Let Uncle Sam Pay for Your Family and Fasinations
by Drew Miles
Converting Your Ten Largest Expenses
In the section on corporate entities, I covered many of the tax saving benefits
of having your own business. What do you say we apply some of these to your
particular situation? What’s underlying the work we’re going to so in this
section is a key concept: Much of the potential tax savings comes as result of
you converting your personal expenses into deductible business expenses. Many of
these expenses are common place. For example: Your phone, fax, cell phone, and
automobile. Yet some are not so apparent. Often, when working with a new
student, (s) he’ll tell me, “I’m already deducting everything I can”. Or “My
accountant makes sure I get all of the possible deductions.” In my experience,
there is always room for improvement. In fact, in over 25 years of business
experience, I find that most business people and entrepreneurs are pulling from
a list of about 25 –50 business deductions. Often, they push those deductions to
the edge (or beyond) while failing to document them properly. This can leave
them with too few deductions and unpaid taxes plus penalties and interest. Not
an enviable approach. Advisor Diane Kennedy, C.P.A. advises us that there are
300 deductions available to businesses. Part of what we teach our students is
how to use more of those legitimate deductions (i.e. get more bang for the buck
from the 250 deductions you are not using by going “wider, not deeper” into the
list) and how to audit proof your records (a subject we’ll go into detail about
in the next section. So, let’s take some that the typical deductions that the
average entrepreneur and business person is using to his best advantage.
The Home Office Deduction
Those that do take it usually take a percentage of their home. In other words if
your office is 150 sq. ft and your home is $1,500 sq. ft., your using 10% of
your total square footage as office. Assuming you’re mortgage is $1,000 per
month, you take a $100 per moth deduction. There’s nothing inherently wrong with
that, but there may be a better way. Visit a local realtor and ask for a
printout of the available office space in the area and the cost per sq. ft. They
may tell you its going for $18-$22 sq. ft. If you multiply your 150 sq. ft
office by say, $20 /sq. ft – your new deduction is $_________ per month. That’s
a little better. Remember you must use the space exclusively for your office.
We’ll talk about proper documentation in the next section.
Your Corporate Gym
Your corporation can pay for the cost of gym equipment. It could be a bow flex
marching, the “gazelle” running machine, a treadmill, or free weights, etc. If
you’ve already purchased them, reimburse yourself. Here’s an added bonus: If you
set up your corporate gym near your corporate home office (say in the basement
or garage, the additional space can also be deducted. That could be an
additional 300-500 sq. ft. or more of office space.
How About Some Nourishment
Your business can have snacks and refreshments on hand for employees and guests.
Say, for example, you visit the grocery store and spend $100. You could also
pick up $10-$15 worth of refreshments and snacks for your home office. The cost
of cleaning supplies, paper towels and toilet paper, etc. for your home office
is also a business deduction. There is no need to purchase a separate
refrigerator. And make sure you pay for the office portion separately from your
groceries and get a separate receipt.
Supper Money
Suppose its near quitin’ time and the boss comes to your office and says “I need
you to stay late and finish this project. But I tell you what, I’ll buy you
dinner”. The cost of that meal is a business deduction. And you can use it for
your own business, as well. A good rule of thumb is to keep the cost of the meal
between $25 and $30 each time, perhaps 3-4 times a month. This is what I do for
my weekly tele-classes.
Meals and Entertainment
Your business can pay for the reasonable cost of meals and entertainment
incurred in connection with your business. Meals by yourself and meals with your
spouse are not included, but if you take out a colleague (prospect, source of
business, investor, potential investor, etc. and discuss business, the meal is a
business expense. If you and your spouse discuss business with another couple
over a meal, that, too, is deductible. The current limit is 50% of the cost of
the meal. Documentation (which we will cover in the next section, is key).
Business Entertainment at Home
If you entertain others at your home while discussing business, that’s also
deductible. You could do a sales or marketing presentation or make it
educational in nature. There’s no reason you can’t have fun while you work.
Meetings followed by entertainment and vice versa Suppose you and your spouse
have a business meeting with a colleague or prospect. Directly thereafter, you
all decide to play a round of golf, go skiing, see a movie, show, concert or
sporting event, or engage in any other entertainment. The cost of that
entertainment is deductible.
Office Parties or Promotional Events
Suppose you open a new office and invite everyone you can think of to come by
end enjoy some refreshments. Or, if you decide to through a holiday party and
invite your staff andor best customers or clients. The entire cost is
deductible.
Pay for Your Kid’s Wedding and Education (With a Subsidy from Uncle Sam)
Just hire them. Beginning age seven, the U.S. Supreme Court says they are old
enough to provide simple clerical services. (Give theme time card and a list of
responsibilities). Or, you can hire them as models for your marketing materials.
Put their picture in your flyer or website. For the advanced course, put their
salary in a Roth, IRA or Educational IRA. It’s a great way to give your kids a
financial head start in life and its tax deductible!
The Cost of Health (and Wellness) Care
Your company can pay for the cost of health care premiums (for you and the
family), plus your deductibles, co-pays and even things that are not covered by
your medical insurance.
Things like chiropractic, therapeutic massage, dental, eyeglasses and eye
surgery, working with a nutritionist. And, if you get a note from your doctor,
you can even pay for the cost of your swimming pool, sauna or hot tub. The
proper documentation includes a written medical reimbursement plan, which of
course we will cover in the next section.
Your Own Retirement
Part of any good business plan is an exit strategy and for most entrepreneurs,
that means planning for your retirement. Even if you never retire, you want to
keep working because you love it, not because you have to. There are lots of
different retirement plans to choose from: IRA’s Roth IRA’s Self Directed plans,
defined benefit plans, qualified and non-qualified. And the new individual K
plan. You need to seek the assistance of a qualified retirement planner to set
one up (you can contact my office for a referral). Bit for our purposes, use the
tax deductible benefits of this subsidy from Uncle Sam to build your asset
column.
Phone and Cell Phone
These days everyone has a phone and most everyone has a cell phone. Both of
these are legitimate deductions as is your fax line and your modem/DSL line.
Office equipment: Desks, computers phone system, fax, copy machine, etc. All of
these can be deducted by your business and, in a later session, we teach you how
to rent this equipment back to your corporation for a further tax deduction.
Auto Expense
You can deduct not only your car payment or lease payment but also the cost of
gas, oil, repairs, tires and maintenance to the degree that you use the car for
business. So, a simple way to do this is to put all of your expenses on a
separate business credit card. In other words, every time you get gas in your
car, put the cost on your corporate credit card and pay off the entire balance
at the end of the month. Then, you can take the percentage of time you use the
car for business (say its 80% for our example) and 80% is deductible, the other
20% your accountant will attribute to you as salary. There are other, more
advanced ways of taking auto deductions and Drew will cover them during an
upcoming teleclass.
Gifts
There are two ways that your company can give away gifts. The first way is to
individuals, the second way is to a corporation.
a.) If you give the gift to an individual, say, for example around the holidays,
the value of the gift is limited to $25.00. Get a receipt and document the
expense in your tax diary. By the way using a Tax diary is a great way to keep
track all of your business expense and audit proof your records.
b.) If you give a gift to another company (without designating a recipient – for
example, a gift basket of fruit.) there is no limit to the value of the gift.
Education and Seminars
Your corporation can deduct the cost of any education or seminars that you
attend, even if the subject matter is unrelated to your business. This includes
the cost of the seminar itself, and your travel expenses. (Airline ticket, limo
to and from the airport, etc. Remember to properly document the expenses, by
keeping the airline tickets, seminar workbook, etc. NOTE: You may not deduct the
cost of investment seminars, so if you attend a real estate foreclosure seminar,
make sure you attend for education, not investment purposes).
Books and Tapes
Your corporation can deduct the cost of any books or tape reasonably designed to
improve your business ability, product knowledge, marketing experience or
anything else that would be useful to you in business.
Travel Vacations
Every year, you must conduct your annual meeting and you get to pick where in
the continental U.S. you want it to be. So why not pick a beautiful place like
sunny California or the ski slopes of Aspen.
Dependant Care
Today, dependants come in two forms: Kids and Adults (i.e. our parents). Your
corporation can pay approximately $5,200 per year per dependant for their care.
This includes children and our elderly parents that need assistance.
Travel
Special provisions. Here’s a little fun. You can pay the cost of having your
hair and nails done at a salon while you travel. Also, your dry cleaning bill
resulting from a trip is deductible. Just make sure to have the clothes cleaned
within a few days of the trip. Big ticket items: i.e. skis golf clubs, Big
Screen TV, cookware, etc. Each year your corporation can give away two (2) gifts
one for safety and one for longevity (after the company has been in existence
for at least five years) The value can be up to $1,600 per year and must be in
writing and given “in kind”. This means that you can’t give an award of cash.
The award must be something tangible (for example, a set of ski’s cook ware, a
watch, etc.) It’s a great way to pay for that special item you’ve been wanting
and get subsidy from Uncle Sam in the process.
Automobiles (More Advanced)
The IRS allows you to write off equipment purchases over 6,500 lbs in the year
of the purchase. Some large automobiles (i.e. Ford Expedition, Durango’s
Hummers, etc) fall into this weight category. Recently, the limit was raised
from $20,000 to $100,000. So, if you purchase a new Hummer, you can write off
$100,000 off in the current year. And the list continues. Keep in mind you can
also combine items for added impact. For example you can combine business travel
with a seminar and/or a business meeting followed by a show. So be creative and
let Uncle Sam underwrite the cost. Also, don’t forget the importance of
documentation. The difference between a properly documented expenses and an
improperly documented one may be the lose of the deduction plus penalties and
interest.
Bio:
Immediately upon graduating law school and passing the bar exam, Drew Miles
opened his own law practice. From 1988 to 2001, Drew practiced with his partner
under the name Miles and Gillard, where he concentrated in the area of real
estate and business law. During that time, Drew had the privilege of working
with thousands of clients in various aspects of their business and investing
life.
During the course of his twelve years in practice, Drew continued his education
at an accelerated rate. During the past six years, he has invested almost
$100,000 in his “second” formal education process. This process focused
primarily on wealth building and asset protection strategies. He has studied
with such people as Ted Thomas, Anthony Robbins, Robert Kiyosaki, John Burley
and C.W. (Al) Allen. He has also been coached and trained by Choice Performance,
The Internationals Institute of Trading Mastery and the Excellerated Business
Schools.