6 Tips for Self-Employed Owners to Reduce Taxes

Hey everyone, it's Mike Andes and you're listening to the Business Boot Camp podcast. Tis the season not just for Christmas, but for end of year taxes. And today we're talking about the must know tips for you as a small business owner reducing your tax liability. And before you turn me off because you think taxes are boring, I promise you this is an episode you don't want to miss. Before we get into today's show, a big thank you to today's sponsor which is Gusto. If you haven't Already, go to Gusto.com Bootcamp for a free 90 day trial. Their software I've launched businesses before the setup process for getting an accountant or doing it yourself. All the time that you spend for employment security department and then you got your li and then you got all the different FICA and Fuka and all these other things. Instead of doing all of that, instead of spending all that time, use something like Gusto. It's fantastic software. It's very easy and it's cheap. It's six bucks a month. It starts off at per employee. Check it out. Today go to gusto.com bootcamp try out for an entire three months before you have to commit to anything. Alright, so today we are talking about taxes. This is something I don't talk a lot about because in part due to the fact that I don't feel like I'm the best at taxes, it'll probably be another 20 years before I feel super confident about taxes. But let me tell you this, I think about taxes every single day. I truly believe that how the rich get rich is by thinking about taxes a lot and cutting out, reducing their tax liability as much as possible. The average employee is going to 30 to 50% of their income or more in some places is going to be wiped out by taxes. As a small business owner, most of you are small business owners listening to this, you have a huge advantage if you are running a profitable business to take advantage of huge tax benefits, deductions, credits, etc. And so you know, the big misnomer, the big misconception about taxes. And you know, some people just get like this mentality that taxes are horrible and you know that the government's trying to get after everybody in terms of making loopholes for the rich people and they're just trying to make the richer rich people richer and they're trying to make the poor people poorer. And I'm not going to get in the political side of things because I don't really care, alright? I'm a business person. I'm trying to reduce my tax liability and give as little to the government as possible. But it's not about giving as little to the government as possible. All right, some people say it's patriotic to pay taxes. I pay every single tax that I possibly should be. But I absolutely am trying to use the incentives that the government puts in place to reduce my tax liability. What does that mean? It means this. The reason there are tax benefits and the reason that there are tax deductions and credits and loopholes as people call it, is because it's the government trying to incentivize certain things to be done. They want certain things to happen. For example, they want the population to increase, it helps gdp, et cetera. What do they do? They give a child tax credit. In other words, they're going to give you a deduction on your taxes as an employee or any person filing a tax return if you have a child. All right, the same thing goes for. They want, what's it called, housing. They want housing to be created and not just any type of housing. They want affordable housing to be created, apartments, multi family units. So what do they do? Well, the government could go out and build it themselves. Guess what? They found out that government is very inefficient at these programs. So what do they do? They incentivize the private sector, that is investors, corporations, private equity firms to go out and build and create, produce these affordable housing for the public. And so in order to do what they want happen, they want affordable housing to be built. So what do they do? They incentivize investors, they incentivize the public to go out and do that for them for a tax credit or a tax benefit. All right, same thing goes for oil and gas and for energy. Why do those barons of oil make so much money and yet pay so little in taxes? It's because they're doing what the government wants them to do. There's certain benefits to creating energy in this environment, in this economy. Same thing goes for big corporations. People like Amazon, Microsoft, Apple. People complain all the time about how their percentage of tax goes to the government is zero. It held so low. There's no taxes being paid by these companies. And the very this is the thing, they're doing what the government wants them to do and that is create jobs because the government also wants to create jobs. We just noticed in the past month that the last week there's a jobs report for the United States and there was 260 some odd thousand new jobs created last month in the United States, it caused a big, you know, influx for the economy, for the stock market. It shows positive growth for the economy, all those sort of things. So the good thing, the government wants new jobs. So what do they do? They incentivize business owners, they incentivize small businesses, corporations to go and create jobs out in the environment because the government knows they are inefficient at creating those jobs in the public sector. The average public employee, government employee, costs far, far more because of the inefficiencies of the government system than if they just give a tax incentive to a company to go out and hire and make more jobs. Alright, so what it is, is the government is using the tax code in order to create certain loopholes, deductions, credits and ways of reducing tax liability. They use those things as incentives to make individuals do what they want them to do. All right? That's the basis of it all. And so, you know, I have a few notes here. I want to make sure I hit all of them. Like there's credits for electric vehicles, for example. You know, Tesla's trying to get a bunch of people to buy by the end of this year because the US tax credit for EV electric vehicles is going away. It's like a $6,000 tax credit. What the government did is like, look, we want to change to an alternative energy source. They saw this in the past several years, they've really incentivized people buying electric vehicles. So what do they do? Because they want to see the trend, they want technology to go in that direction. They simply use the tax code to incentivize people to move in the direction that they want them to go. All right? And you can call it manipulation, you can call it whatever you want, but for me, for my business and for my family and for what I'm trying to build, I am going to work within the rules of the game and the rules of the tax code to make sure that my tax liability is as low as possible. Alright? And to do that, I'm going to play by the rules. I am going to create jobs, I'm going to create businesses, I'm going to make sure the write offs are legal. I'm going to make sure that everything is done correctly to the rules of the game to ensure that I'm playing correctly. But I want my tax liability to be as low as possible. In my opinion, for a small business owner that runs a very profitable business, and not even very profitable, just a profitable business. You know, maybe the first few years you're just getting up and going, you're scaling the business, you're pouring all the money back into the company, but now it's becoming profitable. You've been in it several years. I truly believe that one of the biggest things you'd be thinking about if you have a profitable business is taxes. How do you reduce your tax liability? Because income taxes is one of your biggest expenses. If you run a profitable business. If you are a self employed person and you are making $100,000, guess what of that $100,000, 30, 30, $40,000 of that. Depending which state you're in, depending which country you're in, a lot of that money, a big chunk of that money is going to go to the government. I want to make sure it is in my best interest to make sure that my tax liability goes from 30 and 40,000 to as low as I possibly can get it. Alright, so today we're going to be talking about six different things that you should be thinking about as we go into the end of the year. Yes, it's Christmas, it tis the season to be jolly. But it's also tis the season to start thinking about your tax liability that's going to be coming up here at the end of the year. So we still have a more weeks, you can still make a few decisions that will possibly alter what you're going to be paying in the coming year. Alright, So I have six different things that I kind of think about when it comes to taxes. And I want to preface it all by saying I think about taxes every single day, every single transaction actually I think about is this a write off or not? It's all I think about because I know that my, the speed in which I get to where I want to be financially and with the businesses and being able to put the money back in the business and growing them the way I want to will be determined by how much capital I can keep to myself and use in the business. All right? Like I'm not necessarily using a bunch of money personally. I'm pointing back into the company, point back into creating more content for the industry. Like that's what I'm trying to do in the landscaping industry. I'm trying to put money back in, right? I cannot do that. If I'm paying 30, 40%. A massive chunk of my money is going to the government. All right? And so I'm gonna go through the six things that I think about when it comes to taxes. But I want to preface it by saying I think about it all the time. I truly believe that the People who make it really, really big in this current economy are the ones who are playing by the tax code and are using the tax code to their advantage and doing the public a service by creating affordable housing, by creating jobs, by creating alternative energy sources. All of those things is what the government wants. I am doing it in the best interest of the public and it's helping me on my taxes. These are the six things I think about. Number one, most important, don't cut corners. It will catch up with you. And if you're just starting out, start off doing things right. When it comes to taxes, pay sales tax, make sure you actually claim your income, do things correctly. I still remember when I was 18 years old and I got my current accountant and we sat down and I made the decision like everything I do from here on out, I'm going to do as if one day I have to make it public. And that is, and it was right around the time like there was an election year and things. And I remember like it was the first time I kind of started actually like looking at politics and just like hearing things. And I was like, you know what, one day, you know, maybe I'll never run for office perhaps, but like I'm going to run my business as if one day I do need to show my tax returns. Like, I don't know why Donald Trump doesn't want to show his tax returns, but I can't. I gotta guess the fact that he's trying to block everyone from seeing them, that there's something he doesn't want people to see. Just a guess. I'm not leaning any way politically, I'm just saying he obviously doesn't want people to see something. And so when I started my business, I made a very conscious decision. I still remember in the meeting with my tax accountant thinking and talking about I gotta run my businesses as if one day I'm going to show publicly my tax returns. So the number one thing I think about is don't cut corners, it will catch up with you. And if you're just starting out from the get go, do it right. Don't think, oh well, I'll just like not pay sales tax or I won't claim all my income or I'll run it through like I'll do all my employees through independent contractor. Like don't do those things. It's going to catch up with you alright. Number two, the second thing to be thinking about when it comes to taxes this year is that the 2018 tax cut changed a lot of stuff. A lot of stuff. A lot of it was very positive for business owners. And so you want to make sure that there was a lot of deductions for business owners, investors. And this is when you want to get a tax professional to coach you on this stuff. Because I spend all my time focusing on my businesses. I do think about hacks a lot, but I don't know the code. I don't look at the legal aspects. I'm not looking at all the changes that are going on from Congress, the bills that are being passed, the loopholes that are being exposed. I do not, am not engaged in that 24, 7. I want to hire a tax account to give me that information.

The money I spend in my account can be made a hundred fold back to me in the amount of saved dollars that I don't need to spend on my taxes. So I just want to say though, if you've been doing your taxes by yourself the same way for the past 20 years, it might be a time you want to go get some like, pay someone, pay the tax accountant. Pay someone who is really good in the, has a cpa, has a lot of background, not just in preparing bookkeeping or preparing.

Tax returns, but actually knows taxes, knows small business taxes, where the loopholes are at, is very engaged in all the things that's coming from Congress and what's being passed down in the bills and really can educate you on where you can save money. Because 2018 and what happened in most recent tax cuts, most of the benefit was given to investors, property owners, business owners like yourself. And there's a lot of ways you can take a huge deduction. Like I remember the year it happened, my taxes almost halved and so on my income taxes. And so I highly encourage you to, to talk to someone who knows all of those things and spend some money, spend a couple thousand dollars, learn it from someone and I promise you it'll pay big dividends. Number three is that almost everything, all your expenses, almost all your expenses can be deducted if certain parameters are followed. Like literally almost everything. And.

The way that I make my financial decisions personally is based upon one thing. Can it be deducted off of my taxes? Like the car I drive, where I sleep, the offices that I have, every transaction around, food, like everything I'm trying to do. My clothes, I can write those off if I'm going to wear them to conferences, if I'm going to wear them in front of you on this podcast, I'm writing this shirt off. Okay, I did buy this shirt. I think. Yes, I did Buy this shirt and it will be wrote off, alright? Because it's a business expense. You know, there's so many things that you're doing that if you follow certain parameters. So for example, food, if you're going out to a restaurant, you can write that off. If the main reason for having that, going to that restaurant is for business, you say, well, I'm just taking my wife out for dinner. Well, guess what? You can make your wife a partner in the business. And when you go on that meal, yes, you're spending time with your wife, but you can have the objective of figuring out a certain business decision, talking about your goals for the upcoming year. Talk about something that's happening at, at the business and you want her advice on, like you can make it a business expense, all right? And you can write these things off, whether it be your car, traveling, all right? So for even like when you're traveling on vacation, go to a conference when you're there, maybe you can speak there, or maybe just attend a conference that you can write off as education and you can write those things off and you can write the trip off. If there's certain parameters you have to follow. For example, when you're on travel, they require that half or more of your time is spent around business. So, for example, you know, half of your working hours, eight hours, is four hours. Anything more than four hours, if you spend four and a half hours working on your business, on your vacation, you can write that all those expenses off. You can write off the airfare, you can write off the lodging, all the things that you're spending doing, whether you take some of your employees and you have a retreat or they're with you on the vacation, you may get a business. Like, you can write those things off. Okay, so I recently went on vacation. I hadn't gone on vacation like that for a long time, but I was working six, seven, eight hours a day. And so I'm writing every single thing off on that vacation. Every single thing. Because I was working, I was on my laptop, I was on my phone, I was able to spend a lot of time with family, I was able to spend a lot of time to myself, thinking, planning, making goals. But I was spending six, seven, eight hours a day on my computer, on my phone, doing transactions, working on the business, sending things out, and I was able to write off the entire vacation. Okay, so there's almost everything that you do can be deducted if you follow certain parameters. And remember number one, when we're talking about, number three, when we talk about Number three, anything can be written off. Make sure you keep number one in mind. That's don't cut any corners and play by the rules. Number four, come to equipment. Regardless of what industry and you're buying equipment, there's different ways that you can do this. So you can do a straight line depreciation, depending on what type of equipment, on equipment you're buying, depreciate over the course of 5, 10 years, the lifetime of that expected lifetime of that piece of equipment. You can also, in some cases, write it all off on one year and take all of the depreciation in the very year that you buy it. We used that a lot in Augusta when we were growing really quickly because we were growing really fast and we needed deductions from the amount of income tax I was gonna have to pay. So what I did, I just wrote off all our trucks, like straight line, right on the first year, I didn't take the depreciation over five years. I took it all in the very year we bought it, simply due to the fact that we were growing very quickly. I knew that next year we'd be buying more equipment. I'd be able to take that deduction then. So there's options here you can deduct. And the thing is, if you don't make much money this year, you do not want to take all of your depreciation this year, because next year you might be expecting to actually make more profit. And you want to make sure that you have that five year depreciation schedule and which you can't change, by the way. You got to make a decision on that first year to either take the five years, 10 years, wherever it is, or just take it all in the first year. You can't be like, oh, I'm going to take a five year depreciation and then year three, like, oh, actually I want to take it all this year. You got to make the decision on the year that you buy it. So these are the things you've got to think about when it comes to taxes. This time, as we go in the next few weeks, people are thinking, okay, if I spend money now, I can get this as the write off. So, like, there's a kind of like a 30, 40% off kind of deal if I'm going to be able to write this equipment cost off. But then you got to start thinking like, okay, what tax bracket am I in right now? Because next year, if I'm planning to still grow the business and make even more money, maybe I don't want to take all my depreciation. Now maybe I want to depreciate this piece of equipment over 3, 4, 5, 10 years instead of just this year. These are the things you gotta be thinking about and these are the things you gotta talk about with a tax advisor to make sure that you're doing the right thing. Okay? The fifth thing is acquisitions of other businesses. Intellectual property, patents, all these things that are considered non tangible assets for your business. You can write these things off, you can depreciate them over the course of five years, 10 years, whatever the life of that trademark or whatever it is, you can use these things. And again, always keep number one in mind. You gotta play by the rules and you've gotta. Don't cut corners. For example, if you look at WeWork, their CEO that just got ousted and got shut down, that got taken off the board and stuff.

He was not playing by the rules. He was taking a trademark, taking IP and then using that to like pay himself a bunch of money. Like, that's not the way you should use ip. That's not the way you should use trademarks and intellectual property. But you can use intellectual property because there's a value you can attach to it and then write that off on your taxes over the course of several years. So, for example, purchasing other businesses, I bought Anytime Fitness. It's been a great way for me to save taxes because I have an SBA loan that takes a bunch of interest and I'm able to write all of that off. And yet up front I only have to pay 10%, and yet I'm able to deduct 100% of my interest on my loan off of my taxes. So I'm essentially able to get into a deal, buy the company, get the income, the cash flow coming in at no expense, pay off the 10% that had to pay up front. Like.

This is how people get really rich, is by using these simple rules.

It just is very interesting to me how some people just think that they just block it off. This is something I'm talking about the conference that I'm having for a bunch of landscapers in January. One of the first things we're gonna talk about is mental blocks that people build themselves, mental walls. They build up because they don't understand something or they're frustrated by something, or they've always been doing it one way. And so they just like, I'm not gonna, it's just gonna. They don't wanna change, they don't wanna learn, they don't wanna adapt. And this is Something you gotta know as a small business owner. This is the thing you have to know. If you wanna go from a small business into a bigger business, from someone working in their business to someone working on their business, you've gotta know the stuff around taxes. And you say, well, it's not all about the money. Okay, well the money that you would otherwise give the government you could much rather give to a charity and it'd be used in a much better fashion. Or you could give that to your family member or pass it down to your children or pay for your kids college. The money that you're giving to the government is not spent well. If I thought that the dollars that I gave to the government was gonna be spent more efficiently than that money being in my pocket, I'd be all for giving money to the government. But I know for a fact that the government is not efficient with the dollars and they know it. That's why they give tax credits for people like me to run businesses and make jobs and to build affordable housing, because they know they're not good at it. Okay, all right, let me get off my soapbox. Number six, last thing. Perhaps the most important besides number one, is don't be ignorant. Learn yourself. And you say, well, you said to hire like a tax advisor and a tax and accountant. Yes, do that. But don't take that as a substitute to learning this stuff yourself. No one cares about your financial position and your financial success and your family's financial success more than you. Okay? I've seen business owners do this time and time again where they have a great tax account, they have a great lawyer, they have a great banker, but they put all of their trust in those people and they don't actually educate themselves. And guess what? The banker isn't able to see every aspect of your business. The accountant isn't able to see every aspect of your business. You know, the lawyer can't see every aspect of your business and be like, oh well, if you just change from an S corp to a C corp or from an LLC to a limited partnership, you'd save a bunch of money. They're not seeing those things on an every single day basis like you do. No one cares about your money more than you. You've got to know this stuff yourself. Yes. Have advisors, have professionals in the legal department, in the tax department, in the banking side. That's all very good, that's all part of your team. But it does not take the place of you knowing these things for yourself and educating yourself and taking ownership of your Tax education. All right. And you say, well, what is this leading up to? Well, I'm going to give you a resource right now to make sure that you do take control of your tax education. I'd highly recommend a book written by a CPA called Tom Wheelwright. The name of the book is Tax Free wealth, How to build massive wealth by permanently lowering your taxes. It's on audio, it's on book. Whatever you like to read, I highly recommend it. The second half gets a little bit more intense, a little more in depth, but even the first couple chapters is going to open up your eyes to what you can do and how you can see taxes as a massive advantage. Alright? This is the way that people generate wealth is by using the system around taxes. Because listen.

It just so happens that if you having low taxes and you did that by having affordable housing, well guess what? Having affordable housing and being a landlord is a massive income producing business. All right? Having low taxes because I invest in an oil field or in creating a solar energy system or whatever. Like if I have those things, those are gonna produce me income and revenue as well. Like I'm producing businesses in addition to the fact that I'm lowering my tax, I'm produc more generating more income and lowering my tax bill. That's what you can do. If you're a small business owner and you're paying more than 40, 50% in taxes. It's crazy. There are so many deductions that you can be having right now, especially for you live in the United States. There's a lot of things that are happening right now in the past couple years that have changed. And you've got to get educated on this stuff. Get a professional, get educated yourself. We're coming to the end of the year. Should you be buying more equipment? Should that equipment be all the, should all you take all the depreciation this year or over the course of next five years? If this is a down year for you, you already, you know, you bought a big piece of equipment already or you bought a bunch of land. Maybe you don't, you know, you know, you're not gonna have a whole bunch of profit left at the bottom line. Don't write those things off for this year. Wait till next year when you have a whole bunch of profit and now you're like, you're stuck with a big tax bill. Wait for the write off the depreciation then. Okay, so these are the things you gotta be thinking about. Every expense in your business, every single transaction that goes in and out of your bank account in your businesses. You need to be thinking about the tax implications. That's just how I think about this.

It's by far the way that I attribute the past couple years of success in my businesses. Not having to pay a lot of taxes due to the fact that we take the money and then we use it on other stuff, we use it for other businesses. The way you set up your LLCs, do you have a C corp? Do you have an S corp? You know, now you can prevent double taxation with the C corp. You know, pay yourself a payroll, go get your W2 and then take dividends and take a corporate tax rate of 21%. Like there's a lot of things that you can do. I promise you it's every hour you spend learning about this sort of thing is going to pay huge returns. I'm not the best at this, by no means. I don't feel like I'll be super confident enough to give really good tax advice. You should talk to an accountant. This is what they do all day long. This is all they think about. They read the tax code, the thousands of pages. That is their job. But I'm only making this to bring awareness to this fact, awareness around this idea that if you're, if you're producing profit, there's a lot of ways to not have to pay taxes on that profit or reduce your tax liability on that profit by investing in certain things, by buying more certain types of equipment, buying, hiring certain types of employees, things like that. It's all I'm saying. I want to bring awareness around this subject and I think down the road I'll probably have some more advice around these things because I feel like it is the way to go from small business owner into like an investor and a wealth creator. Like really being able to use this, having multiple LLCs, being able to use your money legally in a way that is going to produce a lower tax bracket for yourself. And whether it be moving money towards your kids, whether it be, you know, down the road, when you create a trust, making sure that when you pass away, you're not getting a mass, your family is not getting taxed on all your assets. These are things you've got to be thinking about. So I feel like finances and some people are really good business owners, but then they fall apart in the numbers, the finances, the taxes, all that sort of thing. And they don't. And they just never feel like. It feels like they're a great operator, they do a really good job, but the numbers just never work. Out for them and always seems like they're kind of on this treadmill of just trying to make it. And then there's some people who are really good at the taxes. They have these great ideas, but they just can't operate the business. They just don't know marketing, they don't know sales, they don't know how to hire people. So having those two things is imperative for your success. Knowing you know how to operate the business, that's great. That's fantastic. But this other side is very important. The numbers, the taxes. Having these things in your mind all the time is very important. That's what I wanted to share with you guys today. I hope those six things helped you and I hope that you're able to reduce your tax liability burden this year in the next few weeks. Thank you so much, everyone for listening. I'm Mike Andes. You've been listening to Business Boot Camp podcast. Until next time, be great because nothing else pays.