Small Business Smart Taxes workshop 2 20 26

Hey everybody, I'm glad you're here. I'm Penny with Pennywise Coaching. I'm here with Michelle Dyven, is how you pronounce it, right? With a heart. Um, and we are here to talk smart, smart taxes, small business smart taxes or something, whatever we called this. But, um, we, we wanted to talk a little bit about that intersection for small business owners and entrepreneurs, and we both get questions all the time about tax stuff, and we're coming right up on tax season and filing and things for people. So we thought this would be a good time. So for those of you that couldn't make it live, I'm sending this out as a replay afterwards, and we will, you know, hopefully dive in and get to share some things that will make your business better. So just real quick about me, if we haven't met, I'm a financial coach, so I work primarily primarily with people on their personal side of their money. I do a little bit with small businesses, but mostly I have focused on personal budgeting, debt elimination, and finding money to save and grow wealth in that factor and being very mindful and intentional with your money. And I'm also in a networking group with Michelle, and we've talked a little bit about how our paths cross and, and we have similar passions around people and money. She's much more— I think she's smarter in the money sense. So, uh, I'll deal with the behavior. She's got the nitty-gritty detail stuff down. So I'm going to let Michelle kind of introduce herself and start us off, and then we'll kind of wrap up with talking about some, some of my side of the fence as well. So Michelle, let you take it away.

Well, thanks, Penny. I appreciate that a lot. Um, I'm Michelle Divan, uh, with MD Tax Pros. Um, one thing interesting interesting about me, everybody's going to learn. I am what's called an enrolled agent. I'm not a CPA, um, and what that means is that enrolled agents, um, we're licensed nationally by the IRS. Doesn't mean we work for them, but they just hold our license. And essentially what that means is that all our continuing education that we have to do to maintain our license is in taxation— tax law, tax planning and strategy, tax resolution, If it's tax, we are getting trained on it. The other difference is that CPAs are generally licensed by the state, and their continuing education that they need to take can be in any branch of accounting, not necessarily tax. So that's really the crux of the difference. My firm is pretty small. It's myself and another enrolled agent. We are— this is my 8th season already. My I've got one full-time preparer that works with me that's also an enrolled agent, and that's all we do all year is tax. So, yeah, I was going to be—

it's not just January to April that you work.

Oh, goodness, no. I work all year. I'm lucky to get off the last 6 weeks of the year, and usually then it gets really busy. Yeah.

Yeah.

So this is the time of year for small businesses and tax planning and what can I do? And How do I get my— how do I get my expenses together? What can I deduct? What can I do? And the big one that always seems to be the big holdup is the home office deduction and also auto and auto mileage deduction. So that's kind of what I'm prepared to talk about. But if there's any questions from anybody that chimes in, if there's more residents that jump in, I can answer a lot of questions on the fly.

Maybe before you go too much down that vein, could you talk a little bit about the types of entities and how we as entrepreneurs can be or should be, um, designated. Talk a little bit about that.

Absolutely. That's the, uh, that's another really good question. People are always, um, wondering, do I need to get an LLC? Um, I always recommend getting an LLC, but one thing you have to realize, an LLC is a limited liability company. It's registered with the state. An LLC has nothing to do with how you're taxed. Um, so it's a really good starting point because an LLC is what's considered a disregarded entity. You yourself can act as an entity. You can present yourself as a business name LLC. You have an EIN to present, um, a W-9 to people, so you're not giving your, your Social Security out to people. But the IRS disregards the fact that you're an entity altogether, and it just taxes you. So two things that fall into that is a sole proprietor LLC or a single-member LLC. The next jump that comes in is an LLC can elect to be taxed as an S corp. An LLC can also elect to be taxed as a partnership and as a C corp. So just that people get an LLC doesn't mean that you— that means anything to me. I need to talk to you about how you're taxed and what you do. But I usually have some rules that I tell people to say, here's a good time to move. From a sole proprietor or single-member LLC into an S corp, or this might be a good time to move to a C corp. But we really walk through some of the income limitations to say this is a good time to do it, or this— don't do it right now because it's going to cost you more money than you're going to get in tax benefits.

Yeah, yeah, I think that's— I hear people say or ask, so are you an LLC or you're an S corp? And you and I talked about that and said Yes, you know, it's like not an either or, it's a both.

I know. And so my favorite is like, what's your entity? I'm an LLC. I'm like, it doesn't tell me much, help me out.

Yeah, well, and let's go one step backwards. I don't know where people are coming from in their, in their business journey here that might be watching this, but, um, I think one of the struggles I see and, and encounter a fair amount is when people are having a business and they jumped into this business, they probably knew nothing really about business. They just had a passion, like Penny being a financial coach, right? I didn't, I didn't take business classes, but oftentimes people, what we, what we term, commingle their money, right? They, they pay out of their business or personal stuff, or they pay personal stuff, you know, business from their personal accounts. And they're just like, oh yeah, I just— and, and oftentimes when I'll say to somebody, okay, well, how much do you make? You know, your business can make— everybody throws around the, oh, make six figures. It's like, well, did you make six figures or your business made six figures? And they're two very different things. So talk a little bit about any struggles or story you have around people that commingle and why maybe they should consider a different way?

Well, just from the commingling aspect, as your business makes money, it's easy to think, oh, look at all this money I have, and just pull money out of your business bank account and then forget that next week your insurance premium was due for your business liability. And now you've got to put money from your personal back into your business. I notice when people start moving money back and forth and back and forth and back and forth. They constantly feel broke. So one of the big things I talk with people about is always try to have a little bit of a cushion when you start a business and build up your business account so that you have enough money in there to cover expenses and get yourself onto a regular payment schedule. Like, take the draws from your bank account on a, you know, twice a month basis, like you would be getting a paycheck almost. And that's another good question that people wonder is like, well, I'm just a sole proprietor, how do I pay myself? Well, you pay yourself with whatever is left over in your business account after you've accounted for your expenses and after you've put money aside to pay for your self-employment and income tax, right? Then whatever is in that is left over for you and investing in your business.

Yeah, that's one of the things that as I've worked with small businesses and I had to learn this and struggle through it myself, but, um, there's a book called Profit First. Are you familiar with that book?

I've not seen it, but it sounds, it sounds like a good idea.

It's kind of made it the last 10 years or whatever. Mike Michalowicz is the author and he basically talks about kind of flipping that story and saying, Instead of waiting to see you're profitable, you become profitable from tomorrow because you set it aside on purpose. And then what's left, you can pay your expenses. And you are, you are one of your expenses, right? That so often I meet people who are almost really doing a hobby, but they're calling it a business, but they're never getting paid. And, you know, you can do that maybe for the first few months or a year, but if you're doing it for year after year, you really don't have a legitimate business. And there's some guidelines around that on taxes too, right?

There are. Generally, if you've gone more than 3 years in a 5-year period with a loss, the IRS will, will and can jump in and say, sorry, this is a hobby. We're no longer allowing any expenses on this.

Yeah. Yeah. So I think that mindfulness and, and that's definitely one of my strengths is to help people create that you know, seeing where the revenue is coming from, planning to pay themselves, like you said, twice a month, like, like you're working for somebody. And right, and I, you know, my first paycheck— and, and I was guilty of this probably for a year—

of, I—

oh, the business needs it, I'm going to keep, you know, I'll just leave it in the business. My first paycheck, I think, was $100, and I paid myself $100 twice a month. And then I would go up from there, but I would create a system to I also wanted to have a safety net in my business. So sort of the extra thing that I did that I didn't really read in that Profit First book, but I created a, a category that's kind of a, a salary fund, if you will. So that it's like my, when my business ebbs and flows, Penny still gets paid because, you know, so many of us have irregular income. And if I brought it all home this month and had no clients next month, well then You know, that makes it hard on the personal front to budget, right?

So, right.

It's if you treat it like a dance a little bit that they need to work together. And, and yet, like you said, one of the biggest things people are not doing is saving for taxes. You know, I just talked to a client of mine yesterday that owes $40,000 in taxes. He makes good money, but he didn't, didn't yet set aside taxes. So not only is he trying to get ahead of quarterly taxes for '26, he's paying back big chunk of taxes for '25, right?

So that's painful.

Yeah, it is. And, you know, hopefully we can weather the pain this year and not repeat the problem again in the future. But that's realistic. And if, if you're little, it's much easier to set aside that percentage. And I guess I don't know what the percentage ever should be. I've heard people say, oh, you should set aside 30%, and somebody else say, you know, 18%. So it really is dependent on you and your finances and whatever, whoever else you have in your partners and stuff, right? How much to save?

It really does. I, when I talk with my, my small sole proprietors that are, you know, service businesses like plumbers and electricians, I generally tell them to put aside 10% of their gross income before any expenses happen. But if you're more of a consultant service like a tax pro or a mortgage person or real estate, well, not real estate, they don't, they're a whole different being. But, you know, the consultants and those people, I tell you to put, maybe put closer to 20 to 25% of your gross aside because why? We don't have as many expenses, right? We don't have the contractors, we don't have the supplies we're buying, we don't have heavy equipment. So that Generally, it's very, very, very anecdotal. But when I sit there with somebody who hasn't paid, I said, look, look at what your gross income was. If you had put 10% aside, you would have paid your taxes. And they're always like, oh my God, how?

So yeah, yeah. And it's, it's easy to spend every dollar that we let come into our, you know, hands. And if you treat it as, okay, that's not my money, that's the IRS's money. I don't get to play with that. And then when tax time comes, if you didn't need it all, great, so you'll get some back. But, um, exactly. Yeah, better to oversave than undersave and get penalized because there's insurance and penalty— or interest and penalties when there is— you don't do it right.

And I am a big proponent of making those estimated payments. Um, they're painful to make, especially the first year that you're getting to do it, because usually I'm going, oh look, you owe $4,500. Oh, and you got another $1,500 you've got to pay this same day for your first estimated tax. But I can't. It's like, had you done this last year, this first estimated payment wouldn't be a big deal because you would have already paid all this. And so I, I tend to really coach people heavily on getting these things paid.

And if we could get them at the beginning, I think too often people don't come to you until they've been in business for a while, right?

And they all of a sudden go, Usually the first year they're filing, they're like, hey, this is the first time I've done it. And luckily for that, the first year they're filing, unless it's a fluke, it's usually not crazy, um, huge profit-wise. It's like, okay, here's a little bit of what you made. Here's what's going on. Let's start getting this taken care of now. Yeah. And then they're, then they get pretty good about it. They understand the pain of having to write a big check. Yeah.

Well, and paying you a little bit to help them avoid that is well worth it.

It does make it a difference. And then I always remind them, it's like, don't forget my fee's tax deductible, so you can deduct this from your taxes.

Exactly. Yeah, same. All right, so now let's go down the, the— what are some things that small businesses could be— I know there's probably a gabillion, so Everybody needs to know this is not an inclusive list, but some things to maybe help people think, oh, I didn't even think that. So if, I don't know if you have any things you want to share, feel free. I think you have the ability to screen share, but just talk a little bit about what you've seen people not do and what you might want to remind us that we could do.

I think a lot of times, and here we had touched on this earlier about the commingling of funds, is a lot of times when people start commingling funds, they forget that they had a payment to an accountant to prepare their taxes, or they forget they bought software, um, or they have their phone on a family plan and they're not paying for that from the business or paying themselves from the business. So knowing what is tax deductible is a good, good place to start. And one of the things I tell people is like, have you ever looked at a Schedule C? They're like, well, I don't know. And it's like, well, let's download one. Let's pull one off the IRS website and look at it, and it's very clearly going to tell you what kind of things are tax deductible. Um, and reading through that is so important because people forget. Oh, I forgot I went to that, that networking group last— a couple times, and those can add up. And I forgot that, um, what's the big one? You know, office supplies. I had to buy all that printer ink, and oh, I totally forgot about that because I use my personal card to pay for that. And just looking to know what is deductible— software and apps. I mean, that's the big one. People get those subscriptions and they completely forget that, oh yes, I've got Rocket Money or something like that to help me budget. If it's within their business, it's something that's tax deductible.

Well, and all the more reason to keep your accounts very separate, right? And to pay for things that are business through your business checking or credit cards so they're easy to find and they're easy to track. I think that's one of the things that gets so overwhelming with people is that they're looking in 5 million different places to find these receipts and charges and blah blah blah. And they— it's, it's so much easier if you just do it out of one account.

It is. And I tell people, it's like, if you are with a bank that you can download your, um, your transactions to me, I can generally do a year of bookkeeping in 45 minutes. Like, there's no way. It's like, no, because I know how to go in and manipulate the data out of the bank to get you a really quick and dirty P&L. And they're like, oh, so— and help teaching people how to do that is, is kind of priceless. And, um, I won't admit more than a little selfish on my part because once they know how to do it, I can give them my tools. This is what I use. Let me show you how to use this. And then they become the great clients because they get me the— their income and expenses on the format that I like.

Nice. Okay, so they don't have to have Quicken or, um, Wave or anything, any, any kind of system they can—

my sole proprietors can use an Excel spreadsheet.

Great.

I have one I've developed for people. Um, I actually could share that with you if people were looking for a replay. Um, and it's just a real quick and dirty way to enter your expenses. It will account for How to track your expenses for a home office, which I was going to talk about. So it's a really helpful tool. And for most small businesses, no, you do not need QuickBooks or Quicken or Wave until you need an official set of books. I have credit cards, loans, and liabilities.

Okay, good. That's good to know. Yeah, let's make it that they can reach out to you. We'll put the— put your information in the chat or mention it at the end, and then also include that in the email. And if they want that, they can reach out to you to say, hey, I'd love your freebie, you know. Yeah, great offer. Okay, so talk a little bit more about the home office type deductions.

Well, I think I like to talk about home office deductions because I think they, they have a stigma attached to them. People are under the impression that, oh my God, that's a huge audit flag. Don't do a home office. Oh my God, you're going to do a home office. You have to depreciate your house and oh my God, and then you've got to pay everything back and nobody knows how to do this. So I've got some couple really easy things on the home office basics that I love to share with people so that they kind of understand and make it not be so scary. Okay. One of the big things I think that people watch out for is, you know, not understanding that you can still take a home office deduction as an S corp. You can still do a home office deduction when you're a sole proprietor. And those are kind of the things that I'd like people to be aware of. Let me get to— there we go. So essentially, this is me. I'm Michelle Divani, a MD Tax Pros. My contact information is here. We will have it here again at the end, and Penny Kidd will share that as well. But a couple of things. There's two different ways to, to claim a home office deduction. One of them is the easiest way to do is called the Safe Harbor method. It locks in a $5 per square foot of business usage, maximum 300 square feet. So you can take a maximum deduction of $1,500 per year. No depreciation is taken. No allocation of actual expenses. Really simplifies recordkeeping. I honestly recommend this, people, to people for the first couple of years, because if you run a loss on your first year of business, they don't let you take that home office deduction. So why go to all the accounting and thing of keeping track of all the expenses that you could have when you can do this for the first couple years when maybe your business made $2,000 and you have a $1,500 deduction for a home office, let's just take advantage of that and we'll just move forward. So all this does is takes advantage of square footage. Michelle, how big is your office that you, you work in? Is It's 144 square feet. That times 5 is 720. There's my standard home office deduction every year. I don't have to do anything else but report my square footage. Okay, so this is by far the easiest. However, you see it maxes out at $1,500 a year. The other method is the actual expense method. This is when we calculate the actual business use percentage of your home. And I really work a lot through this with people because I want them to understand, um, what is business use of the home? Are you seeing clients there? Are you at home doing your marketing videos from your office? Are you doing your invoicing? Are you sitting in your office doing your books? Are you sitting in an office doing your strategic planning for the business? That all counts as business use, and why that's expensive will be covered in my last slide. So remind me to remind people why it's important to have a home office when you're a sole proprietor. Okay. So the business percentage uses the same thing, takes the office square footage of my total home. So I'm going to use easy math. My office is 14 144 square feet. My home is 1,440 square feet. 10% is business. So what that means is directly in my office, if I came in here and said, oh my gosh, my door broke, I have to repair my door, that's 100% deductible to my business. Maybe I put in a special door because it goes outside of the house. That's 100% deductible to my business. Me, for example, I have internet that is different, that comes into my office, that does not go to the rest of the home. That's 100% deductible to my business, whereas others are going to take the business use percentage of their internet as a home office. So indirect expenses, these get allocated by expense. So in my case, 10% of my total home is used for business use. My mortgage interest is $5,000 a year. $500 of that goes towards office use of home. So start adding these up. At $500, my property taxes are $4,000 a year. $400 of that goes to office use of home. There's $900. I'm above that, that standard, um, Safe Harbor method right there. Now my utilities. We know how expensive utilities are. Add up your gas, your electric, your security if you have security on the home, your HOA, your water, your sewage, any utilities that you use in the house. 10% of all that is a business, business use of home write-off. Your renters or property insurance, good God, that's gotten expensive. 10% of that is written off. And then general repairs and maintenance. Um, let's say that within my entire home I hire a cleaning lady that comes into my house twice a month. 10% of all her fees are deductible towards my business if she comes in and cleans my office. So a really great example is I was working with a client last week. She's got a pretty big office. She does a lot of, um, cut and paste supply work. So her office is 300 square feet. So I said, well, your safe harbor is 1,500. But how big is your house? And it turned out that her business use percentage was about 9.5% of her home. She's got an expensive house. So her actual expenses went to $8,800 instead of $1,500. But, you know, that's a great deduction. But the IRS, of course, does have some rules around that. We do have a home office depreciation that happens. So of that example I just used, $1,100 of her $88 that she was able to deduct, that portion was the business use depreciation of her home. So what that did was it took the, the value of the structure, and this is where people get scared when they're like, I don't know how to do any of this. My technique is to go to the county assessor records. It tells you How much is assessed of your home value as land? How much is the structure? You can get a percentage, and then based on the fair market value, you can say, okay, this much is the building, and we depreciate that over 39 years. So it's the business use percentage divided by 39 years. So in her case, $1,100 a year is a business expense. It's a paper write-off. It's nothing that she pays out of her pocket, but she gets to deduct that off of self-employment tax, income tax. It reduces those taxes down. This is the one where people get scared. The first thing about the Home Office Appreciation AVE is people like, I don't know how it works. I don't— just forget it. The second part is this depreciation is subject to recapture upon sale, and it's really not that scary. So people are like, you mean I'm going to have to pay money back if I sell my house? And I thought you didn't have to pay taxes when you sold a personal home and do, do, do. Well, this example that I just used with my client, she's been getting an $1,100 a year deduction for using business use of home. Let's say in 3 years she sells the home. Well, if she sold the home for $1 million, 10% of that was business use. 10% of her capital gains might be subject to capital gains tax, usually at 15%. So that's not a bad trade-off for what you're getting for getting to take that deduction. Plus the depreciation recapture is $3,300. So $1,100 over 3 years is something that she needs to pay back, not directly, but a tax on that. So usually about 20%. So usually the trade-off for being able to take the deduction far outweighs taxes that you might have to pay. Particularly if you sold a million-dollar home. I went way ahead. There we go. If you sold a million-dollar home, what is in your pocket and what was not subject to capital gains is like, oh, I've got to repay about $1,100. Not a big deal. People are okay with that.

Interesting. So, and, and even, you know, in your brain, that's all, um, like this percent of this, this percent of this, but when it all comes down to it, that's when you ask your CPA to help you figure out that number, right?

Exactly. And if you're working with somebody like me, um, we have these records, we have them every year. So you're like, hey, I sold my house, and I'm like, oh, well, we've been taking a home office deduction for the last 3 years, so I'm going to have to do a little bit of work on your home sale before we go over here and NFSA, none of it's taxable. So that's just something that helps.

Like how far— like I've been in my house 30 years. Like what if I, you know, take another 20 or 30 years to sell it? Do you still have to capture this and remember that? Or is there some kind of—

you do technically. Generally what I do is when somebody has ceased to do business yet still stays in the house, I have their permanent files. To say here's the accumulated depreciation that you've taken over the year— years, pardon. And yes, when you sell it, it is subject to recapture. If you die, depreciation dies with you. So for my rental classes, those are, hey, your technique is exchange, exchange, exchange, defer that depreciation, defer those capital gains, defer that depreciation. Then when you die, The depreciation dies with you, so your heirs never have to worry about depreciation.

Okay.

Not a lot of people, I mean, yes, people stay in their home a long time, but not a lot of people have run a business out of their home and then stay in that home another long number of years after a period. So, but we just keep it remembered and it's like, this is in your permanent file. I just move it year over year until we need it.

Okay. And then you said, I don't know if this is a good time. Remind— tell us why we need a home office. Is it specifically this or is there more?

No, this is coming up on the auto. Okay.

Okay.

That's my very last slide. One of the things I was talking about, my, my gal who has had that deduction taken, an $8,800 deduction for business use of home versus $1,500. We didn't need to make sure that she meets the IRS exclusive rules and regular use. That the space must be used exclusively for business. That doesn't mean that I've got a corner of my room and everything— it's in my bedroom and I have, you know, part of my desk drawers have got some of my purses and things in them. If you have— are stuck with just a section of your room, find a little way to divide it with maybe a screen divider or a curtain and just make sure that that little section only has business items in it. My office, I'm going to be honest, I do have a couple pairs of boots and a couple purses hanging in my closet, you know. So if the IRS is ever to come audit me, out of there right away. But it's like 2 pairs of boots and 2 purses, and I'm just like, I don't have room upstairs. But people can cross that line easily. It must be used regularly for business. It's not just like, yeah, once a week or once a month I sit down and do 2 hours of work and I'm going to claim a home office the whole year. Don't want to do that. Principal place of business or a place of meet— to meet clients. Principal place of business, this is where I invoice, this is where I do my marketing, this is where I do my strategic planning. That— now we're getting into why it's important. Separate structures can apply. My painters, my electricians, my plumbers, they've got supplies, and you're not going to bring those into the house. So they have apportioned like 2 of their 3-car garage is my storage unit, that's qualified. You know, it's like this entire side of the garage. There is nothing in here that's anything but what I used to go paint houses or do plumbing or do electricity. Daycare has exception. I do not work with any daycares, but the exclusive use rule gets modified because you— kids are going to be everywhere. Yeah. So that's kind of what I'm going to hit on home office. I was going to touch slightly on auto expenses and mileage logs. Auto expenses, and you can claim auto expenses same way with a home. Two methods: Safe Harbor standard mileage or actual vehicle expenses. I'm not even going to go into the actual vehicle expenses because 9 times, 9.5 times out of 10, the standard mileage rate is more beneficial, and we're always going to take what is more beneficial. However, mileage logs, people are always like, oh, I probably drove about 5,000 miles and 10% of that, or 50% of that was business. That's not a mileage log, because if you're ever audited, you're not going to be able to give me the date of the trip, the start and end location, the purpose of the meeting— which, this is what everyone forgets: who did you meet with, what'd you talk about— and the number of miles. So this is why I usually encourage people to use something like a MileIQ. So that it will log all of this, and it's just like a dating app. You can swipe right for business and left for personal, and all your business, you can go in and say who you met with and what you talked about. Commuting miles are not deductible. Whoops. This is why having a home office is very important. This is for my people like me, or massage therapists, or people that do bodywork or personal trainers, you're not going to usually bring those people into your home, but you have to drive to go see your clients. Oh, is it not showing up on the screen here? Did I—

I can see it. Yes. Question.

Um, this is where I can say I'm a massage therapist and I do my invoicing. I bill my clients from here. I do my marketing. I do my strategic planning. I have to leave this office to go visit clients. That's when they become non-commuting miles. If you don't use that as a home office, I know tax preparers like me that rent an office somewhere and they try to say, well, I drive to my office every day. It's like, no, that's commuting. Yes, doesn't count. So this is why I will work with people on— this is why you do want to try to establish a home office so that you can write off some of those miles that wouldn't otherwise be considered a commuting mile.

So there was a question, um, in the chat. Let me read it to you and see if it makes sense. Otherwise you can unmute yourself, Naomi. So she says, I have wigs and costumes, etc., because I use them in coaching calls. Would that discount my office? I use the room exclusively for work. I just have sequins and face glitter for work.

So that would make sense. If you've got a business use for an item in your office, it absolutely makes sense. Two things you want to consider: is it ordinary and necessary within your business? In my business, wigs and facial glitter is not ordinary, right? I could make it necessary, though, if I market myself as the entertaining tax preparer, right? In a case like yours, Naomi, You know, you need to break through to kids and sometimes, and you need to get through trauma with people and you need to lighten up the mood. And in case that I would consider that, I'd go to bat with you to say no, I would consider that an ordinary business expense. And in your line of work and trying to comfort your clients and make them feel comfortable, it becomes necessary.

Okay.

So always keep that ordinary and necessary. It's going to be different for every business. Okay.

Yeah, I've, I've, one of the couple of the things that I've come across over the years is somebody who will say, oh, I, I need this dress to go to work. I, it's like, well, that's—

I argued with a client who wanted a $1,500 dress to go to Fashion Week, and she's like, I can't go naked. I go, But you can wear this dress elsewhere. Here's the rule on uniforms. If you can wear it for something else and people will not automatically identify you as Michelle Divan, MD Tax Pros, it's not deductible. So I might need to look nice at my business networking meetings. That's not deductible. But if I go out and I buy logo polo shirts that have MD Tax Pros and maybe have my tagline on the back, That's a business uniform. Yeah, that would count. Um, I, I will go to bat for a lot of my clients in areas to explain the necessary and ordinary, and that's where I get on my people about the marketing. Um, if you market yourself as such, as a special niche within your, um, your business area, you may have expenses that are different than me. So like I talked about, the, the Entertaining Tax Pro, I'm going to make things fun and do videos. That person's going to have a whole different set of expenses that are ordinary to his business than I am. And the more that you can present that persona on your website, on any social media feeds that you do, in the event you're ever audited, those are the things I'm going to say, go get your website, go get your social media feed, go get this, and we're going to go through this and we're going to show the revenue officer, no, this is necessary, this is ordinary for her business and how she markets herself. Good. Yeah, I, I will fight those.

Oh, one— I think another big one that I've come across in working with clients is meals and entertainment. Can you talk about that? Like, what's Yes, I feel like some people run a little loose. I'm pretty conservative on that, and I've also been told no, it's okay to do some. So let's talk about how do you quantify something as a business meal and how you get to write that off.

Contemporaneous logs. This word right here. You keep a log of every meal you go out with. Who did you meet? What did you talk about? You will need that for every business meeting that you have. It's not just a line on your credit card. It is a log of meals. Now, again, ordinary and necessary. For real estate agents, meals are a lot more ordinary and necessary than they are in my line of work, right? Business meals, unfortunately, are only deductible at 50%, whether you're meeting with a client The entire tab is 50% deductible, or you're traveling to a continuing education seminar. They're 50% deductible. Meals that are not deductible are, um, my electrician job, driving from job A to job B. I'm working, I had to stop and get food at McDonald's, and I do this every day. Those are not deductible because there's no business purpose. The IRS assumes you're going to have to eat it anyway, whether you're working or not.

Right.

So business meals need to have somebody you're meeting with, or you need to be traveling for a business purpose to use them.

Okay. And I don't know if I misunderstood you, but I want to clarify, like, if I go to a conference in Minneapolis, that's a travel meal, isn't that? Fully deductible, different than the 50%?

Still 50% deductible. The IRS assumes you're going to have to eat. Oh, you're— they're gonna, they're gonna let you take a deduction because you're not at home, but it's not totally deductible.

Okay.

Yeah, I get people do that a lot. I'm like, I'm sorry, your travel meals are still only 50% deductible.

Okay. Yeah, and it, you know, I think the thing that we've all been exposed to or seen on whatever, then it's like, oh, here, I'll pick up the tab. I'll just put it on my business because I have a business to write it off. And I think people have to be really careful about that.

Well, you're only going to get 50% of it. And if you pick up one giant whopping tab and didn't want to pay for a house, too bad.

Yeah.

And you're still going to want to have a contemporaneous log. I mean, who was there? What was the purpose of them being there?

That's good. That's good feedback for me. I've kept receipts, but I haven't done a log. So good tip. Yeah.

And keeping the receipts, you can always write those on the receipts and just kind of keep your meal receipts kind of pulled together. Unless you get insane. I mean, I wish I could have that standards. I think they kind of like to hide that. But every time you go to file your taxes, there's a little 6-digit business code for what, what your type of business is. And the IRS has standards as they run through that, and they'll see that a realtor is going to have a different marketing budget than a tax pro. Okay, we're going to have a different meal budget than an electrician. And so they have these standards across different, um, business codes. That's why it's really important to talk with your tax pro about what you do for business.

Okay, that's good to know. So we're not all equal in that sense.

We're not all equal, no.

Okay.

Yeah, because like I have supplies, my supplies are going to be so much less and so much different than a handyman or an electrician, you know, just something like that.

Yeah, yeah, awesome. Okay, any other slides? What else you got up your sleeve?

That was the end of the slides, so I'll go ahead and I will stop sharing and we can just come back to us and Yeah, that was helpful.

I don't know if, um, if Naomi, if you want to come off to ask any questions, but, um, I think that was great. And I will record that, I mean, or save this recording. I think we can, um, we can share it with other people that we work with, that these are timeless tips, I think. And obviously every year changes in the tax laws change, and that's why having somebody who specializes in that, it does make a difference, right? But I hope that people really walked away with some, some valuable information here and get that, you know, if they need somebody, you're available and to take on some new clients and are very patient in the education realm and teaching is a big passion of yours. I think so.

Yeah. And I do specialize in small businesses. That is kind of the area of specialty of my business. But I do appreciate you letting me talk. I can talk taxes. I watch. I watch to see if people's eyes glaze over, then I know to change the subject. But my brother and I drove to South Florida together last winter, and one of the gals there was sitting there and she's like, yeah, I love my brother, but what did you guys talk about for 30 hours? I go, he got 30 hours of uncompensated tax advice.

Great. All right. Well, I will make sure that everybody has your contact information and it's, it's in the video too. But, um, and I'll put mine in there if people have issues around the, the actual planning and the budgeting and how you save for these kinds of things. Um, I think we're a good power-up team. So I'm really grateful for all that you shared. And if we can, you know, serve people in any other way, we— that's why we do this, you know. And maybe, um, this—

it—

I don't know whether it helps people with this tax season, but it for sure should help them get organized for next year, right?

Absolutely.

That's one of the biggest things is like, okay, you can't undo a lot of what you've done, but you can do better next year.

So yeah, and that's a big thing is I— that's my big thing is like, well, we haven't done it the best in the past, but moving forward, here's what we're going to do.

Yeah, yeah, yeah, because, you know, we don't know what we don't know. And, and some of this stuff, it does seem scary, but at the end of the day, it really all comes down to, are you going to get audited? Do you feel lucky? And have you done belligerent, intentional ways to defraud the IRS versus like, oh, I didn't write this on that thing or whatever?

Yeah, unknowing versus fraudulently knowingly doing it is two totally different things. And yeah, I am very big on coaching people on, you know, I have people that tries, well, I heard this and I'm going to do this and this and this. And I said, well, I'm going to tell you what, my name's not going on that tax return. How much do you want to do this still? Yeah, you know, that usually makes them think, if I'm not going to put my name on the tax return, we're not going to do it. But, but like I said, I will go to bat with people to say, no, I'm going to tell you why this is ordinary and necessary. If I have if I believe in that, if my client can make a good enough case to me, I can say yes, I can make a good case to a revenue officer.

Yeah. Well, I think, you know, you probably just saved some of us a lot of money. And if we're, if we're smart in how we do this, that's part of the joy of being in business is getting to take some, some tax deductions and still pay our fair, reasonable amount. Right. And that's— I don't want to pay extra and I want to take every legal deduction that I get, and I want to be able to stand before any auditor and feel confident in why I made the decisions I made. So I hope this helps our small business owners move forward in both their business and personal life. So thanks for having me.

Well, thank you so much, Penny Kidd.

You bet. Good night.