How to Pay $0... But Why You Probably Shouldn't...

Hey everyone, it's Mike Andes and you're listening to the Business Bootcamp podcast. Today we are going to be talking about year end taxes as we come to the close of 2020, what you can be doing to reduce your tax bill. But really the question is, do you really want to reduce your tax bill? We're going to get into why today. You might actually want to make sure you pay some taxes this year. But before we get today's show, a big thank you. Today's sponsor, which is Gusto, if you haven't already, go to gusto.com boot camp, try out their software completely free for 90 days. And then after that it's literally one of the cheapest products on the market, comparable to QuickBooks in terms of what it does. It's very, very similar. We've used both. However, Gusto, I'm such a big fan of the usability. That's not even a word, just how simple it is to be able to use set up as well as their customer service. So check it out. Today, go to gusto.combootcamp and try out for free for 90 days. Alright, so we're gonna be talking today about taxes. So as the old saying goes, death and taxes are only things that we can count on. So coming to the end of the year, for most business owners, we're thinking about taxes. If you had a good year, if you had a bad year, et cetera. A couple things that are gonna be really different about this year. If you're a business owner, if you took the PPP loan or the EIDL grant or the ppp, you got some of it forgiven and it became a grant. These are all things that are very important and they're gonna be very different about this year in terms of doing your taxes. And you need to make sure that those things are accounted for with your cpa. So if you did any sort of government loans, any sort of government grants this year, make sure this is something you go over with your accountant on. But before we, you know, dive into a whole bunch of nitty gritty stuff, I want to go over five different things that you want to keep in consideration as we head into the end of the year, the tax season, and you know, maybe you're looking to spend some money to be able to reduce your tax burden. But I want to go over five reasons why you might not want to, you might actually want to pay some taxes this year. Shout out to Brad, who is actually working at Augusta Lawn Care. He's a cpa. He works at Our local shop. And in the winter he actually works for account does his CPA stuff, but he works for us during the rest of the year. So shout out to him because he actually kind of inspired this talk. And he brought up the fact to me the other day. He sent me a voice Note via, via WhatsApp and says, and said basically, hey, like you might actually want to pay some money in taxes this year and not boot kick the can down the road too much because there's a good chance that the corporate tax rate goes up and taxes in general might go up. With the current administration and especially if we, with this runoff election in Georgia, we might get a blue wave. I don't know if that's the likelihood that happening is low, but it's possible. And then the tax rates will go up. So it might be a good idea to actually pay some taxes this year. Like I said, the corporate tax rate in 2018 went from 30. It was like in the 30s. I think this is 35% down to 21%. So huge tax break there. And there's been other reductions of taxes for business owners. Those might be going away. So just think about that. You might want to pay some taxes now. If you've been kicking the can down the road the past few years, maybe this is the year you kind of pay the taxes, pay the piper and then keep moving on because the tax rate is might go up in the future. So that was Brad's observation. Great point there. So it might be something you actually want to do is pay taxes in 2020. All right, number two, another thing when it comes to taxes that I think about is if this was a down year for you, like for example, if you just got started, like this is your first year in business, you're just getting established, there's a good chance you didn't make any profit or you actually lost money. If you lost money in 2020, don't buy a bunch of equipment right now. Delay purchases if possible, because you're gonna wanna take that on next year's when you're probably gonna.

Upon the investments you've made this year. So if you bought equipment, done a bunch of hiring, done a bunch of marketing, grown your business a bunch, or just get it started this year, you might not have been profitable, you might have lost money this year in 2020. Delay purchases until January, February if you can, because next year you're probably going to be profitable and you're going to need deductions. All right, so make sure that if you have had an unprofitable year in 2020, or you just got started and therefore you haven't made any profit. Don't take deductions now. Like, for example, if you lost money in 2020, you should not take a section 179 this year. Take the section 179 maybe if you buy equipment next year, but if you bought it this year, do the five year amortization because you're not gonna be paying any taxes this year anyways if you've lost money. So I know this is my next one. That is. Number three is that section 179. Only use it if you're growing really fast. Okay, so section 179 basically means, for example, if I buy a truck and it is $20,000, usually the lifetime of that truck is, let's say, five years. And the IRS will allow you to amortize that over the course of those five years. But you can do what's called a Section 179, where you take the full $20,000 that you spent on that truck and you write it off in one year, which means the next four years and the following years. You can't write, you know, continually use that asset as a way to depreciate it. You can't do that. But what you can do is take section 179 and write off on one year. That's really, really useful. If you're growing really fast and you're really, really profitable and you're buying a bunch of new stuff like trucks, equipment, et cetera, it's a good thing to use the section 179 because you don't have to pay as many taxes. But again, if you did not make much money last year or this 2020, the current year, you're watching this, or.

You bought a bunch of equipment, you lost money, and you're expecting that next year you'd actually become profitable. That's when I would don't take the section 179, spread that deduction that you're going to get over the next five years instead of just taking it in a year when you're already down, like you're already losing money, you're in the red. So I would Only use section179 if you're growing fast and super profitable this year. If you're not growing fast, remember that if you do the section 179 this year, you, you're just kicking the can down the road. And again next year, there's a chance that the tax rate's gonna go up. I'm really doubting it's going down. Okay. Really doubting it's going down. So there's a chance that if you kick the can down the road, you're gonna end up kicking the can down the road to a point in time when you need to actually pay more taxes. Okay, so only take the section 1 in 79. If you're really profitable and you are growing very quickly and you're constantly buying new things that you're able to use on a section 179. Because if you do the section 179 this year, you can't take any depreciation on that asset next year. So keep that in mind. Number four, an ira.

An IRA stands for an individual. Actually, I looked it up on Google because I always forget what it stands for. Individual Retirement Arrangement. That's an ira. There's what's called a SEP ira. Self employment. Oh, man. What's the P stand for? The P stands for.

I forgot the P stand. It's self employed, basically for self employment. I think it's self employment, personal or self. Whatever it's called a SEP, SEP IRA. And these are all things. The 401K. You can use a 401K program for your employees, etc. And basically you are able to, you know, keep your adjusted gross income lower when you, when you are making contributions to these programs. These are basically programs. The government says, hey, look, this is a way for you to do your investment account for your retirement. And they want you to be able to save. This was originally a tool used to really incentivize saving for retirement. And so you're able to not pay taxes on that money that goes into that ira. Now, if you take that money out before your certain age, there's going to be penalties and there's limits to what you can contribute to an ira. There's also limits to what you can contribute to a 401k. Same thing with an SEP. Or a SEP IRA is going to be based upon how much you give to your employees, et cetera. So talk to somebody that knows what they're talking about. At most banks, you can start a SEP IRA. Most banks you can start a regular IRA, a 401k program. So talk to someone at the bank, get some more information, what's available to you, and if you're considering the sep, the SEP ira, just make sure you know the restrictions in terms of how much you got to give to your employees versus what you're allowed to take, et cetera. Okay. And what's cool about this. What's cool about those programs, the IRA and the SEP IRA is the deadline to make contributions is actually April 15th of the next year. So for example, I. You look at a calendar year of 2020 for my taxes, but I'm actually able to run my taxes in say January, February, figure out what my contribution should be to my IRA and then make a contribution and it still count towards 2020. All right, so what's cool about this is you can actually run your taxes for 2020 and then figure out how much you should be contributing to an ira, et cetera. So again, talk to someone in the bank. Talk to a wealth. This is where wealth managers start to actually be of value. I'm not a huge fan of using them for like products like their managed funds and things, but I do like just getting advice from them. I'm willing to pay for it. I just want to learn. And so talk to someone. Your CPA usually can point you in the right direction in terms of someone to talk to about IRAs, setting up a 401k plan, et ceter. These are all things that you want to think about. All right, number five, you might actually want to increase your adjusted gross income. All right, so again, adjusted gross income is at the end of the day, kind of what your tax bracket is based upon, et cetera, and what percentage your tax liability is going to be. However, you might actually want that to be higher. AGI, your adjusted gross income. I'm only using that so that way when someone says AGI, you know what I'm talking about, adjusted gross income.

You might actually want that to be higher if you're planning to get a loan or real estate in 2021. So this is where you kind of need to start thinking more long term about where you're building your business, building now your wealth. So for example, you might want to actually make sure you don't take too many deductions. So that way your income looks like it's been growing steadily. All right, so if I have a massive year, I will take deductions. But then on a year, maybe we invested a bunch in the business or something and I have a down year. I might try not to write as much stuff off. I might amortize and do the five year depreciation schedule instead of section 179 because I want a bank when they look at my financials to say, okay, there's constant growth and it's stable. It's not going up and down and up and down. And so Especially if you're wanting a loan or you're wanting to invest in real estate, which is a loan, you're getting a mortgage on a property, you're going to want to make sure that that income, the adjusted gross income is, you know, steadily growing, if that's what you want. Or more importantly, if you have a plan to buy a property in a specific year, you want to make sure that the year or two before that purchase of real estate is strong on your tax returns. Like that. When you give your tax returns in, it shows strong AGI, strong adjusted gross income. So you might not actually want to write some stuff off this year. If your plan is to buy a new house in 2021 or to get a loan in 2021, or you want to do your first real estate deal and get an investment property, you might not want to take a huge deduction this year. Yes, you get away from taxes in the short term, but then your mortgage, they might not get you approved or you might get approved for a much lower, much higher interest rate because your aggressive gross income was lower in the previous year. So hopefully those things were useful. Obviously there's a whole bunch of information out there about what you can and cannot write off and obviously looking for things that you can prepay a whole bunch of different tax strategies. I wanted to bring the concept today of.

Why would you actually want to pay more taxes in 2020? Why would you want to make sure you don't make write offs? And there's definitely reasons why. If you're wanting to buy real estate, if you're wanting to be going to get a loan, if you had a bad year this year and you lost money, if you just got started this year on your business and you didn't make much profit, you might want to make sure you have something to deduct next year. So you might want to buy your equipment in January, or you might want to make sure that this year you do a five year depreciation schedule or ten year depreciation schedule instead of taking a section 179. Okay, so there's definitely reasons why you want to actually think about paying taxes in 2020, because there's a really good chance that over the next five years taxes go up a little bit. Again, no guarantees, but I don't think they're going down anymore. So again, just some things to think about. I hope that kind of spurs you to go talk to a cpa, get some learning, educate your, and don't wait until January. Like you got to have an appointment with your CPA in December, and I know you're watching this, you only got a couple weeks, you better get it in fast because if you're going to need to make anything, move anything around or make any purchases, you need to do it before the end of the year. So make sure you always just get in the habit of meeting with a CPA at the end of the year before you run taxes. And you know, in the spring you got all the way till April till run taxes, but you only got till the end of December to actually make purchases and make changes in the calendar year. So make sure you get in the habit of doing that. Make sure you built a relationship with a CPA that is okay with you emailing them questions like, that's huge to me. Like, I went into my CPA firm the other day and they spent two hours with me going over stuff, like two solid hours, there was three people in the room with just me going over stuff. Like that's very valuable to me as well as the fact that like I left that meeting, had more questions, emailed them, and they got back to me. My CPA did within a day. That's very, very important. If you're looking for a CPA. If you're thinking about changing CPAs, you got to be able to get communication from them and learning and educate yourself and therefore be able to make better business decisions and save on taxes from, you know, their learn from learning from them. So hopefully that helps someone out there. Thank you so much for watching. Make sure you subscribe like this video or the podcast and we'll see you on the next episode. I'm Mike Andes. You been listening to the Business Boot Camp podcast? Until next time. Be great because nothing else pays.