Okay. Are there office expenses that you can write-off?
Yeah. I mean, as long as they’re legitimate expenses that you use in your business and you’re paying for them, yes. Whether it’s your internet, your software costs, your computer costs, your stationary costs, your rent. If you have an office, the office rent. The cleaning costs, any other supplies. Trust me, they add up.
Yeah, no kidding. Yeah, I’m sure people aren’t thinking about it. Let’s talk about charitable donations, because I’ll use myself as an example. I’m a small business owner, one person band, most of my contributions I make as just a person, but I do make some contributions as a business. Can I write those off as a business?
Yes, you can write them off. Typically there’s a couple of different ways to do it, but the way we typically do it with our clients, and these are clients that are pass through entities so there’s single member LLCs, LLCs, and S-Corporations. If they write, let’s just say a check to United Way, out of their corporation, we’ll consider that not an expense of the corporation, but a distribution of profits, and then they’ll take that deduction on their personal return, versus deducting it on their business return.
It works out the same, but we just like to put it through distributions so it’s easier for us to track everything.
Okay, that’s interesting. Then, what about for people who are service providers, when they donate their time, they donate their service … So for example, if normally someone would get paid to workshops but they decide to do them for free for like a non-profit, is that in kind? Like, where does that fall?
You really don’t get a deduction for that. If you think of it this way, if you picked up the income for it, then you would get the deduction for it. But you’re not picking up any income, so your time is, you’re not able to put a dollar amount on your time. That’s a fairly frequent question that we come across.
Yeah, I would think. because a lot of these places make you fill out a form saying you donated your time.
Yeah, not sure what they do with that.
It’s the government, who knows what they’re doing with it, right? They’re wallpapering a room with it. Okay, so what’s the strangest write-off you’ve ever seen someone try?
I’ve seen some funky ones. There was one, this one I didn’t specifically see, but it’s in my first book. There was a New York attorney who claimed $65,000 prostitution services as a medical expense. It didn’t work.
I was just going to ask, okay.
It didn’t work.
Oh, my goodness. People are creative.
Listen, when it comes to taxes, people get very creative. Very creative.
They really do. But they probably shouldn’t.
You could be creative and do things the legal way, and by looking for things that are legitimate, that you’re able to do, but when you get into this, I won’t even call it a gray area, it’s like the land of make believe.
This may also sound like a strange question, but if someone is listening to this, gets your book and goes to their CPA and says, “Okay, we need to be looking at these sorts of deductions” and their CPA says, “No, I don’t think you should be looking at that,” is that time to find a new CPA?
That’s time to hit the pavement and find another CPA.
Okay, all right. I thought so, because I think a lot of CPAs are super conservative when it comes to small business and taxes and what you can write-off and what you can’t, what you should and shouldn’t.
Right. Unfortunately most CPAs, while they do a very good job of putting the right numbers in the right boxes, they’re not actually looking for ways to actually save you some money, keep more of what you make. I consider myself conservative, but if the code says you can do it, why shouldn’t I do it? Aggressive is the code says you can wear pink, and you say, “Well, I’m going to wear purple because it’s kind of like pink.” I don’t agree with that, but if the code says you can do it, do it. Document what you’re doing and if Warren Buffett could do it, Donald Trump can do it, Bill Gates can do it, why can’t you do it?
Yep. And I think it’s key what you said. Document it, right?
Don’t do it and then if in the event you do get audited, then you’re scrambling.
When we do tax planning with a client, we make sure everything gets documented, because a year or two down the road, if they get a notice or whatever it is, you want to remember what you did and you want to have the document in place. It’s a lot easier to have it in place and say, “Okay, here it is” than have to go around and figure out how to recreate it.
Exactly, right. How long do you have to keep business and tax information?
We tell people seven years from the data filing. The IRS can come back and audit you within three years of data filing, especially now, most things are … Paper is a thing of the past. It’s easy to store, so we tell people seven. We keep records for seven years.
Okay, that’s great.
If you don’t file, the statute doesn’t start, to just because 2010 came and gone and you didn’t file, you better hold onto that stuff, because you didn’t file.
That’s so great. That’s a very good point that I think a lot of people probably are overlooking. Wow. Okay, so is there any parting wisdom you want to … Is there anything we didn’t talk about that we should have talked about?
I think the thing that is key is planning. Taking the time to plan is so important. If you want to save money, you have to plan. When you’re looking for a car, you do all your research, you see what the prices are, and stuff like that. People aren’t taking their time to plan for their taxes, and for a lot of people, it’s their biggest expense. So, take the time, plan, communicate with your CPA, make sure him or her are going to communicate back with you, and that will allow you really to keep more of what you make. Over time, it turns into a lot of money.
Yes, exactly. So true. Wow. This is so great. I always appreciate when you come on, because it’s such great information and I’m not sure everyone is getting it from their CPA, and so it just bears having the conversation, because we as business owners, the buck really stops with us, not with our CPA. We need to know this stuff.
Exactly, and you know what? We work hard and we put in a lot of hours. We take a lot of risk, as far as instead of getting that 9:00 to 5:00 and that paycheck every two weeks, we’re out there making it ourselves. If the government says you’re allowed to do it, you should do it and document it. Make sure you’re communicating with whoever you are, and start the process. The doctor doesn’t call you up and say, “How are you feeling today?”
Get in touch with your CPA and say, “You know what? I really want to talk about planning and what we can do to save more.”
Yeah. That’s a great point. Be proactive with it. That is a great point, okay.
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