The Dark Truth About Tax Write Offs

tax write-offs tax tips deductions and write-offs blew of different tax write-offs that you need to pay attention to so your goal is to save on taxes so you find this magical button call tax write-offs and every time you press that button you save on taxes you also just like I do and I wound up saving over three hundred thousand dollars in taxes great right I thought so too what if I told you that tax write-ups as magical as they seem actually have hidden consequences that you can't even see yet consequences that can affect your business and even your personal life I do think there will be folks who try to claim these expenses and they're just not going to be allowed so stick with me on this cautionary tell about tax write-offs and the hidden consequences that come with them a cautionary tale based on my personal experience let's get started I thought I was on steady Financial ground my business had Revenue seven figures of Revenue my business had profit seven figures of profit so the strategy was simple use tax write-offs to lower my taxable income and guess what it worked and I ended up reducing my taxable income by seventy percent on paper this looks fantastic I was in poor shock might not be smiling right the home buyers they are having difficulty entering the market you see despite my liquid net worth and my profitable business lenders were not impressed by my low taxable income banks are tightening their lending standards at really the fastest rate we've seen since covid here's what I didn't consider lenders look at your taxable income as it's reported on your tax returns so the more you lower your income the more it affects your debt to income ratio and here's where the plot thickens because lenders used your debt to income ratio to decide on your loan eligibility and in my case because I use tax write-offs to lower my taxable income my debt to income ratio skewed unfavorably so the result is decreased borrowing power and the process for getting a home loan turned into a nightmare despite having enough money in the bank to cover my payments comfortably not one not two but three lenders backed out in the end I was able to close on the house in February of 2023 when it was done being built but not without a fight you see tax write-offs helped me to get out of paying a ton of taxes but it almost cost me my dream home so here's the lesson for you the first lesson is that tax write-offs can affect the loans that you try to get home loans business loans personal loans any loan based on the amount of money that you say your business makes on your taxes you know it's a running joke in the entrepreneurial community that it's easier to get a home loan as an employee than it is to get a home loan as a business owner and if most of your income comes from your business even if you rent you will be asked to show tax returns and guess what you use tax write-offs to lower your taxable income and didn't think about the requirements needed to get a home loan or to rent and unfortunately that isn't the only danger of using tax write-offs to lower your taxable income yeah securing the home loan was a victory but the war wasn't over a new Challenger appeared and this time you wouldn't guess who it was my credit card company apparently credit card companies periodically conduct Financial reviews to assess the credit worthiness of their clients and guess who was the lucky one chosen for a financial review typically during these reviews they ask for tax returns and this is where our old friend tax write-offs makes an appearance so on an ordinary Friday minding my own business I got the email Amex had suddenly suspended my card and their request was simple but scary show proof of your income or we cut off your credit card oh and by the way you don't have access to your credit cards or your benefits for the next seven days but finally on the sixth day I received a response from Amex on my financial review did Quran Smith we are writing regarding your card accounts we have completed our financial review and are pleased to let you know that your card accounts are in good order you may use your cards effective immediately that was close so you see if you use tax write-offs to aggressively lower your taxable income then you will show less income on your tax returns and while this might seem like a triumphant moment when filing your taxes it can morph into a nightmare when dealing with a financial review from your credit card company especially if your only option is to show your tax returns because if the tax returns is the only thing they want from you then it doesn't matter how profitable or how much revenue your business has they only go off of what your tax return says and in this case I was at the risk of having my credit card limits reduced or at the worst case having my cards completely shut off so this was a sobering moment about tax write-offs but we're just getting started because using tax write-offs can have other unintended consequences and this one you might see coming you see the bigger your tax write-offs the bigger the spotlight on you and guess who's behind that Spotlight tracking every shadow and every corner and crevice of your finances the IRS you see the IRS is not just a silent spectator they're more like a referee constantly overseeing the game and ensuring fair play and as part of this role they look out for any business that stands out from the crowd and not always in a good way you see for the IRS one of the ways they monitor businesses is by looking at other businesses in their same industry and around their same Revenue so imagine that you've been aggressive with your tax write-offs and when the IRS reviews your tax return against other tax returns of people in your same industry yours might be an anomaly they might have some questions why are your deductions significantly higher than other people's deductions in your same industry and that discrepancy can turn on the irs's spotlight leading to potential scrutiny or even an audit and I can tell you that an audit is never fun so with all of this being said about tax write-offs what do you do next let's find out foreign should we avoid tax write-offs like the plague no the idea here is not to scare you away from tax write-offs it's more to equip you with the knowledge of potential pitfalls the key here is to strike a balance and even seek a tax professional who can help you with that balance and navigate the tax laws now the next thing I want you to do is to maintain accurate and transparent financial documents because having clear and concise documents is one of your best defenses against potential tax complications and your financial strategy and tax strategy should be as unique as your business just because someone else wrote off their vehicle doesn't mean it makes sense for your business to write off theirs or maybe it does but in the end tax write-offs if used properly can be your best friend and when used wrongly can be your worst enemy the key lies in understanding them and using them wisely now be sure to join the free newsletter that can help you with more strategies on taxes life and business in the description below and watch this video next to help you grow your business I'm Koran from Life accounting and I'll see you in the next video

Channel: LYFE Accounting

Views: 4,118

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

Id: v8xgBc7IYGY

Length: 9min 7sec (547 seconds)

Published: Tue May 30 2023