You can get significant tax savings with proper planning. There are many year-end tax strategies we’ve shared in the past. And we’ve even given you some very cool and creative ways to use 1099s to lower your tax bill.
But even if you have not done a lot of pre-planning, there still may be some juicy tax breaks waiting for you in that pile of last year’s receipts.
So it’s not too late to scour through last year’s books and see if some items you thought were simply a personal expense can actually be deducted.
In fact, when we work with new clients in our FastTrack program, we regularly find up to $11,000 or more in tax savings just from overlooked items.
What Will You Do With Your “Found Money”?
Imagine! At a time when most business owners are writing big checks to the IRS, these folks are getting unexpected refunds.
Think of what that long-term wealth that could bring if you had an extra $11k each year to invest, year after year.
Or it could mean taking a spur-of-the-moment surprise vacation with the family, or paying off your kid’s college debt, or just splurging on a new toy you’ve always wanted.
This is part of what this Living Wealthy Newsletter is all about. Finding ways for you to enjoy your life.
Are You Using the Tax Rules to Your Advantage?
If you’re like most small business owners we meet, you’re leaving a lot of money on the table.
Most of the tax advantages business owners have are wasted because CPAs and tax preparers are by nature conservative and reactive. Which means they will generally only deduct things you bring to them.
If you are entitled to a deduction but don’t bring it up to your CPA, it will likely fall through the cracks.
There’s nothing wrong with paying our “fair share” of taxes. But there’s no need to leave the government a tip.
If the IRS says you CAN take a deduction, why wouldn’t you?
It’s all about education and knowing what you can deduct.
Below you’ll find 3 commonly overlooked deductions that you may be entitled to:
1. Office Supplies and Technology. Every small business owner is regularly buying supplies and upgrading their phone, computers and other digital devices. Don’t forget that when you have a small business, the majority of these items can be fully expensed. You can even write off items like coffee, tea, or other snacks that you provide for your office. Dig up those expenses and discuss them with your tax advisor. Ask which expenses for items should be reduced by some percentage for personal use if necessary.
2. Cell phone. Many small business owners don’t know that recent case law and IRS rulings allow business owners to write-off 100% of their cell phone expenses, as long as they have at least one dedicated home phone line. You can also include the cell phones of your family members that work in the business with you and need a cell phone for their legitimate role in the business.
3. Travel expenses. Many tax experts regard this as one of the most underutilized tax deductions by small business owners today. Unlike meals and entertainment that are limited by 50%, travel expenses are 100% deductible. You can include airfare, hotels, rental cars, valet, taxis, trains, tolls, etc.
Consider all of your travels last year that may have involved a meeting with a client, a vendor, or a potential partnership. Also consider any travel you did for a training meeting, a tour of a competitor’s facility or store, your annual board of directors, shareholder, manager or member meeting, or a conference retreat with a partner. The list goes on and on. In fact, in many ways it just doesn’t make sense for any business owner to not have some travel expenses.
Other Overlooked Deductions to Consider
You may also want to ask your tax professional about a home office deduction (especially with the new safe harbor rule), auto expenses (using the mileage deduction makes it super simple), and dining and entertainment costs. According to our tax experts, these are also deductions commonly underutilized by small business owners. Claiming every deduction you’re allowed can put a lot of money back in your pocket, and help you live wealthier now.
With all of these expenses, you want to take into account your overall income, profit, and the size of your business.
Your deductions should be realistic and common for the type of business you have. If they’re legitimate and you have supporting documentation, take them.
Keep great records, save receipts and jot a quick note for each deduction. This type of documentation will help you breeze through an audit if you need them in the future to justify your expenses.
QUICK TIP: Use your cell phone camera to take a picture of your receipt. If possible, jot a note directly on the receipt before you snap the picture, or record a quick voice memo describing the supporting details of the expense. Great documentation like this gives you a huge advantage.
It’s Up to You to Find and Use These Deductions
Remember, your tax team can only work with the information you bring them, so give them ample documentation and reasons why you feel it should be deductible.
IRS tax law uses vague terms like “customary and ordinary” to define what you can deduct. It uses terms like “lavish or extravagant” to describe what you can’t deduct. And although the IRS offers a few examples, those terms are never defined in a concise or precise way.
It’s up to you as the taxpayer to make your case. A good tax strategy, therefore, is to always be thinking of ways to justify why a deduction is customary and ordinary, or why it is not lavish or extravagant.
A great tax team can help you find many of these hidden, overlooked deductions. You will get best results, however, if you become active in the process.
That means getting into the habit of viewing every expense as a potential business deduction. Bring your rationale to your tax team and they can help you decide what’s allowable within the law.
Your “Before You File” Tax-Saving Action Plan:
- If you are just starting out, consider the strategies above as well as those in your BUILD: subscription, Curriculum for Wealth, or Accredited Network Files. Garrett also offers some excellent free tax tips in the Cash Flow Optimization Guide.
- If you have an existing business, you can check out some of the services we offer for small business owners. And if your business is doing at least $500k in annual revenue, you may want to inquire about our FastTrack program to see if it’s a good fit.
- No matter what the situation, take the time to go through your receipts from last year. Start with the list above. See if you can reclassify more of your expenses to become tax deductible. Take them to your tax preparer and you may be surprised at how much you can save on on your taxes.
That’s all for now.
Build the life you love,
The Builders at Wealth Factory
What is Living Wealthy Weekly?
Each week we share timely trends, news stories, and current events that affect your life. We help you see the impact, personally and socially, and give you possible solutions to avoid any negative effects. We also give you additional links and resources if you want to investigate further. The purpose is not to be the last word on any topic. Rather it’s to help us all stay informed of what’s going on in the world without letting those events negatively impact your lifestyle. Our goal is to help us all live richer, fuller lives from a position of financial strength. This allows you to weather economic hard times, and seize whatever new opportunities arise in our changing world.