Write-Off your Home and Your Car!

What if you're convicted for tax evasion? You know, it's now been proven that you have a problem paying taxes. Yeah, I think you should be tax averse at that point that someone says you should pay taxes. Sorry, I've been convicted. I don't, I can't participate. I don't pay taxes anymore.

But this was the joke you heard

ever. Was that the worst joke ever?

I don't think it was the delivery either.

Cory's gonna cut that whole. All right, so when I go. I heard this comedian. Welcome everybody, to this week's episode of the Main street business podcast. My name is Mark Kohler here with the infamous Matt Sorenson here on my left, right. Which side are you on?

I don't know. I'm right down the middle. When it comes to politics, I'm not on the right or left. I'm right down the middle.

Man, you're getting more and more wimpy. Take a stand, for crying out loud, man.

Get a hold of, you know, they're all, they're all wrong. So. But yeah, thank you for introducing me as the infamous and I'm excited to be here. And I'm going to be color commentary today. I love being color commentary on shows because we're talking about the. Well, did you, Were you not expecting that?

Well, no, I thought I was color commentary. But if you're gonna call it gonna

be color commentary, first it's my turn.

True. I'm, I'm more, I'm, I'm more humorous. So you're more fun.

That. That's true.

Okay, so the topic, folks, we're going to be hitting home office and auto. Who doesn't love that topic?

Yeah.

And it's a write offs.

Yeah. Your home office, it's a write off. Everybody has a home office now. It's the cool thing to do. Have an office at your home.

I want to be the cool kid. And, and it's not. I'm going to say this right out of the gate, any of you, they're like, well, my accountant says it's a red flag. Or we have a lot of accountants and professionals that are listeners of our podcast want to welcome you. Thank you. By the way, our workshops this fall are all CE qualified. So if any of you want to come out for six hours or 12 hours for one or two day, get some credit. But anyway, people chill out. You know, don't be Matt Sorenson and take the easy way out. Left side, right side, own it. If you want a home office, take it. Don't Be scared to do it.

Well, when it comes to the home office and the auto deduction, I do take a stand. That's something I'm passionate about. And I'm gonna go run a campaign on those principles.

Okay, Whatever. All right. Now we'll see how you do today. And yeah, this is good. I think everybody out there, if you're an investor with a rental property side hustle, full time business running a rental property for your kids in college, your parents, you're renting one of your homes to your mom or dad, trying to eke out everything you can out of Medicaid, whatever your gig is. Home, office, auto, huge write off period.

Yeah.

So we're gonna nail it today.

Yeah. This is one everybody needs to be doing. And I think it's an audit red flag if you're not doing it. Frankly, I'm like, not just an odd red flag. It's kind of like a. What's wrong with you? Red flag.

Stupidity red flag.

Are you even trying on your taxes? I mean, jeez. You are trying.

All right. And before we jump into the main topic, I have an announcement. It's. It fairly traumatic.

Okay.

I. It's been a big month. First, my last child leaves the house and is off to college. Dropped her off. Big moment. You think you want to be a nest. Empty nester.

Yeah.

And then you kind of walk into the house and nothing's going on. At least the house is clean, you know.

That's a pro.

Yeah, that's. It's a good thing. My wife like looks at me and goes, this is pretty boring. Visit our other daughter in California. I'm out of here. I'm like, okay, fine. Then my oldest son is now. He and his wife are expecting and I'm going to be a grandfather.

Whoa.

Yeah. Before the show, everybody. I'm serious. I just told Matt before the show. So this is.

Wow. Congrats.

Yeah.

That's awesome.

I also got my AARP card the same day. And I curled into a fetal position and it was a hard day, you know, Grandpa, I celebrated by going to Denny's and getting the early bird special. I just thought I'm gonna just own it, you know?

You just gotta own it, you know? But can you do me a favor?

Yeah.

Don't wear Tommy Bahama. Okay.

Is there some clothing restrictions for a while?

There are. I mean, just. Just cause you're a grandpa doesn't mean you gotta stop being cool, you know, you don't have to. You can be cool Grandpa.

Okay.

You know, just don't don't give up. You know, it's all right.

This wasn't the advice I got at the breakfast bar at Denny's. I saddled up next to a couple farmers, and they were telling me how it really works, and I was like, really? Is this what I'm looking forward to? But anyway, you thought the grand slam was a good deal. Try the senior menu. Grand slam. I mean, they're giving my food.

Yeah, yeah. Do they do the. Can you get the eggs over my hammy on the senior menu? I'll let you know my favorite item there.

All right, let's get into our topic. Okay. Let's hit a softball first. Okay. Home office. Do I need to go to the most impressive movie on accountants this century? The Accountant with Ben Affleck? We're in the first scene or Sue? Second scene. First five minutes. Ten minutes. Ben Affleck throws down the home office deduction in the office with this elderly couple. And he quoted it. Nailed it. Their screenwriters were right on it. Any feedback on that? Color commentary?

Yeah. I mean, if Ben Affleck. If Ben Affleck is. Can figure this out. I mean, anybody can. That's right. I mean, you know, he's got some J Law. You gotta give him more credit now. I guess. But, yeah. And I think his point in the movie was. Wait, you. You do what? Right. Didn't she have, like, some crafting business or something?

Little.

Little thing, and it's like, wait, that's a small business. Because I think this is important for a number of reasons. One, a lot of people don't think what they have is a small business, so they don't take the home office deduction. I'll give you three examples.

Wow.

One. Yeah, three examples.

I didn't know commentary came with three. Three examples.

This color commentator just actually played the game a little bit, too, you know.

Yeah. You're coming off the bench here. Mr. Sorensen delivers. Okay, three. Three examples I want to hear.

Well, there's the first one. We have the Ben Affleck, the person that does side hustle. Okay. That's a small business. Okay, you can take a home office deduction. Second one. Rental property investor. Okay? You got rental properties. That's a small business. You can take a home office deduction. Third one. This is one. A lot of people that have a business with a location think, oh, I can't take a home office deduction. Like, I'll just take me, for example. Okay? I have an office. I'm in the office here. Okay? The business pays for this. Office and expenses, it does that mean I can't have a home office? No, I do other activities outside of this company that like my book or my speaking and a lot of other things that I have income from that I can take a home office deduction for because I do those activities from the home office. So a lot of people are in these different categories here. But we still want to look for the home office deduction. Even again, if you're like, well, I got the office location, doesn't that disqualify me for those activities you do there? But if you have other business activities and income, you can be looking to possibly do a home office deduction for those ventures.

Yeah, and I want to get into a couple technical points here because we've got to address the naysayers who will typically say, well, if it's not your exclusive place of doing business, and it's not, sorry, your primary place of doing business or space exclusively dedicated to your business, the IRS is going to shoot it down. And so I actually am just pulling up my article on this because I really, I thought did a good job just okay, breaking it down. So, so if any of you want to dive into some of these details, markjkler.com and in the blog section just type home office and great article and you can just Google Kohler home office too. Now here's the part that I like want to point out before we talk about how to write it off in the dollar amount. Here's where things have gotten more flexible. If I may. This regular and exclusive use this one is still kind of a pain. What you're saying is this space is specifically dedicated to my business and so I'm going to use this area for nothing else but my small business. Now in the movie, accountant Ben Affleck takes a little, takes few liberties because he calls the kid, I think she made these crafts and what did she say? The dining room or. Yeah, somewhere like that. And he says, you mean the home office. And it was kind of fun. But really you do need to find a dedicated space that you can say this 10 square feet or this 5 square feet or 50 square feet. Now one of the fun cases on this, there's multiple cases on this for those that are want to look, you know, can't sleep tonight, want to look up IRS cases, is that people claim the home office by literally just having a pull down desk. That desk is my home office. I pull it down, there's my office. I don't use it for anything else. And you may go, well that's only six square feet. It's not that you. The write off itself for that space is going to be significant sometimes is that. Now you've established a home office which justifies the auto deduction when you're running errands, when you're out visiting clients. So the home office can be the gateway drug to the auto deduction. See people, you want to say, oh, I'm running errands from where? Where's your office? Well, you don't even write off an office. How can you be. Where are you going from? Well, I'm going from my home office to my rental property. Okay. That's put home office on your tax return. Well, it's only a 4 or $500 write off because it's such a small space. It's a studio apartment. It's an urban. In the. That's. Okay, let's establish that place. So that's rule number one, everybody. Don't stress about it. Just say this square footage, whether it's large or small, could be a space in the garage, could be a shed. You good with that?

Yeah, I like that. I didn't know that that was a good tip, man. You're so smart.

Oh, thank you, man. Now, so square footage will come back into play, but the first thing is don't fret. You know, it's a big word for some people. Don't fret, don't stress. The word that I hate, which makes me want to punch a kid in the face, is when they say chillax. If someone tells me to chillax one more time in, you know, at Starbucks, gonna throw out on some Krav moves. I'm not kidding.

Yeah, they give you.

Okay, that's not a word I like. Do not tell me to chillax. Okay.

But anyway, good to know.

Don't stress, don't fret. Nail down that space. Okay, you ready for rule number two?

Okay, rule number two? Yeah.

Then I'll shut up. Okay. Then you can color commentate away. Is the principal place of doing business. Now, here's where we've got another. What do you call it? Peace offering from the irs. Or I should say a win in the tax court. Is the second rule that many of us for the last 30 years have had to deal with is, okay, so you've got this space in your home that's specifically dedicated to home office. Fair enough. That's rule number one. Now you got to satisfy rule number two, and that is that this place that you're calling your home office is your principal place. Of doing business. So if you're a doctor and you've got a doctor's office, then there's no way you can have a home office because it's not your principal place of doing business. If you're a realtor, if you're a, I don't know, restaurant owner, whatever, a lawyer, accountant, anybody that has an office away from home, the accountant would usually shoot them down. Well, in the last five to seven years, there's been a number of cases that have established what's called the administrative office exception. Now I love this because what it says is, well, and there was a doctor up in the northeast that took the IRS to court and said, you know what, I'm going to fight this on the principle of the matter alone. And he did a favor.

Was this doctor a dentist?

No, he was a doctor. I know a dentist would be typical. This is typically a dentist move. Now we're not going to get into anti dental jokes because I'm not a dentist. You're only allowed to.

Not an antident.

Yeah, antident. That's a Seinfeld reference for some of you. Okay? Now in this case, a doctor says, whoa, whoa, whoa, this is ridiculous. I go home at night, I review charts, I return emails, I make phone calls, I freaking have a home office. And he took the IRS to court. And the court said, and the district court said, you know what, you're right, you win. Big landmark case in this area. So what it means is as long as you're performing administrative duties, it does not need to be your principal place of business. And what I also tell people, last note, Matt, and I'll shut up here is let's think of that dentist, doctor, realtor or whatever. Well, yeah, okay, so your principal place of doing business is on 101 Main Street, America. But you go home and you have a home office for your rental property, which goes back to Matt's point that you may have a home office opportunity for a write off that's not even related to your main business. And that's okay as well as well, because as long as I get the home office, I don't care where I put it. Schedule C, Schedule E, 1120s. I'm going to take your home office somewhere and I'm going to bury it. I mean, I'm going to legitimately write it off and hide. I mean, I gosh, do we have to edit that out? I don't think we're going to put it on your tax return in an indiscriminate spot.

Yeah, but legit following the rules that the IRS requires.

That's right.

So, yeah. And okay, now what are this new simple method though that you can use? Because like, well, how do I, how do I determine how much I'm going to get? Because it's not just like, like, what does that home office worth? I don't not pay myself rent.

Well, that's round two. Round two is how much can I deduct? But round one, you want to say, okay, can I even play in the game? Can I enter the ring?

You're not ready for round two, are you?

I can be. Okay. I'm just trying to create some framework here for our listeners. Okay. I want to make sure our listeners are having a good experience. All right? Okay.

So you can take it if it's an exclusive spot set aside in your home. Rule one, rule two, you can take it if this is as long as you don't have a primary place of business or principal place of business. Or if you do, you could use it, take this administrative exception if you are doing things at home that are, you know, is obviously work related. So. Or you can just say, hey, I've got the rental property. Just, I'm just going to claim the home office deduction there. I don't have an office for my rental real estate, although I may have a smile day job. Small business with an actual physical office.

Yeah. Okay. Now I love it and I want to throw this out too, before we get to the dollar amount. And we're going to save plenty of time for auto here, everybody, which is incredible. The auto deduction is the best it's ever been. So that'll be kind of the, the highlight of the show as well, I think is because everybody should be taking auto and it's a much bigger dollar amount is S Corporations. Some of you may have an S Corporation where you're doing the salary draw split, something Matt and I have talked about prolifically, which means a lot.

Is that what that means?

Okay, well, I help you out today, Matt. I know, man.

You and all your words of the day. I don't know, your vocabulary is going up. I mean, I don't know if that ARP membership or this grandpa status is just kind of taking another level, but,

you know, I don't appreciate that, but

got some new vitamins or something or.

Okay, all right, so S Corporations, you may say, well, can an S Corp take a home office? And technically there is no line on an S Corporation tax return. This says home office. Because a corporation can't have a home. It's a corporation, it's not a person. So what?

We have a rent line.

Yeah, rent line. So, Matt, there you go. So there is the loophole. A valid loophole. That's what we love. We love loopholes that are legit. And what we're going to do is do a reimbursement to ourselves as the owner of the S Corp, take a rent deduction and give ourselves a tax free rental reimbursement of our home. Now, we don't, we don't want to go fair market value and create a rental property in our home. That's a whole other ball game. What we want to do is a reimbursement of what the costs are of us sharing our home with our S Corp. And that's okay. That's a reimbursement. It's not a rental property. So that's a little. Again, a little nuance. Now if your accountant, you look at your accountant and go, hey, I want to do a rental reimbursement for my S corp to myself. Or to take the rental property deduction and do it under the administrative office, you know, blah, blah, blah. And all of a sudden your accountant looks like a deer in headlights and someone slapped him around with a wet noodle and they're like, I don't know what even you're talking about. You got the wrong accountant. And that's what's exciting. People, I am so proud of you for watching this on YouTube or listening to us on this podcast because you are empowering yourself. You are the captain of your ship. And if you look at your tax return and you don't see a home office deduction, you should be going nuts. You should be like, what the hell's going on here? Yeah.

And I think that, I mean, sorry, there goes our PG rating. By the way, you had to drop the H word. You had to drop it. You just had to do it.

You think hell's going to get us in the. In the.

Oh, now two of them. You can only. We're going to go away with one now. You just did it to word explicit. It's like you can do one F word and still be PG13, but two are.

Who says you're really the author? You know what? I want a memo on my desk tomorrow. Corey, this is our producer who's amazing. We love Corey, by the way. By the way, ladies, he's single. Corey, I want a memo. See, when you own a business, it's exciting to look at your good people that you compliment and love. I'm not Cory. Right. I'm respectful, but I'm gonna say I want a memo. And then I'll say I want to know what words are gonna make our show E rated. Because I don't want to play that game. I want to be family friendly.

I don't either. I don't either. And I think some people get a little too much expectation when they see a tax and legal podcast that puts an explicit rating. They', Whoa, what are these guys talking about? And then they come in, they're severely disappointed.

Yeah, yeah.

Maybe about saving money.

What? Maybe we, maybe it should play. Maybe we should go for the E rating.

Maybe we should.

Okay.

Some movies like to be R. What's the Disney rule? No bad words.

No bad words. That's what I'm asking the memo for. Do we, you know, gosh, jeez. No one gets. Okay, okay. Now we need to talk them out. Okay, so we got the simplified and the traditional or standard. You want to break it down? Okay, go ahead.

Yeah, well, this, the simplified is somewhat new. Maybe the last five or six years. You can do this simplified method. And this is one where you get to take just a set amount up to a total of 300 square feet at $5 a square foot. Now what that home office is taking into account is taking into account a lot of expenses you have on your home. Utilities, Internet, you know, just the use of the property like this is taking into account. Oh, you have all this much expense built in to using this space within your home in your business. So we're going to let you take an expense for that rather than make you have to calculate it and determine it. They're just like, you know what, five bucks a square foot, 300 square feet. 1500 bucks. Go knock yourself out.

Slam a jammer. Now, yeah, some, you may go 1500 bucks. But let's put that in perspective. Let's say you're in a 30% tax bracket, maybe 20 Fed 10 state. Some of you that have that little side gig, a bigger W2, you could be pushing over 30%. Well, look it. By just listening to our podcast, let me add value to your life today by listening to our podcast. You just got a fifteen hundred dollar write off. That's, that's your basic simplified method. The IRS could. They're not going to chase you down for a 1500 dollars write off. Let's make sure you qualify. Take it. Boom. 1500 bucks. Well, if you're in a 30% effective bracket, you just save 500 bucks in taxes. You're welcome.

Yeah, yeah, you're welcome. And you can do that every year? Yeah, right. That's like every year. Yeah, it adds up.

You can address your thank yous with check for whatever amount you feel free is reasonable.

Most lawyers would take one third, you know, and there's no fee unless you win and get 500 bucks in a deduction. So no fee unless you win.

We're not. One third.

Yeah, yeah.

Just a little something for that little tidbit that just saved you $500. Now, here's what's cool. Let's get a few of the little low hanging fruit here. Some people go, well, I've got three businesses in my home, so I get 1500 each. Nope, you have one home office. Take the 1500. That's it. You can't triple or double down. Now what you could do if you have three small businesses is take 500 in each business. Furthering the disguising. I don't know what we're used.

Furthering the strategizing.

Strategizing better.

Structuring.

Yeah. There's got to be a good metaphor here that you don't want to draw attention to yourself. Like what you think of a good metaphor. Like you want to do something, but you don't want to draw attention to yourself. It's like speeding. You're going to speed. Just don't do it in a red car. Right. Something like that. Right.

Don't bring it because it's not. It's not speeding. It's, you know, it's within the law.

Well, I've heard red cars get more speeding tickets than regular cars. Have you heard that?

Well, but they're also speeding. You get the point.

I'm saying you're the side of the road. He sees a red car go by and a blue car go by. Same over the speed limit. Profiling. Red car profiling. It's real. They're going to pull over the red car. Okay, I'm just saving you some speeding tickets, too. Look at this. Show's about saving money. Okay, now don't triple down.

Everybody stick to the tax advice, not to the car color.

There was another good one I had on Home Office. Remember, Home Office doesn't include the computer furniture supplied. We want to write off all the printers, the copiers, the fax machine. Corey, do you know what a fax machine is? I do. You saw that,

say in a movie or two maybe?

Cory, he was at the Smithsonian National. I haven't seen a fax machine in years. So.

Okay, I saw this meme, by the way, I'll Tell a joke. I saw this meme of a lady saying, oh, what's your number? I'll fax it to you. And then it's a guy on the phone and they're calling back. He's like, I'm sorry, where I live, we don't have fax machines. We don't have a fax machine. It's like, oh, where do you live? I live in 2021. Susan.

Yes. Life moves on. Okay. Yeah, the IRS has a fax machine, I'll tell you that. I use that one all the time. I got the number memorized. I'm not kidding. Okay. And they haven't changed their on hold music in 15 years. It's enough to kill you. Okay? Now, the traditional method for home office is what Matt said. Now I have clients that have more expensive home. They have higher property taxes. Maybe they're using a good portion of the basement, the garage. They're storing material on site. They have a little salon in the back. So you could have a more robust home office that exceeds 300 square feet by far. And that's when you want to go with the traditional method. So you take your square footage, you multiply it by the mortgage interest on your home. If you're a renter, that's fine. You don't have to own a home. To do the home office, you're going to take a portion of landscaping and utilities and mortgage interest and property taxes. And I would say on the high end, the clients that go the traditional method, unless they've got a little warehouse or garage that's using a lot of storage, I'd say you're going to hit 4 or 500amonth. Well, that's a 5, $6,000 deduction for the year. And that's a good thing. Now you have what's called depreciation recapture. If you go to sell your home, there's a depreciation factor that's in the traditional method, and you're supposed to recapture it. There's for those that owned it.

Yeah. If you rent, then you don't have to worry about it. And also in the simplified method, you don't have to worry about the depreciation.

You don't have to worry about it either.

They let you give you a pass

on right now with all of our joking around, because we're trying to make this podcast palatable, everybody. So we appreciate your patience. No one wants to talk. If you tell your friends, yeah, I listen to a podcast on the home office. Right off they're gonna go, what Are you nuts? You know, these guys made it somewhat enjoyable. This old fart grandpa guy and this young dapper looking Phoenix bachelor. You know, it's. We're quite the pair. I know. Now I know you've got a steady. I don't want to say. Yeah, I've got.

I've got a man relationship.

Are you, Are you officially engaged? Can we say that?

No, no, no, no, no.

Okay.

All right.

So she should not listen to the show. Okay, I will.

Yeah. Corey, she, she. She gives up on the show. Okay.

She gave up. Okay, now.

Okay, now let's deal with that.

Now. Here's the transition. Yeah, here's the transition. As we go to auto, having a home office opens up the door for a lot of mileage from your home to the airport for trips to check on property, to go to Staples, to go to the Apple store, to go to Best Buy, to go to Home Depot. So we want that home office as a starting point for the, for the auto deduction. So that's, that's why we want to do these. Show this show together, because it's a really powerful combo. Now we go to auto. Matt, I'm gonna let you choose auto. What do you want to talk about on auto first? And everybody should be doing this.

I think the auto is the same in the terms of. There's kind of two columns. Like, the home office is like, all right, there's two different ways you can do it. We'll give you the simplified method. How much square foot did you use? Here's what you multiply it by. That's what you get. Or do you want to track all the expenses you have? And maybe you can get more if you have a lot of higher expenses and you can take what's called the actual method. So when we get to auto, it's a similar thing of mileage. How much miles did I have? And you tick per mile. Then you also have.

Or.

No, I'd rather just take an actual expense of all the expenses on the car if I'm leasing it. The leasing cost, the oil change, you know, all that, the gas. Like, so you get these different columns that you get. You choose between. So that's the big picture on.

You know what? I've never explained it the way that way. Matt, and I want to compliment you on your tax prowess. That means I've been, I've been.

I've been in a lot of podcasts with Mark J. Kohler, so. Yeah, yeah.

Something to, I don't know, brag about. Okay, Now I'm Going to go to the handy dandy mark J. Kohler 2021 Monthly Calendar. Now this will go on sale in about three months for 2022. And I'm constantly improving this, this is goes with me everywhere I go. And right here on the second page we have the tax resource guide. So I'm going to refer to that. And let me tell everybody your mileage for 2021. Business mileage is $0.56. Medical and moving is $0.16amile, charitable is 14. So if you're going like Matt said that first, kind of the easy down and dirty method, you're going to want to try to keep the best mileage record you can. There's a lot of great apps out there for you engineers out there. You're going to love a GPS app to track every frickin mile. The rest of us, we're going to just write it on a napkin and throw it in the glove box and have some sort of record that sounds reasonable. I always recommend to clients, don't go 100% business miles. Everybody knows you're going to go to the movie or grocery store on occasion. Don't get greedy. Pigs get fat, hogs get slaughtered. But the beauty is you can have three vehicles in your family. You know, a spouse's vehicle, one of the kids, maybe a truck, work truck, and then your sports car. You can look at the mileage on each one of your vehicles and just say here, now what accountants are going to want to know is what was the starting mileage for the year, the ending mileage for the year and tell us a reasonable mileage amount on each vehicle for business and that and you're off to the races.

Yeah, yeah. And I think for real estate clients, this is one where you're going to see a large deduction. Obviously, like a real estate agent or broker is going to be traveling to a lot of properties, showing properties. I mean, you're on the road a lot, you better be expensing. Now, when you're going to your primary office, let's say you actually have an office location. Those are commuting miles. All right, Those are not miles. Even though if it's from the home office, let's say that you may take down to your other office or your broker's office, let's say just use the agent as an example, you don't expense that. But oh, I'm going to a meeting. Okay, that's now we're talking business miles. I'm meeting a client, I'm checking on a property. Yep, those are Business models.

I like Matt's distinction here, everyone. Because I don't want you to get confused, get a little greedy with what I said earlier. When you have a home office, we can start tracking miles leaving the home for any business purpose. But if you do have a primary business location, those are still going to be commuting. So you say, well, what's the give then? Why, why do I care? Well, you're still going from your home, like Matt said, to a meeting, to Best Buy, to Home Depot, to a rental property, to all these other places that you might need to go throughout the day. Now become a mileage deduction on top of anywhere you would have left the primary office to go to. So it opens up a lot of doors and you start adding that up, this could be several thousand dollars in write offs. You're welcome.

Yeah, absolutely. And I think we see a lot of different clients that I just, over the years, you know, let's say like the doctor that goes to multiple surgery centers and a few different hospitals, none of those are our primary place, but they do have to get around a little bit to perform their services. And those are going to be, of course, business deductible. Miles.

You know, on that note, it's kind of funny. Doctors, two points. First, a lot of people over the years have been very complimentary and they say, man, you and Matt so smart. All what you do in tax and legal and you know, you do it long enough, you be you. It's the 10,000 hour rule that some have quoted. You get good at it. And I'm grateful for that. But it's not like I'm doing eye surgery or open heart surgery. If I screw up a tax return, yeah, I might owe a client some penalties or interest, heaven forbid. Very, very rare. But I mean, it's generally fixable. But I was talking to a friend of mine that's an eye doctor and he's so nonchalant about it. I'm like, man, if I went to work in the morning and I wasn't. A tax return is technical. But working on an eyeball and I screw it up. I sneeze during the surgery and a junior mint flies in the surgery area. And I just, I don't know. And it was funny. I called a doctor client the other day because I was trying to gather some info for an LLC and I needed a social. And I call him up and I'm like, hey, what's going on? And he goes, I got you on Bluetooth and I'm in surgery. I'm like, you're in surgery right now, and you answered my call. He's like, yeah, it's no big deal. It's kind of like. It's like your corner doing an autopsy. Hey, bring me a burger, you know? Yeah. Like, dude, do not pick up my

call when you're medium rare. That's good.

Yeah. He's like, yeah. And I wanted to talk about my llc. Dude, you've got your hand in someone's chest right now. Just go ahead and fish what you're doing. Call me later. Okay?

Call back. Geez. You know, when Mark Kohler calls, people answer. That's just.

Well, you know, maybe I should have taken that as a compliment. I would. I was. Yeah. Okay, now, mileage, everybody. Bare minimum, you're taking it. There's no way around it.

Okay? Yeah.

And I want you thinking about it with rentals and everything. All right?

Now, did you say this? It's $0.56 for 20, 21.

Mm.

Those of you still doing your 2020 return, you know, maybe you're on extension here. You're at 57.5 cents a mile. It went down because gas prices did go down temporarily. They're back up, but whatever. So it's usually that will fluctuate every year, how much cents you get per mile. But think about it. You drive a thousand miles. That's a $560 deduction. That's awesome. You drove 10,000 miles. Some of you real estate clients that are out and about quite a bit. I mean, that's a $5,600 deduction.

Yeah.

Now, I will say. Let me give a. Can I give an example of people who should do actual, though?

Yeah, yeah. And let's get into the actual number. I'm pulling up some data here so I can give you some concrete figures on the actual ideas, but you give us an example.

Okay. Like, I. If you're. If you've got a cheaper car and you drive high miles, mileage is a great deal. 56 cents a mile, like I said, for a thousand miles, you drive to 500 or $560 deduction. Okay. You have 10,000 business miles that you're 5,600 bucks.

Pretty sweet.

Let's say that you drive low miles, though. Then you're like, you know what? I drive, like, 3,000 miles a year for business, but I have a very expensive car, and maybe it's even a lease. It's a thousand bucks a month, and I use it for business. I want to look good in my business meetings or whatever. I'm going to. Whatever reason, I don't know, you know. Yeah, whatever reason you did that. Okay, well, if you're paying a thousand bucks a month, let's say it's a 12,000 in expense and you use that car 90% of the time for business, you know you're gonna get 90% of that $12,000 deduction, which is around 10,000 bucks. So that's gonna be better than, oh, I only drove, you know, a few thousand miles. At 56 cents, I would have been a fifteen hundred dollar deduction.

So.

But you have to have low use of it. If you, if you don't have a lot of miles, you know, the actual just doesn't. Excuse me. If you have high use of it, the mileage is going to end up coming to beat it out. Does that make sense?

Yeah, yeah, it does. In fact, down on the show notes Corey, will you please make sure this happens too? After you get done with that memo, will you make sure that there's a link to my auto deduction article? Every January, I try to write an auto deduction article. Thanks, Corey. That goes through all the rules for the year, what to expect. And I have seven rules of thumb and Matt gave you two of them. High miles, cheap car, low miles, expensive car. Those are pretty clear cut. Go mileage or go actual. But there's another, there's a lot of other variables in there. And so when you get to that article, you'll see, oh well, I fit more in variable number four. But then you may have a different car in your household that uses a different rule of thumb. So you can, again, you can choose actual for one vehicle and mileage for another. And keep in mind, once you choose a method for a car, you're pretty much stuck with that method until you sell that car. So you want to be thinking, how long am I going to hold this vehicle? What is going to be my usage pattern for the next two to three years? And be really cautious with that. Now let's go through some numbers. The old rule for auto was crappy. Now, hate Trump, Love Trump. Hate Biden. Love Biden. Let's take politics off the table. In fact, this week Biden's coming out with his infrastructure bill, Matt. And I'm going to be diving into that and doing a special podcast on it as well.

But the house passed last night. Pieces of it. But it's still a mess and no one knows what the heck it is. So, yeah, guess we'll find out. We'll be on the case next.

We're on the case. We got your back, people. Okay, now, now why bring up the politics of it is you have to embrace as a business owner whatever you're given, you know, and, and even in spite, you may say, I don't like Trump or I don't like Biden, always take the time and try to keep emotions out of it to say, hey, what is in this package that I can really take advantage of? And so Trump and the GOP in his first two years passed the Tax Cuts and Jobs Act. And one of the just landmark changes they made was we need to improve the auto deduction because it hasn't been improved since like 1978. I mean, it was terrible. And so people would typically with their auto. And I put this in my articles and workshops for years, the last 15 years. I'd say if you got an auto, you're never going to go actual. The write off sucks. Just go mileage. But you had to be in that SUV or truck world. And a lot of people are like, I don't want to drive an SUV or a truck. I got lower gas mileage. They're bigger, they're tougher to park and other people love them, whatever. But auto mileage, you're pretty much, I'm sorry, in the auto world, you're pretty much in mileage. Well, in my workshops this fall, I would highly recommend you look at these, please. There's Dallas, Chicago, Orange County, Honolulu, and a virtual event. I go to those locations for you folks so that you can have a live experience interacting with others and get a great tax write off driving to the event with your auto. Oh, okay. Now, in the event I usually go, I've got slides for you and I'll go into more detail. But just to hit a couple of highlights. In 2017, before the passage of this new law, which is still in effect, if I bought a $40,000 car and I tried to take the actual method and drove it 100% for business, which again is fairly rare, usually we're going to put our clients at 90, 95 at best. Your maximum depreciation over the first five years would be only $15,000. $15,060 to fully depreciate the car. Matt, it would have taken you over 19 years. That's how pathetic the old law was.

Now, that car that's, I mean, maybe a Honda Civic or a Toyota Camry would have made it that far,

but

you wouldn't have owned it that long.

No Wiona riders, Gremlin in Stranger Things never would have made it. Okay, now under the new so called luxury automobile limits and bonus depreciation. I'm just going to cut to the chase here. You can write off up to 18,000 in the first year and that's under the 2020 rules. 2021 is even higher. But point being this 18,000 plus write off can be under an auto. Not. You don't have to have this 6,000 pound tank driving down the road and some call the urban assault vehicle. So bonus is a big deal. So under the same vehicle bought in 2018 and up to this year in 2021 as well, that first three years, I could take 43. Okay. This is on a $58,000 vehicle and the $40,000 vehicle in the first three years, we would be at about $35,000 in depreciation.

I mean, so like almost fully depreciated, almost fully written off in three years.

Now when would you want to do that? When I have high mileage or low mileage.

I'd want to do that on low mileage.

Boom, there you go. So people, that's easy to think about. Who, who this hits are Hawaii clients. They're on an island. Okay, let me repeat that. They're on an island. They don't put on a lot of miles.

Yeah. And so they're in traffic. If they're on Oahu or.

Oh my gosh.

And it might take an hour to get somewhere, but there ain't a lot of miles clocking in on that.

No.

In cars you are in like SoCal like that, where it's like, oh, it's only 10 miles away. I'll be there in an hour.

Yeah. You know, so autos have gotten.

So those of you in those places, seriously, that's, that's.

You don't want.

The mileage isn't going to be that awesome for you. No.

And it's, it's interesting. You go to, you, you go into the western states where there's a lot more distance to cover between cities and airports and where you might be going to check on rentals. Nine times out of 10, the client's going to look real hard at mileage and they don't want to put a lot of miles on their more expensive cars. So they have an expensive car at home for the client lunches, the client dinners. We go actual. And then they got the commuter car, not really commuting, but the high mileage car that I'm going to use in my business to just freaking burn miles. So. All right. Okay.

All right. I liked how you cut to the car chase there at the end. By the way, you could use that one in your next podcast on mileage.

Oh, well, thank you.

You said cut to the chase. I mean, my timing's a little late here on that little tidbit, but, Matt, one would say you cut to the car chase there.

Oh, you know, it's the little things, man. You know, people appreciate.

I told you I was doing color commentary.

Yeah, you're doing a great job.

I didn't say it would be good.

I think you're doing fine. All right, now, SUVs and trucks and a close third are RVs. Once your vehicle weighs more than 6000 pounds. Oh, my gosh. It was like we're in a whole new world. It even gets better because under the bonus depreciation rules, you can write off the entire vehicle up to its business use percentage. So if I have a $50,000 vehicle, new or used, with a loan or without a loan, bought it on December 31 or March earlier in the year, doesn't matter. What is my business use percentage? So If I'm at 90% business use, then I would say, okay, that means I'm at $45,000 a business vehicle. I'd say 10% of 50,000 is 5. Subtract that. I've got 90% business use, so I can write off $45,000 worth of vehicle, plus fuel, repairs, maintenance, tire change, everything Matt was talking about. Good stuff.

Yeah.

Holy crap. $45,000 like that. And so the SUV, you no longer have this truck versus SUV crap. If it's over 6,000 pounds, we're in the money. And so this was, of course, to help stimulate the auto industry, which it's done. The steel industry, all these China tariffs and a lot. And, you know, this is, again, not trying to get. Go down a political rabbit hole, but this fight that Trump had with China and some of these tax incentives were all coordinated to increase the economy in the US and help the small business owner. And in large part, it has. It really has. Okay, Matt, any thoughts on that? I mean, just.

Yeah. One other thing that's important to know is interest on the loan of your car. So obviously you're going to take that into account on actual, but also on mileage. That's the one expense on mileage that comes on top of the mileage. So when you do mileage, you don't need to track anything else. Don't worry about tracking your gas, don't worry about your insur. Insurance or your repairs and maintenance. It's all factored into just the mileage, 56 cents a mile. But the interest on your loan, if you bought the car with the loan is not factored in. You get to add that on top.

I love it.

Another little one. Make sure you're tracking that and claiming that one.

Yeah. Another little nuance to keep in mind. And these are all these little questions we'll take in an open forum. By the way, if you're new to the show, every three weeks we do an open forum and field your questions. Think you'll enjoy it. Please go listen to some of those older ones. You'll find out that all the small business owners around the country are having similar concerns and questions that you have. And they're trying to get a straight answer from their lawyer and accountant and trying to fill that void. So.

That's right.

Yeah. So now it's free.

It's free.

It's free. Okay. Now, another interesting factoid is what about rental cars? So keep that outside of this conversation. That would be a travel expense. So if I drive to the airport for a trip, the auto deduction is what I'm going to take to get to the airport. Then I'm going to take the travel deduction for the parking at the airport. I'm going to take the dining deduction inside the airport, which is now 100% write off. Then I'm going to get on the plane, 100% write off. I'm going to travel somewhere for a business conference. Chicago, Dallas, October 2nd. And I'm gonna go there to this amazing business conference and get a tax write off for my airfare. And then I'm gonna get a rental car because I want to go to BUC EE's and go out and have the full experience. So I'm gonna drive around Texas, check it out. And the rental car, you're not gonna think about mileage because it's a rental car. You're gonna just take actual. What was the rental rate, the insurance thing they try to hit you with on the way out the door. And the gas for your rental car. So keep your rental car and the travel line. Your hotel is going to be 100%. All your food at BUC EE's is generally going to be 100%. Any prepared food, anything off the shelf is 50%. Anything prepared under the new law is 100%. Then you're going to get back on the plane 100%.

Boom.

Dude, is that just magic?

I love that. See? Yeah, it's just like, you know, you're playing a little horn section, little strings. They Just brought it all together, the whole orchestra of tax deductions. And you just made it. You turned it into a masterpiece.

And why don't you drive us home?

Well, if you've liked this show, if you are still listening to this show, go give us a five star review already. All right? It does help other people find the show and it makes us feel warm and fuzzy inside or thumbs up or kudos or whatever system you're listening to it on. Just give it a. And also get to mainstreetbusiness.com we have a newsletter you can sign up for there that goes out weekly. We've got articles like the article Mark just talked about that we share. We've always got new content, other quick videos on tips. You can get to that. That'll just get straight to the point on a. On an issue you want to dive into. I mean, Mark and I have hundreds of hundreds of videos. I don't know, say thousands.

Hundreds, yeah.

On retirement, asset protection, tax planning, choosing the right entity for your business, building wealth, all that stuff that we're really about here on the show.

Well, everybody, I hope you haven't left yet because I've got to help Matt a little bit. Okay? Okay. Now, if you're doing color commentary on a show like this, could I just. I was waiting for some of these. When I said drive us home, did you get that? Did you miss that?

That one flew right by me.

Oh, my gosh. Okay. All right. Yeah, no, you would say that one just sped right by me. See, this is just a color. So here's another one. Don't be in the passenger seat. People drive your tax return. You are the driver of the car.

Yeah.

You got one.

Yeah. And does anybody, you know, and if it's got a little Talladega Nights quote coming, you know, I'm a driver's wife. I'm a driver's wife. I can't be married to you. You're not a driver anymore. I'm a driver's wife. You know, guys, you want to be a driver?

Okay.

You want to be in the driver's seat. All right? Like Ricky Bobby until he went crazy and his wife left him for what was the other guy, The Magic Man.

Yeah. You went with Magic man at the end. Bobby and Magic man.

So. Because she's a driver's wife, you know. Yeah, but get in the driver's seat on your tax return. But I think the important thing I'll just say on. On a serious note is. And I hope that's why everybody's listening here today is.

They're not.

They're not anymore.

They're not.

They're gone.

Yeah.

Mom, if you're still listening. Yeah.

Happy Mother's Day. Yeah.

The clients who saved the most, who keep more money in their pocket are the ones that are active in their tax planning and the coordination and remembering what the heck you did. Okay? Like, your number one expense as a business owner is taxes. Okay? If you're having any success, that will be your number one expense. So, and these little things, it could be 10 to 20 strategies you're doing. All those add up at the end of the day to be hundreds of thousands of dollars, millions depending on the size of your business. So take it seriously. You can't just rely on your professional and think they're going to pull some wizard wizardry out when you send them your information. Like, you got to know, just get engaged.

Get the driver's side and I'm going to wrap up.

Get on the bus.

Love it. And I'm going to wrap up two or three here because you're just letting me down here. So get out of the passing lane. Get into the fast lane, people. Okay? Go into turbo with your tax return because you got the power. Put premium gas into your tax return.

You know, is that a Hemi in your tax return?

There you go. That a Hemi? It wasn't that hard. See, I appreciate that. That's what a good color commentary guy does. He reaches. Reaches deep. Reaches deep. All right, thanks, everybody for listening. We love to have fun here and we sure appreciate you listening. Try to ham it up, but get engaged on these write offs. They're legit and they're going to save you thousands. So see you next week on the Main Street Business Podcast.