If you purchased a desk for personal purposes and then started using it in your business, you can start depreciating the value of that desk. Identify any personal assets that are now used for your business to gain a depreciation deduction on that asset: desk, cell phone, printer, trailer, computer, supplies, equipment, etc.
You can choose to take money from your S Corporation in 2 ways…as a wage and as a draw (i.e. return on equity). You pay 14% more tax when you take the money as a wage because Social Security and Medicare taxes must be paid on a wage, while money taken as a draw is free from this 14% tax. The IRS requires you to take a “reasonable wage” from your S Corporation if your S Corporation is sufficiently profitable. You should aim to set your S Corporation wage on the low end of “reasonable” in order to minimize this 14% tax.
You cannot deduct clothing costs if that clothing is “adaptable to street-wear”. There is an exception to this rule for any clothing with your business logo on it. So, if you want to buy a $300 coat and expense it, then simply put your business logo on it.
The same rules apply for a motor homes, trailers, lawn mowers, etc that you use 100% for business use in the year of purchase even though you may not use that asset again for business after the year of purchase.
If you buy a new or used truck or SUV at the end of the year and claim 100% business-use (by, for example, purchasing it on December 31st and driving it from the dealership to Office Depot to purchase paper for your business and then leaving it in the Office Depot parking lot until January 1st), then you can write off 100% of the cost of the vehicle in the year that you buy it even though you are likely never going to use that vehicle very often for business again. If you buy the same vehicle mid-year and use it 5% for your business, then your deduction would be 5% of the cost of the vehicle. This strategy works best if the vehicle is titled in the name of the business, but that isn’t absolutely necessary.
In general, you can deduct 50% of meals and 0% of entertainment. There are various exceptions to this, such as:
a. You can deduct 100% of the office holiday party or picnic
b. You can deduct 100% of the transportation to the entertainment event or meal
c. You can deduct 100% of the food offered to the public for free (e.g. seminar, open house)
You can deduct up to $25 in gifts paid to an individual per year. Thus, if you give a client a $50 Starbucks gift card, you can deduct $25 of that gift. How to get around this? Give a gift of $25 to the client and a gift of $25 to that client’s spouse and deduct $50 in total instead of just $25.
Assume that you are in the 24% Federal tax bracket (you would be if you had taxable income above $165K if married-filing-jointly). If your small-business employs your child and pays that child $10K, then you get to deduct $10K at 24% and the child pays tax on that $10K at a 0% Federal tax rate. Your only cost is the 14% FICA tax paid on that wage if you are an S Corp. If you are a partnership or sole-proprietor, then you don’t have to pay FICA tax when you employ your children. Takeaway: Hire your child and save 10% if you are an S Corp and 24% (plus maybe another 14% SE tax) if you are a partnership or sole-proprietor on whatever you pay that child. In addition, the wage that you pay the child gives the child earned income which allows him or her to make a Roth IRA contribution. This strategy would also work if your children help in your rental business (i.e., mow the lawn).
Your business can rent your home (or a room in your home) from you for up to 2 weeks in a tax-advantaged manner. Your business pays you and deducts the payment and you don’t have to include the rental income on your personal tax return. Example: Your business invites your employees to your home for a Christmas Party. Your business rents your home from you and pays you a fair-rental-rate of $2,000. Your business can deduct the $2,000 payment. You, the individual, don’t have to treat that $2,000 as income. Thus, you enjoy a $2,000 deduction for transferring money from one of your pockets to the other.
If you get business-recognition for your donation, then you can deduct it as advertising instead of as a donation. Advertising is an above-the-line deduction that always saves tax. Donations are an itemized deduction that sometimes save tax (and never as much as an above-the-line deduction).
If you own a small service business, Housecall Pro could be a life-changer for you. This service management software has a wide array of features focused on streamlining and simplifying your business processes.
Booking/Scheduling/Dispatching: With Housecall Pro, you can easily enable the opportunity for customers to book online outside of normal business hours. From there, you can create a schedule of bookings, which will be sent out to employees quickly and efficiently and eliminate miscommunication. The GPS tracking and automated text message features allow a customer to be updated about when your employee departs/arrives, and you additionally are able to monitor employees’ locations.
Invoicing/Estimating: Housecall Pro aims to eliminate confusion created with paperwork invoice systems. Within the application, you are able to 1-click send invoices and customize them. Another aim of this feature is to aid you in surpassing the competition and creating repeat customers, and this is achieved by allowing customers to submit payment online and automatically receive their receipt. Additionally, you are able to send price estimates to customers prior to services, and they can approve/deny them online, allowing for more efficient customer communication.
QuickBooks: This is good news for all of us! Housecall Pro automatically pushes all invoices and other charges to your QuickBooks account. This eliminates time that would typically be spent manually entering these values. Your finances will be in safe hands, and you won’t need to spend so much time rifling through papers or analyzing invoices; it will all be done behind the scenes!
Housecall Pro was rated the top field service app, and it has received incredible reviews. Its website contains the option to book a free demo, and we recommend doing so if this sounds like something that could be of use to you! It has a range of pricing options to choose from, each which contains different features. Knowing your business best, you’d be able to determine which option is right for you.
There’s a variety of other existing service application, and we recommend checking them out as well. Applications like these can make a world of difference in your business, and there’s so many out there to choose from, so don’t let this opportunity pass you by!
You may not realize it, but daily habits can be some of the sneakiest practices depleting your bank account. It’s easy to get lost in the comfort and simplicity of following a habit; but don’t let yourself give up so easily. You will see the benefits reflected in your finances if you consider making any of these simple changes.
- Plan your meals in advance.
This may seem silly, but it’s true! Most families visit the grocery store and grab anything and everything that looks good, without giving it a second thought. Before your next trip to the store, consider first sitting down and planning your meals in advance. I guarantee you will see the difference it makes in your grocery store bill!
- Give up a daily pleasure (Break that bad habit!)
I know you’ve heard it a thousand times. But that’s because it works. Take a minute to add up how much you’ve spent on Starbucks coffee this past month, McDonald’s diet cokes this past year, or even cigarettes during your lifetime. Imagine what you could do with that money otherwise. Challenge yourself: Begin cutting that habit out of your day, and instead put that money you would have spent into an investment. It will make a world of difference.
- Skip the lottery tickets.
I’m sorry, but it’s time to be realistic. Face the facts and probabilities: you just aren’t going to win the Powerball. The “harmless” $5.00, $10.00, $20.00 you spend on lottery tickets every now and then will not pay off… Don’t let the small victories trick you into thinking they will (they won’t!). Start avoiding the lottery now, and your future self will thank you for it.
- Check for coupons!
Some people do take advantage of coupons, but there are also many that don’t. This is a friendly reminder to spend a few minutes before the grocery store trip or oil change to quickly search for a coupon. Many people miss these opportunities simply because they’re too lazy to look for them, but don’t let yourself! Giving yourself a constant, small period of time to find coupons will make a difference in how much you’re spending.
Give any (or all) of these tips a try, and I can promise you change will come about. And keep in mind that these are only the tip of the iceberg. You have so many more opportunities to create change in your finances, so don’t hesitate to do your own research and discover other ideas.
Most often, when a person hears the word “investment,” he or she immediately pictures a financial situation involving time and money. There are so many options to choose from: stocks, bonds, mutual funds, real estate, etc.…. it’s so easy to become distracted, and therefore limited, to this list of possibilities.
But what if people were to focus less on the physical, financial investments available, and more on the investment opportunity constantly available within themselves?
No matter your age, you always have the power to better your education. Put aside a small portion of your day to read. Listen to audiobooks during long drives. Even consider taking an online class! You will be surprised how these small changes can have a large impact on your knowledge and competitiveness.
The best and most important investment you can make is (you guessed it!) yourself. Putting the time into furthering your knowledge and skills pays off, and you will see the benefits of your personal investment throughout your entire lifetime.
Rejoice if you operate your business as a sole proprietorship, partnership, or S corporation. The simplified synopsis:
You can reduce your business profit by 20% if your overall annual income (not counting capital gains) is less than $315K (married-filing-jointly) or $157.5K (single).
If you make more than $315K/$157.5K, then the discussion starts to become complicated – the law was written to try to keep high-earners from converting from a W-2 employee to a self-employed business; so you may not be entitled to the deduction if you make over these amounts.
It appears that the average middle class W-2 wage earner is going to be tempted to convince his employer to treat him as an independent contractor in order to:
- Receive the 20% deduction
- Be able to deduct 100% of his un-reimbursed business expenses (which are non-deductible under the new tax law)
- Create and fund a retirement plan (401k/SIMPLE/SEP) that works for him
- Reduce FICA tax by converting to an S Corporation and paying himself a wage less than his profit
Imagine a married salesman who makes $120K/year. The salesman has $20K of un-reimbursed work-related expenses.
Under the current law, the salesman pays tax on $120K at the following rates:
- Social Security and Medicare tax: 7.65% times $120K = $9,180
- Federal Income Tax: 15% times $120K = $18,000
Total Federal Taxes are $27,180.
If the salesman forms an S Corporation and convinces his employer to give him a 1099 instead of a W-2, then:
- He can deduct the $20K of un-reimbursed expenses
- He then gets a deduction of 20% of his profit (profit is: $120K minus $20K of now-deductible expenses) – this yields another $20K deduction
- His Social Security and Medicare tax would remain unchanged (long story – just trust me) = $9,180
- His Federal Income Tax would now be 15% times $80K = $12,000
Total Federal Taxes are $21,180…a savings of $6,000.
There are, of course, potential downsides/risks to this decision (foregoing the retirement plan matches from employer, foregoing subsidized health insurance from employer, increased audit risk) that have to be weighed.
As with most tax-related issues, the devil is in the details – contact us to make sure you know all of the angles.
In general, the new tax Act provides for stricter limits on the deductibility of business meals and entertainment expenses. Under the Act, entertainment expenses incurred or paid after December 31, 2017 are nondeductible unless they fall under the specific exceptions in Code Section 274(e). One of those exceptions is for “expenses for recreation, social, or similar activities primarily for the benefit of the taxpayer’s employees, other than highly compensated employees”. (i.e. office holiday parties are still deductible). Business meals provided for the convenience of the employer are now only 50% deductible whereas before the Act they were fully deductible. Barring further action by Congress those meals will be nondeductible after 2025.
Office Holiday Parties are 100% deductible
Meals with clients or others (business related): 50% deductible
Event/Sport/Entertainment tickets: No deduction
Employee Travel Meals: 50% deductible
Meals Provided for Convenience of Employer (provide meals to keep your employees working/on site): 50% deductible
A business can no longer deduct as a business expense: golf, skiing, football tickets, basketball tickets, baseball tickets, disneyland tickets