59 Tax & Compliance: What Business Owners Should Know

1 00:00:00,239 --> 00:00:02,000 SPEAKER_00: This is the Empowering Healthy Business 2 00:00:02,160 --> 00:00:04,480 Podcast, and I'm your host, Cal Wilder. 3 00:00:04,959 --> 00:00:07,919 Each episode we'll dive into topics important to folks who 4 00:00:07,919 --> 00:00:10,480 want to run businesses that are both nicely profitable, 5 00:00:10,640 --> 00:00:14,560 sustainable, and scalable, and who want to achieve balance in 6 00:00:14,560 --> 00:00:17,760 their lives and realize their potential inside and outside of 7 00:00:17,760 --> 00:00:18,000 work. 8 00:00:18,320 --> 00:00:20,879 The show is sponsored by SmartBooks, provider of 9 00:00:20,879 --> 00:00:22,960 bookkeeping and accounting for businesses. 10 00:00:23,120 --> 00:00:24,559 Let's get started. 11 00:00:28,239 --> 00:00:31,839 SPEAKER_01: So with me, every client's uh their own, they they 12 00:00:31,839 --> 00:00:33,359 have their own issues, right? 13 00:00:33,600 --> 00:00:38,000 Um clients have some tax strategies will work for some 14 00:00:38,000 --> 00:00:40,079 clients and some tax strategies won't. 15 00:00:40,240 --> 00:00:42,960 So for me, it's all about getting to know my clients. 16 00:00:43,119 --> 00:00:46,320 Uh, really want to get to know you know what's important to 17 00:00:46,320 --> 00:00:51,119 them, um, get to know their families, their goals, their 18 00:00:51,119 --> 00:00:51,920 businesses. 19 00:00:52,079 --> 00:00:56,640 Um, and then we can kind of take a full 360 approach to uh the 20 00:00:56,640 --> 00:00:57,600 tax strategy. 21 00:00:58,000 --> 00:01:00,719 SPEAKER_00: So, Greg, it sounds like your approach to servicing 22 00:01:00,719 --> 00:01:04,400 your clients is more of a year-round responsibility, not 23 00:01:04,400 --> 00:01:07,920 just um, you know, year-end tax preparation and filing. 24 00:01:08,319 --> 00:01:10,879 SPEAKER_01: Yeah, we take more of like a 15-month approach, 25 00:01:10,959 --> 00:01:11,200 right? 26 00:01:11,280 --> 00:01:16,480 So we start in January and we'll start and and we uh go right up 27 00:01:16,480 --> 00:01:20,319 until we file the tax returns in March or April of the following 28 00:01:20,319 --> 00:01:20,719 year. 29 00:01:20,879 --> 00:01:24,879 Um if you come to me in March and April of the following year 30 00:01:24,879 --> 00:01:28,400 and ask me to save money on taxes, there's not much I can 31 00:01:28,400 --> 00:01:28,560 do. 32 00:01:28,719 --> 00:01:31,840 Uh at that point, I'm really just more of a historian. 33 00:01:32,159 --> 00:01:36,239 But if uh you know you start working with me on January 1st, 34 00:01:36,400 --> 00:01:40,000 and then we have a good solid 12 months to to tax plan and make 35 00:01:40,000 --> 00:01:43,200 sure we're paying estimated taxes and uh make sure we're 36 00:01:43,200 --> 00:01:47,200 taking advantage of all those opportunities, then that's where 37 00:01:47,200 --> 00:01:49,920 I can really be a true asset to my clients. 38 00:01:50,159 --> 00:01:50,560 Yeah. 39 00:01:50,879 --> 00:01:53,680 So uh if you think about building a house, right, you 40 00:01:53,680 --> 00:01:55,200 have you have your foundation. 41 00:01:55,359 --> 00:01:58,400 Uh for me, that's like the the books and records. 42 00:01:58,640 --> 00:02:03,920 Um, you know, I always tell my clients, I can only do so much 43 00:02:03,920 --> 00:02:08,159 if your books and records are not in good in good shape. 44 00:02:08,319 --> 00:02:12,800 Um, I always advise you know, getting a really good 45 00:02:12,800 --> 00:02:13,599 accountant. 46 00:02:13,759 --> 00:02:19,599 Um, of course, using smart books um accounting is is a uh a great 47 00:02:19,599 --> 00:02:20,240 option. 48 00:02:20,479 --> 00:02:26,000 Um and so once you have that foundation, you have that solid 49 00:02:26,000 --> 00:02:32,479 book set of books and records that I can really trust, um then 50 00:02:32,479 --> 00:02:35,680 it then we get into the framing of the house, right? 51 00:02:35,840 --> 00:02:40,000 So then we get into um you know entity structure. 52 00:02:40,080 --> 00:02:41,520 Are we are you set up correctly? 53 00:02:41,680 --> 00:02:42,639 Are you an LLC? 54 00:02:42,800 --> 00:02:44,080 Are you taxed as an S-corp? 55 00:02:44,240 --> 00:02:45,599 Should you be a C Corp? 56 00:02:45,759 --> 00:02:48,879 Um, you know, should you have multiple entities maybe? 57 00:02:49,120 --> 00:02:53,439 Uh and then we get into kind of the essential items, right? 58 00:02:53,599 --> 00:02:57,120 So uh electric, plumbing, stuff like that. 59 00:02:57,360 --> 00:03:02,319 And and for me, that's kind of the the basic book to tax 60 00:03:02,479 --> 00:03:03,120 differences. 61 00:03:03,360 --> 00:03:06,960 So um a lot of people probably don't realize that their 62 00:03:07,280 --> 00:03:11,599 financial statements are are prepared on one set of rules, 63 00:03:11,840 --> 00:03:16,080 whereby I follow a completely different set of rules. 64 00:03:17,439 --> 00:03:21,520 Uh generally, you're gonna have um you have to develop what they 65 00:03:21,520 --> 00:03:27,039 call Nexus in a state um to have a tax requirement. 66 00:03:27,360 --> 00:03:31,520 So the first question I get is what is Nexus? 67 00:03:31,680 --> 00:03:36,800 Uh Nexus is your business's connection uh with a state or 68 00:03:36,800 --> 00:03:38,960 local taxing authority. 69 00:03:39,280 --> 00:03:46,240 Um it's created uh really one of three ways. 70 00:03:46,479 --> 00:03:50,080 Um it's it's created where you're it's based on where your 71 00:03:50,080 --> 00:03:50,960 customers are. 72 00:03:51,120 --> 00:03:53,759 Um so like where where you're selling to. 73 00:03:54,159 --> 00:04:02,080 Um it's based on uh where you own or lease property. 74 00:04:02,319 --> 00:04:05,919 Um so if you're if you hold inventory, that's a good example 75 00:04:05,919 --> 00:04:07,439 of people who sometimes get caught. 76 00:04:07,520 --> 00:04:12,000 They might say, Oh, I don't have any um I I don't have any 77 00:04:12,000 --> 00:04:13,840 connection to Connecticut. 78 00:04:14,159 --> 00:04:19,120 But then you find out that they have inventory sitting in that 79 00:04:19,120 --> 00:04:22,319 state, um, you know, waiting to be delivered to the New England 80 00:04:22,319 --> 00:04:22,720 area. 81 00:04:23,040 --> 00:04:27,279 And unfortunately that does bring them into um that does 82 00:04:27,279 --> 00:04:27,759 create nice. 83 00:04:28,000 --> 00:04:28,959 Yeah, sales tax. 84 00:04:29,120 --> 00:04:33,279 Um, so a few years ago when the Wayfairer decision passed, uh 85 00:04:33,519 --> 00:04:39,120 basically to give you a quick recap on that, um your your 86 00:04:39,120 --> 00:04:44,720 grandfather's company in 1985 that would ship, or maybe that's 87 00:04:44,720 --> 00:04:46,000 a little early, but whatever. 88 00:04:46,240 --> 00:04:50,319 The company for um the Wayfarer decision that would potentially 89 00:04:50,480 --> 00:04:53,920 just ship goods to another state, the customer of another 90 00:04:53,920 --> 00:04:54,480 state. 91 00:04:54,720 --> 00:05:03,120 Um once it touched the uh UPS truck, it was no longer their uh 92 00:05:03,279 --> 00:05:04,079 their issue. 93 00:05:04,240 --> 00:05:08,879 Uh the states had no idea you know how to manage this process. 94 00:05:09,360 --> 00:05:15,600 Um and the Wayfarer decision changed that and basically said 95 00:05:15,600 --> 00:05:20,800 that if you have sales to a specific state, then you are 96 00:05:20,959 --> 00:05:24,560 potentially subject to um to sales tax. 97 00:05:24,959 --> 00:05:30,879 And uh that created a massive filing requirement for 98 00:05:30,879 --> 00:05:32,560 businesses across the board. 99 00:05:34,079 --> 00:05:39,680 So beneficial ownership is defined in this case um as 100 00:05:40,000 --> 00:05:46,000 anyone who controls at least 25% of a company or has substantial 101 00:05:46,000 --> 00:05:47,680 control over a company. 102 00:05:47,839 --> 00:05:52,800 Um and so you know, you can kind of go down the line of um, you 103 00:05:52,800 --> 00:05:56,000 know, if you are an individual owner of a business that owns 104 00:05:56,000 --> 00:05:59,439 another business, you know, you may indirectly be a beneficial 105 00:05:59,439 --> 00:06:01,279 owner of a specific company. 106 00:06:01,519 --> 00:06:05,279 Uh so any any change to that basic information. 107 00:06:05,439 --> 00:06:10,319 Um, so if you uh get married and your last name changes, uh that 108 00:06:10,319 --> 00:06:16,319 would be something, if you move, that would be um something that 109 00:06:16,319 --> 00:06:17,680 you need to report. 110 00:06:18,000 --> 00:06:25,600 Um you know, your you if you um get a new license and the the 111 00:06:25,600 --> 00:06:30,399 license number changes, and um I'm not sure if that is 112 00:06:30,560 --> 00:06:32,000 something that ever happens. 113 00:06:32,240 --> 00:06:36,079 Um but anything from the original information that 114 00:06:36,079 --> 00:06:39,439 changes would need to be reported within 30 days of it 115 00:06:39,439 --> 00:06:39,920 changing. 116 00:06:40,399 --> 00:06:45,279 Um so I think the biggest thing is gonna be when you have a 117 00:06:45,279 --> 00:06:50,000 partnership or an S-corp or even a C Corp that changes ownership. 118 00:06:50,160 --> 00:06:53,839 Um if you bring on a new partner, then now you have to go 119 00:06:53,839 --> 00:06:56,000 in and make sure that you report that. 120 00:06:58,560 --> 00:06:59,120 Not really. 121 00:06:59,279 --> 00:07:02,240 I think 2024 is gonna be pretty quiet because I mean if you 122 00:07:02,240 --> 00:07:04,959 think about when when Trump's gonna get into office and when 123 00:07:05,040 --> 00:07:09,199 um you know the Republicans take over Congress, it's it's gonna 124 00:07:09,199 --> 00:07:12,079 be um the year the year the year's already gonna be closed. 125 00:07:12,319 --> 00:07:16,480 So some things that we might see, and this is just me 126 00:07:16,480 --> 00:07:19,920 speculating, and I I haven't seen this anywhere, is um 127 00:07:20,160 --> 00:07:25,360 potentially a um the the bonus depreciation reverting back to 128 00:07:25,360 --> 00:07:31,279 100%, and then um that uh state and local tax cap that I 129 00:07:31,279 --> 00:07:34,800 referred to earlier, the the 10,000 um cap. 130 00:07:35,439 --> 00:07:40,800 I I wouldn't be surprised to see that um get raised, but that 131 00:07:40,800 --> 00:07:42,959 might be more of a 2025 thing. 132 00:07:43,279 --> 00:07:48,720 Like I said, we'll we'll see what January has to has to 133 00:07:48,720 --> 00:07:49,040 offer. 134 00:07:49,199 --> 00:07:53,680 I don't know if we'll see a lot of of changes in 2024, um, like 135 00:07:53,680 --> 00:07:54,800 retroactive changes. 136 00:07:54,959 --> 00:07:56,800 Not to say that it hasn't been done. 137 00:07:56,959 --> 00:08:00,959 I believe a few years ago they even changed things into like 138 00:08:00,959 --> 00:08:06,879 February, um, which you know creates a lot of turmoil, not 139 00:08:06,879 --> 00:08:13,199 just for um us as practitioners, but you know, now this the IRS 140 00:08:13,199 --> 00:08:16,720 has to update their system, um, tax software companies have to 141 00:08:16,720 --> 00:08:17,839 update their system. 142 00:08:18,079 --> 00:08:24,720 Uh people who are eager to file um maybe don't uh maybe don't 143 00:08:24,720 --> 00:08:26,240 get to take advantage of that right away. 144 00:08:26,319 --> 00:08:29,519 They have to file amended returns, which becomes another 145 00:08:29,519 --> 00:08:30,160 issue. 146 00:08:32,240 --> 00:08:39,279 You know, and then you have your proactive um tax preparers who 147 00:08:39,279 --> 00:08:43,039 will talk to you at year end, uh, maybe do some tax 148 00:08:43,200 --> 00:08:47,519 projecting, um, maybe come, you know, throw out a few pointers. 149 00:08:47,759 --> 00:08:52,000 Um, and you know, where the the certified tax coach designation 150 00:08:52,000 --> 00:08:57,600 really comes into um play is you know, where are the the people 151 00:08:57,600 --> 00:09:03,919 who can work with you to really reduce your your taxable income 152 00:09:03,919 --> 00:09:08,000 or your tax um you know year over year. 153 00:09:08,240 --> 00:09:12,320 So, you know, if you're working with a certified tax coach like 154 00:09:12,320 --> 00:09:15,440 myself, um you can certainly know we can try to save you 155 00:09:15,440 --> 00:09:17,759 $25,000,$30,000 a year. 156 00:09:18,080 --> 00:09:22,000 Um, in four years, you're probably looking at maybe having 157 00:09:22,000 --> 00:09:24,480 an extra hundred thousand dollars in your bank account. 158 00:09:24,720 --> 00:09:30,399 Um or you can also look at it as when you make that next 159 00:09:30,399 --> 00:09:35,440 quarterly payment, maybe you're reducing it by half or you know, 160 00:09:35,600 --> 00:09:36,159 75%. 161 00:09:36,879 --> 00:09:43,840 You know, and I and I think some people get the um you know tax 162 00:09:44,000 --> 00:09:46,240 planning versus tax projecting. 163 00:09:46,879 --> 00:09:50,639 Um you know, I think they kind of gray the that line a little 164 00:09:50,639 --> 00:09:50,799 bit. 165 00:09:51,039 --> 00:09:53,840 Um and there's a pretty significant difference between 166 00:09:53,840 --> 00:09:54,480 the two. 167 00:09:54,720 --> 00:09:59,360 Um you know, if you have a CPA who's just telling you what 168 00:09:59,360 --> 00:10:01,919 you're gonna owe, maybe they tell you in December what you're 169 00:10:01,919 --> 00:10:03,279 gonna owe in April. 170 00:10:03,440 --> 00:10:05,120 Great, you can plan for that. 171 00:10:05,279 --> 00:10:07,279 Um, I've done that for clients. 172 00:10:07,600 --> 00:10:11,120 Um but that's just tax projecting. 173 00:10:11,360 --> 00:10:18,240 Um they're not really providing a ton of um value to you if um 174 00:10:19,600 --> 00:10:23,440 if they're not helping you reduce that that tax liability. 175 00:10:25,360 --> 00:10:27,679 Yeah, so I think it's here to stay now. 176 00:10:27,919 --> 00:10:33,600 February 18th, the federal court lifted the injunction, so now 177 00:10:33,600 --> 00:10:35,440 they're saying that you do have to file. 178 00:10:35,519 --> 00:10:40,240 It is mandatory, and so it's mandatory for businesses that 179 00:10:40,240 --> 00:10:44,559 were formed prior to January 1, 2024. 180 00:10:44,879 --> 00:10:46,639 So last January 1st. 181 00:10:46,799 --> 00:10:53,200 If you started a business in 2024, you probably already filed 182 00:10:53,200 --> 00:10:56,399 because you had your 60-day mandatory filing period. 183 00:10:56,639 --> 00:11:00,320 They were nice enough to give us a few extra days to file. 184 00:11:00,480 --> 00:11:06,399 So your filing deadline is now March 21st, and it's same same 185 00:11:06,399 --> 00:11:10,159 issues or same deal as before, where it's some pretty basic 186 00:11:10,159 --> 00:11:10,559 information. 187 00:11:10,639 --> 00:11:12,799 It's more of a nuisance than anything else. 188 00:11:12,960 --> 00:11:16,240 But you know, again, most businesses are gonna have to do 189 00:11:16,240 --> 00:11:16,399 this. 190 00:11:16,720 --> 00:11:18,480 There's not too many exceptions to the rule. 191 00:11:18,720 --> 00:11:22,159 Yeah, just recently we elected a pass-through entity election for 192 00:11:22,159 --> 00:11:27,279 a client, and we ended up saving them$29,000 in tax just by 193 00:11:27,279 --> 00:11:30,559 changing where you or how you pay the the state tax. 194 00:11:31,120 --> 00:11:34,240 And the client didn't really have to do anything, it was just 195 00:11:34,240 --> 00:11:37,360 an election that we made on the tax return, and you know, he 196 00:11:37,360 --> 00:11:40,240 reached out to me and said, Hey, you know, why do I owe this 197 00:11:40,240 --> 00:11:40,399 money? 198 00:11:40,559 --> 00:11:43,440 And I said, Well, if you pay it at this level, if you have your 199 00:11:43,440 --> 00:11:47,840 business pay it, you're gonna save uh$29,000 in taxes. 200 00:11:48,000 --> 00:11:50,480 So he was like, Cool, I'm gonna do that. 201 00:11:52,080 --> 00:11:54,799 So I thought it'd be good to come on here and just have a 202 00:11:54,799 --> 00:11:58,399 quick discussion on what as a business owner, like what you 203 00:11:58,399 --> 00:12:00,559 should be doing throughout the year after tax season. 204 00:12:00,720 --> 00:12:04,240 Because let's be honest, no one wants to think about taxes at 205 00:12:04,240 --> 00:12:04,559 all. 206 00:12:04,799 --> 00:12:08,320 And most people only think about it maybe like once, twice a 207 00:12:08,320 --> 00:12:08,559 year. 208 00:12:08,799 --> 00:12:11,360 But unfortunately, that could get you into a little bit of 209 00:12:11,360 --> 00:12:11,679 trouble. 210 00:12:11,840 --> 00:12:16,480 So my first point is to know that tax planning is a 211 00:12:16,480 --> 00:12:19,440 year-round sport, and it's something that you should be 212 00:12:19,440 --> 00:12:21,759 having conversations with, especially if you're a 213 00:12:21,759 --> 00:12:22,879 profitable company. 214 00:12:23,039 --> 00:12:24,960 You should be having conversations with your tax 215 00:12:24,960 --> 00:12:28,159 accountant throughout the year, whether that's to just check in, 216 00:12:28,320 --> 00:12:31,679 see if there's anything new on their end, or talk to them about 217 00:12:31,679 --> 00:12:33,759 things that might be happening through the business, because 218 00:12:33,759 --> 00:12:36,320 there might be things that are happening that have a tax impact 219 00:12:36,320 --> 00:12:38,639 that you don't realize have a tax impact, right? 220 00:12:38,720 --> 00:12:40,879 It's one of those you don't know what you don't know, right? 221 00:12:41,039 --> 00:12:43,919 And we can be a little bit more proactive when we can when we 222 00:12:43,919 --> 00:12:44,799 have that information. 223 00:12:45,039 --> 00:12:47,360 SPEAKER_00: So when should people be talking to their CPA? 224 00:12:47,519 --> 00:12:50,000 SPEAKER_01: I would say a mid-year check-in at the very 225 00:12:50,000 --> 00:12:53,200 least, June is, in my opinion, probably the best schedule. 226 00:12:53,279 --> 00:12:56,399 And every CPA is a little different on how they bill, but 227 00:12:56,399 --> 00:12:59,840 I know for me, if I had a client reach out and just send me a 228 00:12:59,840 --> 00:13:02,159 quick email or want to have a quick five 10-minute 229 00:13:02,159 --> 00:13:04,799 conversation, I'm probably not gonna bill for that. 230 00:13:04,960 --> 00:13:07,200 It may be something that comes out of it where I do have to 231 00:13:07,200 --> 00:13:10,720 bill for, but I'd love it if more of my clients just gave me 232 00:13:10,720 --> 00:13:11,279 a quick job. 233 00:13:11,440 --> 00:13:11,759 Absolutely. 234 00:13:12,000 --> 00:13:15,279 The next one I tell this to clients all the time maximizing 235 00:13:15,279 --> 00:13:15,919 deductions. 236 00:13:16,080 --> 00:13:19,919 So home office deduction, business mileage, anything where 237 00:13:20,000 --> 00:13:23,919 like the business has to reimburse you for expenses. 238 00:13:24,159 --> 00:13:26,960 A lot of business owners will just wait until the end of the 239 00:13:26,960 --> 00:13:27,840 year to do that. 240 00:13:28,000 --> 00:13:31,759 Some even wait until after year end where that might actually be 241 00:13:31,759 --> 00:13:32,399 too late. 242 00:13:32,559 --> 00:13:36,000 I would love to see business owners reimburse themselves on a 243 00:13:36,000 --> 00:13:36,799 monthly basis. 244 00:13:36,960 --> 00:13:39,679 I know that that can be a little much. 245 00:13:39,919 --> 00:13:42,879 Everyone's busy and they might not want to go through that 246 00:13:42,879 --> 00:13:46,960 paperwork, but doing it more often catches more deduction. 247 00:13:47,039 --> 00:13:50,639 And so home office deduction, I have a spreadsheet I send to my 248 00:13:50,639 --> 00:13:51,120 clients. 249 00:13:51,279 --> 00:13:54,320 It's just a template that they can plug in, their mortgage 250 00:13:54,320 --> 00:13:57,919 interest, real estate taxes, homeowners insurance, stuff like 251 00:13:57,919 --> 00:13:58,080 that. 252 00:13:58,240 --> 00:14:00,639 And they just reimburse themselves on a monthly, 253 00:14:00,799 --> 00:14:04,240 quarterly basis, if maybe that works better for some people. 254 00:14:04,399 --> 00:14:07,120 But I definitely wouldn't wait until the end of the year to 255 00:14:07,120 --> 00:14:09,919 count up all your miles, go through your calendar, because 256 00:14:10,000 --> 00:14:12,639 you're definitely gonna miss stuff the more likely you are to 257 00:14:12,639 --> 00:14:14,960 have to catch all the deductions. 258 00:14:16,480 --> 00:14:20,000 So, you know, it's the end of tax season, and I kind of take 259 00:14:20,000 --> 00:14:23,360 this time to reflect back on things that happened, patterns I 260 00:14:23,360 --> 00:14:23,679 saw. 261 00:14:23,840 --> 00:14:26,720 And one of the things that popped up this year was W-2 262 00:14:26,879 --> 00:14:27,600 withholding. 263 00:14:27,840 --> 00:14:32,240 Not something that maybe directly impacts all business 264 00:14:32,240 --> 00:14:35,600 owners, but you know, if you're an S-corp or a C Corp, it could 265 00:14:35,600 --> 00:14:36,720 definitely impact you. 266 00:14:36,960 --> 00:14:41,440 If you have business income or passive income that you're 267 00:14:41,440 --> 00:14:45,759 obviously not withholding on, then that could impact your tax 268 00:14:45,919 --> 00:14:49,039 situation and may warrant some extra withholding from your 269 00:14:49,039 --> 00:14:49,519 wages. 270 00:14:49,679 --> 00:14:53,039 Maybe your spouse needs to update their withholdings. 271 00:14:53,200 --> 00:14:56,799 I would say it's more of a maintenance item and not super, 272 00:14:56,960 --> 00:14:58,000 super fun to talk about. 273 00:14:58,080 --> 00:15:01,200 We're not talking about tax savings and stuff like that, but 274 00:15:01,200 --> 00:15:03,600 it's certainly it's like getting the oil change in your car. 275 00:15:03,919 --> 00:15:06,960 You can call me or you call your CPA and we can certainly walk 276 00:15:06,960 --> 00:15:07,360 you through it. 277 00:15:07,519 --> 00:15:12,320 The IRS actually has a pretty cool interactive tool that you 278 00:15:12,320 --> 00:15:14,639 can use to calculate that withholding. 279 00:15:14,720 --> 00:15:16,399 And it's definitely something you want to do. 280 00:15:16,559 --> 00:15:18,320 Like I said, it's like an oil change. 281 00:15:18,399 --> 00:15:20,720 You want to do it maybe annually in January. 282 00:15:21,039 --> 00:15:24,320 Just something to temperature check and make sure that you're 283 00:15:24,320 --> 00:15:25,440 still withholding enough. 284 00:15:25,519 --> 00:15:29,279 If you get married, have a kid, maybe you start a new business. 285 00:15:29,440 --> 00:15:32,960 The way that you earn income changes, like I said, if you 286 00:15:32,960 --> 00:15:37,759 start a business and your salary income goes down, but your 287 00:15:37,759 --> 00:15:39,759 business income goes up. 288 00:15:40,000 --> 00:15:43,600 So maybe you're like, oh, I earned$100,000 last year, but 289 00:15:43,600 --> 00:15:45,600 I'm earning$100,000 this year. 290 00:15:45,759 --> 00:15:46,960 Everything should be the same. 291 00:15:47,120 --> 00:15:50,720 Not necessarily, because the way that you're earning that income 292 00:15:50,879 --> 00:15:54,639 and how taxes are being withheld on that income are different. 293 00:15:54,799 --> 00:15:57,120 And that's what happened with one of my clients. 294 00:15:57,360 --> 00:16:00,639 The wife, her business started earning some income. 295 00:16:00,960 --> 00:16:05,039 His W-2 salary stayed the same, their withholding stayed the 296 00:16:05,039 --> 00:16:07,840 same, but her income was not being withheld on. 297 00:16:08,000 --> 00:16:10,559 So they got kind of killed at the end there. 298 00:16:12,480 --> 00:16:13,039 Absolutely. 299 00:16:13,279 --> 00:16:16,000 Yeah, so I mean, none of this is law yet. 300 00:16:16,159 --> 00:16:19,279 It could all change, it could all get scrapped, but things to 301 00:16:19,360 --> 00:16:23,120 like keep an eye out for if this does go through as it's written 302 00:16:23,279 --> 00:16:23,840 right now. 303 00:16:24,080 --> 00:16:26,960 I think there's a lot of benefits for business owners. 304 00:16:27,200 --> 00:16:31,120 Not sure how everyone feels about the other parts of it, but 305 00:16:31,120 --> 00:16:33,519 from a business owner standpoint, I think there is it 306 00:16:33,600 --> 00:16:34,639 could be beneficial. 307 00:16:34,879 --> 00:16:39,200 So the first one, which I'm a big proponent of being in a 308 00:16:39,200 --> 00:16:42,480 high-tax state, is the increased salt deduction. 309 00:16:42,639 --> 00:16:46,879 I think as it's written now, it's going from$10,000 to 310 00:16:46,879 --> 00:16:47,840 $40,000. 311 00:16:48,399 --> 00:16:51,200 SPEAKER_00: So what does salt stand for or mean? 312 00:16:51,759 --> 00:16:53,120 SPEAKER_01: State and local tax. 313 00:16:53,440 --> 00:16:57,440 So you probably, if you're a business owner or really any 314 00:16:57,440 --> 00:17:00,720 individual, you probably haven't itemized your deductions 315 00:17:00,720 --> 00:17:01,200 recently. 316 00:17:01,519 --> 00:17:04,720 Maybe you've been keeping track of all your medical expenses and 317 00:17:04,720 --> 00:17:08,319 you give them to your CPA every year, and they just don't do 318 00:17:08,319 --> 00:17:11,680 anything with them because you don't itemize anymore. 319 00:17:12,000 --> 00:17:13,599 This could change all that. 320 00:17:13,759 --> 00:17:20,000 And so when you itemize your deductions, you are allowed only 321 00:17:20,240 --> 00:17:24,079 $10,000 of your state and local taxes. 322 00:17:24,240 --> 00:17:28,400 And so that includes your real estate taxes, excise tax on your 323 00:17:28,400 --> 00:17:31,119 vehicles, and state income taxes. 324 00:17:31,680 --> 00:17:34,400 They want to increase that from $10,000 to$40,000. 325 00:17:34,480 --> 00:17:39,599 So you can see people who live in a high-tax state, this could 326 00:17:39,599 --> 00:17:40,720 be very beneficial. 327 00:17:41,200 --> 00:17:45,359 You heard me talk a lot about the pass-through entity tax in 328 00:17:45,359 --> 00:17:46,160 other episodes. 329 00:17:46,799 --> 00:17:54,079 That was a provision provided by the states to kind of alter this 330 00:17:54,240 --> 00:17:56,160 or to circumvent this rule. 331 00:18:00,160 --> 00:18:03,839 This is important for businesses that typically operate a loss, 332 00:18:03,920 --> 00:18:07,839 like if you're pre-revenue and this 179 does not apply to you, 333 00:18:08,480 --> 00:18:12,000 then historically in the last couple of years, bonus 334 00:18:12,000 --> 00:18:14,480 depreciation has been getting phased out. 335 00:18:14,960 --> 00:18:18,160 SPEAKER_00: So remind us, what exactly does bonus depreciation 336 00:18:18,160 --> 00:18:18,480 mean? 337 00:18:18,960 --> 00:18:22,240 SPEAKER_01: So bonus depreciation is the ability to 338 00:18:22,559 --> 00:18:25,519 depreciate your assets in the year that they're placed into 339 00:18:25,519 --> 00:18:25,759 service. 340 00:18:26,079 --> 00:18:30,079 The benefit here, or the idea here, is that the US wants to 341 00:18:30,079 --> 00:18:35,519 promote businesses buying assets and you know increasing 342 00:18:35,519 --> 00:18:38,960 infrastructure and stuff like that, spending money to 343 00:18:38,960 --> 00:18:40,079 stimulate the economy. 344 00:18:40,480 --> 00:18:41,680 It typically works. 345 00:18:42,559 --> 00:18:44,000 Obviously, it comes at a cost. 346 00:18:44,400 --> 00:18:47,039 And so it's been getting phased down. 347 00:18:47,200 --> 00:18:49,359 They want to increase that back up to 100%. 348 00:18:51,440 --> 00:18:51,920 You get it. 349 00:18:52,000 --> 00:18:55,039 Yeah, so meals is probably the most popular one here, you know, 350 00:18:55,119 --> 00:18:58,000 because not every business owner is going to travel for work, but 351 00:18:58,000 --> 00:19:01,200 I think more often than not, you're going to have some form 352 00:19:01,200 --> 00:19:03,759 of like meals that's related to the business. 353 00:19:04,319 --> 00:19:08,640 So generally speaking, meals are 50% deductible. 354 00:19:08,880 --> 00:19:11,519 Now there's three criteria that make it deductible. 355 00:19:11,680 --> 00:19:14,720 It's a legitimate business discussion during the meeting, 356 00:19:14,880 --> 00:19:15,200 right? 357 00:19:15,519 --> 00:19:21,359 It's not lavish or extravagant, and you or your employee is 358 00:19:21,359 --> 00:19:22,400 present in the meeting. 359 00:19:22,640 --> 00:19:27,200 So this can apply to client lunches and dinners, meals while 360 00:19:27,200 --> 00:19:29,680 traveling, or during trainings. 361 00:19:29,920 --> 00:19:33,519 So for example, last year I was in San Diego, or in January I 362 00:19:33,519 --> 00:19:34,480 was in San Diego. 363 00:19:34,720 --> 00:19:39,839 All my meals were 50% deductible because that was for a certified 364 00:19:39,839 --> 00:19:40,720 tax coach training. 365 00:19:40,880 --> 00:19:44,480 Unfortunately, back in 2018, and for those of us who play golf, 366 00:19:44,640 --> 00:19:48,000 this was a big hit because you know, you used to say, oh well, 367 00:19:48,079 --> 00:19:50,079 it's a client meeting on the golf course. 368 00:19:50,240 --> 00:19:53,359 And you get to deduct your 18 whole round of golf. 369 00:19:53,599 --> 00:19:58,880 But in 2018, they did away with that, and now entertainment is 370 00:19:58,880 --> 00:20:00,480 not deductible at all. 371 00:20:00,880 --> 00:20:03,440 Sporting events tickets, golf. 372 00:20:03,759 --> 00:20:06,319 Trying to think what the other big entertainment pieces might 373 00:20:06,319 --> 00:20:06,480 be. 374 00:20:06,640 --> 00:20:09,680 But yeah, none of that is deductible anymore. 375 00:20:11,440 --> 00:20:14,079 Yeah, so there's two there's two kind of credits here. 376 00:20:14,160 --> 00:20:16,880 So you have the child tax credit, and then you have the 377 00:20:16,880 --> 00:20:19,359 the child independent care credits, right? 378 00:20:19,680 --> 00:20:25,759 And your uh the child tax credit is up to$2,000 per qualifying 379 00:20:25,759 --> 00:20:26,160 child. 380 00:20:26,319 --> 00:20:31,440 So typically, you know, your child under the age of 17 to 381 00:20:31,440 --> 00:20:33,599 help reduce your your tax bill. 382 00:20:33,680 --> 00:20:36,799 And then you have the child independent care credit, and 383 00:20:36,799 --> 00:20:42,000 this is for what I think most people think about um you know, 384 00:20:42,240 --> 00:20:50,480 like uh kindergarten or or not kindergarten, um preschool? 385 00:20:50,880 --> 00:20:54,319 Like preschool, um, daycare, stuff like that. 386 00:20:54,880 --> 00:20:59,359 Um and uh what people don't realize is that there's 387 00:20:59,359 --> 00:21:03,759 opportunities in that um child independent care credit that you 388 00:21:03,759 --> 00:21:05,599 know you don't always think of. 389 00:21:05,759 --> 00:21:08,240 Um so hopefully bring that to light. 390 00:21:08,400 --> 00:21:14,000 And um with the passage of the Big Beautiful Bill Act, um those 391 00:21:14,000 --> 00:21:19,680 have been adjusted slightly um for taxpayers, so there is some 392 00:21:19,680 --> 00:21:23,359 change there this year for as long as you're putting them in 393 00:21:23,359 --> 00:21:26,319 that um program so that you can go work. 394 00:21:26,640 --> 00:21:32,720 Um so if uh obviously if you're putting them in a program at uh 395 00:21:32,880 --> 00:21:35,839 well, I don't know, I I even if maybe you're working at night 396 00:21:35,839 --> 00:21:38,640 and you gotta put them in like uh you know nighttime basketball 397 00:21:38,640 --> 00:21:39,519 league or something. 398 00:21:39,680 --> 00:21:45,839 Um as long as it's for you and your spouse to go work, um I 399 00:21:45,839 --> 00:21:48,400 think the nighttime situation might be a little bit harder to 400 00:21:48,480 --> 00:21:51,440 to justify if one spouse is home. 401 00:21:51,680 --> 00:21:54,559 But um, you know, during the day you get summer camps. 402 00:21:54,720 --> 00:22:00,799 Um I know that for us, um, you know, my daughter does As chair, 403 00:22:01,039 --> 00:22:05,359 and so that costs us um, you know, it's not a huge expense, 404 00:22:05,440 --> 00:22:07,519 but like 300 bucks a year. 405 00:22:07,759 --> 00:22:13,440 Um she's at after school, you know, every every day for that. 406 00:22:13,680 --> 00:22:16,480 Um, so that is an expense that we can take. 407 00:22:16,640 --> 00:22:22,559 Now, a lot of people will try to sneak by um like private school. 408 00:22:22,799 --> 00:22:26,160 Um, so like if you pay for kindergarten, um I know I 409 00:22:26,160 --> 00:22:29,119 mentioned kindergarten earlier, but kindergarten is uh is where 410 00:22:29,119 --> 00:22:30,000 it stops. 411 00:22:30,160 --> 00:22:36,880 Um so you can have um like preschool, daycare, um, before 412 00:22:36,880 --> 00:22:38,240 and after school programs. 413 00:22:38,400 --> 00:22:43,599 I know a lot of schools will offer yes, so hopefully uh with 414 00:22:43,599 --> 00:22:48,400 the home office deduction, there is uh no no mailing in checks. 415 00:22:48,559 --> 00:22:51,200 Maybe uh you'll have to make sure you get that direct deposit 416 00:22:51,200 --> 00:22:54,160 updated so that they can get that refund. 417 00:22:54,960 --> 00:23:00,559 But uh yeah, so like I said, uh client said, nope, can't take 418 00:23:00,559 --> 00:23:02,079 the home office because I have an office. 419 00:23:02,160 --> 00:23:03,440 That's incorrect. 420 00:23:03,599 --> 00:23:09,039 If you have a place of business, um you can still take the the 421 00:23:09,039 --> 00:23:10,880 home office deduction. 422 00:23:11,200 --> 00:23:14,960 SPEAKER_00: So what uh Greg, just to clarify one thing, 423 00:23:15,119 --> 00:23:19,039 because people my age or older, we we still remember there being 424 00:23:19,039 --> 00:23:24,400 like this official home office deduction with the IRS like 20 425 00:23:24,400 --> 00:23:25,519 plus years ago. 426 00:23:25,759 --> 00:23:28,640 But I think what you're talking about is not like a particular 427 00:23:28,640 --> 00:23:32,400 IRS program or election, it's it's just general business 428 00:23:32,400 --> 00:23:35,680 operating expenses that happen to go toward a home office, 429 00:23:35,920 --> 00:23:36,240 right? 430 00:23:37,119 --> 00:23:37,680 SPEAKER_01: Correct. 431 00:23:37,839 --> 00:23:38,240 Yeah. 432 00:23:38,400 --> 00:23:43,119 So I think what you're referring to is the unreimbursed employee 433 00:23:43,119 --> 00:23:44,480 business expenses. 434 00:23:44,799 --> 00:23:52,000 Um that was an old rule prior to the Trump tax cuts. 435 00:23:52,319 --> 00:23:55,359 Um it was an itemized deduction. 436 00:23:56,160 --> 00:23:59,920 It was exactly what it would what it sounds like unreimbursed 437 00:23:59,920 --> 00:24:01,599 employee business expenses. 438 00:24:01,759 --> 00:24:06,720 Um people probably took advantage of it, but uh now this 439 00:24:06,720 --> 00:24:09,200 is really just for business owners. 440 00:24:09,440 --> 00:24:11,839 So now we get into the real estate. 441 00:24:12,079 --> 00:24:13,359 So what can we take? 442 00:24:13,519 --> 00:24:17,359 We can take mortgage interest, rent, real estate taxes, 443 00:24:17,599 --> 00:24:20,559 utilities, homeowners insurance. 444 00:24:20,720 --> 00:24:27,839 Um, if you have an alarm on your house, um home office repairs, 445 00:24:28,880 --> 00:24:35,200 you know, stuff like you know that you're doing to the the uh 446 00:24:35,680 --> 00:24:38,960 entire house or expenses for the entire house, you're gonna take 447 00:24:38,960 --> 00:24:41,279 a portion of those expenses, right? 448 00:24:41,599 --> 00:24:47,759 Um and the idea is that you're gonna take the square footage of 449 00:24:47,759 --> 00:24:51,599 your home office divided by the square footage of living space 450 00:24:51,599 --> 00:24:55,920 in your home, and that's gonna be the ratio that you use. 451 00:24:56,319 --> 00:25:01,279 So, you know, you have a thousand square foot home and 452 00:25:01,279 --> 00:25:05,119 you have a hundred square foot home office, ten percent of all 453 00:25:05,119 --> 00:25:09,200 those expenses that I just mentioned are now a home office 454 00:25:09,200 --> 00:25:09,599 deduction. 455 00:25:10,000 --> 00:25:11,680 SPEAKER_00: Another episode in the books. 456 00:25:11,839 --> 00:25:13,680 Thank you so much for tuning in. 457 00:25:13,839 --> 00:25:17,759 For show notes and more, visit empoweringhealthy business.com. 458 00:25:18,000 --> 00:25:20,799 If you would like to have a one on one discussion with me, or 459 00:25:20,799 --> 00:25:24,079 possibly engage smart books to help with your business, you can 460 00:25:24,079 --> 00:25:28,400 reach me at cal C A L at Empowering Healthy Business dot 461 00:25:28,400 --> 00:25:31,839 com or message me on LinkedIn where I am easy to find. 462 00:25:32,000 --> 00:25:35,279 Until next time, this is Empowering Healthy Business, the 463 00:25:35,279 --> 00:25:37,519 podcast for business owners, signing off.