small business tax strategies

Wealthy & Wise: Small Business Tax Strategies

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About the Video

Most business owners can agree that managing taxes can be tedious and stressful, especially when they are new to the business industry. But having a good understanding of your taxes can open a whole new world of opportunities for your small business. Watch Adam Kintigh, one of our top Corporate Analysts, and our CEO, Cort Christie, discuss small business tax strategies that can help you maximize your tax savings and reduce your tax liability.

Prefer to read? A full transcript is provided below.

CORT:

Welcome to today’s program. I’m Cort Christie, your host. And we’re very fortunate to have an expert with us today talking about 2022 small business tax strategies. And our expert is Adam Kintigh. Adam, welcome.

ADAM:

Thank you so much for having me.

CORT:

Absolutely. And Adam, you’ve been working with small business owners for many, many years. How long have you been consulting?

ADAM:

Yeah, since 2001. It’s been a while.

CORT:

So that’s a long time. Over 20 years now that you’ve been involved in this. And what type of business owners are you typically working with?

ADAM:

So that’s a great question. We have small business owners are starting online shops. You’re opening up a warehouse. I have clients in real estate buying investment properties or doing flipping, wholesaling houses. So really all over the place. But it’s amazing right now, especially with the way the economy has been, so many people are just starting their own business and startups there instead of making somebody else rich, start making themselves rich.  So, I love that we have such a diversity in clients, but a lot of different types of businesses out there. But it’s interesting to see a pickup in the real estate side, I would say.

CORT:

Yeah. Well, and I think with this economy as you’re talking about, you know, so many people are kind of reconsidering what they’re about and what they’re trying to do and maybe having some independence from working for somebody else and thinking about, you know, maybe I will go into business myself. Finally, you know, as we look at all the businesses that have been affected, you know, over the last couple of years in our economy. So let’s talk about 2022. Now small business tax strategies, there’s so many advantages to being in business for yourself broadly. When you talk to a business owner, how do you even introduce like tax strategies to them? What do you talk about?

ADAM:

Yeah, so that’s a really good question. Most business owners today, they’re starting their business and no one has given them training or guidance what they can or can’t write off, what documentation they keep, how long they keep it for. So the first thing is realizing when you’re a W-2 employee, there’s just not a lot of things you can write off. It’s a pretty standard deal. So you were talking earlier, I’ve got my 25 kids at home, so I got all my tax write-offs. But when it comes to personal deductions, I can write off the home that I live in. You have kids, you write those off, you put money, retirement accounts, you can reduce what you owe in state and federal tax, and that’s about it. But when you start your own business, there is a whole new world of opportunities to start writing things off where you think, hang on a second, You’re telling me that my company can pay for my meals? Yeah, you can. There’s all these little things that can be done as a business owner, the car you drive or the mileage that you have, there’s all these little things that your company can now start paying for. And probably the most important thing for anybody, whether you’ve had a business for several years or you’re just getting started good documentation. And you’ve heard that there has been this push to have add like 80,000 IRS auditors.

CORT:

Yes. That’s scary.

ADAM:

Well, you say scary, but the fact is that I always remind my clients, as long as you keep good documentation, there is nothing to be scared of. Just keep good records. Get in the habit of keeping receipts for everything. I don’t throw anything away and my wife’s job when I get home at night, I’m the guy that grabs a receipt and shoves it in my pocket. So her job is to get those receipts out, straight them out, figure out what the heck I bought, and then take a picture of it.

CORT:

You have a great wife, by the way.

ADAM:

Thank you.

CORT:

I don’t think my wife would do that for me.

ADAM:

So when you’re just starting and if you’ve got, if anybody is just getting their business started, you’ve been a W-2 employee, you’re not really sure what to expect. I tell everyone, start doing just a simple monthly expense report. Doesn’t have to be fancy. Could be a spiral notebook or an Excel spreadsheet at the top of the page. January expense report, four simple columns, date, the dollar amount, who you paid, and a brief description of what it was for. Because your business, if you’re not making money yet, you are paying for things for the company, it can be seen as comingling of funds. And three, four or five years later, you could get audited and the IRS says, Yeah, you commingled funds. You’ve ruined the whole darn thing. So as to not be seen as co-mingling funds, yes, I paid for that expense using my cash or my credit card, but the company is going to reimburse me when it’s financially able to do so. So that simple little monthly expense report doesn’t take a lot of time out of your day, but at the end it’s adding up all these expenses so that as your company starts making money, it’s just going to start reimbursing you for the things that you’ve already been paying for. Saves you a lot of money in taxes. So it really could happen.

CORT:

It sounds really simple too, what you’re saying is this isn’t real complicated. Just do it right?

ADAM:

Correct.

CORT:

Have a sheet, put it away, store it, maintain your receipts. You know, one of the things that I always think about when it comes to taxes, whether it’s for personal taxes or for business taxes, is just how much we actually pay. And, you know, the average individuals paying over 50% of their income in taxes. And that’s at any income level when you start breaking it down, whether it’s real estate taxes, sales taxes, gas taxes, you know, all the taxes we pay for everything that we buy. And then you’ve got income taxes and Social Security taxes and all of those things that add up and what’s also interesting to me is when you talk to people how little time they actually spend doing any planning, thinking about taxes, because it’s the largest single cash outlay that they have every year. And it’s always just shocking, like how little time people give their biggest expense where they will spend a whole bunch of time budgeting their household expenditures or even their businesses try to reduce expenses and work on that where taxes are, should be one of the top priorities. Because if you can minimize those taxes, it goes right into your pocket. Amazing.

ADAM:

I agree. And one of the things that we always like to do when we start working with our business owners as their companies start making money, just showing them how to simply pay themselves properly. So most people don’t know if you start your own business you know, if I’m a W-2 employee, I am paying Social Security and Medicare on half of my income. My employer is pay in the other half, 7.65% for me, 7.65% for them. And off we go. But when you’re self-employed, you’re paying both halves. And this can be a killer because nobody ever points this out until tax time rolls around. Then you see how much you owe. And it’s a killer. They call it the silent killer of businesses, that self-employment. So one of the things I love, get the company formed, make sure your taxed properly. And I always say consult with an expert. Make sure that you’re getting things set up to be taxed properly. We form an LLC taxed as an S-Corporation, and it can save our clients thousands of dollars in self-employment. Now, you might be one of those people that you want to put the most into Social Security as possible so that when you retire, you have a nest egg pull up. I’m on the other side.

CORT:

You don’t think you’re going to retire on that?

ADAM:

No. If it’s around, so. But they still make you pay it. So you’re self-employed, you’re paying both halves. In this year, it’s up to $147,000. Your first 147,000 thousand dollars of income, you’re paying 12.9% for Social Security and 2.4% for Medicare combined, 15.3%. It’s a lot of money.

CORT:

That’s lot of money.

ADAM:

So I always say once we form the company, make sure you start paying yourself properly. We can cut the self-employment tax bill on $100,000. We can cut it from $15,300 down to $4,590 and save clients $10,000 on a $100,000 profit. That’s huge.

CORT:

It’s absolutely huge. You’re talking about in a saving over $10,000 for somebody that’s breaking $100,000. That’s a massive amount of money to hang on to at the end of the day.

ADAM:

And that’s just the tip of the iceberg. That’s just paying yourself properly as an employee of your company. On top of that, of course, all these things we get to write off. Today, I was talking to a lady. She’s starting her own marketing affiliate business affiliate marketing business, and she was just going through a list. So, Adam, what if I have to fly somewhere airfare, hotel meals, my rental car or Uber? Are those tax write offs? Absolutely. Now, explain that if you are there in your local area and you go out to eat by yourself, you can’t write that off. Okay. They say the wisest entrepreneur never eats alone because if you’re having breakfast, lunch or dinner with somebody else and you’re talking business this year, you get 100% of meals. So that’s a big one. Now they say it’s only four prepared foods. So if it is a prepackaged food, so I’m thinking maybe like if you got something at 7-11.

CORT:

A pizza into the office, a frozen pizza.

ADAM:

Frozen pizza, prepackaged food is not part of the right off.

CORT:

So go out to eat.

ADAM:

Go out to eat. It was it started last year. 2020 and 2021, 2022. You know, we always think that the IRS is out to get us and take our money, but there’s also things they do to encourage us to spend money. And as a business owner, one of those things they’ve raised that up. I used to be 50% for meals to encourage people to go out and support our local restaurants. They’ve raised it to 100%.

CORT:

Boy do they need it now. You know, it so now you get to write off 100% of your meal, go support our local restaurants. Everyone listening to this program is really a big deal.

ADAM:

Absolutely.

CORT:

One of the things you mentioned about is social security, right? This is how most Americans expect to retire. And most Americans that expect to retire on Social Security are not expecting to retire with a lot of money at the end of the day. They’re going to be just basically paying their bills, getting by. Now, those people that have thought ahead and done some retirement planning and this is where you can have a real impact. What is it that makes retirement planning so impactful on taxes that we’re paying?

ADAM:

Yeah, so I love to use this example. If you had $1 and you doubled it every year for the next 20 years and every year you paid in 35% in tax at the end of 20 years, you would have a little over $20,000. Not bad. If we take that same dollar and double it every year for 20 years and pay no federal tax, we would now have over $1 million in that account. So the power of tax deferred growth is huge

CORT:

Massive. So, wow, I didn’t know it was that much.

ADAM:

It is that much. So just putting the money in it is a miracle of compound growth when you’re not having to pay taxes on every dime that you’re making. And it’s one of the huge advantages of having IRAs and 401k’s. And one of the things about having an IRA, new Roth IRAs, traditional IRAs, different investments you can make, but you’re limited to $6,000 or $7,000 depending on how old you are. If you’re over 50, you can put $7,000, you’re under 50 at $6,000. That’s been the same, I think, for three years. They haven’t raised that for IRA contributions, but for the Solo K (Solo 401K), which is a great tool for a lot of our clients that have small businesses.

CORT:

And that’s for business owners. Can individuals have a Solo K too?

ADAM:

Good question, you have to have a sponsoring company with the ability to make contributions.

CORT:

You need a business.

ADAM:

You should have a business. Sole proprietors could start a Solo 401K, but you really should have an LLC taxed as an S-Corp so we can make our contribution. So, but it allows us to put between $61,000 and $67,500.

CORT:

So a lot more than what I can put into an IRA.

ADAM:

A huge amount more. And so you start thinking, oh, there’s the question comes up, all right, so how much do I have now and how much do I need to retire comfortably? And how long do I have to work to get there? And a lot of people looking at it thinking I’m going to need to be 400 years old at this rate in order to get to where I need to be. So having the Solo K really allows you to supercharge your retirement account, put a lot more money in. And then we work with self-directed custodians where if you want to buy some stocks bonds or mutual funds, you sure can. If we want to use it to buy rental properties in real estate, we could do that. Do private equities. There’s a lot of options when you have a self-directed retirement account. So that’s really a huge benefit for a lot of people.

CORT:

So with my own self-directed 401K plan, I guess is a better way of putting it so that people understand and exactly what it is you’re saying. I could invest in things beyond just the normal mutual funds that you usually get to choose from in a 401K plan.

ADAM:

Absolutely. And it’s one of the big question marks that last week I talked to a guy who said, Adam, I have been looking and looking. My CPA, told me that I could do these self-directed accounts, but I’d been online researching and researching and can’t find anybody that knows how these things work. And I said, it is your lucky day. I happen to be doing this for the last 14 years, I’ve been helping people with self-directed retirement accounts, showing them how to do it and just took $500,000, rolled it over into a self-directed IRA. This gentleman couldn’t, he didn’t qualify for a Solo K because he had a business with employees. There are little rules we have to follow. So we did a self-directed IRA rolled over $500 grand and is buying a rental property. So now the the plan is that as this rental increases in value and his tenants pay down that mortgage, his plan is in 5 to 7 years probably sell it, cash in a nice return and off he goes. So he’s stuck right now, stuck in the stock market with a lot of money that he has and he’s so concerned about the market dips. We’ll call got a dip. So when, as that happens you know people that are invested in real estate, it’s a great option. So yes, these are completely allowable transactions. IRC section 4975 on the IRS website gives us a list of prohibited transactions, but it says yes, you can self-direct your funds outside of working with these big investment firms. You choose what investments you want, as long as it is benefiting the retirement account and not benefiting you.

CORT:

So interesting how many people don’t even know that this exists. Right? And you’re stuck with some mutual funds from a big brokerage firm and you think, Okay, which ones do I choose? This one’s going up, this one’s going down do I have a mixed equity and bond portfolio? Now you can actually add in real estate into your portfolio or even cryptocurrencies or other things that you might want to invest in that you couldn’t traditionally invest in. I think that’s so cool. You know, oftentimes I get asked from people like, hey Cort, what’s your favorite tax strategy? What’s your favorite, you know, out there? What do you use? And I’m like, start a business. And like, Yeah, but what’s your favorite tax strategy? And I’m like, start a business. And then they say, I don’t understand.  Business owners get to write off so many things in the course of running a business that they get to minimize taxes way more than anyone that’s an employee in any way possible. And I think it’s just so cool that that’s a starting point. Like any of our listeners today that are just thinking about putting their toe in the water, maybe starting a side business. I’m like, do it because not only will you have the potential for new income to put to your bottom line, put in your retirement accounts, put to your future, but then you’re writing off, you’re becoming so tax efficient that is just absolutely amazing to me, the advantages that you get today. Now for 2022 what has changed from previous years overall?

ADAM:

So that’s a good question that the contribution limits have gone up in retirement accounts. We talked about the meals being 100% for meals versus 50% for meals. The mileage went from $0.57 per mile to $0.58.5 cents per mile. So, I tell everyone if you track your mileage.

CORT:

Okay, so track your mileage now you like mileage, like writing off the mileage. What do you say to somebody that might want to buy a vehicle and have the business pay for it?

ADAM:

Yeah. So buying a vehicle, your company, if it is a business vehicle, your company can absolutely pay the monthly payment, insurance, gas, maintenance, registration, all of those things become a write off for your business. What gets tricky is that if you have purchased the vehicle and you’re using some for personal use, it gets a little bit tricky. How many miles were personal? I mean, we’re business. I love leasing vehicles because now your lease on that vehicle is 100%, whereas if I bought a vehicle it has to meet certain criteria to be able to write it off. So, I always say track the mileage. 58 and a half cents a mile. It’s a great deal. If you have a good year you work with your CPA, they might tell you, Cort, time to buy a new car this year. We got some tax advantages, so buy a car, 6,000 lbs., gross vehicle curb weight or more. We can write the whole darn thing off right now and significantly reduce your tax liability.

CORT:

Okay. 6,000 lbs. What is, what is the weight of the vehicle have anything to do with taxes?

ADAM:

That’s a great question. So my guess is that the government was encouraging businesses to buy the gas guzzlers because this started I think I was in 2006. Maybe 2005, 2006, they said, okay, it’s got to be 6,000 lbs. gross vehicle curb weight. It was to encourage people to go out and spend money on big equipment, heavier equipment and they’re less gas efficient. So now also we have gas taxes that they’re going to collect on of that. So it’s one of those things. I’m not sure exactly why, but my guess is more money, bigger vehicles are gonna cost more money.

CORT:

OK, that makes sense. I mean, there’s always some weird little nuances that are out there in the tax code. We know we have a very extensive involved tax code. You mentioned leasing a vehicle. Why is that simple?

ADAM:

So leasing a vehicle is, it is a vehicle lease for the company and it’s 100% write-off. So leasing is sometimes a much better option than buying. And as a business owner, you might lease a vehicle for three years and, you know, every three years, probably time to get a new one anyway. But that’s 100% business expense, whereas if I bought the vehicle, I might only be able to write off a little bit. I spent $30,000 on a little car, but I can’t write off all $30,000 this year. I get some this year and the rest of it gets amortized. So leasing, it’s all 100%.

CORT:

Okay, well that’s slick and it sounds much simpler, especially if you don’t want to have two maintain records on how much time you drove for, you know, going to the grocery store for your family or taking the kids out to soccer practice. It’s just, you just write it off. Okay. Very interesting. Let’s talk about travel. One of my favorite things to do is travel, right? And boy, if I could, if I could write off all my trips, I would absolutely love that. And I’m sure the IRS would probably question that. But, you know, what are the rules around travel expenses for business owners?

ADAM:

Yeah. So that’s an exciting deduction because you’re using pretax dollars. So your company makes money. I’m using pretax dollars to pay for the airfare, hotel. And, you know, I’m not going to stay at a Super eight. I’m going to stay at a Ritz-Carlton because there’s nothing that says I can’t. And since my company profits are paying for it, that’s how I want to stay. All these things are nice.

CORT:

So I can stay at the fanciest resort on the planet. And it’s still could be a business expense.

ADAM:

Yeah. So the rule is that the purpose of that trip, more than 50% of that trip has to be spent in business and doing business. So if I took a one week vacation in the first day, I did some meeting planning, and the rest of the time I was out having fun with the kids, can’t write off that trip. So I got to make sure that I’m spending at least 50% of the purpose of that trip is in fact to, if I’m a real estate investor, I’m looking at real estate everywhere I go. I’m looking at if I go to France, what am I doing? Talking to realtors there. How can Americans buy property in France? If I go to anywhere, I’m always looking at new properties. So as a real estate investor, all of these expenses are a tax write off. Now, if I have a business, maybe selling ice cream, a yellow ice cream truck, which is fine, is probably not an ordinary or reasonable expense for me to go look at a property in France. So, that however I do have to have one board meeting every year, and by law I have to have the board meeting for my company. There’s no legal requirement that any details of this annual meeting be documented. I only have the document that the meeting was held and the owners were present. So I could write on the piece of paper, the business will operate the same this year as it did last year. Sign it, date it, put on my record book. I’m good, but my trip for that annual board meeting, it can be at my kitchen table or it can be in Hawaii. But I just got to have one a year.

CORT:

Okay, so on my bucket list is to go to Fiji. Now I really want to take my wife to Fiji at some point in time. So are you saying that I could actually have my business pay for a trip, go to Fiji and have a meeting, an  annual meeting as you called it, and actually be able to write off that trip?

ADAM:

You absolutely can.

CORT:

Okay. I just need to document it.

ADAM:

Good documentation.

CORT:

All right. Good documentation. So Nevada Corporate Headquarters has been around for 30 years plus now helping small business owners, real estate investors and a large percentage of the clients of Nevada Corporate Headquarters are real estate investors. What are some of the advantages that real estate investors have when it comes to taxes?

ADAM:

Yeah, that’s a great question. So that when it comes to being a real estate investor, there’s two types. I’m a buy and hold. I like to buy the house and hang on to it as a long-term investment. Or, I buy the house, fix it up and sell it, quick profits. And there’s a difference in how these things work from a tax standpoint. I guess we should have a third investor, which is the Airbnb investor. It starts getting complicated from a tax standpoint depending on what you’re doing in real estate. So passive income, the huge advantage is passive income automatically gets offset by passive losses. And I pay little or no tax on the rent I collect. That’s a huge automatic. I do nothing this happens automatically.

CORT:

You could be collecting rent on several properties and not have to pay any tax on those properties, on that income.

ADAM:

Exactly. The government forces you to depreciate the property over 27 and a half year period every year. That’s a forced depreciation along with whatever interest you’re paying. If you have any repairs or maintenance, all of these things go into the write-off side of your business. So you’re paying little or no tax on the rent you’re collecting. That’s part one. If I am doing Airbnb’s, for example, if I manage my own Airbnb, and I make sure that they have their directory of where to go and make sure that the cleaning crew is called, that’s now considered active income. So it’s a little bit different because all these depreciation losses don’t happen automatically. We’ve got a different tax strategy for that. If I bought an Airbnb and then I hired a property manager, I’m back into the passive income bucket.

CORT:

So, you get to watch which bucket or understand the two buckets, active income and passive income.

ADAM:

It is. It’s a matter of understanding and that’s what I love about being here at NCH, Is this having these experts because everything is changing constantly. And I would tell you, I probably spend at least ten to 15 hours a week bugging our CPAs and attorneys about different situations. Because one of the best ways to learn is having all these different real life scenarios come up constantly allows us just to stay on top of the information and figure out what is changing, what is the best way to do that. So it’s covering it both from a tax and legal standpoint, making sure it’s done right.

CORT:

Now in Nevada Corporate Headquarters, you know, you’re helping people launch businesses. You’re helping people do it for real estate, for, as you mentioned, any type of business, whether it’s a retail store or an online store, it could be absolutely anything. So, when they’re looking for resources for tax information, tax strategies, some of the stuff that you’ve been talking about is we’ve kind of opened up some ideas on taxes. What resources do they have available?

ADAM:

Yeah. So the best thing I remind people is call NCH. If you have questions or you need some tax planning done, call our office and let one of our experts talk with you and figure out where you’re at, what you’re doing. Because the fact is that no situation is the same. And we look for resources where we’re trying to find a book or a blog or something that fits my situation. Until you get to a certain point in life, they will probably not have a book about you and your situation. So with that in mind, it’s just working with experts and having a good, reliable team of CPAs and tax professionals that can give you that expert guidance. And your situation might be one way now and six months from now it changes. So all these changes that take place is just, it’s constantly staying on top of it and always ask the experts. In that little saying, who you going to call, Ghostbusters? Who are you going to call NCH.

CORT:

NCH, so you’ve got access to CPAs, tax preparers, experts on all this.

ADAM:

Correct. Enrolled agents. So it is always there working with them to figure out, for this client, in this situation, what is our best move? What should they be doing that they’re not doing right now? So that planning is a huge part. You said that at the very beginning. So fewer people actually spend time planning how to reduce their taxes. Yet it is the biggest bill that people have. So now it’s that time. So start thinking about how can we, how can I do that? Not can I or can I not, but how can I do that? And using a business, the answer is not always yes. It’s not always going to be a write-off. So, we used to be all write off entertainment, not anymore. The rules changed on that.

CORT:

And country club memberships in the old days.

ADAM:

Yeah. So, with that being said, I tell everybody, keep meticulous record of all your expenses, but that’s why we have CPAs. If we’re being too aggressive, we can always back things out.

CORT:

So tell me, you know, when there’s somebody start tax planning, like, do you do it at the end of the year? Do you do it after the close of the year when you’re getting ready to put your taxes together? When do you do tax planning?

ADAM:

Yeah, so the first thing is it’s the date of incorporation forward that you get all of these things that you can write off. Now, I can as a sole proprietor, if I wanted to not open an LLC, I can write off whatever I want. The problem is it goes on a schedule C. It is the highest risk of being audited is a Schedule C. Do it through a business to an LLC, a business entity, corporation or LLC taxed as a corporation, I eliminate the Schedule C. So I want to start tax planning immediately. And these write-offs do not go backward for money that I’ve already made or expenses I’ve already had. It is from the date of incorporation moving forward. So the first tax plan I tell everyone, if you don’t have an LLC, get one for it, first thing you do. After that, it’s a matter of, Okay, now I’ve got my expenses, I’ve got my monthly expense report, and now the focus turns to obviously making money. And as that money comes in, how much of it can I expense out? How much of it am I going to have to pay taxes on?

CORT:

It makes sense.

ADAM:

So the planning should be an all year thing.

CORT:

Not at the end of the year.

ADAM:

Absolutely not.

CORT:

Probably like most people do. It’s like it’s tax time now. I’m going to actually put it all together and figure out how do I minimize my taxes. And, you know, it’s like, oops, too late. You missed it. You know, the end of the year was a month or two ago, and it’s like now you’re working on the next year. You can’t go backwards in time. So there’s so much we could talk about, Adam, in taxes. I mean, I know that you are a wealth of knowledge at NCH, and I know that NCH has great resources on the tax team that works with all of our clients. And we could spend hours talking about tax strategies and we’d probably bore the heck out of our audience talking too much about taxes. And I think you’ve touched on some really important high-level things that every small business owner should be doing. And I want to thank you for coming on and talking about taxes and actually making it entertaining today.

ADAM:

All right. Well, I appreciate being here and we’ll look forward to anybody that needs help with their taxes. We will look forward to a phone call.

CORT:

So simply call NCH and find out what you want to learn about forming business entities, reducing your taxes, starting businesses. And I know there’s a whole bunch of resources that NCH provides for small business owners and investors that we could talk also a long time about. But today we’re talking about taxes. And thank you, Adam, for enlightening us. And thank you, all of you, for reviewing and tuning in today.

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