IRS audit Triggers, pre season tax planning and strategies for small business owners. 4 k video 2/2

what about a garage because a lot of these guys while they're in the growth stage you know they're storing their stuff at their home in their garage in their how did how would that break that that's awesome you brought that up because so let's talk about purchasing equipment what is tax deductible what is not because there's guys that may go out and buy themselves a vehicle and and not and they may sign on the dotted line but not buy the right vehicle and not be able to take the deductions so these guys we've got a pile this in this is what you need to do I may be forgetting someone let's talk about a few of the IRS red flags that guys need to avoid miss common mistakes that guys may think they're okay on but it's gonna be a big in the IRS office hey let's audit this guy because I was that guy alright guys we're back today and we're gonna be meeting with my accountant and we're gonna be talking about IRS red flags we're gonna be talking about a lot of things that take small business owners under when they're very new in their business but it's the same things that the big businesses absolutely know what they're doing and it's how they get by it's how they can manage to run multi-million dollar companies and pay less in taxes than a guy that's got a pickup truck a bunch of shovels a trailer and it's busting his butt every single day of the week and if you guys start to arm yourself with just the basic knowledge which is the goal of this two-part series hopefully it'll help you guys long term I don't know you guys got to tell me it was this after you watch this is this a good video comment down below give me your feedback without wasting more time let's get into today's video let's talk about things that the gray area deductions let's just be very frank very open your home office yep all right how much how much of your home office can you actually deduct yep and just to say I don't like the great term as much I usually say and whenever I meet with people I talk about you know a home office and my which are kind of in a different category because I don't look at your bank account and see a cheque for home office for mileage okay so that's why I just got there kind of in a different bucket that you don't see out-of-pocket people use the gray term but I I don't know what the terminology is as well I mean these are any living areas it's not I mean there's written rules so it's really like you said it there are rules but there's different interpretation maybe there's different calculations you know for the vehicle if you're doing mileage none of that other stuff applies so I'll skip that but for office you know you already have either you're paying rent or a mortgage for wherever you're living so for Home Office if you have a dedicated office that you're doing you know just for you it's invoicing you know whatever that's where you work from you don't have an actual office so square feet of the office just say like a room like this is 200 square feet your home is 2,000 square feet pretty easy calculations 10% of your home then then you take your if you're renting your rent if you have insurance your insurance you probably don't have repairs and maintenance if you're renting your utility is you know if that totals up to five grand times that 10% calculation then that's how you determine your deduction or if you have them mortgage you know then you're gonna have more of a deduction normally because you have your real estate taxes mortgage interest on water insurance any repairs and maintenance you did to your home and utilities and then time to your same percentage there are some rules for office to have an office like this it has to be what they consider exclusive use okay meaning it's only used for an office but you don't have a treadmill and pull-out couch and what about a garage because a lot of these guys while they're in the growth stage you know they're storing their stuff at their home in their garage in their how did how would that that's awesome you brought that up because different from the exclusive loot use thing is storage so that can be your garage another room in your house that doesn't have to be exclusive use that you can also take that portion that you're using for your home for storage how much what's the percentage it's the same calculation basically disk assembly so big garages so that's how big your community production for storage too and there's a simplified method as well for $1,500 which sometimes you know will do that you know of people but I guess it just depends all this aspie you know are you storing stuff yes you know half my garage and you know some people are my old basement and so yeah it varies but storage does not have to meet the exclusive use so that's a big deduction that I think people miss out on you know people always get nervous about I don't want to depreciate my own you know and but we don't really we don't I don't take the actual depreciation but but that is considered part of the office deduction you know as up if you if you take that is part of it is for the depreciation on that section of your home so let's talk about another strategy right now what's going to be happening is the autumn of automotive dealers heavy equipment dealers these airs are going to get inundated with people looking at making purchases and I'm one of those guys the reason I'm here is we just spend an hour and a half doing my preseason tax planning before we ever turned on any cameras whatsoever so let's talk about purchasing equipment what is tax deductable what is not I'm talking about automotives and some of these rules are not going to apply when you guys are watching this video because it may be old by this time so this is something to at least put on your radar screen because every vehicle it's over six thousand and one pounds goes into a different classification which allows for a higher rate of is it first year depreciation correct which is called the 179 deduction section 179 you google that there'll be tons of information they even have their own site section 179 but that was one of the things that change with the 18 tax cuts is raising that figure and just trying to you know promote putting more money into the business and pay less tax is what it's for and that's what we use it for it's a business stimulus that the government actually has done to help small guys get by but also to make new purchases and can you actually tell us what this business deduction is so guys understand it what what the business deduction is so what the 179 is yes it's so you buy a vehicle you can deduct 25 grand okay so yeah just on the vehicles you can take up to twenty five thousand on the 179 deduction if the vehicles in the six thousand to fourteen thousand range you know bigger vehicles if you don't rush things like that they're called no limit applied vehicles otherwise if you buy a passenger vehicle you cannot take as much of that upfront and there's a lot less of depreciation so for contractors if you're looking to buy a vehicle if you're doing the mileage deduction don't worry about any of that because then doesn't really matter what vehicle you drive you get the same Eilidh rate they don't have a factor based on the year you buy a vehicle so it's another thing I look at to if you're driving and if you're gonna get a low price use vehicle why would you ever take actual expenses and depreciate tech mileage you're gonna get way more you know than if you buy a ten thousand used or something okay especially you guys that are driving a bunch of miles you know you know fifty eight cents a mile for 2018 you know it's a big amount compared to so you have to look at the whole piece of it on vehicles and an important factor is every time you place a new vehicle or asset and purpose in in a service is when you decide how much you want to take for first year depreciation and spreading out the rest and then likewise on vehicle if you depreciate you can't do mileage your next vehicle you might decide I want to do my if you can switch each vehicle you just can't switch back and forth on a particular vehicle so let's let's get a little bit specific so if a guy wants to bring his taxable income down he's gonna go to the car dealership say I need a brand new f250 truck because it comes in over six thousand pounds yo right so six thousand and one pounds in the face forty grand for that truck yep in the first year he can deduct a twenty-five thousand dollar lump sum on federal and he can actually elect to take Owens depreciation as well so he could take all of it on federal under the new tax laws if he's in there Wayne made a new tax liability eighteen twenty eighteen so you could deduct all forty thousand in one single so you guys have an amazing year and you don't want to give Uncle Sam your money go buy yourself a new truck and that's gonna bring your taxable income down and trailers equipment all that stuff it doesn't have to be a vehicle but that seems to prop that would probably be the most common right it seems but we're talking about vehicles now because there's guys that may go out and buy themselves a vehicle and and not and they may sign on the dotted line but not buy the right vehicle and not be able to take the deductions so these guys we've got a pile this in this is what you need to do but if you go buy yourself a new lawn care trailer you buy yourself a new skin loader 100% tax deductible the first year correct if if you want to if you don't want to can you then take a portion of that and then take the rest of it or in the next in the following years yup vehicles are normally five years so you know if you do straight line for the easiest example for your appreciation method you know if it's using that twenty five or forty thousand other vehicles you know ten thousand a year in its basic sense I mean it really spreads out over six because the year you buy it at pro rates by the months and I won't get into all the no calculation of it but you get to deduct it all spread out then over basically you know five years let's talk about some stuff that most guys probably won't think about and that's their clothes yep so their clothes if they use those causes they buy work clothes because they are spending they're spending 200 bucks on boots they're spending 200 bucks on bibs for working out in the winter even their clothes are deductible if you allocate them into the right category yes and there are that's a very good point because this is something that people don't always do correctly and of course there is your rule for it things you mentioned fully deductible work boots specialized assault I should define it first specialized work equipment yes work boots that specialized know from instance myself as soon as I get home I'm out of it my work clothes but I can't deduct mine I could these aren't specialized I could wear these all the time just like for contractors you know I bet someone telling me while I you know I buy jeans and sweatshirts to work in unless you put your company's name on it you can't deduct those those are just normal clothes that's how you dress to work if you put your company name on anything basically it's deductible then so if you want to do sweat shirts put you know genetic landscaping or whatever on mm-hm or I could do law tax you know and then I can deduct those items specialized equipment work boots you know glasses ear muffs helmet glove work gloves boots I may be forgetting something let's talk about a few of the IRS red flags that guys need to avoid miss common mistakes that guys may think they're okay on but it's gonna be a big in the IRS office hey let's audit this guy because I was that guy right and I learned a few things the very hard way and I don't want these guys to follow down the same path that I did one of the IRS red flags that I can tell you is hiring subcontractors versus hiring employees and that is one of those areas where there is actually a sheet of rules and I think they have 21 different rules that for a person that you bring into your company for them to be a legit subcontractor they have to hit every single one of these rules if they mess even one they're an employee and yeah IRS and the IRS rules on if you go through a payroll tax yes if you don't meet all the criteria as we found Alex I think they removed all of them except for maybe one from contractors if I remember and that's you know the criteria is some of the things you wanna go over some of the criteria let's go let's just touch base on this guy so let's give them a resource because at the end of this video we're gonna teach these or tell these guys how they can get a hold of you or they can at least have the basic understanding to look this up on their own pictures I mean we could spend an entire video on the difference between a contractor and the subcontractor yeah so I mean you can google it there will be a list that'll be a pretty good guideline I mean you do have to be careful about trusting your source when you google you know not everything can be trusted a hundred percent IRS gov isn't the easiest to read you can obviously trust that though if you read it there I mean when I got audited yo they went back years on me and then they actually went through every single one of my records she was very very nice very thorough gal and she would cute get on the phone with every single person that I wrote a check out you did she did she called and interviewed them set up face-to-face appointments with them they are thorough this is something you don't want to mess around with I've gotta get this thing right if you hire somebody as a subcontractor they get set their own hours they bring their own tools they set their own rates they invoice you they don't give you hours their own equipment not using your equipment right that's a subdomain if you think of it like an entity you know why do people start an LLC because you want it separate from Stan himself right reliability reasons it's it's kind of the same as a contractor an employee an employee he's gonna be tied to you you're gonna be setting all their work your equipment you know all that whereas the contractor you usually they give you a bid right mm-hmm and then you said yes or no they kind of do the work on their own time I mean there's so many roofing companies right now but that's kind of the basic guide though I try to keep them completely separate you know they do their own thing they're a contractor do their own thing have all their own stuff and if they you work for more than just you that's even better that was another issue that a lot of the subs were only doing their work with you right and using your equipment and you setting the hours were the main the main issues so I see roofing companies siding companies a lot of them bring on subcontracting crews and these are guys that I want them to be aware of if they're just starting out you are going even though even though every time they're Tom Dick and Harry inside of those industries is getting away with it for now eventually time will catch up and when it does it is one cruel son of a duck I'll tell you that right now yeah yes you will all right what other IRS red flags are we looking at that guys I want these guys to have on their radar screen so they're doing it the right way yeah oh that's a great one that you mentioned for for the small guys especially when you start out you know you're like I don't want to have to have an employee I'm just gonna sub them so that's a great point um the other thing I mean you know when you look at your your return you know I always look at it and make sure things make sense you might not be able to do that but that's why I just recommend having somebody do your stuff for you see all of you know for your cost of goods sold you know all things should be certain percentages of girls profit you know if your is your gonna you mark up on your jobs right your girls profit should be positive and then from there your other expenses things we talked about the lower tax should be fine but you know things should be in line if they're not I mean if I'm an IRS auditor and I see well this guy does spends more at his materials and he brings him for money that doesn't make sense either doesn't go oh he's bidding or he's not something right or he's just not bidding the right way and right which could be possible but over time I mean your things have to make sense you know or if one numbers way you know just you want to categorize a little bit it's that you don't just tell them why I had a hundred thousand of income and fifty thousand of miscellaneous expenses that's gonna be a red flag for them or like why are they not keeping any detail you know it should be you know I've got a thousand of office supplies ten thousand oh four pairs and me or you know whatever you got to break that down so they don't knock yourself crazy over you know should this be office supply or tool but you know put a little bit of thought in you know try to separate a little bit the more information you give them the less likely they're gonna have a question and nobody likes to get questions from them right so let's let's go let's do a recap let's do it just a quick summary of what we've talked about so that these guys become male this time the first thing is get yourself an accountant that knows you knows your business and then is I will actually take the time to be proactive and contact you I think so I mean I think I save people a lot of money that way you know we have lists and we whenever there's a deadline which this is a deadline business you know whether it's payroll taxes income that you know corporate deadlines whatever you know we're always reaching out to people trying to 8:00 you're gonna get a penalty you know let's get this taken care of it so which again people need that and maybe not every place does that but I know that's what a lot of people tell me they really appreciate about the relationship is that we remind them of the things and you just do your work and let us do this part for you um so again there's all different ways and everybody works with different people different ways so find the right person for you but you know they should be asking you questions too though it's not just you let me show to you Jeff how can we find you um law tax and financial services we're in Woodbury Minnesota and you can find our website online my email is there wlwt's either under law tax and financial services comm or the abbreviated is Ella's in law he is in tax F is in financial s's and services M as in Mary and as in Nancy comm Jeff at LTFS mmm comm right okay so we've covered a lot of ground this is the time of the year get together with your accountant before the end of the year I mean I had one guy bragging to me how he bought a hundred and seven thousand dollar pay loader after the first of the year but he was able to convince as part of his negotiation person to backdate it to before December 31st and I'm like that's why are you bragging about this that is just something that if you would have been proactive that would have been not a negotiating point you could have dropped him down another 5 or 10 grand and the overall cost of this machine so be proactive get in the office do your tax planning early understand what's deductable if you're going to lease if you're going to buy how much deductions you can make what you can actually deduct what can't be deducted these are all huge points and a large portion of the overall success of any small business owner that's out there I hope this videos helped you guys out is there any last thoughts you have Jeff no I just I think what you're saying is is great points and you know it's just like I wouldn't go out and try they do my own landscaping you got to have somebody to take care of that parts you can focus on what you're good at building your business…