Business Owners Tax Strategy Update - Keep More of Your Money in 2021

[Music] welcome everyone to the main street business podcast i'm matt sorenson along here with mark j kohler probably the guy going to be talking more today i think i am color commentary mike mark likes to claim himself as color commentary because i'm enjoying the show i am claiming color commentary you're going to throw down your steak you're going to far and away tom cruise just staking in the ground this is this is my land this is my land this is my land oh man you know what good old days you know it is you know i can tell this is going to be a good show where within the first 15 seconds we quote a movie you know it's gonna be good so yeah um and uh the topic of course as you've seen is um tax strategies for you business owners um or investors out there too you know you work in the real estate space anybody self-employed of course um side gig brought out tax strategies yeah side hustlers yeah having rental property is a business i i have to reiterate that constantly to business owners i'm sorry to real estate investors that you're a business that's a business and side hustle side gig you're driving uber that's a business you know so yeah baby um well what we're going to do today is go through these strategies we'll hit some things on the personal side too so maybe some of you are aspiring business owners haven't taken the you know the leap yet but there's a lot of things that are going to cross over at least some for just on the personal side of your tax return that are related to being a business owner well because business owners are individuals too i was just going to say that every business owner has to file an individual return and i think one of the key strategies we've preached for years is the goal is to legitimately and honestly and ethically whatever you want to say transition any personal expense possible that could be related to your business and write it off without getting into trouble with the irs and there's a there's a lot of gray there you know and heck i'm gonna go through the pearly gate someday i don't want to be in trouble you know when they ask did you cheat on your taxes i want to say no but i pushed the envelope and i think that's okay you have my seal of approval go ahead and use that free pass you don't say hey when you go through the pearly gates go well i got this card from mark kohler that says i pushed the envelope but that that should be okay yeah those cards have expired we no longer get those cards but you've seen a lot of those cards coming through here yeah yeah we're not honoring those anymore uh but you know what if that's your biggest worry going through the pearly gates you're probably gonna be okay you know yeah okay although even before the pearly gates you don't want to end up like wesley snipes you know true let's not forget um there's difference between tax planning and tax fraud and uh yeah so just don't don't be like wesley snipes who went to prison for not paying taxes i always joke i just wonder what the because he was sending in tax terms the irs basically claiming refunds like like no income and requesting refunds for any amounts that were withheld and he had some crazy hairbrained tax strategy behind it all right i just imagine like being the irs agent because that return somehow pops up in the system wesley snipes guy you're like man that name sounds familiar i mean god he was in a ton of movies at that time he's got to be making money obviously yeah tens of millions of dollars probably and you're curious what his return is zero i wonder maybe it wasn't a good move to be in fugitive 2 and be pulling that you know yeah yeah u.s marshals he was us march which was the sorry the yeah predecessor not the sequel yeah to yeah if you're getting maybe it was a foreshadowing being in us marshalls you know yes yeah you got got some experience of you know wearing handcuffs and stuff and all that so you know all right well let's get to it for those that are new to the show we try to keep this light it's no fun talking about taxes but we want to save you money we want to make sure that you're taking these strategies to your tax professional you're the captain of your ship if your accountant's not bringing up strategies and you have to bring them up i'm sorry but do it you can't just wait for your professional to serve you up a tasty meal sometimes you have to get in the kitchen yeah and there's no easy button to tax planning there's no like well just give me the low tax option well the tax code isn't built that way all right there's like 20 strategies yeah there might be 20 strategies out there to consider and you might do seven of them you know but you can't do there's no easy button to just get the seven that work for you so you gotta kind of do some work on your end and um what i'll say is this preliminary point is taxes are the number one expense for a successful small business owner this is the number one creditor you have is the irs and your state and so nailing this strategy is a way to manage your expenses okay all right make more money to keep more of course yeah penny saved penny earned um okay now as a as a precursor to the show and as we start to go through our list and i've got a fresh yellow pad just nothing on it here look at for those on youtube look at this nothing here and i'm going to every strategy we say or come up with i'm going to write it down we'll see how many we come up with today um now here's my introductory story that puts us in really good light i was uh at the gym this morning bumped into a client great people um i told them i would never i've never mentioned their name on the show but i might uh bring up this topic and so they had their s corporation tax return done with us and their personal return and it was their first time doing both business and personal return with us previously they've done their personal return and we've done some some kick butt tax planning i mean we've really been knocking it down i thought we were doing great and they were very happy with that but um we finished the tax return early this year which is right now is getting your return done early because with all the changes in government i was actually com impressed we already had it out but they were like johnny on the spot getting us their info early early in january and um she said yeah i was a little surprised again and i had known there had been a little email exchange and so i ran up to him at the gym and wanted to talk about it that um a little email exchange about the bill it was a little more expensive than they expected now just so you can put it in perspective we charge 800 generally for a personal return and we start at 1200 for a corporate return and that doesn't include bookkeeping so it's very common for a business owner with our company our accounting side to pay a couple grand for their business and personal tax prep now some of you are like oh my gosh you know i paid and they she said this last year we paid 300 you know paying 2000 is new for us and and she was a little shocked and she had emailed my staff then my staff told me and this and that she quickly had paid the bill because here's what happened she goes mark at first i was really shocked at how much we paid your firm and then she goes hold it this is the first time we got a refund in 10 years and and i thought this is the lowest we've ever paid in taxes and she goes within about 10 minutes i regretted sending the email immediately paid my bill and said i had to change my paradigm i i mean i had a paradigm shift on my perspective of tax preparation and she goes i'm so embarrassed that you had to come talk to me about it because i truly did regret sending that email because so many of us and she goes us meaning professional and business owners out there are used to paying the lowest amount we can with our tax professional and that's where we think we save when in reality she said we saved ten times what we paid you that the paradigm shift she had was so many business owners and professionals like us go out and look for the cheapest tax preparation service we can find and that's what we think is saving us money when in reality if we we save 10 times what we paid you your firm mark by doing tax planning and strategy that we never dreamed of we're putting away more money in savings we've got all sorts of retirement accounts going for the kids and college savings she goes we are thrilled but i didn't i i never had that perspective before and she goes so she said i'm sorry about sending the email we're totally thrilled i said good good and and i and she recognized that that's a difference so for a lot of you i would just suggest again realize that spending a little money with strategy can have a 10-fold or 20x benefit and we can't focus on what am i paying my accountant we should be focused on what are we saving so just a thought yeah yeah all right good opening story and i think there's other benefits to being of what you're spending in terms of good tax planning and preparation is you're putting investing time too okay you're gonna invest some time into this now what i'll say is most of you are gonna get a strategy and structure in place that's efficient for you that might be a little tough the first year or two but eventually it's the same thing over and over your business stays the same you're doing the same strategy over and over every year and you're saving and saving and saving it's that first year or two where you're maybe investing some more money than you typically would and some of your own time to learn this stuff and to know which ones are going to work for you so but like i said because this is the number one expense for any successful business owner there's just so much opportunity here for you to keep to take money home it's just like it's like shooting fish in a barrel so to speak it's just like you can really win um it's not that hard just get engaged in it okay okay she said that too matt she said that too she goes yeah we invested in an s corp this year too so there's some extra costs and then said but now it's done now now now we're we're structured properly and the savings gets exponential okay you want to give a strategy what would you and i don't know i don't know people if we're going to put these in priorities we'll probably probably hit some of the hotter sexier ones up front but let's just go through matt we'll just take turns we've got typically podcasts and articles and youtube videos on every one of these strategies so we're just gonna brush over them but the goal here today is to give you a list of what you should be doing this year or considering doing okay you're number one number one number one assess your structure okay all right what is your entity structure how are you filing let's start at the square one because so much of what you can do and so much tax savings comes off of how are you filing are you a sole proprietor doing schedule c okay are you an s corporation are you in an llc with other people or an llc taxes in s corp maybe you're even in a c corp heaven forbid okay so the first thing i want to do is what let's look at your structure and i want to add to it and say understand your structure yes some people say well my accountant did it no no no see and this is where we've said before you might have your kitchen remodeled and get three different results from three different contractors and three different prices are you really gonna let them design which way your doors open and am i gonna have that cool drawer to hold all the cookie sheets and am i gonna have a drawer for garbage see you gotta be engaged in that and if you don't you're gonna you're just gonna let your your contractor decide and they may be conservative they may be creative who knows same thing with accountants so assess your structure and understand it okay good one man okay number two i'll just give a quick example of a recent one i had a client um that basically had some small hotels okay they had a rough year this last year but things are starting to pick back up for them and they're reassessing their structure they are basically sole proprietors for this they own the hotel personally there's two of them they just claim the income on their personal return we re-engineered that for not just tax purposes but legal purposes by putting the hotel on property and llc and setting up an s corp that's the operating business that's gonna you know take the income and pay the employees and so a lot of times some people just got sole proprietorship by default so one thing i want to do is just look at your structure i think the the most common one that's messed up is someone just a sole prop when they should be an s corp and you should do s corp if you're making 50k or more net income or someone just did an llc and they're it's just basically a sole proprietorship falling down your personal return okay no air more net income get that to an s corp okay yep and i'm going to put that as number two um escort for self-employment tax so number one is assess your structure which should mean integrating your assets with your retirement accounts with your operations with your day job with your side hustle do you have a family trust are you single with a little trust are you engaging in privacy strategies asset protection strategies see that overall structure is something we do in a first consultation yeah you may spend just 400 bucks with one of our taxpayers and go give me my structure for 2021 and a checklist boom that's number one number two is if you are paying more in self-employment tax than you should be you're going to take your llc and convert it to an s corp or just get your s corp going we're in the third now the fourth month of the year and time's ticking if you haven't got that structure in place for 2021 you may have already missed out on a fourth of the year in savings that's a big haircut so self-employment tax i like what matt said if you're netting and you're in a schedule c or multiple schedule c's i had a consult this week with a husband and wife and they each had their own their own schedule c we combined them into one s court and they still ran their own business the way they wanted to um so i'm part marriage counselor part tax planner kept that separate they were happy yeah okay dynamic that's number two you got a number three oh i thought i did one and two okay fine i'll give number three okay i'm gonna dip number three here was color commentary i've already claimed color commentary privileges i thought i hijacked number two when you you said some pointers actually i was like all right escort okay i will say this take advantage of any deadlines sorry any strategies before the may 17th deadline now some of you may be listening to this podcast after may 17th fine take a note to self of i'm never going to let that happen again but we've got i'm just going to rattle off some of the may 17th strategies which are traditionally april 15th but for 2020 you're getting up until may 17th 2021 yeah now these are also going to be some strategy strategies for 2021 but i also think we need to think of what is there anything left to do for 2020 and that's a fair fair thing to think about so i would say have you done your backdoor roth now remember people i don't care what income level you're at you can always do a roth that always shocks people i know someone's listening oh my god said i can't they're wrong everybody including bill gates can do a back door roth right now and if someone's telling you otherwise they're wrong you can still contribute to your backdoor roth for 2020. have you done an educational savings account that's a as a coverdell it's kind of an educational ira those are 2 000 per kid for 2020 deadline may 17th have you done your hsa contribution for last year health savings account uh that is for 2020 the deadline may 17th now if you're extending you can still do a solo 401k match from the company your solo 401k contribution and if you're doing a sep which is usually i made a mistake and did a sep you eventually we're going to get you into a solo 401k but the 401k and sep the deadline is may 17th unless you extend that's one more you can kick down the road but if you're not going to do an extension the 401k and the sep is due by may 17th and finally i would say are you funding any roth iras or traditional iras for your children since you paid them in your business last year and that's going to be another 2021 strategy will come to you but funding kids kids retirement accounts anything else by may 17th matt you'd talk about yeah well the the solo chaol just note too is the secure act which went into law about a year ago um changed a rule on solo case where you can still adopt a 2020 solo k plan up until the return deadline so for you sole proprietors you're gonna have now until may 17th to adopt even the solo k a lot of people think and this is the traditional rule you know you're soco december 30th is the last day now you're not gonna be able to make employee contributions still for 2020 but you could make the employer contribution under a solo okay for 2020 still which is the equivalent of a sep which is the equivalent of exactly exactly can i extend it yes okay yes you can so we've been still setting those up for clients that want i mean we're setting them up now of course but still have some eligibility for 2020 contributions um also inc which includes the extension deadline okay cool excellent okay number so may 17th deadlines now if you're listening to this show after may 17th forget about all those um maybe you'll be able to take advantage of those during 2021 for 2021 so you're not trying to catch up in the spring of 2022 but whatever the case may be okay number four do you have a strategy what comes to mind i'm gonna talk about kind of a cool one for 2021 okay it's uh i mean it's lunch time right now so oh i'm thinking about a good meal all right dining for 2021 this is an update yeah 100 deductible baby yeah okay wow um this is from a lot of the coveted relief bills that came out to basically help the restaurant industry encourage more businesses to be going out for meals there's no 50 percent limitation on anymore 100 deductible going out for business purposes you know partners meeting a customer or a vendor right there's a business purpose for that meal 100 deductible baby yeah and keep in mind that's dining by yourself if you're traveling and one nuance is if you buy non-prepared food for the office let's think of the coffee maker the water cooler maybe you've got some snacks in the kitchen those are going to be 50 a 50 reduction those you're those you have to cut in half which has always been the traditional rule but if you bring in prepared food and this is what the government's trying to do is encourage americans to go out and use restaurants and delis again that's a hundred percent write-off and so i'm gonna go with donuts bagels now if you bought if you bought a bagels at the grocery store in a bag i don't think that's gonna fly you gotta go out and get a fresh at the deli okay okay yeah all right dining hundred percent next let's grab a fun one uh we're going to get into oh i think our goal is to get over 20 people you're going to love this okay number five auto deduction uh the auto deduction is still extremely strong for 2021 and 2022. we start to see some changes in the bonus depreciation come 2023 this is part of the phase out that was implemented under the tax cuts and jobs act joe biden says i want to i should say president biden wants to repeal a number of trump's tax provisions i don't know if this will be one of them i hope not but the auto deduction is bigger and better than ever before so you could do mileage or you could do actual now for 2021 that means if you've thought about buying a used car a new car a used truck a new truck a used van a new van i just had a client buy an rv and put it in a rental pool they're renting it out for 300 a night their payment on this thing is about 2 000 a month and they bought a hundred thousand dollar rv they could bonus depreciate and write the whole thing off in the first year and that depreciation is deductible against other income so you've got this bonus depreciation for any type of vehicle that could be a plane some of you may commute between multiple cities you needed a little cessna or a little bonanza oftentimes called a doctor or lawyer killer those are great write-offs too yeah yeah so um autos now let me say on on auto too is just remember of course um mileage is the most common so if you didn't buy something new obviously you know you could just you're using your car your auto for purposes or if you buy something new sometimes people are just gonna still just do mileage um it's 56 cents a mile for 20 21 so if you for every thousand miles you drive that car it's a 560 write-off this was a one of those things that was a shocker to my daughter who was doing doordash in college was how many miles i'm like we gotta track your miles now luckily it has all of the i mean like did she keep a journal of all the miles now but as a record of all the deliveries she did right and so we could kind of recreate a good record of well what were the miles you actually drove and she got a pretty sweet deduction on her return that helped her get a refund basically yeah now and see for those listening that have a side hustle or side gig you're entitled to all these same write-offs is a multi-million dollar business with delivery trucks you're just a smaller version of that so you're going to want to look at am i leasing a vehicle am i buying a vehicle over 6 000 pounds there's all these options now we've done entire shows on the auto deduction i have a great article on my blog that i issue each year there's the one for this year was of course in january go check it out i have seven rules of thumb on how to maybe approach your vehicle deduction so but then when i say autos vehicles i'm also including planes rvs motorcycles lots of those those are all considered equipment for the use of transportation so okay number six matt yours well i know you you did mention hsa but i just want to bring up health care and health savings accounts in particular so remember in a health savings account and this is something for right now i believe open enrollment has still been extended um they keep extending it because of covid so um getting to a high deductible health insurance plan that will qualify you for an hsa can be an awesome option for getting deductions on money throwing into an hsa so when you put money into an hsa let's say it's family you gotta put in what seven grand for 2021 or is it up to 70 200. oh for 2021 it's right here in the marc j kohler calendar 7 200 for married 3 600 for single okay and that could be family too right you don't have to be married right you have head of households your family head of household yeah so that let's say you do 7 200 for the year and right now if you have the high blackboard plan in 2020 you could be throwing in 7200 for 2020 7200 for 2021 right now you would put in 14 400. now the cool thing about the hsa is you get a tax deduction above the line like whether you itemize or not you're going to get a 7200 tax deduction if you're you know for doing family hsa here and that money's growing you can invest it you could self-direct it we do hsas at directed ira of course and it's gonna come out entirely tax-free for for your health care expenses any health care expense not insurance but like anything dental eyes co-pays deductibles acupuncture massage therapy physical therapy prescription drugs everything you don't you don't have to wait till you're 59 and a half too so if you're young and you think well someday i am going to have a baby or i'm going to get you know sick or break a leg or blow out a knee or whatever this hsa is there to pull it out and use it um okay let's stick with healthcare so number six was hsas all sorts of goodies in our blog and show history on hsas the next one i'm going to say is health insurance now for some of you that went through the coveted pandemic you may have been let go at your company and you ended up jumping into the side hustle side gig world and you ended up getting a personal health insurance policy maybe that's and i can imagine there's someone listening maybe you were just paying cobra you stayed on your prior employer's plan but you're paying now for the insurance yeah your business gets a 100 deduction for health insurance for you but you have to let the business pay for it now some of you just said well hold up my business isn't profitable enough put money in your business from a day job or a w-2 or from mom or dad or grandma whatever put money into your business to pay your monthly health insurance premium now it's a deduction now some of you may go well it's a write-off no matter what new if you get audited the irs is getting more particular in this area there's a lot of new notices and some cases in the last two to three years the business has to show that it's paying the premium for you the business owner you don't have to cover your other employees that's a rule that came about in the tax cuts and jobs act as well wonderful thing it was a kind of a carryover from the um affordable healthcare act h-a-a-h-c-a all these acronyms but but everybody pay for your health insurance premiums out of your business that's it 100 write-offs yeah well policy doesn't need to be in the business name okay it could just be in your individual name just the checks getting cut or the payments getting withdrawn from the business account yeah okay um before you before i gotta just if i could suggest one last health care strategy for your number eight may i impose one on you the hra oh yeah let's finish with that so we have the the triple we have the hsa health insurance premiums and hra could you explain that for a moment ooh the hra health reimbursement arrangement now this is for those i i like starting with the hsa and once you've done let's say that you know 3 100 single 7 200 married head of household or for family 36 36 or 72 36 or 72 yeah that math didn't add up dang it okay the cpa between the two you know is oh we got each other's back i'm just a tax lawyer i'm your i'm your wingman i'm your wingman maverick i'm on your way all right okay all right i'm maverick and you're goose sweet did that just mean damn it i walked right into that one hey requesting flyby technically the wingman is iceman right because that's true yeah because yeah i think i think i think that was the high point of val kilmer's career too i really do oh man he looked so good yeah he was good he was tough he was just a jerk i like how he went after maverick too you know and i don't like you uh what now it's like every time you go up you're dangerous i don't like you because of that that's right ice man i am dangerous all right all right maverick i got your i got your back so 36 72 okay hra um this is a health reimbursement arrangement that the company can establish now if you're an s corporation it doesn't work you're going to need to do a little side step here with a family management company that's going to the escort's going to pay some income over the family management company family management companies providing services to the s corp in exchange for it and you're going to adopt the hsa and the family management the hra now mark has articles we've got videos on this the nice thing with the hra is i can put more than this 3 600 single 7 200 um family into it i can use it to pay for medical for me or dependents i and and it's a it's a reimbursement arrangement so you can track all your medical for the year then come back now this is something for 2020 you're too late in the game okay you would have had to have done this by december 31st but for 2021 as long as you get this adopted and in place and you do the reimbursements you reimburse yourself back for all this medical by december 31 2021 it becomes an expense okay in essence you might want to play clean up on that but that is the health reimbursement arrangement yeah i'll just add a couple words this family management company is going to typically be a c-corp if you're single uh so you can adopt the hra for yourself through this little management company and that's the only time we really like to use a c-corp is when we're trying to tackle a medical expense strategy and number two if you're married then we have the little family management company that's there to hire children and the spouse provide the hra pick up the kids on under age 18 on payroll very very common very legitimate uh i want the kids legitimately working in the business and the spouse will be helping in the business in order to justify these expenses but again if you're single you can still do the same strategy the only other only other thing i'd add is the hra starts to make a lot of sense when you have medical expenses exceeding four or five thousand um we're not talking about health insurance let's say you're going through a really big year with some dental work uh maybe uh some reconstructive surgery uh you've you know you've got this ailment that you need to really finally take care of that knee is still bugging you from playing basketball and in the gym on a saturday morning thinking you were younger than you really were um it could be um uh you've got uh kidney diagnosis rehab i mean things like that someone you know a child or spouse someone like that those are qualifying expenses sorry yeah yeah you could have cancer kidney dialysis diabetes some some element that's really adding up some medical bills and i like what matt just said let me be very clear on that drug rehab or mental health uh rehabilitation those are all uncovered these those are can be a hundred percent reimbursed through your business and there's no limit on a single employer plan hra so this is not the qse hra which are for groups of employees this is just for you now if you have employees the hre is going to be a little more difficult to adopt but anyway we've got articles on that i've got a new article this week coming out on that for 2021 lots of new developments in this area so but if you have hra does require an actual plan okay you have to actually adopt this and we do them and tax lawyers and kcos lawyers can help establish that so um yeah yep there are 500 bucks you have to adopt them each year and it includes a half hour consult with the tax lawyer to take you through the steps it's self-administered there's no insurance company involved they're very simple but anyway so hsa health insurance premium hra that takes care of your 2021 most strategic medical strategy options there is a thing called out there a 401 h it's like a 401k for healthcare that the uber rich use and you can get massive deductions for that i'll leave that under the hra column of number eight is it my turn sure i got one let's tell me if you're ready well i i kind of forced you to do the hra so why don't you take another one take another stab what do you got okay i want to do paying your kids okay i like it um we brought up the family management company just a second ago so let's go over just a couple quick scenarios here hey you know what matt let's tackle this easy let's do one line for paying kids under age 18 and another line for paying kids over age 18. so why don't you tackle under and i'll tackle over okay all right under age 18 the first thing point is these kids actually need to work in your business okay but this could be your rental property you take them to help mow the lawn i used to mow the lawn and my dad's rental properties okay um i don't think he knew he could you know expensive of course i mean it was five bucks but if that you know but um but you know get your kids involved and for for llc's or sole proprietorships just pay them right out of the business for s corpse however in an s corporation you cannot pay them out directly out of the business unless you're going to put them on payroll and do some withholding so we will do that so again when we will do the family management company the family management company's providing services to the s corp the s corps can expense over some of some incomes basics can expend some money over to the family management company which picks up his income then the family management company's going to pay the kids and this will be a little possibly sole proprietorship on your 1040 on a schedule c now this strategy of course think of your kids if you can pay them let's say i don't i don't know how much your kids are worth how much work you're having them do but let's say it's 5 000 bucks for a teenager working in your business i mean that's 5 000 off of your income and tax bracket which let's say you're at one third of a tax bracket you know that's now going to your kid well if i spend send f if i pay my kid 5 000 bucks and you actually need to transfer it into their own bank account they will need their own bank account i'm in a 30 a one-third tax bracket i mean i'm saving you're basically saving 333 bucks for every thousand bucks i'm saving over fifteen hundred dollars in tax that i do not have to send the irs all right now that money can hit your kid's bank account and you can transfer it right back to your personal bank account as a reimbursement for all this crap you paid for for your kid but the kids actually got to get paid from the business account into their account so it's basically to shift some of your income or you pay tax down your kid now does your kid need to file a tax return probably not there's the standard deductions for the irs you want to look at that's in the mark j caller calendar i think mark's pulling his out yep we are 12 21 for 2021 we are at 12 550 for the federal now that brings up an important distinction you want me to comment on the state yes yes okay so that's a mess yeah so for this year in the marching color calendar you can see it here on the youtube uh video uh i held it up as a demo um we're currently sold out we're debating printing new calendars another round send us an email if you're interested in buying one the federal limit of income before you have to file a tax return for earned income is 12 550. now this is not income subject to the kiddie tax this is earned income so if someone says yeah but my accountant says it's taxed at my rate because of kitty tax nope that's unearned income that's when you make your kid a part owner of your company which is not a big no-no in our opinion or your kid has a stock portfolio bigger than average americans then they're going to have the kiddie tax but this is earned income now in the new calendar i created a table that goes through all the states for those on youtube you can see this table and it goes through which states your kid might have to file a tax return because the standard deduction is not twelve thousand five fifty so you're so let me just give you a quick spattering of of states that would cause cut could cause a problem oregon the standard deduction is twenty three hundred and fifteen dollars so in matt's example of paying your child five thousand the child will have to file an oregon stat tax return and pay tax on approximately twenty seven hundred dollars of income uh montana 4710 rhode island 8 900 vermont 61.50 uh a few bigger populated states sorry i didn't mean to be up in the northeast there california california 4 600 and one dollar so you'd have to file a california return georgia 7300 hawaii 2200 iowa 2130 kentucky 2690 maryland 2300 so the list goes on so you not only have to look at okay what am i paying my kid i might have to file a state return and pay some small tax but it's still a you know just a pittance compared to what your tax bracket yeah that's why we're doing it okay all right now that's for the kids under age 18 all right you're gonna pay them you're not doing a w-2 you're not withholding medicare and social security all right you're and you're getting an expense of this your kid is not claiming it as income and having to pick it up unless you're in one of those states where you've paid them above the deduction amount or if you're paying them over the federal deduction which your kid would really have to be doing a lot of work so yeah okay so now if your accountants are they're cringing not liking this strategy we've got blog articles with the all the chapter and verse code sections we backed this up we've been doing it for years we have no concern as long as your kids are legitimately working okay paying kids over age 18. now i'm going to be clear is this 18 and older yep 18. okay i was just gonna say that my daughter molly turns 18 next week wow can you believe that matt i cannot buy that she was when you first met her baby oh my god this yeah she was so wow she was tiny i remember matt we first met in my backyard even in kindergarten yet i mean oh no yeah so anyway so um you pay kids 18 and over through a 1099 from any business you have so no matter what your side hustle is sole prop llc or s corp or c corp whenever you pay your children 18 and over it's going to typically be a 1099 subcontractor now if they're acting like rank and file employees like i've got my daughter allison and her husband jack work in my company now they're like regular employees they have a desk they have a computer i have to pay them as a w-2 because they act and are working as an employee type definition which is standard for every situation but if your kids are serving on the board of directors they're off at college they're showing up on occasion helping with administrative tasks marketing tasks maintenance tasks with a rental property at 10.99 is 90 times 95 percent of time gonna be sufficient um my strategy is with molly turning 18 next week i'm going to pay her and maybe even pre-pay her for the services she's going to provide this year before she turns 18 because once i issue her a 1099 she has to file a schedule c return and pay self-employment tax so i'm going to she's going to see some big money go in her account next week before the 18th birthday and then mysteriously it's going to get moved to what we're going to call our 11th strategy and i'm going to let the infamous matt sorenson talk about paying kids and taking it to the next level so pay kids with 10.99 18 and over okay matt what did we do what's what's the steroid level can we go there okay yeah now this is where there's some there's some good family kids teaching them about life and how to work hard like let them work in your business that's one of the best things you can teach your kids i think is a good work ethic and the value of like you know earning money and just like doing a good job at whatever it is you do so that's of course a great benefit you got a good little tax deduction for doing it so it's a little win-win there and then on top of that you can teach them how to invest and why not have them use the best account out there a roth ira because what do they have now earned income whether they're under 18 or over 18 they now have earned income they can qualify and contribute to a roth ira and the cool thing about the roth ira is it grows tax-free and comes out tax-free but it's also a cool little savings account because anything you put in a roth ira you could take out and not pay penalty or tax so when i put money in a traditional ira and i want to take it out in two years i have to pay a 10 early withdrawal penalty like there's penalties for pulling money out of a traditional ira early plus i got to take it into income but in a roth ira it's also a great savings account because whatever i put in i can pull out for whatever i want i don't have to meet a hardship exception or anything and so this could be a great savings vehicle for your kids rather than putting in a savings account or buying a savings bond and if anyone does that crap anymore use the roth ira that's a great savings tool plus they can then learn how to invest okay now i'm going to add a little variable here some of you listening may go well hold it i thought this was 2021 tax strategies for business owners um why are we talking about my kid's roth ira here's why i had a phone call with a client that i've been working with for years so he got under my schedule with the clients that i've been maintaining i'm taking those calls i'm trying to manage administrative work here as well as best i can so this client um he's from back east uh very successful and he uh pitched me on a new project he's doing and he's like i need to save tax on it and i'm like oh my gosh you're in the highest tax bracket already we're we're scraping the barrel for every possible strategy and i go here's your best strategy don't do it he's like what are you stupid i'm gonna do it this is a this is a home run and i i believe him i said maybe you do do it but let your children's retirement accounts participate with you that your own retirement account helped fund this deal let your roth your hsa your coverdale the roths for the kids be your partners now there's some rules he's not going to be able to provide as much sweat equity and he can't take a salary and all these goodies but i said hey if you can keep this as a arm's length transaction you're going to make a lot more money tax-free by not doing the deal 100 yourself so the message to you business owners is don't do every deal yourself you're funding these accounts so that their capital that you can tap into to launch your next business idea because you're an entrepreneur i know you're gonna have an idea and it could even be another rental property don't do it entirely yourself so that's where it kind of relates to the business owner okay number 12. and i think oh go ahead matt yeah i'll just say a lot of a lot of high income people of ours that get sick of paying taxes but have more and more deal flow and more more business opportunity which just tends to happen once you have little success hopefully you keep working hard you keep your eyes open stuff starts coming your way it just does is figuring out how to use the retirement accounts particularly the roth accounts which is the only way to make money tax tax-free and not go to prison in the united states all right okay the next one i want to bring up oh it's yours okay oh fine whatever when you're okay no i thought i thought you brought up the roth ira not me but that's okay yeah okay i mean all right i'm gonna go okay what do you got what do you got buy a rental property oh good okay buy some rental real estate not only is it a great long-term building wealth strategy it also has the sweet little benefit of being a great tax strategy now we always talk about buying real estate in an ira and buying it personally we're not saying do one or the other right real estate is an investment we're buying stuff for the investment return but it also has some good tax benefits to you when you're buying it personally we're saying do both i know i do both yeah i do both myself um all right literally this saturday last saturday five days ago we're recording on a wednesday so what is that four or five days ago saturday i was working on my own personal duplex rental my father-in-law who i love to death is hasn't been feeling well this month and he's my property manager and we had to onboard a new tenant and there needed to be a little painting and i had to call the carpet cleaner and get them over there and uh i had a couple colleague or high school kids uh doing some demo in the garage but i worked on it all day saturday and that was my own little duplex and it's a great little cash flow property i'm you know it's not making me rich in and of itself but in concert with all of my other strategies it's absolutely an integral part this coming saturday my daughter allison and jack are closing this week on their triplex mat oh sweet yep two two renters already in an unfinished basement so this saturday is clean out the basement have a yard sale and start demo baby so i'm i'm chip i get to be chip i go allison i won't give any advice you know you're you're joanna this is your baby because my little daughter allison she's a designer and uh so i don't get to choose colors design but i said can i be there with a sledgehammer and be chip she's like you can be chip so yeah that's what i'm doing for you i love it yeah cool so we're living this we're doing it now keep in mind on real estate many people will cash flow their real estate right like your you know the rental income you have covers the mortgage it covers the expense on the property and you're keeping money in your pocket not only you're paying down the mortgage and getting the appreciation of the real estate you're also um paying down or you're also sorry you're paying down the mortgage getting appreciation the property but you may be getting a tax loss because you have a depreciation expense on the property every year now when you have a tax loss for those of you that aren't over 150 000 yen income you're going to be able to take that loss against your regular income automatically it's pretty sweet if you're over 150 000 of income these rental losses are worthless to you unless you have other real estate gains you can use to net against them which will happen if you start buying more properties over time and you may be able to become a real estate professional maybe you are a real estate professional maybe a real estate agent you should be buying rental properties okay these losses can offset your um your all your commission income um or maybe a spouse if a spouse um gets becomes a real estate professional and this could be from owning real estate not just being a real estate agent or that type of professional but um you know just from owning real estate or having a lot of properties one can qualify as real estate professional and now your real real estate losses can offset your other income and your other business possibly so just look out for that strategy it could be a good one if you're going down the real estate route we love it most of our successful clients do it and there could be a lot of great tax planning in there with those tax losses now on that note i made real estate professional number 13 because it is separate from rental property we want all of our clients to buy rental property i buy rental property yeah but my i do not nor does my wife qualify as a real estate professional much to my chagrin but that's okay does that mean i don't buy rentals no i still buy rentals and my admonition to clients every time i get a chance to talk to someone is one a year one a year now that could be residential rentals commercial buildings i just had a call with a client this week is that mark i don't want to buy residential rentals i said i didn't say buy residential rentals i said buy rentals are you currently renting a building for your business yes we're going to start shopping be your best first tenant buy your own building rent it to others and so huge opportunity okay tax strategy as well as investment strategy number 13 real estate professional number 14 i've got to bring in my favorite movie i don't know about all time because i can be a sappy guy too but it's it's up there the accountant with ben affleck in the first 10 minutes what's the strategy mat in the first 10 minutes um oh i put you to the test small business no no well yes home office it was home office it was a combination of the two in fact matt i well i'd like to say one of our top business strategies is have a small business but i think that's perfunctory because you're listening to this so obviously you have a small business but in the movie in the first 10 minutes he talks to this little farming couple and says what are those necklaces you're wearing and of course he has this autistic backward socialistic you know social personality and she's like oh do you like him he's like not particularly uh and he's like and do you ever sell them and she goes yeah i sell them at the the church bazaar and the pta or whatever at the school and she's like he's like you may have what's qualified as a small business where do you do this work on my kitchen table and he goes you mean the home office and so anyway it was pretty classic um he really did quote tax law accurately in that first section of the movie and uh maybe it was a little gray talking about the kitchen table and home office some accountants would you know cringe but there's definitely opportunity for this so everybody everybody should have a home office deduction now maybe it's only three square feet maybe it's 300 square feet maybe it's 3 000 square feet and it includes your garage that holds tools supplies and inventory i don't know but don't let an accountant freak you out and tell you you don't qualify or it's high risk bull crap bull crap so home office deduction for 2021 again we got articles and vids on that okay matt your turn all right um this is a we might turn this into two but i've just had some a couple of examples i think the ones that people miss okay but they catch it because they have good bookkeeping okay all right so that there may be a tip here of having good bookkeeping yeah we'll cut some of these little things that you might forget yep i'm gonna say let's just go there let's stick with bookkeeping for a moment because i think what comes with bookkeeping is separate checking accounts for business and personal and separate credit cards um try to be religious with that you don't have to be the best bookkeeper in the world but when you use separate checkbooks or separate debit cards or separate credit cards it's going to make the accounting a lot easier at the end of the year because you can say yeah this credit card's all groceries and underwear and blah blah blah but this credit card or this debit card is where i spent everything for business and then you can go comb through it so i think bookkeeping doesn't mean you have to become a quickbooks pro by any means but it does mean using good checkbook and accounting separation would you anything you'd added that yes and the one example i was just going to give um is interest okay interest expense yes this is one like maybe you've got a line of credit that you used um to to um in your business to buy to cover some expenses or to buy some inventory or whatever whatever it was for this could be the credit card that you end up not paying the balance off for a few months or maybe you still haven't okay that interest is deductible yeah here's a couple other ideas let's say you get a second mortgage on your house as a personal expense that interest is no longer deductible but if you use the credit line on the second mortgage on your personal house for the business that now morphs into a business loan so now i'm able to deduct the interest on my second mortgage because the principal that i pulled out was used for business you know another good one matt too yeah the auto the when you use the mileage deduction that there's there's only one expense you can do on top of mileage it's the auto loan interest yeah that's that one is missed very frequently remember to track that one and that should be in your books in your bookkeeping okay interest expense um i didn't expect you to choose that one you kind of impressed me on that one yeah that was just a good one i just had some as client asked me about the interest on like a credit card that they used for business and had a kind of a larger expense that they put on it frankly it was a personal card but it was used for business purposes and yeah that interest you're paying for that purchase going to be tax deductible good times good times yeah good times mr thank you mr sweaty mr freddie and her holiday treats okay um i'm going to stick with that some of these little nuances and i'm going to go with electronics now this is one where you've got to think outside the box people and i'm just going to look around my desk right here i've got a cell phone i've got a cell phone case i've got earbuds uh all used for making conference calls in business i have a laptop i have a clicker for the projector i've got some bose speakers here both speakers right here in front of me those bose speakers are using here in the studio or at home office to listen to podcasts i've got a camera i got a microphone i got a light i got a monitor i got monitors back here i'm looking over here i've got a battery charger um and i've got a special case here to hold all my little electronic gadgets i've got an extra charger i've got some other headphones people anything you buy at the apple store or best buy um fry's electronics online amazon that you could use in your small business let the business pay for it and put money into the business to let you pay for it oh look here's an adapter i can plug this into my laptop and convert it to hdmi um alright off all right off yeah as are the services or your cell phone bill for example that comes every month i'm gonna put cell phone bills separate keep going okay okay so think of those things cell phone bill internet service of course if you're if you're getting that um a lot of these things you're doing maybe you're maybe you use quickbooks or other services of course that you you in your business those are expenses i'm going to quiz you why do we like cell phone bill think of our verizon plan think of our verizon plan why is the cell phone bill a good write-off i think board of directors think of our cell phone bill yeah you could put your kids on it too your kids phones that are working your business yes because you better believe you're going to be texting them when they're not getting their crap done it you're you know they're supposed to get done yep so and i think there's a cost saving opportunity there too because matt and i went with the verizon business plan and as long as you have 10 phones you can get or 10 services you can get a some really big discounts with all the major carriers as a business unit you can also be building credit with a verizon plan because you can put it under your tax id number for your company another credit building strategy but cell phones of all your board of directors now you need to have a primary personal line but if i'm paying for cell phones for my kids because they work in my business that's a write-off baby um i was just going to say um anything else matt on that i didn't mean to cut you off i was just excited about the phone bill no okay okay i'm going to say electronics i'm going to talk about drones video cameras all of you should have social media sites where you're using cameras to create images to go take pictures of your rental property to take a drone around your rental property your business also for your marketing ads to use a drone and i'm going to bring up number 19 tools now i'm going to put tools and equipment as a separate line because this is for those of you that have rental properties you need tools look at what i just bought here matt new gadget this tests electrical wave current in a an outlet um usually my wife says stay away from electricity and plumbing those are my two areas i'm not allowed to play with in the house you know i can do drywall and i can do patching because you can always fix that but electricity she's a little more nervous of me yes smelling like burnt flesh and burnt hair but anyway this little gadget we needed in the studio today to try to find a 20 amp outlet that's dedicated for my uh rig for my cryptocurrency rig so i'm moving my cryptocurrency rig into the studio and i needed to confirm which outlet was dedicated with the 20 amp service and but this is for business so anything you get at true valley home depot uh harbor freight oh i love arbor freight oh you haven't been there yet have you no but i drove i was visiting my kids in tucson at the university of arizona u of a and there's a harbor freight down there like mark kohler told me about this place oh dude it's the best because you need tools every every guy's gotta have tools it's really a badge of honor you need it you can it'll make you feel more manly you need a lathe you need a leg you need a table saw yeah those are just there's just necessities there's no way around it i get that i'm not going to argue that okay number 20 what do you got for 20 20. can i i'm going to take a little turn here because this is this is one uh it's not for business it's personal charity oh okay well yeah gosh make me feel it took us 20 items to get to charity oh yeah uh yeah here's here's why just a couple things as a business owner it's not an expense in your business so if you're contributing money to a charity from your business which is a great thing and many businesses do um right you have some economic good you're trying to do um if you're in an s corp or even a sole proprietorship if you pay it out of the business it's not a deduction it's not a deductible business expense frankly it's going to pass down to the business owners and they would then claim it as a charitable deduction on their individual return which you generally will only get if you itemize right now i um i'm just gonna i was just looking at the rules on this because of covid and this is some of the things a lot of people are trying to contribute to charities and such is i believe the cap on charitable deductions which was put into place the last few years was removed for 2020 2021 are you are you familiar on that one i think you're right there's been some expansion of that um yeah so good stuff so there you go yeah consider consider your charitable deductions which again only helps if you're itemizing but most business owners you know are typically itemizing because you're charitable and mortgage interest deduction exceeds the standard and i may make one of you um i may make someone listening here a little perturbed or nauseous but charitable deductions can still be self-serving from a marketing standpoint i know some of you want to give to charity and be anonymous god bless you that's great um sometimes it is worth it to put your name on a building or on the back of the t-shirts of the little league team or the soccer team and it's okay you know give to community that's why they do quote unquote sponsorships is so that you can give to a community organization and throw it under marketing which is a business expense ooh okay there's one marketing for 2021 is supporting a little local chapter of athletics or something and yeah and they put your name your sign out there and yeah you know your name's on the kids jerseys maybe um i was gonna say on the charitable contribution one of the for 2020 is you can still take a up to a 300 charitable deduction even if you um just take the standard deduction that was one of those that's good okay i'm going to bring up the next one stretch i thought matt would by now um retirement plan deduction and that we we talked about the the roth uh for the kids and back in the may 17th modge podge of possible deductions for 2020 still we need to talk about retirement deductions so i think that's where as a small business owner you need to choose the one that fits you best it could be just funding roth that's all you if you're going to fund one thing it's your roth and your hsa matt and i debate that constantly if there's two things we want you to fund it's the roth and the hsa and that's your backdoor roth if you make too much money but above that we would love to see a solo 401 k possibly a set possibly a simple if you have other employees we create what's called a safe harbor 401k you might do a db plan defined benefit plan a cash balance plan so there's a whole mod podge if that's really a word or not i don't know something my mom would say but you you've got this whole group of retirement plan deductions anything you'd add to on that map yeah and this is one where if you've been getting you're starting to make more money and you haven't been good at saving for retirement this is a no-brainer it is a win-win if you are out there and you're like all right i want some tax deductions you can do the solo k you could get up to 50 000 plus in tax deductions using a solo k now you've got some decisions to make do i want to do roth you know in which case i'm going to pay some tax now i'm not getting a tax deduction if i pick roth that is a long-term tax strategy of growing an account that grows and can have investment incomes that returns and comes out totally tax free at retirement the traditional though if you want the tax deductions and again it's over 50k for those that do a solo 401k which we've got separate stuff on the solo 401k it's great for people self-employed with no employees um you want to go traditional you're like guys i just want tax deductions now you can do 50k if next year you're like i don't need the tax deductions bad i'm going to go rock you can go roth next year right you can do that all in a solo 401k you got a spouse that's involved in your business you can do over another 50k for them so so and that is not a super complicated like pension plan that you pay 10 grand a year for all right these solo case we do them for less than a thousand bucks with an attorney consul and get the plan set up so you can then be making these large contributions certainly above the 6 000 roth ira um or traditional area and i'm embarrassed i don't talk about it enough but one of my accountants brought this up last week matt we still have the 500 tax credit for creating a retirement account plan isn't that correct yeah now that doesn't apply to a solo but that would apply for the any to the safe harbor plans or where you have other employees on if the only people participating or owners i don't believe that credit still applies i'm pretty sure it doesn't okay the other um uh i'm going to throw this down uh dang it i just had one at the tip of my tongue here uh retirement plan we're at 22. oh 23. uh oz zones that's an opportunity zone now we start to get into more of the more um how can i say the more unique or isolated tax strategies that could play out in a unique situation they're not available to every business owner typically but the oz it's called an opportunity zone investment you can take any capital gain from the sale of stock sale of business assets sell business property sale of business sell over rental property and instead of doing a 1031 exchange which is probably called number 24 but 23 i'm going to call what's the opportunity zone where you can take the gain only you don't have to reinvest the entire sales price or into something else which would be a 1031 exchange but the ozone we've got some articles in our office devin muns has tried to be the expert in that area in our office he's very helpful so if you want to reinvest capital gain from a business transaction or personal transaction oz and then 24 is the 1031 exchange where you sell real estate and buy another piece of real estate of equal or greater value president biden says he doesn't like the 1031. we'll see if that goes but yeah biden wants to 86 the 10 31 so that was sweet that was sweet yeah okay can we get to 25 we got to get to 25 and then we're up to an hour my producer's saying we got to cut do you have 25 what do you guys got cory what do you got what do we talk about that we're missing oh i'll say this i'm just going to throw it out there tax credits you might have the solar tax credit um in the handicapped access type credit um investment there's all these little tax credits there's really i've once created an article of like seven to ten of them there's uh low-income housing tax credit there's an energy investment type credit there's some really unique ones out there but um there's the fuel tax credit um a lot of landscapers get the fuel tax credit uh because they're spending so much on fuel so there's you want to try to see if your business falls into a category of a tax credit there's um yeah we still got the tax credit for electric cars and stuff that are out there um and some states also play in that in addition to the irs which the federal tax rates was up to 7 500 bucks yup yup um but there's a bunch um there's uh research r d research and development tax credits a foreign investment type tax credit so there's all sorts of goodies there's hiring veterans tax credits hiring uh people in certain opportunity areas where they're they're trying to empower i'm going to say empowerment zones i think is a proper term i don't have my article in front of me but i will just start tax rate so there's there we go 25 ways to save taxes and build wealth at the same time boom i like it i mean i think we did a bang-up job so uh there's let me say there's more to it that we are just hitting what's coming off the top of our heads here uh this is although it is a comp it's a pretty lengthy list at 25. there's still more things out there to do tax planning and that's why getting some consult and his marks at the outset being the captain of your own ship now again i think it sometimes is intimidating and sometimes it's the least some people hate tax planning some people's personalities they love it if you're one of the people that hates tax planning just get used to it for a year or two that's just my only plea just get good out of a year or two get the structure right figure out the things that matter for you stay at pay attention a little bit to things that may change in the law and just keep doing the same damn thing over again if you think your business being around for 20 years and picking up 20 000 a year in deductions you know how much is that that's 400 grand in in tax savings you'll have in your business that's more money that you're gonna have in your pocket because you just kind of connected the dots better you know you figured out how to do things we're not asking you to spend money or send money away this is these are things that you're doing that makes financial sense yeah you keep it now we don't want to throw good money at bad just for a tax writer well everybody thank you for listening since matt sorensen brought us in i'll take us out we'll see you next week i don't i think we're up for an open forum show next week um yes i just heard the yes so next week will be open forum if any of you have questions that may have arisen during the show you can always call our office make an appointment with one of our tax lawyers to get started the accountants are knee-deep and preparing tax returns it's always best to start out with the tax lawyer for an hour get your plan get your diagram get your structure get rolling the attorneys are going to be out one to two weeks that's okay unless you have a closing that's eminent and if there's an urgent crisis let the staff know we'll find a way to get with you before a closing or some major transaction but be patient and it's okay don't be upset about it if we're if you're a lawyer is busy that's a good thing so and we're trying to expand and grow and bring on new people so we'll see you at the lawyer you don't want the lawyer that can pick up the phone right then and take your call okay that's not that's a bad sign yeah yeah bad sign so um if you have a question for our open forum show next week get over to mainstreetbusiness.com and there's a button right there clearly where you can submit a question to the show also please subscribe to us give us a five star review if you feel so inclined we would really appreciate it and also subscribe and hit the bell on youtube for mark j kohler and matt sorensen we've got a lot of videos we produce on a regular basis and you want to ping when they come out you want to be on the cutting edge so thanks everybody we'll see you next week you

Channel: Mark J Kohler

Views: 27,349

Keywords: tax, legal, entrepreneur, asset protection, wealth building, attorney, lawfirm, tax deductions, how to pay less taxes, tax refund 2021, taxation, income tax, Tax Deadlines, Changes and Tips, 2021 IRA Tax Deadline, New Changes, tax deadline, Mark J Kohler, Mark Kohler, Mark Kohler Tax Tips, IRS Deadlines, Tax and Legal, 1099, S-corp, s-corp vs llc, LLC, ppp 2.0, business ideas, small business ideas, profitable business ideas, tax loopholes, how to pay less taxes legally, roth ira

Id: dfYtftMEmIs

Length: 73min 18sec (4398 seconds)

Published: Thu Apr 08 2021