Hire your Children

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).

Rent Your Home to your Business

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.

Donation vs. Advertising

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).

Have a small service business? This application could change your life!

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!

Small Changes That Make A Difference

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.

  1. 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!

  1. 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.

  1. 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.

  1. 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.

Investing in Yourself

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.

New 20% Tax Deduction

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.

Meals and Entertainment Changes Under Tax Reform

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.

…so:

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

thus…

A business can no longer deduct as a business expense:  golf, skiing, football tickets, basketball tickets, baseball tickets, disneyland tickets

Auto-Related Tax Deductions

Do you use your personal vehicle for work purposes?

If you drive your personal car to and from job-related destinations, you qualify to deduct the miles driven off of your taxes. For example, driving to a sales meeting, going to buy office equipment, or going to the airport would count as a write off. At a minimum, for each trip, you should keep records of the destination, the number of miles driven, and the business-purpose of the trip.  You can deduct 53.5 cents for each mile driven for business for the 2017 tax season.

Keep in mind that the commute from home to work is never deductible (unless you have a qualified home office). But, if you are temporarily assigned to another location that is further from your house than your regular office, you can deduct the extra miles driven. If your employer reimburses you for mileage or provides you with a company car, then you cannot deduct this from your taxes.  

Confusing?  For sure, but keep in mind that we are always here whenever you call so call anytime.

Uber/Lyft Business

As the Uber and Lyft community are continuously growing, tax questions come into play. It’s an easy way to make money and create your own work hours. That’s two great advantages wanted in any job! The downfall is, of course, taxes will come due on all that earned income.
Since a vehicle is a necessity, it is assuring to know that you can deduct some expenses to lessen the tax hit. You have two method options, Actual Expense Method or Standard Mileage Method.
Under the Actual Expense Method, you can deduct actual expenses like gas charges, wireless phone plans/accessories, repairs/maintenance and insurance. These are all of course limited on the percentage of business use vs. personal use. This method requires strict record keeping.
Under the Standard Mileage Method, you deduct $.535 (for 2017) per mile used for business use. This is favored sometimes because you don’t have to have in depth record keeping. Just keep track of miles used while working.
Depending on how much time is spent “Ubering” or “Lyfting” will determine which method is more advantageous. We all want the bigger tax deduction!

Paying Back That Large Tax Debt

Nobody likes owing the IRS a large debt. Don’t stress yourself too bad, you have some options to help ease the burden of that large tax bill. There are two specific options I will outline for you. These include the OIC Program and Installment Agreements.

The Offer in Compromise (OIC) program allows a settlement of the tax liability for less than the full amount owed. The amount offered has to be equal to or greater than the value that is realized from the taxpayer’s assets. There are three ways the IRS will accept the OIC Program:
• There is doubt that the amount owed is fully collectible. The taxpayer’s income and assets are less that the tax liability owed.
• There is doubt in regards to the existence or amount of tax debt under law related to the liability.
• The tax amount owed would create an economic hardship or would be unequitable.

The Installment Agreements allows a taxpayer to make a series of monthly payments overtime if the full amount owed can’t be paid in 120 days. To set up the installments you must file form 9465. You have a few options on how to make the monthly payments. Some of these include:
• Payroll deductions
• Debit to your bank account each month
• Online/phone payments

So, when you see that large tax bill during tax season don’t be so alarmed. You have plenty of ways to get it paid back without putting your bank account in the negative.

Housing BOOM

All have taken notice to the for-sale signs everywhere. It seems the real estate market is on a spiral only going up. While the higher homes prices and bidding wars are not ideal for the buyer’s market, it has great advantages for the sellers.

Are you or do you know of anyone frightened by the large amount of profit turned on the sale of a home? Well you’re in luck! Talking tax, there is a fantastic residential gain exclusion for singles and married couples. It is quite generous at a $250,000 excluded gain for singles and $500,000 excluded for married couples.

There are a few conditions that must be met that include an ownership, use and frequency test. The ownership and use tests require that the individual(s) own and use the home as a principal residence for at least two out of five years prior to the sale. The frequency test is a limitation that allows the annual exclusion to be used only once every two years.

For example, Jimmy bought a home in 2005 for $200,000 and then married Julie in 2008, whom moved in with Jimmy. In 2016, they sold their home for $700,000. They can exclude the entire $500,000 gain on a joint return because all tests are met.

A Double Whammy for Retirement Savings

How can you benefit yourself now and in the future at the same time? It’s simple, save money in a tax-deferred retirement account like a traditional IRA. A traditional IRA is a personal savings plan that allows a taxpayer to accumulate money tax free. For 2017, you can qualify for up to $5,500 in tax-deferred contributions made. If you’re 50 or older it is an extra $1,000.

To provide a clear picture, let’s say you contribute $5,500 to a traditional IRA. If you’re in the 25% tax bracket, this allows $1,375 in tax savings! Not only do you receive a tax savings, you also accumulate for retirement days.

Along with a tax deduction for traditional IRA contributions, there is a “Saver’s Credit” available to lower income individuals. You can receive a maximum credit of up to $2,000. Credits are much more beneficial than a deduction for the fact they reduce your tax liability dollar for dollar. Why not get both?

College Tax Credits

Credits are deducted straight from your tax liability usually preferred over a deduction. Did you know If you have qualifying education expenses you are allowed up to a $2,500 tax credit per student, of which up to $1,000 is refundable on the American Opportunity Tax Credit! The credit equals 100% of the first $2,000 of qualified expenses plus 25% of up to $2,000 in excess, equaling a possible $2,500. What’s a qualified expense? Included are tuition and fees required for enrollment, course materials and textbooks. The limitations on this credit are; you cannot include room and board or activity fees, must be expenses related to the first four years of post-secondary education and only used four times per student.
What tax incentives are there for going to graduate school? The Lifetime Learning credit is a credit worth up to $2,000 per student (20% of $10,000 of expenses per year). This credit can be used for an unlimited number of years and for post-secondary educational expenses.

Easy Tax-Free Rental Income

All income is taxable unless excluded by law.

One of those exclusions is rental income received by you from the rental of your personal residence for 14 days or less.

That means that 14 days of AirBnB rental income is tax-free.

That means that your business can pay you to rent out your home for a company christmas party, company meeting, etc and create a deduction on your business tax return with no corresponding income on your personal tax return. Imagine your business renting out your home for $2,000. You can deduct the $2,000 from your business tax return and still keep the money.

This is a tax freebie. But if you rent your home for 15 days or more, then the entire tax break goes away.