035 - Year End Tax Hacks With Mike Jesowshek

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CPA at Jetrotax
Host of the podcast "Small business tax savings"

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Josh Tapp 0:00
What's up, everybody? Josh Tapp here again, and welcome back to the lucky Titan podcast. So today we have CPA extraordinaire, Mike jezza. Check with us here today. He's going to be sharing some year and tax strategies with us. So Mike, let's hop right in man. I Meg, so let's talk about your tax strategy. So go ahead and hop in.
Mike Jesowshek 0:20
Yeah, so now it's kind of that perfect time to, you know, we have a couple weeks left before the end of the year. So now is really a good time where we want to start thinking about how can we minimize that tax liability. A lot of people are kind of run through their books. Now. They're saying, I'm making money and now kind of worried about that tax piece of it. And so kind of the purpose of what we want to talk about here is how can we minimize that tax liability? What are things that we can implement now today that are going to help us down the road or when it comes to tax time by paying a lower tax bill. And so, you know, now is the time to do it, because once January 1 hits, there's a lot of those possibilities kind of go away. So there's going to be a couple different strikes that were To talk about today, there are relatively easy and simple things that you can implement in your business. But before I get into some of those strategies, I do want to talk about some things if you're an S Corp. So a lot of listeners, you might be organized as an S corp, you might hear a lot about an S Corp. And if you don't know what an S corp is, no problem. We're going to kind of dive deeper into that in a future episode. But I just want to put a little flier out there that if you are an S corp, make sure that you run a reasonable salary before you rent. So as an S corp, you're required to run a reasonable salary. So just do a check up on your salary, make sure that it's still reasonable, make sure it makes sense. If you're an S corp, and you haven't run any kind of salary net yet, now would be the time to kind of set that up and make sure you're doing that. And one other aspect is, if you aren't an S corp, and you're paying for your own health insurance, you need to make sure that's included in your pay run. So work with your payroll provider to make sure you're including any kind of S Corp. Self Employed health insurance premiums on your W two and with your salary peace. So just something to think about there. But when we're talking about tax strategies, things that we can do now before you're and one of the main things we're looking at is okay, how can we either increase expenses, lower our bottom line or decrease revenue? And so the first aspect I want to talk about is increase in expenses. And one way that we can do this if you are a cash basis filer, which most small businesses are, you're able to prepay expenses. So you could let's say you're at you're in an office building, you would have the ability to prepay rent up to a year. So let's say you have $3,000 a month in rent. You could today are here in December, you could prepay all of 2020 and get that expense now here in 2019. And so instead of getting a $3,000 a year in December, you could potentially get up to $36,000 a year. is a payment for rent here in December, that's going to go on your on your taxes this year. And when we're talking about that piece, how we just tell clients, make sure you talk to your landlord and make sure that they're kind of aware of what you're doing. So that they don't see big check. Like, I think they may made a mistake and then send it back to you or something like that. So to say, here's what I'm doing. Here's the reason for it. And, you know, also talk to them, because the landlord might say, Well, I don't want that income this year, because they're very similar to you. They're like, well, I don't want a higher tax bill this year. And so there's ways around that you could send them a check on say, December 31. And by doing that, you and you know, I always say send it like with certified mail or something. So you have proof on the date that you sent the check. Let's say you sent $36,000 to your landlord today. You can get that on December 31. And you have proof that a cheque was sent out. You can get that expense here in 2019. And your landlord won't receive that check until 2020 where they'll report the income. So in a situation like that it's sort of a win win for both you and your landlord. So that's one option. And when we're talking about prepaid expenses, that could be all sorts of things. So it could be rent, as we just talked about, but it could be machinery, it could be insurance, it could be a variety of different things that you're prepaying. And so we also look at that that's prepaid expenses and expenses you're going to have, we can also look at other things like office supplies or office expenses, things like that, or advertising, things like that, that you know, you're going to be making an expense for offices, office supplies or advertising in January, wants you to talk to them and say, Hey, can I prepare that today? Or something that we're doing on our end, we have, we wanted we've been always looking at doing a website rebuild. And so instead of you know, we're starting that process today. The website's not going to be done until 2020. But we said you know, can we prepay the bill or instead of putting 50% down, can we do 100% down In most companies, you talk to him and be like, yeah, that
was the money ahead of time because people have seen on collectibles and things like that. So just think of things within your business that you know you're going to be buying next year that you can buy now in this year, get that expense. And again, I always got to talk to clients. This is really only if you have taxable income. If it's if this year might have been a down year, you made a big purchase, you're not gonna have much profit. There's no need to accelerate any of that this year. And I also put it with a caveat is if cash flow is tight, don't go just buying things that you don't need. Just make sure that you're you're still doing logical spending when you're using this type of strategy, not just openly kind of buying items that you don't need and cash flow is just diminishing very quickly, and you're going to get the janitor and be like, Oh, no, what did I do? I just have all these stuff I don't need now. Um, so just to kind of be logical with any kind of prepayment of expenses or buying things early then. then then then is the kind of flip side of that. So that's getting expenses on the books. The flip side of that would be kind of stop billing customers or clients. And this is a strategy that if you're kind of a consultant or someone that's invoicing, a lot of times you send an invoice and then you get paid. Well, one way that you can kind of make sure that some of that income does not hit your books, is to wait to build them or wait to invoice them until after the year is over. So you could invoice them on January 1, get paid in early January, and then that income is not actually hitting your books until 2020. This is another one where I put a big kind of caveat to that. If you're using something like this, don't do it on people that you've had trouble collecting from because you don't want to push off that money and then maybe never collect it. So be strategic. If you're using this kind of strategy. Be strategic in the way that you do it. But you do have the ability if you're a cash basis filer to kind of push invoicing off to the next Year, report that income in 2020. And, you know, I always look at, you don't know what 2020 is gonna look like, it could be a huge year, it could be a very bad year, you don't know going ahead of it. So usually, when we're looking at tax strategies, if you have tax liability this year, it's never going to hurt you to push it off into the next year. And think about things that you can do then kind of on that same vein of prepaid expenses is buying office equipment. If you have desks, if you have computers, if you have things like that, those are expenses that you can make this year. And the IRS actually put a rule in that if you have any expense or any kind of capital expenditure that you're making. If it's under 20 $500, you can make an election where you just expense it immediately, and you don't have to capitalize it. So let's say you buy three computers at $2,000 apiece, you wouldn't have to actually capitalize and appreciate that over time. You could expense that all immediately without This election because it's under that 20 $500 threshold. Yeah. Now, if you do have something, it's over that 20 $500 threshold, with this new tax law, there's a lot of opportunities to deduct it hundred percent in the first year anyways. So there's a good chance if you're buying a computer or something that's a little bit more expensive, there's a really good chance you're going to be able to deduct 100% of that still this year. So it's a good way again, to on big purchases to kind of get those expenses done.
Josh Tapp 8:29
Also, and can I can I ask you to kind of explain that in more layman's terms. So you're saying essentially, they can they can take and you get this this election to be able to pay all the cash down? Or are you saying, I mean, I guess I explained that in a different way.
Mike Jesowshek 8:44
Yeah. So with this 20 $500 election, typically, when you buy a computer or any kind of asset, you have to depreciate it, right? You buy an asset for $5,000 you depreciate that over, say five years. Well, there's there's kind of two Two pieces to that with the new tax law, there's a bonus depreciation. And then there's section 179. And I don't want to get into kind of the code too much in detail. But basically what that says, For most small business owners, you can actually deduct 100% of it. So you'll, you'll still create an asset, and you'll take depreciation, but your depreciation, so spread it out over five years, we'll just be all under percent in the first year. Okay, now the 20 $500 rule is that if it's under 20 $500, you don't have to depreciate it at all. You just take the expense on your tax return. You don't have to do any kind of depreciation or reporting to the IRS what asset you have or anything like that. It's just a straight up expense. So that's why I was gonna say at 20 $500, if it's under 2500 bucks, expensive immediately, don't appreciate it. Don't do anything like that. If it's over 2500 bucks, you'd likely still going to get full depreciation in the first year through various methods that the IRS kind of allowed with the new tax law. That's awesome. Yeah.
Josh Tapp 10:00
So,
Mike Jesowshek 10:01
yeah, we're talking about that kind of prepaid expenses and doing all this spending now in December, you know if cash is tight, or if you're pushing off invoices to next year and you're like, Mike, how can I push invoices off, but then still spend money like that doesn't make sense because money's not balancing in that situation.
Josh Tapp 10:21
Right?
Mike Jesowshek 10:21
If you use a credit card, a business credit card, the expenses count in the year that they're charged on the credit card. So let's say in December, you charge up $10,000 on your credit card, your business credit card, those expenses are taken in December, even though you don't pay them until January. So you can delay your billing, put all these expenses that you're gonna make on a credit card, and then once your billing hits in January, pay off that credit card. So just kind of a reminder to utilize that credit card. You don't necessarily have to utilize cash for these expenses that you're making. You can use a credit card as long as it's a business credit card. And those expenses can be claimed in the year they occur. It doesn't matter when they're paid. Another I talk to clients in this is tax planning in general is, don't assume that you're taking too many deductions. So never assume that you're spending too much or taking deductions you're not supposed to. I always tell clients get kind of creative when you're when you're thinking about tax expenses. If you have legitimate business deductions, don't be afraid to claim them. As long as you have proof to back up. Why it's a business expense. You know, if you're if you're dining out, I always say right on the receipt, who are you with? What were you talking about? Why were you there? You know, how much was it which obviously the receipt will have? But these are all things if you just document that you have proofs if the IRS ever comes knocking, you have you can substantiate that business expense. It's a legitimate business expense. So don't be afraid to take too many deductions. I hear from clients time and say, Well, I'm going to be at a loss this year. So I'm not going to take that home office deduction or I'm not going to reimburse myself for miles, I'm not going to do this because I'm already at a loss. I don't want, you know, I don't want it to look bad or raise any red flags. And I always say, just stop right there. Because if you're if it's a legitimate business expense, there's no problem with taking that there's no problem with having a loss for legitimate business expenses. So again, don't assume that you're taking too many deductions, be creative in the way that you're doing things. If you can tie it to a business, make it a business deduction, even if it's a partial. So if you buy something that's partially business partially personal, just take the percentage that's business use to duck that. And the personal side will not be deduction, obviously, but take advantage. As a business owner, you have a really nice advantage that you can take everyday type expenses, and move them into the business. So if you go out to lunch with a friend that happens to be a client Find a way to make that a business lunch. And so kind of just be creative with with those types of ideas. The next I want to talk about is similar to buy equipment. prepaid expenses is if you need a new vehicle, in your business, whether you know depending on what business type you're in, but if a vehicle is necessary to operate your business, now, it'd be again a great time to potentially look at purchasing a new vehicle or a used vehicle in a lot of those bonus depreciations where you can expense it in the first year that we talked about. A lot of those are available with vehicles as well. And so it just depends on the type of vehicle that you have. But either way, whether you can deduct it all or just a portion of it, it's going to be a pretty significant piece. So this is a good time to if you do need a vehicle to start to make that purchase now, get it on the books here in 2019. So you can lower your tax liability for this year. And the biggest thing with vehicles and office equipment is that you just need to make sure that you're playing putting it in service before yours over. So you have to purchase it and put it in service before years over. When we're talking about a vehicle that's as simple as buying the vehicle and driving it one mile before December 31, that vehicles put into service. Same thing with an office computer by the computer, open it up and log in and set your email up or something like that. And that's putting it into service. So we just want to make sure we're buying and put into service in, you know, kind of before the years over.
So those are really kind of when we're looking at your attack strategies. Those are simple things that any business owner can start doing prepaid expenses, getting expenses on the books of things you're going to need anyways down the road or next year or early next year, paying for them now get him on the books, lower that tax liability, the lane billing saying for my really good clients or maybe my big clients I know pay. As soon as I send the invoice they pay me. Maybe wait till January 1 send that invoice. You don't have to report that income this year. In Kansas, US utilizing these strategies to, to your advantage to help, again, lower that tax liability, make sure you're paying the least amount is legally possible. And so I really like to go through these strategies because they're relatively simple. They're things that everybody can understand and everyone can implement. And so I think that a lot of times, with holidays, everyone gets so rushed, and your mind's going everywhere and everyone's busy. And you don't think about a lot of these things until you start to do your taxes in February and you're like, dang, I just bought a computer in January and I did this, I'm like, that's too late at that point to kind of make that adjustment for that prior year, it's still not going to hurt you, you're going to get that expense. It'll just be a year later. So just something to consider there. And you know, one thing about an unnecessarily tax strategy, but what do you need to start thinking about now is that 1099 or do January 31. And so 299 hours if you pay a contractor or a A vendor that's working for you. If you pay them over $600 in cumulative total throughout the year, you'll be required to send them a 1099 at year end. And so what you can do now is if you don't have a W nine on file, you can start requesting those w nine from those contractors, because that w nine is going to tell you the information that you need in order to file that tenant nine. It's a relatively easy process. It's not too complicated. It's just making sure you have the information. So there'll be nine is going to have name and address, entity type Ei n or social security number. And you're just going to take that information from a W nine and put it on a 1099 in January. And so I always tell clients start gathering that information now because in January, it might be hard especially if you have 1020 w nines need to grab. It might be difficult in January to kind of start reaching out to all of those people to grab those, those w nine so it's something you can do now again, if you paid anyone over $600 you We need to send them a 1099. Now, if you did it via credit card, PayPal, or if they're an international company, or if they're a corporation, you don't actually need to send 1099. But the W nine would show that so if you're like, I don't know if they're a corporation or not. Their w nine will tell you how they're organized, whether it's a corporation S corp, or just a single member LLC or something like that. The w nine will kind of give you that information.
Unknown Speaker 17:27
That's awesome. So
Josh Tapp 17:30
that was the 99. Yeah, the IRS has been cracking down on that half a day. They're getting pretty. Pretty meticulous about that.
Mike Jesowshek 17:39
Yeah, they started to you know, the IRS loves 1099 because it's a small business owner reporting income that somebody else is earning. And so if there was no 1099 the IRS has no tracking to see what that other person is earning. And so the IRS just loves having 1099 because you have people reporting other people Not reporting them, but just telling the IRS what they earned. So it gives them that ability that if I pay Josh $10,000, and I don't send him a 1099, the IRS has no clue I did it. Right. If I send them a 1099, and Josh doesn't report the $10,000, the IRS immediately knows, hey, you were supposed to report $10,000. Where is it? And so it's just because their reporting mechanism and yeah, you're you're exactly right. The IRS is kind of cracking down on that. Because as you can tell, they depend on that really, for a lot of their information reporting. And so if you do not send a 1099, you have the ability to potentially lose a deduction. So if I pay Josh $10,000, and don't send a 1099, the IRS comes back to me and says, Hey, you paid them $10,000. Why didn't you send it to a 1099? They could potentially say we're going to remove that deduction from you. Now, there's ways that you can look around and say, Well, I tried and in other things like that, but just generally stay it's much easier. Just Submit the 1099 get it over with kind of get it off your plate, do it. Yeah. And now's a good time to earn as a necessary time to start kind of planning that. So you're not rushing scrambling in January, as you know, there's a lot of things going on as at the beginning of tax season, so now's a good time to kind of start prepping that stuff.
Josh Tapp 19:18
Well, awesome, Mike, thanks for coming on and sharing all those tips with us. So how can people get in contact with you if they have more questions about this, and maybe they're looking for a CPA this year?
Mike Jesowshek 19:28
Yeah. So they can reach us directly on our website, it's Jetro tax, and it's je t ro, and then tax calm. We're also on all sorts of social media so they can find us any kind of social media platform, whether it's Facebook, LinkedIn, Twitter, Instagram, all those items, they can reach out to us there. We also have a podcast, the small business tax savings podcast, so if anyone wants to kind of hear some more in depth tips, they can go through previous episodes and say, Hey, this one's relevant to me and kind of check out that tax tip that they can maybe implement before your end as well.
Josh Tapp 20:00
That's awesome. Well, we'll post links to all that in the description as well. We'll be seeing you here in the next month.
Mike Jesowshek 20:05
Awesome. Thanks for having me, Josh.
Josh Tapp 20:07
Yeah, for sure. The number one needle mover in my business is joint venture partnerships. Growing a following can be time consuming and frustrating. For that reason we created the tribe of Titans the world's first joint venture matching platform using this free platform you can find guests for a podcast YouTube channel or Facebook group, or you can promote your brand product or service in one simple place. You can create your free accounts as tribe dot the lucky titan.com once again, that's tribe dot the lucky titan.com
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