How to Save Money on Taxes with an LLC

how's it going guys welcome back to taxes made simple i'm your host carlton dennis in today's video we're going to go over how to save on taxes as an llc owner i know there are a lot of new business owners that watch my channel and there's a lot of progressing business owners that are watching this channel as well and if you're someone that has an llc i'm going to paint a picture for you on exactly how you can save money so you know that you're doing your part as a taxpayer before you go into your tax person's office let's get started [Music] all right guys now in order for you to understand how to save money in taxes as an llc owner i'm going to break this video down into three different parts there's going to be basic deductions that i need you to understand i call them the above the table deductions the salt and pepper shakers the things that you can already reach for as a business owner that you should already be doing i'm going to go over the advanced strategies that would be for business owners that are very profitable that are going to need to bring down their bottom line and then i'm also going to go over some niche specific strategies for those who also have investment properties real estate and are looking for a little bit more than just the retirement strategies that they could be hearing from their tax accounts let's jump in all right guys now we're going to break down the basic deductions first the the salt and pepper deductions i like to call them if you are someone that is new to business or you're progressing in your business these deductions are the ones that you should already be reaching for the deductions that i'm talking about are going to be your car deductions i have done a video right here right there somewhere on how you can write off your car but i'm going to quickly cover the car deduction right now so you're aware the car deduction is not hard but it seems to be very confusing for new business owners part of the reason why is because many business owners already have vehicles that they purchase in their personal name and so they're wondering how do i get my car to be underneath my business does that mean that my my business has to own my car what if i already had the car they have all these confusing thoughts going on in their head so what we're going to do is just going to talk about that really quickly if you have a car your car can be written off inside of your business whether you purchased it in your personal name or you purchase it in your business name so let's just check mark that off in our head okay if my car was purchasing my personal name i can still write it off it was purchased in my business name i can still write it off we already covered that okay secondly the one difference between pursuing purchasing the car in your business's name versus purchasing the car in your personal name is you leverage your personal debt to income ratio versus your business's debt to income ratio which means that if i'm a lender trying to give you a loan let's just say you want a house now i also have to take into consideration that you have that car payment on your the personal side not on the business side so it affects your personal debt to income ratio so that's just something that for us to know now the car deduction we can either go mileage or we can go actual okay mileage is what it means we're either going to take 56 cents per mile since for every single mile we drive or actual means that we're going to take our actual expenses on the car what are the expenses that you have on your car we have our car payment we have our car insurance we have gas maintenance and maybe you're even doing car washes all right we're washing our car so these are all of the actual expenses that you have so if you want you can choose to take expenses instead of mileage that is something that you get to decide but you cannot take both when you buy a car we can write off the vehicle's purchase amount so if you have a 50 000 car i can write off this car over the course of five years by leveraging sl which equals straight line depreciation what that means is if i'm taking actual expenses or means i'm writing off your car expenses then i can also depreciate the car fifty thousand dollars divided by five means i get a ten thousand dollar deduction every single year for five years that's easy math guys it's not rocket science okay now we will talk about some of the advanced strategies later when it comes to vehicle deductions but now that we know that we can depreciate our car take actual expense or we can take mileage and depreciate our car that is one of the basic deductions that you get to control as a taxpayer it's above the table the salt and pepper that you get to reach for you have a car okay if you're a business owner that is not driving then this is where you have to get creative how are you going to be able to take a vehicle deduction if you don't drive inside your business this is where you need to speak with the tax strategist the next base of deduction that you should be able to take is going to be equipment the equipment is easy for you to take because you're already spending your money on in order for you to be successful business owner equipment can include your cell phone laptop desk anything that you are using inside of your business that you can reach for touch is going to be considered your equipment that you're utilizing inside of your business and equipment can be written off if you can place those items inside of your business but carlton i already bought my laptop back in 2018. can i still write it off in my business even though i started it in 2020 yes absolutely let's look up how much your laptop is worth okay so i find out that your laptop's worth a thousand dollars now even though you bought it for two thousand dollars so i get to write off a thousand dollars now i'm gonna take the fair market value today of what your items cost which is something that you can do online too for yourself on your laptop your desk your computer your keyboards your everything that you can reach for in your office that you might be utilizing that's your equipment for your home or for your business you can get the fair market value for those items today place them in business purpose so we can write them off and those are items that you need to be able to do yourself as a taxpayer your cpa is not going to tell you this he's not going to say oh you know what you probably had a stapler at home in a copy machine did you think about that you probably had a rug that you bought to go at home with your home office did you think about including the rugs too see your cpa is not his job to be there with you okay so these are the things that we're going to be smart about right now we're going to get educated right now on making sure that we have all of these items included these are the things that we already know we're spending our money on so we should include them okay so number one was our car number two is our equipment anything that we're spending our money on cell phones laptop desks computers keyboards laptops ear air pods i want all of those electronics and equipment taken on your tax return not left off your tax return if you're using them inside of your business they become ordinary and necessary expenses in the pursuit of income now and now we get to deduct them on our tax returns last but not least on the basic strategies is going to be the home office deduction carlton my cpa told me that the home office deduction is a red flag i want to know how old your cpa is because back in 2002 that was a very common thing that was occurring where a lot of taxpayers started to take home offices and the irs came out with this article i read the article back then yes the article is still online you can find it the articles talked about how taxpayers were taking home office deductions and now the irs was going to start auditing them this is when this stall started occurring guys okay fast forward now to 2021 there are more than 50 percent of individuals working from home and probably 80 of business owners now work from home if you're working from home do you think it makes sense for you to take a home office deduction and do you think the irs is going to judge you for taking a deduction that is justified inside of your business now that's not to say the irs are not bill collectors that's their job is to collect on taxpayers who are not doing things the right way but if you're trying to take a home office deduction then you should know exactly when to take it and why the irs would even audit someone that has a home office when it came down to the home office deductions many taxpayers had offices but then they would also want to take a home office deduction they're running into this conflict of being able to write off rent but then also being able to write off a portion of their mortgage at home if you're someone that's working from home we can take the home office deduction but if you have an office space that is your office deduction correct okay so let's say you're working from home and you're self-employed how do we take the home office deduction this one's easy we're gonna get the square foot we're gonna get the square footage of home and then we're gonna get the square footage of our home office okay when we have these two numbers let's just say our home is a thousand square feet and our home office is a hundred square feet when we have these two numbers we can do division to understand the percentage that we get to deduct so if i divide my home office square footage so 100 divided by a thousand that's going to give me 10 percent so now i get to deduct a portion of my internet cable water gas these are the home office utilities i can deduct for having a home office now being a business owner also means that i get to also deduct my office expenses just like we talked about the salt and pepper that we can reach for all of the equipment that you have inside of your home office is deductible if you're a small based business owner so these three basic deductions should show up on your tax return every single year if you're one a business owner who's working for home two if you have the equipment that you're using inside of your business and three if you have a car those three items should always be on your tax return and are considered your basic deductions hey guys thank you so much for joining me in this video i wanted to interrupt it to say that i appreciate you for even clicking on this video it was something that you didn't have to do but i'm appreciative of it one of the things that i've done to help you and other individuals like yourself who want to know tax law is i created a private group below my own patreon where you can click on the link and learn a little bit more about the different groups that i've created so you can get more tax education outside of just a video once a week from me i really look forward to teaching you and i hope to see you inside take care all right now that we've covered basic deductions the next thing we're going to do is we're going to jump directly into advanced deductions if you're a small based business owner that is an s corporation a c corporation or even if you're still an llc and you're making a lot of money then you're going to want to start coming up with some strategies to help you offset your taxable income it gets annoying just hearing from your cpa to just max out your retirement accounts doesn't it so we need to figure out what we can do as a business owner to reduce our taxable income and sometimes those basic deductions are already being taken so we need some advanced strategies let's talk all right guys let's go over the advanced deductions that i have for you guys today the first advanced deduction we need to be aware of and yes it is a advanced deduction is payroll why is payroll considered an advanced deduction because if you do not know how much to pay yourself as a business owner then you can end up in a place where you're overpaying on taxes how because payroll is a deduction so you need to know how much of a deduction you need and you also need to know how much of a deduction you don't need let me give you an example let's say i'm a small-based business owner and i started an online amazon business and i made a hundred thousand dollars after all expenses so this is my net income after all expenses i already spent everything i wanted to spend this is what i have left over in profit okay so if this is my net income as a business owner that's an s corporation i have to take payroll payroll tells me that i need to give myself a reasonable compensation let's say i give myself a reasonable compensation of 50 of what i have in my business okay that's a 50 000 deduction which i'm aware of so that means there's gonna be fifty thousand left over in my business as taxable income and that means i also paid myself fifty thousand dollars in w-two wages okay well the fifty thousand and w-two wages is subject to social security and medicare tax social security and medicare tax is a part of self-employment tax which means i have to pay 7.65 on the 50 000 that i paid myself okay the other 50 grand that i didn't pay myself that's considered business income and is subject to a 20 qbi deduction so what this deduction means is that any business income i didn't pay myself gets a 20 qbi deduction maybe i didn't want only 50 000 to be subject to a 20 qbi maybe i wanted 60 000 to be subject to a 20 qbi now i'm getting a bigger qualified business income deduction maybe i didn't want to pay myself 50 000 in w-2 payroll maybe i wanted to pay myself 40 000 and now i've reduced the amount of money i'm paying in payroll taxes see what i'm getting at here so if i just shoot from the hip with a shotgun instead of shoot with a sniper when it comes to my payroll then i could be in a position where i just overpay on my taxes i could be in a position where i'm not receiving a big qbi deduction let's quantify the qbi deduction fifty thousand times twenty percent that's a ten thousand dollar deduction that we're receiving okay but let's just say that you had seventy thousand dollars in business income and you took a payroll for thirty grand seventy thousand times twenty percent that's a fourteen thousand dollar deduction okay and if you took payroll for only 30 000 then you're only gonna be subject to thirty thousand times seven point six five percent which is fica so you've reduced the amount of payroll taxes that you paid but what if you're somebody see this is where i invite you into the conversation this is why this is considered an advanced strategy this is why this is considered an advanced strategy what if i invite in the conversation of you want to qualify for a loan for a house carlton my lender just told me that i need to show more income on my tax returns okay well then now i'm bumping up payroll again you see how payroll can become an advanced strategy so if you're just shooting from the hip and just running payroll at an amount you think is good for yourself then you're not serving yourself as a small-based business owner so this is something that we have to sit down and run the math with a tax advisor okay now that we understand payroll guys we're going to get payroll out of the way and i'm glad that you guys already know the difference between an llc and escort because you watched my video on the difference between an llc and an s corp and want to make the transition thank you so much for doing so we are going to jump into advanced strategy number two bonus depreciation bonus depreciation is an advanced strategy but i see 11 year old tick talkers talking about bonus depreciation so it almost makes me feel like it's not advanced it's an advanced strategy and there's too many people talking about it online you know what they're talking about is 179. 179 is a tax code 179 irc 179 is a tax code that was created that allows for you to write off certain components in a quicker amount of time if you combine if you combine irc 179 with bonus depreciation you have the ability to write off a hundred percent of something that you spent your money on wrote off the entire they wrote off a jet the entire thing okay so what are things i spend my money on that i normally wouldn't be able to write off all in one year well if you have equipment that lasts longer than one year like a camera a laptop a car these types of items can't be written off in one year they have to be capitalized they're capital expenditures so the government says you have to capitalize the expenses over the course of time so if i'm writing off something i spent my money on over the course of time that means i'm going to end up with a tax bill then i can't write everything off i spent my money on that year see this is where bonus depreciation comes in to help out the small based business owner bonus depreciation states that if you have an item that you spent your money on that has useful life of 20 years or less then we can write off that item all in one year carlton what am i spending my money on that has useful life of 20 years or less well when you think about it your vehicle is written off over the course of five years laptops cell phone all of these different items you're already spending your money on wouldn't you want to write those items off in one year if you could hmm do you need to write those items off in one year do you this is a better question do you need to write off all those items in one year or do you need some of them for next year this is why bonus depreciation is considered an advanced strategy because if i accelerate depreciation on your tesla on your gle on your range rover that's over six thousand pounds any car that you bought that's over six thousand pounds your yukon your denali if i accelerate depreciation this year in 2021 for you and come 2022 you make more money does that mean you just get to go out and buy another car again do you want to buy another car again do you see here the problem we have to know when to pull the trigger on certain strategies rather than shooting from the hip i will always make that statement you need a sniper to give you the exacto knife answer on what your numbers are going to be you want these answers ahead of time because if you just do things willy-nilly you could be in a position financially where you start to struggle again i talked to business owners that were riding the highs of writing off all these different things and now they're in a place where they can't figure it out anymore like dude i can't write anything off anymore i can't figure things out they're stuck and they're just leveraging retirement accounts again bummer but if you're smart then you can pull the trigger on bonus depreciation on certain items that you want to pull the bonus depreciation on and you'll hold that trigger for certain things that you need to pull the trigger on in the following year so you guys can utilize the bonus depreciation as you wish with coupled with irc 179 let's go into advanced strategy number three the augusto rule the augusta rule is an advanced strategy because it has a really cool name and it's not advanced to me but it's advanced to other taxpayers who don't use it because taxpayers don't don't know what to do to leverage this strategy so i'm gonna talk about it the augusta rule was created because many taxpayers used to go out to augusta georgia where they used to put on the us open the golf tournaments and they would stay in all of these different houses in augusta georgia and rent out these houses during that golf tournament well to protect the augusta georgia residences from being taxed on all the income from renting out the house to their businesses or renting out the house to some of these business owners they created the augusta rule the guster rule says that you can rent your house out for 14 days or less and receive a deduction as a business owner which means that if you rent your house to your business for a certain amount a fair market amount that is justified you can claim that amount as a deduction on your tax returns you can use your own house and rent it to your own business and get a deduction for it [Laughter] are you serious i know it seems like some type of witchcraft voodoo but it is not and these are the rules that the irs has created the rule was created based off of a golf tournament that was happening guys i'm not even i can't make this stuff up so if you're interested in leveraging the augusta rule one do some research on it is totally google google so what you can do some research on it and then speak with your tax advisor see if it's a strategy that makes sense for you to pull the trigger on now and how can you set it up because if i'm an irs auditor auditing you i want to make sure that you were actually renting out your house those days so what did you do were you conducting business meetings who are you meeting with were you meeting with yourself which you can do but what were you doing to document the meetings as a business owner you need to know this information and rather than shooting from the hip we're going to be snipers today all right guys we just covered three advanced strategies we went over the augusta rule we went over bonus depreciation 179 irc that gets thrown around a lot and we went over payroll now we're gonna go over some niche specific strategies that could really help you get out of the tax bill year-end or if you're in a position where you own some rental real estate this could help you even leading up until you file your tax returns even if you're on extension and it's rare that there are certain strategies that you can leverage up until you file your tax return typically you have to leverage them before december 31st before the ball dropping in new york you need to have your strategies implemented but if you're a real estate investor you have some way outs let's dive into the niche specific strategies all right guys niche specific strategies a niche specific strategies means that it's a tax strategy based on your tax makeup depending on what type of tax payer you are whether you're ordinary sophisticated taxpayer yes there's a difference you can become a sophisticated taxpayer by buying real estate investing in the stock market it turns you into a sophisticated taxpayer because now you have portfolio and passive income if you're an ordinary taxpayer you do not have a whole lot of niche specific strategies you can leverage i'm sorry but if you are a sophisticated taxpayer then there are some niche specific strategies i want you to know one of the biggest ones and one of my favorites is called the cost segregation study cost segregation study carlton what does that even mean guys when you own rental real estate you're buying a couple of different things okay you're buying the building and the land well one of those things you get to get a write-off for the building when you buy rental properties the building goes into rental use it's a weird word but you're pretty much putting it into business purpose rental use as soon as you do the government allows for you to take a write-off and the write-off is called depreciation now this word we've been talking about a lot because we talked about cars already when you drive a car off a lot it goes down in value everyone's everyone knows that but what i'm talking about here deals with real estate when you buy an asset that you turn into a rental property you also get depreciation no you're not driving a rental property off a lot but it is sitting outside in the rain the sleet the snow and guess what we get to take a ride off for it's sitting outside so that beautiful write-off is called depreciation unfortunate thing about depreciation is the government has placed a very long long long year associated with writing off a rental property they say if you have a rental property that's residential residential and has a residential use then you can write off that rental property over the course of 27 and a half years 27 and a half years guys that's a long time and if you have a commercial property then your commercial property can be written off over 39 years for 39 years 39 years that's a long time okay savvy real estate investors don't wait you're savvy because you watch my channel and if you're savvy enough to reduce your tax bill you might consider the cost say why because the cost irrigation study allows for you to accelerate depreciation rather than writing off your building and everything inside of your building someone is going to get the cost associated with all of the different components inside of your property the flooring the lighting the appliances all of these different components that make up your property don't have to be written off over the course of 27 and a half years straight line like we talked about sl they can be accelerated now you're thinking bonus depreciation i know you're thinking about it because i just taught you bonus depreciation and it's right for you to think that a cost segregation is a little bit different it is like bonus depreciation where you're accelerating things you can use bonus depreciation in combination with the cost segregation study ah you guys are getting smart with me but i just wanted you to know we're getting the cost associated with all the components of your property all of them i want all the components and then we're just choosing to write those things off in a quicker amount of time what does that do what does that do that creates a huge loss on the tax returns why are losses good things well if you have negative 25 000 let's just say in a loss over here on this side but you got positive 25 000 over here 25 000 income from your business taxable over here those losses can go to offset this taxable income so you owe zero in taxes now there are some rules around how your losses can roll over to offset other forms of income and that is absolutely what i'll be teaching in my course if you guys need access to that jump on that link below so you guys can jump into the wait list this is exactly how a real estate investor can reduce their tax bill like that cost segregation studies can be done in less than five days cost irrigation studies can drop your tax bill leading up until you file your tax returns cost irrigation studies can be done on new properties cost segregation studies can be done on existing properties cost segregation studies do require you to understand what they mean in depth because if you are someone that thinks you're gonna sell your property then now we have some taxes that we're gonna have to worry about so always speak with your tax advisor before implementing any of these niche specific strategies last niche specific strategy i'm going to give you is for high income earners or someone who's ready to make large contributions to their retirement accounts and it's called a defined benefit plan a defined benefit plan is a retirement account that you are establishing where you get to make large large retirement contributions all at once i'm talking about massive contributions i had a client that dropped in 150 000 into his defined benefit plan last year i have tons of clients that have done even more than that into their defined benefit plan if you're creating a defined benefit plan then you're setting up a retirement account where you're defining the benefits right now ahead of time so you can make a large contribution the defined benefit plan is not just based off of how much money you can throw into the plan it's based off a lot of factors your age your demographic your years in business these are some of the factors that are taken into consideration when the third party associate is setting up your defined benefit plan for you and lets you know how much you can contribute now if you're someone that has watched this video and said geez all of these strategies sound so amazing but it sounds like it's going to be a lot of work it is very important that you understand that tax planning is how you eliminate some of this work that you have to do as a taxpayer when you do tax planning someone is working alongside you to work these strategies with you so you understand exactly what the tax ramifications are ahead of time if you guys are interested in learning more feel free to subscribe and click on the links below to schedule a call with my team i want to see you in the next video and in my coaching sessions on patreon i look forward to seeing you guys soon cheers [Music] you

Channel: Karlton Dennis

Views: 128,365

Keywords: How to Save Money on Taxes - LLC Tax Benefits, taxes, income tax, how to save money on taxes legally, independent contractor, understanding your deductions, taxes made simple, tax strategy, tax expert, karlton dennis, taxes made simple karlton dennis, deductions in taxes, tax deductions, tax planning, easy tax tips, tax tips, taxes made easy, taxes explained simply, small business, llc, s corp, how to start an llc, what is an llc, limited liability company

Id: 8PmF4u33W3I

Length: 28min 22sec (1702 seconds)

Published: Fri Oct 08 2021