few things first we defined what tax write-offs are in the first place remember tax write-offs are just eligible expenses that you can use to deduct from your business income when filing your business taxes then we discuss the general things you can deduct in general you can deduct almost all business expenses that are both ordinary and necessary to run your business finally i provided some of the biggest business tax write-offs that i've seen save my clients a ton of money remember to take full advantage of these business tax write-offs you need to have a strong accounting system in place that tracks this stuff for you on a consistent basis anyway that's it for today's episode i truly hope that you enjoyed the content of this episode if you did please help me out by clicking that like button below for me and don't forget to subscribe to our channel so you don't miss out on future content that can help you grow your business i'll talk to you soon you

Channel: LYFE Accounting

Views: 998,969

Keywords: business taxes, business tax write offs, business tax deductions, biggest tax deductions, biggest tax write offs, small business tax write offs, small business tax, sean standberry lyfe accounting

Id: 5YggWhLeckM

Length: 18min 43sec (1123 seconds)

Published: Wed Oct 21 2020