Schaaf CPA Group LLC

If your parent helps you in your small business, you can pay them whatever their labor is worth.  This gives them earned income which allows them to contribute funds to their Roth IRA.  You then have them list you as the beneficiary on their Roth IRA.  Thus, you have a mechanism to put more funds in a Roth IRA for your benefit.  The maximum Roth IRA contribution is $8,000 – so if you paid them $8,000, you could have $8,000 more funds in a Roth IRA for your benefit.  If your parents are both alive and both work for you, then double this amount.  Caution:  You can’t pay your parents more than you would pay anyone else for the same work…so if they don’t work for you, then ignore this idea.

If you meet these requirements:

• You are self-employed
• Your family has health insurance through the Federal Marketplace (healthcare.gov)
• You hire your college-age child in your self-employed business and pay him or her at least $14,580 during 2024 (or else your child’s total income between all jobs is that amount in 2024)

Then your child can “claim themselves” (i.e. not be your dependent), which allows:

• The child to get a refundable health insurance “subsidy” equal to the cost of their share of the family’s health insurance (around a $3,300 refund)
• The child gets a refundable American Opportunity credit (a $1,000 refund)
• The child can contribute money to their own Indiana 529 fund and get $400 of Indiana tax savings
• The child can contribute $8,300 to their own Health Savings Account (minor tax savings, but the child will have tax-free growth of those funds for life)
• The child can contribute $6,500 to their Roth IRA (there are no tax savings, but the child will have tax-free growth of those funds for life)

Caution:  You can’t pay your child more than you would pay anyone else for the same work…so if they don’t work for you, then ignore this idea.

You can receive up to a $200 credit on your Indiana state return. Contributions include the $25 Group Fee for an Indiana College vehicle license plate.

If you have a self-directed IRA that invests in rental properties, then you might have to pay Unrelated Business Income Tax.  The tax is due to be paid by the IRA if your rental is “debt-financed” and has more than 1K of taxable profit in a year.  Most rentals don’t show a taxable profit because of depreciation expense in normal years.  The rental, will, however, likely have a taxable profit in the year of sale.  To avoid paying this tax in the year of sale, you would have to make sure the rental was not debt-financed at least 12 months before the date of sale.  You would need to put more money in the self-directed IRA that owns the rental, pay off the mortgage, continue to hold the rental for 12 months, and then sell it.  Since the tax is up to 37% of your profit in the year of sale, this strategy might be worth the hassle.

In the old days ( 3 years ago), a business could deduct 100% of the purchase price of an SUV with a gross vehicle weight rating of more than 6K pounds that was used 100% in the business in the year of purchase.  Due to law changes, this is no longer the case.  In 2025, the deduction for that SUV may between 40% and 70% of the purchase price depending on several factors.  If you purchase a truck with an interior bed length of at least 6 feet, then you still might get a 100% deduction.  You also might get a 100% deduction if the vehicle is low-cost or has room for 9 passengers in the back or has no seating for passengers behind the driver.  Ask us for details before you make the decision on which vehicle to buy for your business in 2025.

If you spend money on a business before it is operational, then those expenses will likely be deducted over 15 years (i.e. very slowly).  To avoid this, try to make your business operational as soon as you start spending money.  Do this by having your business “in a position to generate revenue” as soon as possible by making your first sale quickly or at least being in a position to accept the first sale.  Any expenditures after that positioning will be deductible “ordinary and necessary operating expenses” rather than non-deductible “start-up expenses”.

If you are a partner in an partnership that has multiple partners, and spend money on behalf of the partnership, then your expenditures can be deducted under 2 methods. Either you ask your partnership to reimburse you (and then the partnership deducts the expense) or you don’t get reimbursed from the partnership and you deduct the expense (called “UPE” – Unreimbursed Partner Expenses) on your personal tax return. You can only deduct UPE on your personal tax return if the partnership agreement states that those expenses WILL NOT be reimbursed by the partnership. Review your partnership agreements to see what the language is and then ask us for guidance on how best to modify it to balance the interests of the partnership/other partners/you.

If you have a child in college, then contribute $7,500 to the Indiana College Choice 529 Plan, and then turn around and put that money back into your checking account. You don’t need to leave the 529 funds in the 529 to get the $1,500 Indiana tax credit (i.e., save $1,500 of Indiana tax each year you do this).

Purchase a fixer-upper and live in the house for 2 years before selling. Up to $500,000 of the gain is tax free. Repeat every 2 years.

A Roth IRA is one of the best wealth transfer vehicles available: You contribute money, that money grows, you never have to take the money out while you are alive, you die and your spouse doesn’t have to take money out and the money continues to grow, then your kids have 10 years to drain the account after your spouse dies. This means that the $7K you contributed this year might be able to grow 50 years AND all of the growth is tax-free.

Rental losses are passive losses and are not typically able to be used to reduce your ordinary income. But if your AGI is under $100,000, you can deduct up to $25,000 of your rental loss. If you are a real estate professional you can deduct all of your rental loss no matter what your income is. Using cost-segregation strategies, we can make sure that your rental shows a loss on your tax return, even if it produces positive cash-flow.

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. 

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 60% 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 times roughly 60% = 3% deduction. This strategy works best if the vehicle is titled in the name of the business, but that isn’t necessary.

If you arrive at the end of the year and need a business or rental deduction to make sure that you don’t creep into the next tax bracket, then consider pre-paying 2025 expenses in 2024. You can pre-pay up to 1 years’ worth of 2025 expenses in 2024 and take a deduction for that pre-payment in 2024. You can pre-pay 12 months of phone bills, utilities, rent, supplies, insurance, etc. Remember, you get a deduction for what you charge on your credit card in 2024 on your 2024 return even if you don’t pay off the credit card until a future year.