Dashboard: Businesses Can Still Save on 2024 Taxes

[Music] welcome to another 21 hats dashboard I'm Lauren felin and I'm here with Jean Marks happy Monday Jean hello Laur and I'm fresh back from Yellowstone National Park baby can't recommend it enough anyone who's listening right now should uh should should definitely plan a trip to Yellowstone were you there for the closing taping of the uh Yellowstone episodes we we were we stayed uh right outside of the park in a little town called Garder Montana and uh boy you go November and you pretty much have the part to yourself that's a good tip and uh so no crowds no traffic and we saw bison we saw bear we saw wolves coyotes elk anal we saw bald eagles how how close were you to the bear far enough that it was okay but I got news to we went on a couple of hikes with bear spray and I wasn't too happy about it I just yeah everybody's like it's fine you'll be okay there's nobody around in November it's pretty empty and you go through the woods there and you're like Jesus you know like we're you know I don't know but so well I'm glad you made it back yeah made it back in one pace all right so Jean every year you write about and we talk about uh last minute moves that business owners can make to reduce their tax burdens for the year and I always hear from owners who really appreciate the guidance so guess first of all is there anything different this year that you would call our attention to right off the bat that's a really uh great question and and it it's the only thing that would be different is some of my comments that I have on the uh the inflation reduction act that's relatively new um but for the most part um the ADV this is from a Philly inquir column that I just did last week and I interviewed a couple of accountants and um and by the way as a CPA and one who covers I I could have pretty much written this without interviewing but they like me to be a reporter so um you know and usually every year it's like the same kind of stuff but sure but we all need the reminders is we do we need the reminders and I also like um I I like having this conversation now where we're in the middle of November um because there is still time to do something you know and I oftentimes get asked to like come on like TV for example to talk about last minute tax tips on December 31st you know what I mean which is insane so so I'm glad we're having the conversation now and to get to that yeah so the inflation reduction act you know I mean that that's the the new we can get some of the other stuff obviously but there are tax credits available um and they are are for businesses not just individuals um for installing energy efficient equipment and renewable energy sources and having Sustainable Building practices um there are tax credits if you use electric vehicles again in your business remember you're um you know even if you have a personal vehicle you can get a significant tax credit if you buy it and then you know you might use half of it for business use that's okay okay so it is you those that's a new thing are there any things you need to be concerned about what makes it okay yeah so when you're a um you know as an individual you can buy a car when you buy the car you um uh you know you have an individual use and if you have a business use of the car in your small business as long as you're tracking the expenses related to it you can deduct the expenses related to your car for business use I've done that for years I mean I have a car and uh I use it obviously for personal use but then I use it a lot for traveling around to clients you know and and whatever and I've over the years I you know I always track it and I keep track of like my gas expenses sometimes people use mileage rates which is also fine but um but you could deduct the expense of buying the car when you first bought it so you can if you buy a car and it's half used for your business you can deduct you can allocate half of the cost of that car to your business and you can use that as a as a capital asset and depreciate it as part of your business so again got to have the documentation to support it and along with that is the say you know the um the tax credit now the the the government what we found with the IRS they've been pretty lenient about taking advantage of the tax credit so for example say you buy a car um your individual car and it's a it's an electronic vehicle and you get a $7,500 tax credit which by the way you can take that now right at the dealership against the cost of the car uh so that's a big discount that you can get on it you know you know you you took advantage of that credit personally but you still if you're using your car 30% for your business and you want to allocate you know your expenses for the card you can you can also be doing that as well do you know what I'm saying like you don't have to claw back any of the tax credit or any of that kind of nonsense the again the IRS is not being very stringent about that rule they want you to you know the tax credit is available because it's motivated to get an EV and that's what the government wants you know is encouraging you to do so um that's why I would you know you know encourage people to do that do you own are you do you have a hybrid or a EV car I do not uh I have a relatively new uh Honda about a year old uh but it's not uh a hybrid or a UV yeah neither do I I I have a regular gas guzzler I mean listen I mean I only shower like maybe twice a week so I do save the environment there you know but when it comes to my car too much information Jean yeah I'm uh I'm I'm I'm hurting the envir the only thing is I live I live in this city so I can't uh plug the car in anywhere it's a lot harder that that would be a concern wouldn't it you're talking about the inflation reduction act um and the credit because of that but there's also the Capital Equipment uh deduction that's Section 179 I believe um and can you do that on top of the inflation reduction that can you do both you can actually if you buy Capital Equipment you can take advantage of the credit and then whatever is left that you did not uh that you didn't get the credit for you can use that as your as your deduction so let me let me back up a little bit okay so the um the Section 179 deduction it's Capital equipments right so you buy Capital Equipment up to 1.2 you know2 million for an item and what's Capital Equipment oh like uh you know Machinery you know equipment it can't be real estate um it can be a lot of furniture and fixtures and it can be software computer Hardware could be the car uh it can be a car Autos are part of that as well so you can use that and when you get it you you take a firste deduction for it um and some people they can either take that 179 deduction um there's also been something called bonus depreciation where if you reach a deduction limit it's a total of three about $3 million you can take even additional deductions for bonus depreciation but those are have been starting to get phased out out as the tax cuts and job acts from 2017 has been expiring but the bottom line is is that for the most part for most small businesses you know you can buy up to about three million total in Capital Equipment during the year and um and and take that deduction in the first year as long as you put that equipment into service so you can't just buy it and park it you know or stick it away somewhere if you buy a piece of equipment machinery Hardware software an automobile um it's got to be used used before the end of the year it's got to be in service and then you can take the full you take that full deduction for it this year that's a big deal you know that really is do people really check to see if you've put it in service well if you ever get audited yeah I mean there's there you know there there's ways I guess to go and check and see I mean if you buy a piece of equipment on December 30th and it doesn't get delivered until January 5th um then the assumption is it was not put into service and you shouldn't be deducting it and I think that's where people get into trouble is when they do last minute things like that and then it's just to the naked eye you can just see well there's no way that was put into service so you got to be careful on that but to your other question um if you do buy or invest in in equipment that's energy efficient if you do get tax credits from the inflation reduction act so it reduces the cost of the equipment or your vehicle for example you can still take advantage of the 179 deduction for the remaining amount of the purchase you know so these are all things and and this gets back to uh you know not Mak the decision on December 31st it's the middle of November so if you've got some Capital Equipment plans go and do it take put it into service and take that big deduction now in your piece you also mentioned something that I found intriguing which is that another way to save on your taxes is to contribute more to health insurance for your employees explain that yeah that's a little tax trick that uh another CPA taught me uh a couple of years ago and and I interviewed Ray minut who's a CPA in the Philly area uh was confirmed it so the average raise uh according to Mercer and a few other HR consulting firms the average raise in 2025 will be about 3 to 4% that's what uh they're estimating okay it might even be as in last year ADP was reporting that average salary increases were 4.8% so we're somewhere in that 3 to 5% raise okay range so if you give your employees just a raise um on their salary um they will get taxed on that because it's compensation and not only will they get taxed on it but you will pay employer taxes on that as well so that is that's the way it is if you want to avoid those taxes instead of giving your employee a raise of that amount or maybe you do it for half that amount um you instead contribute more to their health insurance because when you contribute to an employes health insurance they don't get taxed on that comp on that contribution you get a deduction for it as well so you're avoiding paying employer taxes on it and the employee is not getting taxed on that Health Care contribution they're getting more paid towards their health care so they're still getting that amount and their net paycheck is still higher so everybody walks away um net net better and saving on taxes if you just allocate more towards health insurance as opposed to just straight out salary it's an interesting little trick it's really interesting have you ever tried that have you done that no and I should I wonder how employees respond to it I mean I can imagine it makes perfect sense but you can imagine some employees thinking wait a second are you trying to get away with not giving me a raise here yeah I you know what's funny these so first of all in my company you know full disclosure uh we don't we don't contribute to our employ we have healthcare insurance but we don't contribute to it we're not a big business and we just can't afford to do it and frankly not a lot of our employees participate in it anyway because uh they have other plans and better plans with their significant others but in addition to that I I've given this advice countless times to clients and to people that I speak to and I I'm not sure I know any that's actually taken it that's really interesting it sounds good it does and they're always like huh yeah okay fine and then when it comes time to give a salary increase they just do what they've been doing so uh it's it's one of those things that's really intriguing I'm GNA I'm going to ask around about that and see if I can get somebody interested in it um or or at least explain why they wouldn't do it which would be interesting too right another thing you mentioned is that the drive CPA crazy is their when their clients don't pay their estimated taxes on time I was surprised to see that because I kind of thought I was the only one who did that who don't pay him on time yeah is is that more of a widespread thing than I realized yeah everybody and I mean come on you you one of the many things that I love about you and your organization in this podcast is that you are you're fully transparent so tell me why don't you you know why don't you pay I'm not saying you're avoiding taxes in any way but why why sometimes do you not pay it on time is it just forgetfulness or is that by Design well first of all let me tell you I I've really made a point this year to pay it on time uh which I have in fact done um so I I have taken it seriously you know in the past I you know I've had a career where I've gone back and forth a little bit between being an employed and having this bus now that I'm trying to run so sometimes I delude myself into thinking well you know I'm probably not going to have to so I don't have to worry about it it's probably laziness is the the best explanation it is so you hit on that head a lot of it's laziness um a lot of it is people hate to pay taxes uh just you know in general um a lot of it is cash flow you know like got to pay in your estimated taxes and you're like I don't have the money to do that it's all tied up in receivables and inventory you know what I mean so people have a lot of reasons why they don't pay their estimated taxes in on time I'm guilty of it as well uh I've done that a couple times I've you know delayed it um one of the things that I do to to to mitigate that is um I'm pretty close with our accountants um in fact I quoted a guy named Mitch gersin in this piece who is my accountant he's a tax uh director at his derer and Company in you know outside of Philadelphia and um I you know I share with them my my p&l for my company um on a quarter L basis and we adjust our estimates I mean remember you you have to pay in either 110% of your prior's taxes or 90% of your current year's taxes so you know if I'm having a slower year you know I i' I've been known to go to them I've work with them for 10 years and say like you know what we're not having as good a year as we had last year so do I need to be paying in all this estimated taxes you know like you know if if we readjust the calculation and more often than not we'll we'll redo the calculation be like yeah you you can pay in less in estimated taxes um if your year is slower and still meet the requirement you know what I mean so that's what I've done but some people just blow it off entirely and it drives accountants bananas because it's it's not only do they have to be subject to penalties um for doing that late payment fees and all that which is just giving money to the government for no reason at all but you know it makes life so much harder for your accountant you know and then it just puts you more and more in a hole you know as the year goes on so um you know the the the big piece of advice is pay your estimated taxes timely and you know you and and work with your accountant because you don't have to pay the same amount every quarter it depends on how your year is going that's a great Point uh because my accounting usually just gives me a set fee to pay you know quarterly for the rest of the year and I don't really think about it but um it does make sense uh to to check on that I think you know the other reason why I haven't done it is because it there there's nowhere I nothing reminds me that I'm going to have to pay a penalty and it's it's only when the penalty comes and you know I got one and that's why this year I made the payments but I think do you probably for other people the fact that the the penalty isn't an obvious thing it's not like everybody knows your taxes are due on April 15th or whatever um they don't know what the percentage is what they're going to have to pay so it's easy to let it slide it's true and and you're absolutely right it's not like you're being getting a note noce a late payment notice from the IRS um you just don't know about it until you actually file and pay your taxes at the end of the year so um so that kind of seeps through but I don't know Lauren I mean come on I mean ask anybody who's been running your business for a while you get it you know what I mean like this is not a mystery and it's not a uh uh my God there's a penalty if we pay we pay late you know so but it won't be that much yeah but it won't be that much so it's just you know it's just a you know it's common sense and for anybody who's been running a business we know we should be paying your taxes and timely but yet we still need our accountants to beat us up about it one other thing you had another item in your piece that uh intrigued me in which you suggested that it there can be advantages if you there's a partnership that owns the business to reallocating the earnings yeah explain that yeah it's it's it was a very good point that um uh Ray minck again one of the CPAs that I interviewed you know brought up um he you know he was pointing out that like if you have a business and a lot of small businesses are Partnerships he gave the example of a of a business that's like say it's you and your spouse you know um and he gave me a specific client situation where you know you're you're you're you're running the business with the spouse then you equally pay each other uh so you know you have $120,000 in compensation and each of them get $60,000 and he's like you know depending on the job responsibilities and the roles you may want to really consider reallocating the compensation so that one of the owners gets paid significantly more than the other again it's got to be within parameters but if you're able to do that first of all the one owner who's getting paid more than the other will will more quickly reach the limits of you know FICA you know for example you know what I mean and even State unemployment taxes so that certain amount of their salary won't be taxed after that so that's number one and then number two is you know that one person if they're getting paying a lot more they'll be entitled to more in Social Security you know um whereas the person being paid less there were like minimum amounts of Social Security that get paid out so again using his example he's like listen you know if you're a husband and wife and you're making 120 Grand a year and you know you're both just splitting it equally you may be hurting yourself from a tax standpoint you know you should um really because particularly if one of the spouses really isn't you know doing much or the others doing a lot more than the other you really may have a good basis for allocating a lot more income salary to one of the partners and their advantages for for doing that on the other hand couldn't this kind of test the strength of the marriage I mean I don't want her getting more Social Security payment than me what yeah yeah it's well listen hopefully the money's going in the same bank account so both both can see the Benjamin anything you're working on this week that we should look for Jean yeah I I wrote um uh for entrepreneur uh which I I'm writing it now actually um about paid time off I'm Revis I love that topic La you know PTO um and and how it is uh uh this comes it's all about unlimited pay pay time off and I'm giving a bunch of reasons like 10 reasons why every business should consider an unlimited paytime Off plan so I'm having kind of fun writing that is it because employees never actually take the time that they uh there's 10 reasons you're going have to read those that happens to be one of them and which by the way that that's not a good thing for employees I mean there's mental health issues there that have to be considered but these are uh these are all things though that I still I think paytime off unlimited paytime off plans are um I think they're really a great benefit to provide so uh so anyway I'm in the middle of writing that and then of course I'm writing a bunch of postelection stuff as well um and my reactions to that so uh that's what's going on sounds good Gene marks is a CPA who writes weekly on small business for the guardian the hill the Philadelphia inquire the Washington Times the Chicago Daily Herald Forbes and entrepreneur you can also hear him on ABC radio's eye on the world with John Bachelor Jean hosts two small business podcasts with paychecks Corporation and the Harford thank you Jean thank you Lauren we'll see you again next week have a great week everybody [Music]