*MISTAKES* Business Owners Make When It Comes to TAX Write Offs (End of Year)

Hey everyone, it's Mike Andes here and today we are talking about taxes because we are coming to the end of 2021. As I'm talking about this couple weeks to the end of the year and a lot of you are going to be starting to think about end of year taxes. So whether you're watching this at the beginning of the year and starting to file your taxes or you're starting to think about this now because you're wanting to know, should I go buy things so I can write them off? I'm going to walk you through knowing the numbers of whether or not you should be taking write offs and going out and buying equipment or trucks or spending money on things now instead of in the next few months that would go into next year. So I want to make this video because I know in the next week or two there's going to be a bunch of different influencers make videos about this in the community and they're going to be talking about write offs, write offs, write offs as if it's like free. And I'm going to explain to you what the actual savings are in having a write off at the end of the year. And so we're gonna jump into that. I can make this probably an hour long video. I'm gonna make it into like hopefully eight to 10 minutes. Before that though, you might be wondering about the sweater. You can get one of these sweaters. This is the sweater we have made specifically for Landscape 2022. Landscape Summit 2022. So you go to Landscapesummit co. Landscapesummit co and you can sign up and everyone that's coming is going to get one of these as long as they join by the end of the year. We can't do last minute shipping just because everything's backed up. So make sure you sign up today, Landscape Summit Co, get a conference ticket and everyone that's coming is going to get one of these as well as look at this, the whole shovel here, it's awesome. And there's little things all over it like the grass on the bottom. So if you're a landscaper, you own a business, you definitely want to be here January 13th, 14th and 15th. Make sure you go in the link in the description and sign up. Alright, let's talk about write offs. So everyone's like, hey, I'm going to go buy a truck, I'm going to go buy a piece of equipment because I need to get less, I don't want to pay as much taxes. So these are the tax rates. If you're married and these are the income brackets for that corresponding tax rate. Now if you're down here at the bottom Anywhere from 24 to 37%, I would actually recommend, you might want to start thinking about the fact that you might want to actually pay more taxes this year because there's a really good chance over the next couple years taxes for this group of people is going to go up. So you might actually want to realize some of your gains. So that way, as the tax rates go up on these higher rates of income, that you do actually not pay as much taxes. So that'd be my first recommendation. I'm not going to stick in this area as much because that is a very small subsection of the listeners here. I'm going to be talking about those of you who are making zero to $100,000 in profit. And again, the only reason you e think about doing a write off is because you have profit at the end of the year, if you like. My first three years of starting Augusta Lawn Care because we were growing so fast, like 200,000, 500,000, $900,000 because we did that and I was buying more trucks and equipment and inventory and all the rest of it. I didn't have any profit and I'm not ashamed of it. I was growing really fast and growth sucks cash. So therefore the actual bottom line profit, even though we were growing and doing well was like zero or like barely anything. Now I'm gonna why it's crazy to be going and buying a bunch of stuff when you're making like $50,000 in profit or 40,000 or 50, $60,000 in profit, or you do this part time and you're a student to go out and buy things as a write off. And people just make stupid purchasing decisions under the guise of like, oh, it's a business expense, I can write it off. And they don't run the numbers of what they're actually saving. I think most people would be shocked by the fact they're maybe saving 10 to 20%. And furthermore the fact that you're just kicking the can down the field to when you're going to have more gains and you've just bought an asset that you fully depreciated section 179 on your taxes and you take all of those that depreciation on that asset in one year on a section 179, well, next year you don't have that asset to write off. Now there's nothing more to depreciate. So everyone here on your Form 1040, you're going to have to fill out whether or not you're going to get a deduction of either a standard deduction. I should write this up here. A standard deduction. Standard deduction. Standard deduction or you're going to get an itemized deduction. Okay, So a standard deduction says basically, hey, you at least get this amount reduced from your income before we start thinking about taxes. You get a standard deduction. And if you're single in the United States in this year, you get a standard deduction of $12,550, which essentially means if you make up to that amount and you're single, you don't pay a single dollar of taxes because you get a deduction right off the top. If you're married, you get a standard deduction of $25,100. Now on your Form 1040, you get to choose whether you're going to do a standard deduction or an itemized deduction. The only reason you would do an itemized deduction where you take off like charitable contributions and your interest that you pay on your personal residence and those sort of things. The only reason you take an itemized deduction is if your income and those deductions, I should say those deductions is greater than the standard deduction. So this is like the minimum deduction you can have. Alright, so I'm going to use those numbers to be as conservative as possible. Now over here, what people fail to realize is they think, well, if I'm in a tax bracket of 32% and I make $332,000, that I'm going to pay 32% of that to the government. And that's wrong. What's going to happen is you're going to pay 10% on the first 19,000. Again, this is the income brackets. If you're married, you're going to pay then 12% on this bracket from 19,000 to 81,000. You're going to pay 22% on this range and then you're only going to pay 32% on that last few thousand, between 329,000 and 323,000, for example, or 332,000. So you're not going to be at 32% on the majority of your income. So you've got to remember first and foremost, let's just assume, let's assume that I have, I made $100,000. I made $100,000 in profit in my lawn care, my landscaping business, just for example. Alright, so let's start off at the top here, income equals $100,000. And let's just say for the example, that my wife helps me in the business. And therefore, this is our combined tax return of $100,000 in income. First and foremost, I'm going to get at least a standard deduction, at least a standard deduction of $25,000. 25,100. So that essentially reduces my income down to $74,900. Okay, now this is what I pay tax on. But guess what? If I go over here, you say, okay, well, that means you're in the 12% bracket. Great. Actually, no, I'm not. What's going to happen is I'm going to have a 10% tax bracket for the first $19,900. And then on the remaining, what would it be? 20,000. So it'll be 54,000. 54, 54, 54, 909. Okay, I made this wrong, but let's do 54,900. Yeah, 54,000. 54,000. Boom.

The remaining 54,000 of my income, that's where I'm going to get taxed at 12%. Okay, did I do this math correctly? I think I did. One, two, three. No, I didn't. This is 55. Let's go. Okay, so that's how my taxes are actually going to look like. So if I actually do the math on this, if I add all of this up, I'm probably going to end up paying about. I'm just gonna round this off around $7,000 in taxes. So the reason I'm saying all of this is because people that go out and get $100,000 profit in their lawn care business is like, oh, I've got to go do write offs because I've got to save money on taxes. And again, these are federal income taxes. If you have state taxes, there might be an additional 10%, 8%, 6%, whatever taxed on top of this. But if you live in Washington state or other states that have no income tax from a state level, this is just federal taxes. All right, let me just make that clear. But again, $100,000 profit, money in the bank. Maybe they did 4 or 500,000 in revenue, but at the bottom of the line, $100,000 in profit, immediately that standard deduction takes it down to 74,000. I'm going to pay 10% on the first 19,900. I'm going to pay 12% on the remaining 55,000. And I'm literally going to pay. I am literally going to pay around $7,000 in taxes. That's 7%. So if I'm going to reduce this number by taking ride offs and buying trucks and equipment, I'm literally saving 7% of my original income here. Okay? I'm literally saving.

Let'S say I spent $30,000 on a truck. Okay? That means I'm going to say, let's just make this right here. So $30,000. And I'm not saying you shouldn't do a section 179 and write things off. I'm not saying you should not do that. I'm just saying that people drum it up as if it's like free. They talk about like, oh, it's a write off. I can just buy more. Okay, so now let's assume that you bought a $30,000 truck. This is what it's going to look like if you bought a truck at the end of the year for $30,000. Okay, what happened? Well, I got a deduction. So instead of, instead of having $100,000 income, it went down to 70. Great. Okay. Well, after my standard deduction here, now I'm only going to be taxed on 44,900. The first 19,900 of that is going to be taxed at 10%. The next 25,000 of that is going to be taxed At 12%. So essentially what happened is I saved $30,000 at a 12% interest rate, which means I saved about, I'm just kind of rounding here about $3,400 by buying a $30,000 asset. So you got to ask yourself, am I overpaying right now for this asset? Am I overpaying and doing it under the guise of a write off when I'm literally saving 10, 12%, maybe even less? If you're making less than $100,000, if you're making like 30, 40, $50,000, there's a good chance you're actually not saving any, any money because your standard deduction wipes out most of your profit anyways and you're literally down in this tax bracket here. Okay? So if you, number one, did not make any profit because you're growing really fast, you're investing back in the business, there is no reason to take tax write offs in the year. There's nothing to have a deduction on. You have no income. Wait for it next year because potentially if you hit year three, four, five and you start becoming very profitable, you're going to want all of those deductions, then you do not need deductions when you're at this. I would not If I was down here, I'd be like, I'll pay all the taxes I possibly can. I'll amortize all my trucks for five years because I want to take my tax breaks. I want to take those deductions when I'm actually going to need them and I'm making a bunch of money. A lot of people take all these Section 179s on all of their equipment, all their trucks as they're growing, and then they wake up and they, in year four or five, like making all of this profit. They have no expenses and they have no section one because they section 179 everything off in its first year and took that deduction. They have nothing to depreciate. There are no assets to take deductions on in form of depreciation. So what's the takeaway from this? Not that you should pay more to the government unless you're in these tax brackets down here. I think you should, because in the next couple years, I can guarantee you one thing. Taxes are not going down. So if you're in this bracket, you might actually want to realize some gains, pay some taxes. If you're in this bracket here, just know that you need to run the numbers and that just don't get buy into the hype of like, buy it before the end of the year for tax savings. Buy trailers, buy trucks, buy equipment, pay way in advance. It's like, look, just the time value of money. The fact that inflation is at 7, 8% right now would literally be the savings that I'm getting almost from just Keith. I kept the money for another 10 months until I needed the same thing next year, let alone if I buy a truck and I buy it four or five months before I need it, and now I'm paying insurance and registration on a truck that I don't actually really need until April or maybe, but I'm doing it because of tax savings. But really all 3400 of my tax savings just got wiped out because of taxes, insurance and registration that I have to have on that truck for five or six months when I don't really need it. So hope that was helpful. Don't buy into the hype. If you are making good money though, and you want to take deductions, I'm not against it. I take deductions. I just spent a bunch of money right now to be able to try to bring my taxable income down. I'm not against it. I just see too many people buying into the hype of it and then just really trying to justify unnecessary expenses or going into debt because it's such a great tax advantage. Because you can take the full value, put 20% down on something, take the full value in the first year. Hope that was helpful. And yeah, don't buy into the hype of writing things off and getting things for free at the end of the year. And make sure you sign up for Landscape Summit. Just go to landscapesummit code. Get an amazing sweater just like this tagged just for this one year of the conference. We'll see you there.