The Ten Most Expensive Tax Mistakes that Cost Business Owners Thousands
That’s true. And I know you have an awesome book that’s the Ten Most Expensive Tax Mistakes that Cost Business Owners Thousands. I would love it if you could share a few of those and maybe what some of those big mistakes are.
Sure. The biggest one is failing to plan.
There’s audit paranoia. If the government says you can do something, do it and document it that you’re doing it correctly.
Choosing the wrong type of business entity. There’s a lot of people out there that have jobs and they’re making money and they go off and they start another type of business that eventually they want it to be their main business. Should that company be an LLC? Should it be an S corporation or a corporation? What’s the best structure? And how’s it going to save you money? So you have to talk about that kind of stuff.
Retirement plans. As business owner, we want to put money in. We want to build and build and build, but we forget about putting money away for retirement. So you save money when you do that, so you want to do stuff like that.
So how do you save money by putting money away?
Let’s just say you’re a business owner and you have a 401K plan and you put away $18,000. So you don’t pay tax now on that $18,000. And depending on your tax bracket and what state you’re in, there could be significant savings.
And then there are different types of retirement plans depending on how many employees you have and profit sharing plans. So there’s a lot of things to think about. Sometimes it doesn’t make sense to have a profit sharing plan. Sometimes it does. You want to look at all that. Just takes a little bit of planning and you can make all that stuff happen.
Another thing is medical benefits. What type of entity are you? Can you establish a medical expense reimbursement plan? Should you have a health savings account? What’s the situation? What’s going to work out best for you? We have older clients that maybe they need a lot of dental work and it makes sense to set up a medical expense reimbursement plan depending on who their employees are and how long they’ve worked for them.
It’s just by communicating with your accountant, CPA, tax professional and giving them information, they should be thinking about okay, what can you do that’s going to be tax efficient for you. Because obviously, if I have to get a set of teeth and I can pay with pretax money, I’d rather pay with pretax than post tax.
That makes sense.
Hiring the Kids
Yes. Then there’s some small ones like hiring your kids. Can you hire your kids? The Supreme Court actually rules … maybe it wasn’t the Supreme Court, but there was a court case that you could hire your kid as young as seven years old.
We typically tend to say wait till they’re about 11. Document everything and figure out how to do it the most efficient way to hire your kids.
A home office. Unfortunately one of the things that’s going away with tax reform is there used to be a home athletic facility which I’m pretty sure went out the window with tax reform, but that would have been your home gym or your pool. Your car expenses, your meals and entertainment.
You know, you need to maximize what the government allows you to do. And you document it and you do it right. Don’t cut corners. Document everything.
So keep receipts.
Keep records. Keep notes. Communicate. The most important thing is that you communicate with your professional.
It does amaze me, even just talking to entrepreneurs that I know or people that are on my team. We get into a conversation about taxes and tax time and write offs and stuff like that, and I’ll mention a few things and they’re like, “Oh, really? You can do that?”
So it’s amazing how many write offs that are out there that you just sometimes don’t realize. It’s like throwing money out the window.
I get asked things so many times that to me is of course. I’m taking a continuing ed course. Can I write that off? Of course. Why do you think they have these in Vegas and Florida and stuff like that? So those are things that you need to know, and by communicating … Just try it. You’ll see. You’ll be amazed.
Yeah. I know. And I guess it’s knowing what the right questions to ask are. Right?
Yes. And if you’re working with the right person. Even if you’re not asking the right questions, they should lead you down a path to asking questions. And this way you know what’s going on. Doesn’t happen overnight and it takes two to tango.
YOU SHOULD REVIEW THE THE NEW TAX LAW CHANGES WITH YOUR CPA BEFORE IMPLEMENTING ANY TAX PLANNING STRATEGIES.
Get your copy of my book the 10 Biggest Tax Mistakes That Cost Business Owners Thousands HERE!
Listen to the full podcast here.