6 Tax Tricks You Need to Know as a Home Service Business

Welcome back to the Mike Andes Podcast where we discuss ins and outs of owning a small business. If you're new here, the Mike Andes Podcast is all about taking your business to the next level. Mike has a show for us about six really essential things that you need to know if you're a home service business, specifically about taxes. And what better time to talk about this subject than in the middle of tax season? As always, you can find Aldous and more words at Mikey's YouTube channel. But let's get into it. This is how to pay no taxes as a contractor business.

Today I'm gonna talk about six of the most common misconceptions and things you need to know if you are a home service contractor and you own a business when it comes to taxes. So taxes is something people think a lot about at the end of the year. But regardless of what time of the year, these are things that I see people make mistakes on all of the time. Let's jump into them. First one, I literally just wrote these down on my phone as I was driving home from church. Alright, LLC, S Corp. So number one is misconceptions around LLCs. Alright, so an LLC and an S corp is what is considered a pass through entity. All right? What this means is you can't hide money inside the corporation. Okay? The reason I say this is a misconception is because llc, limited liability company, is not made for taxes, it is made for liability, protection and legal matters. So if someone sues you and you do something wrong in the business, they can't come after your personal assets. Again, assuming that you don't breach the corporate veil, that is commingle funds between your personal accounts and the business accounts, LLCs and S Corps do not have any sort of tax implications other than that. When you go from an LLC to an S corp, you don't have to pay self employment taxes. Talk to a CPA about this. Okay? But at the end of the day, if you're getting started and you have an llc, that does not mean you can keep money in the business. And if you don't transfer the money into your personal account, you don't have to pay any taxes. That's not true. Pass through entities mean that any profit inside of the LLC or the S corp means that you're going to be paying taxes as if it was personal income. Any profit, net profit at the end of the day from the business is taxed as your personal income. And that means also, even if you're an LLC and you file what's called a Form 1120s and get taxed like an S corporation. Same rules apply. You are going to be taxed by at the personal tax rate that you are in based upon the profits of that business. What everyone is talking about and the reason I make this video by the way is cause I like people on TikTok and making shorts and reels about how you can save all this money in taxes. And these are dumb strategies. And so one of them I heard the other day was like literally just keep all the money in the business and then January 1st dump the money into your personal account. It's like look, if you have an LLC or an S corp, keeping the money in the business versus in your personal account literally doesn't mean anything. It's a pass through entity. You're going to get tax on any of the income that comes out of the business. The whole self employment tax thing you're going to say about depending 12 to 15% on self employment taxes by going from an LLC to an S corp but you have to file a separate tax return being an S corp instead of just doing a schedule C on your personal tax return, doing that extra tax return with an accountant is going to cost you a little bit more. So again talk to your accountant. Alright, second thing misconceptions that I see is going to be when do you use section 179? Okay, I hear this all the time from contractors. I think I'm going to spend this money because I'm going to buy, I'm going to need this in the next six months or 12 months. I'm going to need it next year. I need to spend this money so I can save myself on taxes. Great, I love it. But here's the misconceptions that I see most often and that's when to use the section 179 because this is what's crazy. Let's just assume that we have $30,000 worth of profit in our business, okay? Work total year. We come to December, we talk to our CPA and they're like hey, here's your estimated tax liability for this year. And by the way, if you don't have a CPA that does that, where you have a meeting before the end of the year and they say hey, you're probably going to be paying about this much in taxes. Here's some strategies you could use. If you don't have a good CPA that does that, you need to get a new cpa. I'll talk about that at the end. Okay? But assuming you make $30,000 in profit in your business, you're not going to be paying of like 40% on 30,000. And so what people do is like, oh, I've got to somehow get this number to zero and tell the government I didn't make any money. And so what do they do? They go spend $30,000 on some truck. And they do that under the guise of, I'm saving money on taxes and I don't want to pay Uncle Sam. And taxes are the biggest scam. It's a bunch of garbage. Okay? On $30,000 worth of profit, again, assuming you're an LLC or an S corp, you're gonna be taxed on $30,000. Remember that if you have a standard deduction, you're gonna have like a $12,000 de of this, okay? If you just do a standard deduction, so like 12,500 or whatever it is, you're gonna have a deduction off of this amount, okay? Plus, the fact of the matter is the first chunk of like 20, 30, $40,000 isn't taxed very much when it comes to federal taxes. Even at state tax level, not taxed very much. The 40, 50% that everyone tries to convince themselves that they're saving when it comes to taxes is like if you're making 3 and $400,000. Because you gotta remember that from 6, 0 to let's just call it 20,000. And then from say, 20,000 to let's just call it 40,000, these ranges change somewhat. So I'm just using a range right now. Remember, there are different tax rates for each of these brackets. Let's say this is 10% and this is 20%. All right? What that would mean is if I had $30,000 of actual real profit in my business, I would be taxed at 10% on the first 20,000, and then the remaining 10,000 of profit, I would be taxed 20%. Okay? But what that means is if I did $30,000 in profit and I had a negative $12,000, $12,500, I'm literally going to be $18,000 now, $18,500 worth of profit, and I'm literally going to be paying like a 10% in this case, this example, which means I am going to save a whopping $1,850. That's my savings. And yet I went out and convinced myself that I need to go buy a $30,000 piece of equipment. A 30,000. Because in my mind, I'm saving 10, 12, 15,000. Dol. You're literally saving 1,800. And so this whole garbage about using section 179, which again, section 179 gets misused all the time. Because a section 179 means I'm going to take what is typically like a piece of equipment or a truck or some sort of asset that has a lifespan of like five years. Usually that's what the IRS uses for trucks, for example. I'm just going to take that 100% of the value of that vehicle this year. Great. Fantastic. Even if you get a loan or a lease, you can still take the full value of this x179 today. However, you can't take it again next year. Which means next year you're just kicking the can down the field because next year you're not going to have that deduction. And so if you're at a low level of profit on the lower end and you're literally looking at this, you're in these lower brackets of tax rates, you actually might not want to take a section 179. So that way next year or the year after that, or the year after that, or the next four years after this first one, you have something to deduct. And if you take a section 179, you can't change it. Which means I can't be like, okay, I'm going to do a five year amortization schedule in my truck, because I don't. That makes a lot of sense, Mike. I'm not going to take a $30,000 hit in exchange for an $1,850 savings. Okay, fantastic. If you make that decision this year, next year you can't just decide to do a section 179. And if you do a section 179 this year, you can't just decide to now amortize it by five years next year. So you've got to ask yourself, should you actually be taking the one section 179? And I'd recommend you don't. If you don't have a lot of profit, maybe you grew a ton in your business and you put a lot of money back into the company already for hiring and marketing and growth and expansion. You don't need to make any Section 179 expenses. And a lot of business owners and contractors that I talk to, they use this as literally an excuse to go buy that a $30,000 piece of equipment they wanted their entire, the entire year and they wanted. But now they get a, oh, this is a tax write off. You're an absolute joke. That's what you are. You just bought in inflated prices and literally within three to four months when you need the equipment. It's probably worth $20,000 now because it's no longer new and it's decreasing value and it's an appreciating asset. That's genius because you saved $1,800.

Hey, thank you so much for making Landscape Summit 2023 an amazing experience for all of us. We had such a good time that we can't wait. A who the next one. You don't have to either. Coming this October 16th, we're holding a whole new Landscape Summit. We've outgrown our hometown and we need a much bigger and better location to host the largest business conference the green industry has ever seen. So for the first time, we're holding Landscape Summit in Louisville, Kentucky. Start your week out with great talks from industry experts and keynotes from Eye Candyset will completely change how you do your business. And then head over to Equip Expo just down to street at Kentucky Expo Center. This isn't like any event we've held before and we need your help to make it happen. Get your tickets now@mycandies.com summit.

Alright, fourth is audits. Oh, wait. One thing I want to say here. Sometimes you actually. No, you know what, let's just make another one. Number one, sometimes you should actually pay more in taxes. Why would you want to pay more in taxes? That's absolute heresy. That doesn't do well on TikTok. There's times you actually might want to pay more in taxes because if you just take a section 179, you're taking more expenses in your business. It shows that you have a lower adjusted income, adjusted gross income, AGI. It's going to show that you have less income. What that does is yes, save you more taxes. But you know what else it does? It makes you not look as good profit in your business than it does to say you only had 10,000 or $15,000 and you kind of. Well, I went in the last week of the year and I bought a couple extra trucks because I was just trying to save on taxes. They don't care. They're going to look at that tax and if they don't see income and they don't see money coming in the doors, you're not going to be able to get a loan. So there's actually. Sometimes you might actually want to pay more in taxes. For example, I wanted to pay more taxes in 2020 because I knew in 2021, at my income bracket, it was a very good chance that I was gonna be paying higher income taxes because when it came to the presidential race, it was very clear they wanted to raise taxes on everyone that made above $400,000 a year. And I was like, I don't want to be paying more taxes. I'll pay more this year before, before that bill gets passed. So if you think taxes are gonna go up next year, you might actually want to pay more taxes this year so that next year you're not stuck trying to find. Well, I. §179 everything last year and now I kicked the can down the field. That's all you're doing. And now you've got to find more things to buy. And you get this treadmill of just buying more junk and more stuff and more equipment. And we just rationalize all this junk by saying we're doing it for tax purposes and we're saving ourselves and paying Uncle Sam. When in reality what you're really doing is you're buying the stuff you've always wanted to have. That's flashy and fun and shin. And it does not move the business forward. It doesn't look good on a asset balance sheet and it doesn't look good on your tax return. Alright, number four, let's see here. Number four. Okay, again, these are just like misconceptions, things I've learned. Audits, okay? Oh man. Audits and jokers, okay? When I talk about jokers, I am talking about the things that do fantastic on TikTok, Instagram, Facebook, et cetera. Especially on like short forum videos. People like talking about the Augusta Rule. I'm very flattered that the IRS has named a tax saving strategy after Augusta Lawn Care. Very appreciative. In reality, the Augusta Rule comes from the fact that people rent out their houses at Augusta national, which is where the Masters tournament happens. And so what they made this rule is you can basically rent out a house and not pay taxes on a certain amount of it up to a certain amount of days a year. And so what people do is they, ah, I can use the Augusta Rule to rent my house out to my business and I don't have to pay any taxes on it. Here's the thing, let's just assume that you did $6,000 worth of this expense and you had a business meeting at your house for like, you know, six days of the year. You did off site meetings or managers meetings or whatever. Here's the deal. By the time you run all the Paperwork, because you got to actually document that you had these meetings. You got to have minutes of these meetings. You got to show to the IRS in the case of an audit that you actually had those meetings and you actually had reasonable expenses and people are actually there. You can't just make this stuff up, okay? The rules are there and if you get audited, they're going to ask you to make sure you prove that you played by the rules. And that means you've got to now have meetings at your house. The cost of those meetings alone are going to be more than what you're going to save when it comes to taxes. And the headache of filing all the forms and documenting it all and making sure you have recordings and documentation of these little things. And you're literally saving peanuts. If you'd spend that time just growing your business business, you'd probably be better off. Alright, so those are the jokers, the jokers that say, you know, if you pay your kids, you can pay your kids a bunch of money and there's a certain amount of it you don't have to pay taxes on per year. It's like, great, okay, let's just say you save $6,000 because you paid your child $6,000 because they licked envelopes for you 100 times this year and you're gonna pay them $6,000. Guess what's gonna happen in their audit? The government's gonna come along and they're like, well, that's $6,000, 100 envelopes that took them one hour. So you're paying them $6,000 per hour. Please justify that to us that you're paying a nine year old $6,000 for an hour's worth of work in the year. That's not going to fly in an audit, alright? And trust me, just play by the rules when it comes to audits. And this whole thing with audits is you're gonna get audited sometime in your life and they can go back seven years. Whether this be payroll tax, whether this be sales tax, or whether this be income tax from Uncle Sam, the government, the IR and the S. Regardless, when you get audited, not if, but when you get audited, you want to make sure that you can sleep well at night knowing that if you were to get audited, you have everything in order. And the biggest thing that I see people do is they listen to these jokers talking about the Augusta Rule and ways that you can save money on universal life insurance. It's absolute garbage, okay? All these little tricks and hacks is not what the rich people use to get around taxes. I promise you. Okay, I'm gonna talk about some legitimate ways that you can actually save on taxes. But the joker is making up all these things. Just remember, if it takes you a bunch of time and energy and you can't really prove that you're actually using your child for a certain amount of time. Look, if your child is working for you for 10 hours a week and you would usually pay that person $15 an hour if someone else was to replace them, that's what, $150 a week? And he times that by 50. Well, there you go. Maybe you can give that $6,000 deduction, pay your kid and not have to pay any taxes on that. But, but I promise you, if they only worked an hour a month, it's gonna be very hard to convince the IRS that you're paying a kid nine year old five to six hundred dollars an hour. You're not going to pass an audit. Alright, alright. Jokers. Audits. Audits are not scary. If you just follow the books and you have a good CPA that's gonna make sure they ask the right questions. Because guess what? In an audit, your CPA is not liable. You are. Because your CPA only takes the information that you give them and that's how they submit your tax return so they aren't in trouble. If you get audited, you are. Because you gave them the wrong information or you made stuff up. That's not true. But your audits will be a lot easier if you had a good CPA to ask you the right questions to make sure you weren't doing stupid things that were against the rules. Not good.

Coming to Landscape Summit has been the catalyst for hundreds of green industry professionals to jumpstart their business and take it to the next level. However, the roadmap to success has already been laid out step by step by Mike Andes himself. Landscape Business course walks you through exactly how to grow your business to over 100,000 in monthly revenue in just three years. And it's the only place to find full recordings of Landscape Summit featuring talks from home service industry leaders like Tommy Mello and Corey Ballard. Enroll today@landscapebusinesscourse.com to get this month's exclusive lecture and so much more. We'll see you there.

I like how to look at your CPA like a coach so you don't get in trouble with referees. All right. We don't want the irs, the referee to get mad at this. We want to be on their good side. All right? Number Five. I think we have six on this little list that I wrote down. Look at that. Okay, all right, let's try this again. Number five. Let's see here. HSA and ira. You're like, wow, this is deep. Okay, ira. An IRA is an investment account for your retirement. Alright? An HSA is a health savings account. These are two ways that the government's like, hey, we want people to save money for their health expenses. So that way we do not have to have big problems with insurance. We don't have problems with people needing free health care. Why don't we give them an account and they can start at just about any bank. You can start an HSA health savings account and you can put money in there every single year. I think it's like $6,000 a person. It changes based upon if you're married and other different variables. But about $6,000 a year you can put in an HSA. That $6,000 stays in there and I don't have to pay any taxes on it. So for example, if I made $50,000 last year and I put $6,000 into my HSA, I would be now taxed at $44,000 because it's tax free. It goes in there and it can only be used for health related expenses. And you can only have an HSA if you have a high deductible life or health insurance plan. So you got to have a high deductible health insurance plan. And then by doing that, you can have an HSA where you can put money aside and you do not have to pay tax on it. Fantastic. Completely legitimate, completely simple and easy to do. Walk into a bank. I want to start an hsa. Great. You're going to need a proof that you have a high deductible health insurance plan and then you can go from there. Now, if you don't have a high deductible health insurance plan, you can't do that. Okay, again, talk to your CPA ira. This is an investment account for when you get old and when you retire you're going to need this money. You can set aside money every single year. This number, again, it depends on a lot of different things. If you're married, if you're single, all the rest of it, but you can put money like, let's call it $6,000 aside in a bank account. And this bank account is specifically meant for investment and you don't have to pay taxes on it again. And you can literally have that money go up in value in time and not pay Taxes on it. Now, there's different types of 401k IRA. The main thing is you're gonna get taxed at some point. Either you get taxed at the beginning or you get taxed at the end. So you gotta talk to someone at your bank, you gotta talk to a financial planner and ask yourself what's better for you? Is it better that you put money into an IRA where you don't get taxed on the upfront, but then you get taxed down the road if you take the money out before you retire Again? Gotta look at the rules, but these are legitimate ways that you can put money into an account and not pay taxes on them. Even I have both of these things. I have an HSA and I have an ira. It doesn't save me a lot of money, but it takes me hardly any time. One time a year I transfer money in my IRA and I literally put it towards the Vanguard Total World index for stocks and probably goes up like on average like 5 to 8% a year. I don't care. I'm doing it for the tax purposes. I'm able to put $6,000 into this bank account and I just saved what, $2,500 that I don't have to pay in taxes because I moved it into a taxed Advantage savings account. Let's go. Alright, six.

Alright, number six. What is it? Receipts. This is the thing everyone wants to know. As a business owner, do I need to keep receipts? Here's the short answer. Yes, you do. But you don't need to keep the actual shoebox with a whole bunch of paper receipts in it. Okay, you can definitely use QuickBooks to take a picture and attach the receipt to the transaction. Here's a really easy way. I use an app called tinyscan. No promotion, just something I use. I have different folders for every business. I open up the folder, snap a picture of the receipt, it automatically has the timestamp and then I put in the date, the name of the store and already has the date and time. And that would align very easily inside of an audit. If you have an audit, you need receipts. Emailed receipts are great. Invoices and things that are emailed archive those. Do not delete your emails that come from people after invoices and receipts are sent to you. Because it's a great way to be able to go back in time. If you have receipts from gas, fuel, anything throughout your day you're buying for your business, you gotta keep track of it, whether it be inside of QuickBooks or whether it be on a Google Drive or some way, shape or form. You gotta keep receipts, keep it digital, don't keep paper. No one wants to do that. We're living in 2020. If any of this made sense, or you think it was, would be helpful for you to talk to a good CPA. Because I've been through a bunch of bad CPAs. Trust me, people that don't, they just want to run your tax return and make some money off you. They don't actually want to go through these different options and plans and how to actually save money. And they're not going to let you waste time doing stupid stuff with the jokers or make you do a section 179 only to regret it next year because you have this massive, unexpected tax bill that you can't get deductions for. Now you've got to talk to a good CPA. I've gone through 1, 2, 3, 4 CPAs before. I found a good one, one that sat down with me twice a year and went over all what I was anticipating for taxes. They did some calculations. Here's what your options are. Okay, you should start an Airbnb. You should buy some rental property. You should not sell your stocks. Okay, you should use what's called the wash rule with your stocks so you sell and you can buy again 30 days later, but then take the tax deduction. These are all things that a CPA knows. So find yourself a good one. Now, where should you go? In my opinion, completely biased. Homeservicecpa.com that's who I use and that is my CPA firm. It's an actual tax firm. We're licensed with the state. The whole 9 yards go to homeservicecpa.com we only specialize in contractors and home service businesses. So if that you, I think you should do it. It's the best form for our very specific niche and we really drilled on. These are the type of things we figure out. Make sure you're limiting your tax exposure, but most importantly, you're prepared and you have a plan in place. When it comes to tax strategy, whether it be investing into other things when you're going to buy things. There's a lot of stuff around tax and trust me, a good tax person will save you a lot more than you spend on them when it comes to their fees. I pay tens of thousands of dollars a year for my taxes, but they save me hundreds of thousands of dollars. So it makes me very happy. Check out homeservicecpa.com not only can we do your taxes. We have a whole other team that I use in my office that is for bookkeeping and payroll. So check it out. I think it'll change your business if you're a contractor and you do home service of any sort. Well, I don't care if you're a pool guy or a fence guy or a roofing or contractor, electrician or a plumber or landscaper. Do lawn care. Whatever it is, that's what we specialize in. I think it'll help you a lot this coming year.

This has been the Mike Andy's podcast. Now you have some ideas on how to take your business to the next level. And if you like what you heard, we have tons of lectures, interviews, and more over at the Mike and his YouTube channel. It'll be right up your alley. That's all we have for you today. We'll see you next time.