trick: how to reduce your LAST YEARS tax liability... until April 15th!

Hey everyone, it's Mike Endes. I'm the founder of Augusta Lawn Care. We have over 80 locations around North America. But today I'm talking about taxes because there's a very good chance over the next few years you're going to be preparing your tax return for last year. And so as you get into creating. Okay, well how much am I going to owe for last year? Maybe hopefully you made a bunch of money last year and now you're trying to figure out how you can not pay as much to Uncle Sam. So today I'm going to talk about strategy that you can still take advantage of because everyone thinks that if you did not spend the money before December 31st that you cannot take any deductions, you must pay those taxes. And you are is a hopeless case. That's not true. There's another way that you can preserve your money and save it from being taxed and basically invest your money pre tax dollars. Alright, let me explain. It's called an SEP or a SEP I R A. Okay, now I'm going to go off the top of my head but I think this means simplified employee Pension plan, something like that and investment retirement account. So SEP IRA is basically for self employed people and it allows you up until April 15th. This is the beautiful thing, up until April 15th. That's the deadline for you to be able to make a contribution to your s iron your SEP ira. And there are some requirements here. Now what's going to happen? Let's just say I for example made $80,000 in my adjusted gross income. Alright. Or my AGI. This is typically me on the front page of your tax return If I made $80,000. Now I don't want to get taxed on $80,000. I don't want to give as much money to the government. So what am I going to do? I'm going to put $20,000 into my SEP IRA. And what is that going to do? It' reduce my AGI, my adjusted gross income down to $60,000. So in essence my income went down $20,000. And you could theoretically say, well if I'm getting tax at say a 33% tax rate, I could literally say that I saved almost $7,000 like $6,800 in taxes because I essentially got taxed on $20,000 less of income. So the question is, well, how much can I put into this IRA and what are the downsides? Well, the downsides first and foremost fact you're going to get taxed because at the end of the day we Know that everything is unsure in life besides death and taxes. So they're going to get your taxes eventually. But you can start taking out money from your IRA after the age of 59 and a half and you're going to get taxed then, but you basically don't have to get taxed on all your contributions up until that point. So it's kind of cool. And so first of all you're going to have to wait until you're 59. There's penalties if you take out money before you're 59. That stinks. But you don't have to pay these taxes. That can be a great, awesome, cool thing. Especially if you don't have any cash on hand because you just spent a bunch of money in your business, you invest it and you don't have the $7,000 in taxes that you would otherwise have saved if you put this money into an ira. So what is the maximum amount I can contribute? Because theoretically you say, well you know what, by the way, I could actually take $80,000, just throw that into my IRA and not to pay the government any taxes. Well there is some limits to this. If you're a self employed person.

You can only contribute up to 20% of your net income. Okay, so only 20% of this amount, 80,000 in this case could I contribute to my IRA, my SF IRA. So theoretically in this case if I was self employed I would not be able to put all 20,000. Now you can go up to 25% if you have an S Corp. So if you're an employee for an S corp and you're the owner, you're able to do up to 25% in this case $20,000 into that SEP IRA. And again it's pre tax dollars. So that money goes into the ira. That then brings down my adjusted gross income. I save money on that amount. So I hope that was helpful because for a lot of us you might have been really busy in November, December, the holidays and all the rest of it and you just caught up and you forgot to actually sit down with your accountant and actually go over numbers. And if you have and being caugh I caught with an unexpected tax bill, first off, congratulations, you're making money. That's a very good thing. I don't ever think that paying tax is a bad thing because it means I'm making money and obviously I want to reduce that so I can invest it and make it more, make it better, grow and invest that money. But it is a good thing at the end of the day. So congratulations. But obviously this is a great way to keep your money sheltered from the tax man. Now at the end of the day you have to believe in the IRA and know how when your money goes there and how it gets split up into in different investment accounts. I've seen some people where they put it in and it is managed by a fund and they end up spending most of their money on fees to a mutual fund than they do actually in returns. So you need to understand what an IRA is. So this is not to say that everyone just goes start a SEP ira because guess what, I don't have a SEP ira. I go after real estate and then I self manage my stock portfolio so I can get around other fees and I have to wait until I'm 59 to take that money out. I want to be more liquid than that. So it's not to say everyone should do that this but if you're considering a short term tax strategy, this might be a good idea for you. For more business topics and advice, subscribe and we'll see you on the next video.