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Wealthy & Wise: Is that really a business tax write-off?

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Being smart with your tax write-offs can help you maximize your tax savings. As a business owner, this allows you to repurpose that money for something else in your organization. Watch Cort Christie, founder of NCH, and Shawn Olson from Business Tax Solutions, as they discuss important tax deductions for every business.

Prefer to read? A full transcript is provided below.

CORT:

Hello and welcome to Wealthy and Wise. I’m your host, Cort Christie. And on today’s program, we’re going to be talking about taxes. Not a lot of fun talking about taxes. You’re probably thinking right now, but I think it’s really fun. And I think it’s an opportunity to think about ways that you can minimize your taxes. And when it comes to small business taxes, there are so many strategies to help you lower the amount of taxes that you pay that everybody should pay attention to this. Now, I have a very special guest, Shawn Olson, who’s a partner of BTS, Business Tax Solutions. And they’ve been working with me for over 20 years now, helping clients of ours really strategize and find ways of saving money on their taxes. And small business owners have a lot of opportunity to save money on taxes. Welcome to the program here today.

SHAWN:

Thank you, Cort. I appreciate it. Excited to be here.

CORT:

Absolutely. So, I love telling people that, you know, taxes can be fun. Taxes are a way to hang on to more of your hard-earned money. One of the things I think is so fun is as a small business owner, there’s so many things that you can do to reduce the amount of taxes that you pay. And most people don’t realize that small business owners have a huge advantage in tax strategies, tax deductions. You know, what do you tell people that are just thinking about getting into business and they start asking you questions about how do taxes work? You know, what are some of the things that you share with them?

SHAWN:

Well, I got to tell you, it’s taxes. You’re right. It’s not the sexiest topic in the world. Let’s just say that. But it’s really important to you when you have to pay them. You know, and I think that’s important. You know, tax isn’t always the bad thing. You know, taxes usually mean you’re making money. You’re being profitable, which is a good thing. It’s a good problem to have. However, tax minimization as opposed to tax elimination is the important thing. We don’t want anything that gets anybody fitted for an orange jumpsuit, for example. We want to keep you in the good graces and make sure that you are taking advantage of every tax benefit you are legally entitled to. And the government really goes into business with you. It’s a partner of sorts. They are, you know, supporting your business in every way because when your business is buying things, when you are employing people well, guess what? There’s taxes involved in that. And obviously the government wants to stimulate that and encourage that. So, they’re going to allow everyone out there to, if you have a legitimate business expense that you know, can be taken as far as the company is concerned, they will encourage you to do that. And then you reduce your tax burden to the government and then they’ll basically partners in the, in the whole venture. So, as far as you know, with clients, we’re talking about what is a business deduction. What can I deduct? That’s always the magic question. Well, I know you guys are well aware of this. We have a laundry list of possible deductions, but not everything is going to apply to each person. So, when you ask anybody in the accounting world a question, it depends, is usually going to be the first response that they get because there’s qualifying questions, you know, can I deduct this? Well, it depends. I’ll give you an example. Let’s say you are a construction company and you’ve got piano lessons for your son, Johnny. But generally speaking, it’s going to be a hard sell when you’re sitting across from an IRS agent, you’re trying to convince them how Johnny’s piano lessons are going to be a deduction for your business. But, obviously, if that person as far as your son is going to be responsible for the jingle that is going to be putting out there for your company. Well, that’s okay. I could tip my head to the side and say that seems like a legitimate, reasonable excuse for a deduction. See you just have to ask yourself is it related to my business and is it reasonable? And as far as that is concerned, that’s the litmus test that most people can eliminate 95% of potential deductions, whether it should or shouldn’t be. And the other 5% and that’s what you ask your accountant. That’s what the professionals are for.

CORT:

And you need a professional in your corner, for sure.

SHAWN:

Without a doubt.

CORT:

And that’s one of the reasons that we just love sending our clients over to BTS, because all of your team is just so wonderful at working with them and helping support their needs. Because the entrepreneurs that we’re supporting day in and day out don’t know all the rules, don’t know all the strategies, but all they have to do is pick up the phone and make a phone call and talk to you and say, Hey, can I do this? Is this okay? Is this okay? So, that is so important for every small business owner. Now, I think, you know, the IRS makes money so many ways. You know, when I think about it, they’re making money on payroll taxes, when you’re employing people, you know. They’re making transactional taxes. If you’re importing products, they’re making taxes on duties and tariffs and all these things that they get their money in many, many ways. But when it comes to strategies on minimizing income taxes that a business owner might pay, and even if you’re, you know, a disregarded entity, a small business that just is filing on your 1040 tax return, but to use a Schedule C to do that, you know, there’s still so much that you can do to take advantage. What are some of the things that you find as you talk to people that are small business owners that they overlook when it comes to things that they could have written off for business, but they just didn’t think about.

SHAWN:

Okay. Well, that’s a great question and it does come up a lot is trying to get into the individual situation and see what do you have that, I didn’t think of it that way? Bank fees. I’ll give you an example. You know, just having a bank account for the pleasure of being in business, and I say that with love. There are fees associated with that. A fee is another way, another way to spell tax in the private sector. Obviously, fees can add up just as quickly. So those fees are deductible and a lot of times you have a $15 or $20 a month bank account fee just to have a checking account with, at a bank.

CORT:

Or wire fees.

SHAWN:

Wire fees as well. Uber costs when it comes to getting to and from locations. All of those questions, it just comes down to is it related to the business? Why did I do this? And if it’s business related, obviously, if you don’t ask the question 100% of the time, the answer will be no, it’s not deductible. So, if you’re not sure, ask always. You only go as high as you reach. And if you don’t ask the question the answer is always no.

CORT:

Right. Right. And I think like, you know, so many people today are working at home. Right? We’ve got this new economy and you’re sitting there and you’ve got a laptop like I’ve got here. And sometimes this laptop might have been with you for a while. You could actually sell your laptop to your business. And collect the money on that. And now it’s a business asset, right? I think of like, you know, can I deduct the Internet that I’ve got at home to work on every day?

SHAWN:

Well, that’s a good question. Obviously, when you’re working from home, if you are a contractor or you’re a 1099, you know, situation or you’re a W-2, an employee, that’s a common thing that a lot of people have trouble, I’ll be honest, wrapping their heads around. Because it gets complicated. Why can’t I deduct if I’m a W-2 employee?

CORT:

But I mean, business owners.

SHAWN:

Business owners get the benefits of those deductions for providing this for their employees. Now, when you are the business owner, this is all part of your business expenses. When you’re talking about internet, you know, is it 100% used for your business or is some of that used for your home? Your cell phone? You know, as far as utilities for your home, as far as the office that you have, all of these things is the question. How much of it’s used for your personal use and how much of it is used for business use? And we go through those questions with our clients to make sure that they’re getting every deduction they’re entitled to and maximizing those tax returns as much as possible.

CORT:

Yeah. I think of the small business owners that we work with that, you know, they might be running around to get supplies, to get equipment, you know, they might have a retail store, they might be buying products at Costco or, you know, somewhere else that they’re buying whatever they need. And how much, how flexible is it to write off things like a vehicle or the gas and gas today is, you know, ridiculous, oil changes, car washes, you know, maintaining a vehicle, too? How does that work for small business owners?

SHAWN:

Well, that’s a great question. That’s a common one as well that we get a lot you know. Can I just put my company’s, my vehicle, into the company? Or, well, there’s a lot of, it depends, with that question. Generally speaking, when you’re first starting out your business, you know, most people don’t have necessarily the need to put a vehicle into the business and be 100% just business, because they need a personal vehicle as well. How are you getting Johnny to his piano lessons? You know, that type of thing. So obviously, at that point, keeping track of mileage is important. Mileage is something that the IRS obviously will allow you to deduct as a business expense. And that’s all inclusive. That includes gas and wear and tear on the vehicle. So, you can deduct as far as a certain dollar amount based on how many miles you’re driving for your business. So, if you’re driving from your office to a property that you’re looking at maybe purchasing or you’re, you know, obviously going from there to a second property, meet with a realtor and then you’re coming home. You know, that trip is deductible as far as business expense. See you want to track your mileage. An example of a good way to do that, as far as tracking the mileage is important because the IRS, if is ever an audit, they want to see your log as far as your mileage is concerned. There’s one called ‘Mile IQ’ which is actually a really decent app that, you know, they can just pop it in swipe right or swipe left if its business or personal. And it gives you a printout at the end of the year. So, you can give that to your accountant so you can maximize that type of deduction.

CORT:

So, as you’re driving, you know, you just pop open the app and say, well, today I’m going to the grocery store, that personal. You know, the next jump, I’m going to is a supply store. That’s business.

SHAWN:

Correct?

CORT:

It’ll just keep track.

SHAWN:

That’s exactly right.

CORT:

You don’t have to punch in the miles?

SHAWN:

Correct. You actually put in put a starting number as far as the mileage is concerned. And let’s face it, these phones track everything we do for it. I know, but let’s use some of that tracking for our purposes.  It’ll help you maximize those types of deductions. If it’s personal, you swipe right or swipe left. Forgive me for not knowing that off the top of my head. One way is the other direction. It doesn’t worry about tracking those, but then those business ones, you might even put a little, went to view property, and pop it on there at the end. It’ll take care of the log for you and you can print those. There’s another one that you also can use called ‘Expensify’ E-x-p-e-n-s-i-f-y. We’ve actually met with the developers. They were great at, as far as listening to our feedback, and it’s something that really is helpful for clients to use to track not only mileage but also taking pictures of receipts, scanning those, uploading those to say, QuickBooks, for example. So, you’re not missing deductions. Here in Las Vegas, we all know what happens when you take a receipt and you sit on the dash of your car in the middle of July. A little 110 degrees and that heat sensitive paper…

CORT:

Invisible receipts.

SHAWN:

It’s a lovely piece of charcoal. It’s hard to use for deduction purposes. But once you take that picture, you’ll have that for your records. And it’s really easy to make sure you’re not missing on those deductions.

CORT:

Running a business today is so much easier than it was when I started 30 years ago. You know, these little things. I mean, we had files and envelopes and just stuff that was stuffed in places. And then you’d have to unwind it you know. I think when it comes to accounting, you know, that becomes the input for your output, right?

SHAWN:

Absolutely.

CORT:

The output being the taxes that you’re preparing for people. What do you recommend for people that, you know, just simple accounting system for a small business owner?

SHAWN:

Sure. And that’s a great question that ‘Expensify’ helps with that a lot. It’s great for keeping track of your receipts. There’s usually three different types of accounting methods that most people start out with. They start out with the envelope method or the shoebox method, followed by the trash bag method, followed by the trashcan method, none of which are the most effective. And then when you have obviously the ability to have a bookkeeper work with you and keep track of those things, you can be your own bookkeeper. Sometimes even just using Excel spreadsheet. For example, our clients, they’re just starting out. Maybe they’re not at the point in their business where they need to have a bookkeeper yet, because let’s face it, that’s an expense you’re hiring on. It’s a deductible expense, but it’s an expense. But the idea is, you know, maybe I can do it myself to get things going. We give our clients an Excel spreadsheet they can use. It has basically five different columns to track those, you know, as far as what date the deduction occurred, what the deduction was for what, you know, as far as the amount and who put the money in. A lot of times you have partners where I put the money in, Cort, you didn’t put the money in. So, we make sure the deduction is going to the right place. So, a lot of those details sometimes get lost when you’re trying to sort through that shoebox a year later. So it’s important to kind of keep track of those things early. Start early and start and do it often. You can do it weekly, monthly at least, to keep track of those receipts. Otherwise, that shoebox gets crazy and those are usually the fun clients that will show up on your doorstep on like April 14th.

CORT:

Right.

SHAWN:

Help me, help me. And here’s my shoebox of stuff. What can we do?

CORT:

Let’s talk about that. Dates, right? April 14th for personal taxes or April 15th, obviously. And but what about small businesses?  I know there’s variables in that that relate to what your election is. Most people don’t know that that’s even a thing. They know what an LLC or a corporation is, but then they don’t know election. What does that mean? When I bring up election, talk about that and then talk about the dates that people need to pay attention to.

SHAWN:

Sure. As far as well, personal is pretty much everybody has known I think since the fifties, I think they adopted that, April 15th. Unless, now there’s a few interesting things. Emancipation Day in D.C., they now have moved that. So now it’s the 16th. So now because it falls on Friday and they celebrate that on Friday, which means we wouldn’t have actual tax deadline this year until April 18th. So again, when you throw a 100-year pandemic or two in there, then we have to go from April to May. Like we did this obviously last year. And then of course the year before that, it was moved even to July, which is pretty much unheard of for personal 1040s and the lot. So on the business side, however, that has pretty much remained consistent as far as the pandemic, you know, regardless. It’s been consistently March 15th for S-Corporations, partnerships which are 1065s and LLCs taxed as such as well. And what you mentioned there, there is a lot of confusion and I say that with love because a lot of people don’t know. I mean that’s one of the things I love working with NCH clients is you actually guide people through this complicated minefield. Joe wants to start a landscaping business because he’s great at landscaping but he knows nothing about taxes, he knows nothing about accounting. And he comes in with his deer stuck in the headlights look looking for help. And we ask the simple question, well, how are you taxed? Because an LLC can be taxed as a partnership, an S-Corp, a disregarded for tax purposes and a lot of people don’t understand what that means and that’s okay. Their job is to make the money. Our job to try and help them keep it is the way we try and look at that. But S-Corporations and partnerships are due March 15th. Now you can file a six-month extension, basically gives them obviously until September 15th to actually file the taxes at that point. Now the most important thing in that stretch to remember is if you put an extension on the business, you then subsequently have to extend your personal because the K-1s, which is how profit or loss travels from the business, will be reflected on your personal return. And well, frankly, if you file your personal return before getting K-1s, it’s kind of like you filed your personal missing a W-2. Oops, I forgot.

CORT:

Yeah. You got to be careful of that.

SHAWN:

You’ve got to be careful. Absolutely.

CORT:

When it comes to extensions, I think it’s so interesting. You know, I’ve been in business for myself for so long that I’m just used to filing extensions and it’s like, hey, would you like six more months? Okay, sure. Why not? But I know that people that are new to business, that are sticklers or like to be on top of things, believe that a deadline is a deadline, whether it’s April 15th or some other date. How do you educate a new business owner that, you know what, that’s a date that’s important, but it doesn’t mean it’s the date that you have to be done with everything.

SHAWN:

How do we do it? That is the $6 million dollar question.

CORT:

Right.

SHAWN:

You’re right. That can be challenging. It’s done with a little love. Obviously, we’re a place of patience. Because people have gone up to this point in their lives. They’ve done it online themselves or they had their mother-in-law that have done their taxes for years. I can’t tell you how many times I’ve had people walk up to me and say, Shawn, I’d like to have somebody else do my taxes, but I don’t want to get divorced in the process. Can you help me? So that’s obviously important to myself. But yeah, we want to make sure that, you know, we try to walk clients through that. For most business owners, most people do file extensions for their businesses because they know the first part of the year, January, through your just finishing up, the prior year wrapping up, you might not necessarily have all of your bookkeeping and everything ready to go. So, filing an extension is a necessity.

CORT:

Yeah.

SHAWN:

Now with a personal taxes, filing an extension can feel a little, little challenging, a little pinching occasionally because it is an extension to file and not an extension to pay. So, if you owe taxes, they expect the IRS, of course, expects to have their money by April 15th on the dot. If they owe you money, Then file when you’re ready.

CORT:

Well it’s kind of funny because you don’t really know how much you owe, especially if you need more time. So, you kind of have to guess, right? And you’d make an educated guess or you know, try to refine it down. And my wife’s a stickler for these dates and I’ve worked with her, slowly but surely, over the years. It’s okay we’re going to file extensions for everything and then we’re going to get to it. And then she says, well, but we got to make sure that we pay enough because we don’t want penalties and interest. And I always say, you know what? If we get close, it’s okay. If we owe a little bit we’re not talking about penalties and interest that’s going to break anyone’s bank if you get close. And I think there’s always crazy fear around the IRS. And I know that anxiety is in a lot of people, and it’s programmed in us basically, from a very young age that, you know, if you don’t do things right or the boogeyman is coming and they’re going to come after you. How do you help people get over that fear?

SHAWN:

Yeah, it is, you’re absolutely right. The IRS spends a lot of money every year to, they have great marketing to make people scared of them through movies and media and such. They’re going to come after you, your house, your couch, your dog and everything like that. Honestly, if you take a step back and you think about it now, we deal with the IRS every day, all the time. And they actually do have some pretty nice humans, believe it or not, working at the IRS, believe it or not. However, the daunting task of trying to get through is right now very challenging. They’re behind as far as on processing tax returns right now for last year’s taxes, much less this year. So, everything you could do electronically please do. But right now they’re behind too. And they were affected by COVID, too. They were shut down for about 80% of the prior year. So, they’ve had a lot of catch up to do. They didn’t open their mail for over six months, and that is a lot of mail.

CORT:

I can’t even imagine how they could get that far behind. But, you know…

SHAWN:

It is just insane. But however, it’s the taxman cometh for all of us. Making sure that as you did with your lovely wife, us doing the same thing with our lovely clients, making sure they understand from a place of love that it’s okay. You’ve got a partner that knows what’s happening and that’s what we’re here for. We’re not going to let them get you. If you receive any correspondence front or back, front and back, please scan that and get it over to us right away. We’ve got clients in all 50 states, Cort, so we know pretty much where they’re scariest. Sometimes there’s places worse than the IRS. You know, they say this, you know, California franchise tax board is no picnic. But a free, free piece of advice for anybody who needs to reach the IRS. Call Monday, Tuesday through Thursday in the mornings as far as before 9AM.

CORT:

Not Mondays.

SHAWN:

Not Mondays, not Fridays. But that’s a little industry secret there. Right now, It helps.

CORT:

That’s awesome. Well, thank you. So, you know, people that are out there listening, you know, they thought, well, maybe I could do my own taxes or my tax guy is fine, maybe I’ll use him. What advice do you give people on, you know? Well, first of all, I want to say for everyone that’s listening here today, Business Tax Solutions is just a phenomenal firm for small business owners and they do business returns and they do personal returns. But the specialty is really small business returns and investor returns. So, if you’re a real estate investor is, you know, I consider that business also you’re in the business of investing and, you know, your firm does an amazing job, supports clients so well. And so that’s a great plug. I hope that everybody gets that for you. But, you know, someone that’s listening somewhere else that says, I don’t want to hire somebody in another city or I want somebody that I can go down the block and meet with. How do you how do you find somebody? What do you recommend? Like, how would you vet somebody to do your business tax return?

SHAWN:

Well, usually I would always say word of mouth is a great way to do it. If you want to have somebody sit down locally with you and there’s something to be said for that, sitting across the table face to face. We take a slightly different approach when we deal with a higher-level tax returns. You know, as far as we have a team of people working with it because we can have one person take a look at a return and go, Okay, we could have somebody else go. Well, I interpret that law a little bit differently and I might be a bit more aggressive. And then we kind of meet in the middle. As far as the best way to do that return to maximize that return for our clients. So, but how to find somebody obviously you can call as far as your local, certainly your board of accountancy for your state that you’re in, they have recommendations as far as accredited you know, as far as firms, CPA firms, they could go to.  Word of mouth is usually the best. Accountants are like good phlebotomists. You know, if you don’t have a good one, it hurts, you know. And of course, attorneys and you know, some people are good with doing their own taxes to a certain point. But when you find that you start sprinkling in enough business enough investments, things like that, you’re really doing a disservice to yourself and your financial situation because in business, your number one expense behind staff is usually taxes. You want to make sure that you have a good tax planning in place for the year to make sure at the end of the year you’re not surprised. You might need to spend some money rather than have to pay taxes on that money. And that’s the way we look at it here at Business Tax Solutions And we love working with NCH clients. Everything we do, you know, obviously is to help the clients minimize their taxes as much as possible.

CORT:

Awesome. Well, thank you Shawn for being here.

SHAWN:

It’s a pleasure.

CORT:

And for all of you listening, hopefully you’ve got little insight into, you know, some of the things that small business owners should be thinking about when it comes to taxes, when you should file your taxes, some deductions that you might not have thought you could take or maybe you shouldn’t take. And you know what’s most important, I think, is to have somebody in your corner, somebody that you can talk to and ask questions like Shawn Olson here. And it’s so important as you’re building your business and growing things because we pay so much, as Shawn has said, here in taxes, right behind often times the payroll that we have for the people that work for us. So, anything you can do to minimize your taxes, you should take advantage of it. It’s your money. So, thank you for tuning in today. I’m your host, Cort Christie. You’ve been listening to another edition of Wealthy and Wise.

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