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Strategic Tax Moves to Boost Your Business's Bottom Line · The Confident Entrepreneur With Jennifer Ann Johnson

• 0:37
  Jennifer Johnson: Today we welcome back into the studio Fernando Torres, and he is with S Taxes.
• 0:42
  Jennifer Johnson: Welcome back.
• 0:43
  Fernando Torres: Thank you so much.
• 0:44
  Jennifer Johnson: You were on our last podcast.
• 0:45
  Jennifer Johnson: We chatted about what's new for 2024, for taxes, and, wow, I learned a lot, thank you.
• 0:52
  Jennifer Johnson: Now I want to know about business write-offs.
• 0:55
  Jennifer Johnson: Okay, like everybody wants to know, right, what can I write off?
• 0:58
  Jennifer Johnson: What do I have to do to not pay taxes or get a refund?
• 1:01
  Jennifer Johnson: Yes, so what are?
• 1:08
  Fernando Torres: some common business write-offs that we can legitimately take advantage of.
• 1:10
  Fernando Torres: Sure, the first nugget that I want to give out is that one of the biggest strategies that I utilize is having each type of tax structure.
• 1:17
  Fernando Torres: So each tax structure provides you different benefits and different deductions.
• 1:23
  Fernando Torres: So, for example, the C-Corp there's the.
• 1:26
  Fernando Torres: S-Corp, there's the single member LLC.
• 1:28
  Fernando Torres: Those allow you to write off different things, and so a lot of newbies into the business world, even people who are seasoned, they don't take advantage of this.
• 1:40
  Fernando Torres: They're stuck with one structure for their entire business life and they're limited to what they can deduct.
• 1:45
  Fernando Torres: So, for example, c Corp, the C Corp.
• 1:49
  Fernando Torres: I love the C Corp.
• 1:50
  Fernando Torres: A lot of people don't, a lot of CPAs don't, but it allows the business owner to deduct a lot of fringe benefits.
• 1:56
  Fernando Torres: So, like medical expenses, I have a family and medical expenses can be heavy some years.
• 2:01
  Fernando Torres: I have a son who has eye issues and so we have some out-of-pocket costs, things like that.
• 2:07
  Fernando Torres: There's a tax law that allows for health insurance reimbursement.
• 2:12
  Fernando Torres: I take full advantage of that, and so that's available to the C-Corp for owners of the C-Corp.
• 2:21
  Jennifer Johnson: So the question about that and this may be.
• 2:23
  Jennifer Johnson: I don't know the answer, but is it true that if you're a C-Corp, an LLC has more I don't know legal protection for the owner than a C-Corp?
• 2:37
  Jennifer Johnson: Is that true or is that fictitious?
• 2:39
  Fernando Torres: They're the same.
• 2:40
  Fernando Torres: It would be the sole proprietor.
• 2:42
  Fernando Torres: So if I'm Fernando Torres just working as a tax preparer, I don't have as much protection as if I was an LLC or corporation.
• 2:50
  Fernando Torres: So they both basically do the same.
• 2:52
  Fernando Torres: It's just how things are structured and how things are taxed.
• 2:57
  Fernando Torres: That's the difference between a corporation and an LLC.
• 2:59
  Jennifer Johnson: And for our listeners who may not know.
• 3:01
  Jennifer Johnson: When do you determine what type of business you are?
• 3:04
  Fernando Torres: So I would say the easiest structure is the LLC.
• 3:08
  Fernando Torres: So when you first start you'll be that single member LLC and it's the least expensive.
• 3:13
  Fernando Torres: You register with whichever state you're in and then maybe you get the local licenses and permits and all that stuff.
• 3:18
  Fernando Torres: Even if you're a home-based business you still need a home-based license with the county or city.
• 3:23
  Fernando Torres: I would say that's the easiest because a lot of people treat their business account as a piggy bank.
• 3:28
  Fernando Torres: So as you upgrade to corporation you need to be careful on how you withdraw money.
• 3:35
  Fernando Torres: So C-Corp is the strictest.
• 3:37
  Fernando Torres: You can't take any money out unless it's a repayment of a loan or a payroll.
• 3:45
  Fernando Torres: So you can't do distributions from a C Corp.
• 3:49
  Fernando Torres: That's only available to S Corps and LLCs and sole proprietors.
• 3:53
  Jennifer Johnson: Okay, otherwise you're basically just taking money from the company.
• 3:56
  Jennifer Johnson: Yeah, how it's looked at.
• 3:58
  Fernando Torres: Yes, so you have your company.
• 4:00
  Fernando Torres: Let's say you have an LLC.
• 4:01
  Fernando Torres: You have your company and you make $10,000 on a contract.
• 4:06
  Fernando Torres: That's pure profit.
• 4:07
  Fernando Torres: You can take it out of the business, but it's still taxable, of course, because taking $10,000 out for personal use is personal income and so you have to set up systems.
• 4:19
  Fernando Torres: So, going back to your original question, when does it make sense to maybe change structures?
• 4:24
  Fernando Torres: They say usually around $40,000 to $50,000 of profit from an LLC that you should think about converting to an S-corp.
• 4:32
  Fernando Torres: Okay, but not a C corporation, okay.
• 4:48
  Fernando Torres: But if you come to me as your tax preparer and I know you're disciplined and you have family and you want to be able to write off most of these fringe benefits I will push you to C-Corp.
• 5:01
  Fernando Torres: But it's very rare.
• 5:02
  Fernando Torres: Most people who come in.
• 5:05
  Fernando Torres: They have to be trained and their mindset has to change, right.
• 5:08
  Jennifer Johnson: What other business write-offs are there out there that we may not?
• 5:11
  Jennifer Johnson: We know that there's the meals and all of that, but what else is there that we may not be taking advantage of?
• 5:18
  Fernando Torres: Sure, I think a big one is.
• 5:20
  Fernando Torres: Like I said, I'm an employee of my C corporation and I get an achievement award.
• 5:26
  Fernando Torres: So that allows me to get a tangible gift from the business, tax-free.
• 5:32
  Fernando Torres: It can't be cash, it can't be a gift card, it can't be a ticket to like a sporting event or to like a Ruba or something like that.
• 5:40
  Fernando Torres: It has to be something tangible.
• 5:41
  Fernando Torres: So when you hear I don't know if you watch movies or whatever, this is where I see it where somebody retires and they get that gold watch, so that value for 2023 and 2024 is at $1,600.
• 5:56
  Fernando Torres: So what is an achievement?
• 5:59
  Fernando Torres: So it's Probably if you're in a manufacturing industry, if there's no accidents for a year, that could be an achievement.
• 6:10
  Fernando Torres: Or you're with a company for the year, five years, 20 years IRS actually has it within the publication when you can award this.
• 6:21
  Jennifer Johnson: And you can award it to yourself.
• 6:23
  Fernando Torres: If you're a C-corp.
• 6:24
  Jennifer Johnson: If you're a C-corp, you can be like oh, I had a great year, I'm going to go out and buy that Louis bag If it's under $1,600.
• 6:30
  Fernando Torres: Correct If it's more than it becomes taxable income, the difference.
• 6:34
  Jennifer Johnson: Oh my gosh.
• 6:35
  Jennifer Johnson: So how does it work?
• 6:37
  Jennifer Johnson: Now that we're on the subject Bonuses, employee bonuses Okay, bonuses, they have to be put in their check to be taken out.
• 6:46
  Jennifer Johnson: You can't just give them a gift card, you can't just give them cash.
• 6:50
  Jennifer Johnson: How is that looked at?
• 6:52
  Jennifer Johnson: How does that work?
• 6:53
  Fernando Torres: So another great deduction is gifts.
• 6:55
  Fernando Torres: I think people underutilize that.
• 6:57
  Fernando Torres: I use it all the time.
• 7:05
  Jennifer Johnson: I have multiple businesses, so I gift to each businesses, but it's technically at $25 per person per year.
• 7:08
  Jennifer Johnson: Oh, that's it.
• 7:08
  Jennifer Johnson: Yeah, I know it sucks.
• 7:08
  Fernando Torres: Oh my gosh Because people would take advantage of it.
• 7:10
  Jennifer Johnson: Right.
• 7:11
  Fernando Torres: And so if you give $25, that's tax-free to the recipient, the employee.
• 7:16
  Fernando Torres: If you go beyond that, then it becomes taxable and you run it through payroll Right and so you're paying payroll taxes and you have two options of the withholding.
• 7:27
  Fernando Torres: Sometimes I don't know if you've heard people who get like $100,000 of a bonus or something.
• 7:32
  Jennifer Johnson: Wow, I would like that yeah.
• 7:34
  Fernando Torres: I've heard people get big bonuses and I'm astonished because it's more than what I make and so there's two withholdings.
• 7:42
  Fernando Torres: So there's a bonus withholding.
• 7:43
  Fernando Torres: It's usually 25% or you can just use the regular tax bracket that they're in.
• 7:47
  Fernando Torres: But usually people will take the bigger portion because they might owe more with this extra $100,000 plus their regular W-2.
• 7:56
  Jennifer Johnson: So what are the benefits of taking some of these write-offs?
• 8:00
  Fernando Torres: Of course it's a comfort of life lifestyle.
• 8:04
  Fernando Torres: So, like I said, for me I'm paying for.
• 8:07
  Fernando Torres: The business is paying for my health insurance and my medical out-of-pocket medical costs, so I don't have to take that as payroll self 75%.
• 8:20
  Fernando Torres: And then also that income is also not taxed because, let's say, I need to make $10,000 to pay for my out-of-pocket health insurance.
• 8:34
  Fernando Torres: That's going to be taxed and then that's going to be reportable in my tax return.
• 8:38
  Fernando Torres: So you're potentially paying two taxes.
• 8:42
  Jennifer Johnson: Double taxed right yeah.
• 8:43
  Fernando Torres: Wow.
• 8:44
  Fernando Torres: So, yeah, I think just knowing knowledge is power.
• 8:48
  Fernando Torres: It is, and so that's what a good CPA should do is provide you with that service that they know and can help you with the write-offs.
• 9:00
  Jennifer Johnson: Is your closet overflowing, or maybe your kids' closets are as well, or maybe you just want to redecorate your house.
• 9:04
  Jennifer Johnson: If you're looking and wondering what to do with all the stuff that you've accumulated, bring it all to True Fashionistas, or even ship it to them for free.
• 9:12
  Jennifer Johnson: They will sell your unwanted items for you and take away all the hassle by doing all the work, and all you have to do is sit back and collect your money.
• 9:18
  Jennifer Johnson: You can reach out to them online at truefashionistascom, or come into the store or check them out on Facebook or Instagram, and that's truefashionistascom.
• 9:27
  Jennifer Johnson: Welcome back, friends.
• 9:29
  Jennifer Johnson: We are back in the studio with Fernando Torres from Serro Tax Services.
• 9:34
  Jennifer Johnson: Did I say that right?
• 9:35
  Jennifer Johnson: It's Serro Taxes.
• 9:36
  Fernando Torres: There's no services, no, no services.
• 9:38
  Fernando Torres: Serro Taxes.
• 9:40
  Jennifer Johnson: DBA.
• 9:41
  Jennifer Johnson: All right, we're talking all about write-offs today, and I find it very fascinating, just because it's the way to save money.
• 9:50
  Jennifer Johnson: It's the way to not avoid paying taxes, but to get more bang for your buck, I guess.
• 9:58
  Jennifer Johnson: So how can businesses maximize their write-offs?
• 10:03
  Fernando Torres: The biggest thing is understanding what their tax structure allows them.
• 10:08
  Jennifer Johnson: Which is what the S-corp C-corp yes.
• 10:09
  Fernando Torres: C-corp, yes, and utilizing your CPA.
• 10:12
  Fernando Torres: I think the biggest misconception is that when you hire a CPA that they're going to do everything for you.
• 10:21
  Fernando Torres: You have to communicate with your CPA what are you going to provide me for this fee?
• 10:28
  Fernando Torres: So if somebody comes to me at the end of the year, I'm assuming that they're going to use me just for tax prep, but I'm available all year round for tax consultation.
• 10:37
  Fernando Torres: So I think that's the biggest thing to help a business get to one, get systems in place, and to utilize somebody else's expertise to help you with deductions.
• 10:54
  Jennifer Johnson: And I think I totally agree with that, because you know, back in when I started my company, that's what we thought of our accountant was oh well, they're the one time a year to do our taxes.
• 11:00
  Jennifer Johnson: But the more you get into your business, the more seasoned you are, the more you realize how beneficial having that meeting maybe once a quarter how often would you suggest, because I know that's important?
• 11:15
  Fernando Torres: Sure, yeah.
• 11:15
  Fernando Torres: So I want to do quarterly.
• 11:18
  Fernando Torres: It's really tough because I've had a growing company and so you just get bogged down with the accounting and then you get late clients and you do catch up work and so it's just an endless cycle of more and more work, because if you do a good job you're going to get referrals and you're just going to naturally grow.
• 11:34
  Fernando Torres: So my goal for 2024 is to do quarterly, and a good CPA should be doing quarterly as well, if not at least once a year, definitely once a year, hopefully by the fourth quarter.
• 11:46
  Jennifer Johnson: Once a year, but not the once a year do my taxes, so you're really seeing them twice a year.
• 11:50
  Jennifer Johnson: Yes, essentially, if you look at it that way, do you have some tips for our listeners how they can keep track of the write-offs that they're doing?
• 11:59
  Fernando Torres: Yes.
• 11:59
  Fernando Torres: So I usually recommend, if they're a small business with 20 transactions or less, just print out your statement and then write next to it what it's for, so you have a check.
• 12:11
  Fernando Torres: For example, check one, two, three, four.
• 12:13
  Fernando Torres: The IRS doesn't know what that is, they don't have a copy of the image, but if you can write it, it was to John Smith for repairs and maintenance of your office, something along that line.
• 12:24
  Fernando Torres: And then I would say, once you get beyond 20 transactions, you can use a program like Sage, quickbooks, wave App, xero I think there's a few more.
• 12:34
  Fernando Torres: That's probably the best.
• 12:36
  Fernando Torres: So as you grow, you want better systems.
• 12:39
  Jennifer Johnson: That makes complete sense.
• 12:40
  Jennifer Johnson: Okay, this is a big one for our listeners, because I know everybody has this on their mind at some point and they're all freaked out about it, because I would be too.
• 12:48
  Jennifer Johnson: How, as a business, can you prevent being audited, or can you prevent that Sure?
• 12:56
  Fernando Torres: I would say first, don't DIY if you have a business.
• 13:00
  Fernando Torres: Second, don't go for the preparer who says they can get you the biggest refund preparer who says they can get you the biggest refund being in the Miami-Florida area, there's a lot of fraud and it's already known that Miami-Florida has a lot of financial fraud, and so I picked up clients who've dealt with these poor preparers and what they do is they promise the world that you can deduct 100% of your home, 100% of your car Basically anything that hits your personal piggy bank is going to be tax deductible.
• 13:31
  Fernando Torres: So just stay away from those people.
• 13:34
  Fernando Torres: Reviews people can fudge with reviews and things like that.
• 13:39
  Fernando Torres: Just ask a friend, family, whatever it is, another business colleague, maybe join a BNI or mass network, something like that, and you'll have somebody reputable to help you prepare for that tax return.
• 13:52
  Jennifer Johnson: Yeah, because otherwise you're opening yourself up, I'm sure.
• 13:56
  Fernando Torres: Yes, and so that's the first step, and then the next.
• 13:58
  Fernando Torres: Everybody's going to say it again documentation.
• 14:01
  Fernando Torres: As long as you have a box where all your expenses are, that's fine, I'll take that any day.
• 14:07
  Fernando Torres: Expenses are, that's fine, I'll take that any day.
• 14:09
  Fernando Torres: And the problem is is when you need something, those receipts become faded over time.
• 14:14
  Fernando Torres: So I don't know if you've kept receipts for years they become faded.
• 14:21
  Fernando Torres: It's just the type of paper and the ink that they use, and so that's why having the bank statements there within all one pile will be great.
• 14:25
  Fernando Torres: In case something happens and you do get audited, what do they do about that?
• 14:29
  Jennifer Johnson: Sorry, the time faded the thing.
• 14:34
  Fernando Torres: So hopefully you still have your bank statements, because if you pay cash, your receipt is your defense Right.
• 14:38
  Fernando Torres: So what happens is, if you can't defend your deduction, they will usually and if it's something that doesn't look like it's business related, they will definitely put it in as distribution.
• 14:50
  Fernando Torres: And then if you have a C corporation, then that could be a dividend and you're going to pay the dividend tax which could be a mess.
• 14:58
  Jennifer Johnson: What is dividend tax?
• 14:59
  Fernando Torres: So the C corp pays the tax of any profit.
• 15:03
  Fernando Torres: So how do you take the profit out of the business?
• 15:06
  Fernando Torres: You have a loss the following year or you do a dividend which is, depending on the timeframe of the earnings.
• 15:15
  Fernando Torres: It could be taxed at your taxable income rate, which right now the highest tax bracket is 37%, or long term, it could be either from zero, depending on your income, all the way up to 20%.
• 15:28
  Jennifer Johnson: But if you are an S-corp or any other, then you pay your taxes as your business personally.
• 15:33
  Jennifer Johnson: Is that correct?
• 15:34
  Fernando Torres: Correct.
• 15:34
  Fernando Torres: Yeah, so you're going to get a K-1 from the business showing your profit and your distributions and anything else that's taxable, and then you put that on your personal tax return and spits out whatever tax liability or refund you get.
• 15:46
  Jennifer Johnson: I see Interesting.
• 15:47
  Jennifer Johnson: Is there any other tax information that you wish your clients or future clients knew?
• 15:56
  Jennifer Johnson: What do our listeners need to be enriched or enlightened on from your world?
• 16:02
  Fernando Torres: So I would say, if you're going to DIY it, the proper publication, the proper source is big.
• 16:10
  Fernando Torres: So are you getting?
• 16:11
  Fernando Torres: Are you reading articles from, let's say, accounting today, a CPA journal, maybe from another reputable CPA?
• 16:19
  Fernando Torres: Are you just Googling because you see TikTok videos?
• 16:23
  Fernando Torres: I hate TikTok videos, oh my gosh.
• 16:25
  Fernando Torres: My client sent me hey, is this something that you can do?
• 16:28
  Fernando Torres: And so TikTok videos is like it's 15 minutes, I'm sorry, 15 seconds of the sexy write-off.
• 16:36
  Fernando Torres: How like?
• 16:36
  Fernando Torres: Okay, the Augusta rule, Like you can rent your-.
• 16:40
  Fernando Torres: What is the Augusta rule?
• 16:41
  Fernando Torres: So the Augusta rule is it became because of the wording came from the Masters Tournament.
• 16:47
  Fernando Torres: It's a golf tournament, so you have all these beautiful homes around the golf course and people were just renting it out for the tournament.
• 16:54
  Fernando Torres: So if you rent your house out for, let's say, $5,000 a night for 14 days or less, that's actually cheap tax-free income to the owner.
• 17:04
  Fernando Torres: Wow.
• 17:04
  Fernando Torres: So yeah, like I said, there's great tax levels.
• 17:07
  Fernando Torres: You just have to know where to find it, who to trust and be able to apply so that you're not taxed.
• 17:15
  Jennifer Johnson: Right, wow, so that's a really good nugget.
• 17:18
  Jennifer Johnson: What else?
• 17:20
  Fernando Torres: Let's see.
• 17:21
  Fernando Torres: Sorry, what was the original question?
• 17:24
  Jennifer Johnson: In your world.
• 17:25
  Jennifer Johnson: What do you wish that people knew?
• 17:28
  Fernando Torres: Okay, so a reputable source.
• 17:31
  Fernando Torres: Don't listen to TikTok or Instagram.
• 17:34
  Fernando Torres: The fake news.
• 17:35
  Fernando Torres: Yeah, utilize an expert early on.
• 17:40
  Fernando Torres: You go.
• 17:41
  Fernando Torres: I know I do the same thing.
• 17:43
  Fernando Torres: Something happens, I have a runny nose, my throat hurts.
• 17:45
  Fernando Torres: What do?
• 17:45
  Fernando Torres: we do, we go online first Dr Google, we all.
• 17:46
  Fernando Torres: Something happens.
• 17:46
  Fernando Torres: I have a runny nose, my throat hurts.
• 17:48
  Fernando Torres: What do we do?
• 17:48
  Fernando Torres: We go online first Dr Google, yeah, dr Google, and then it gets serious.
• 17:51
  Fernando Torres: Then, okay, we go to the doctor urgent care, whatever it is.
• 17:54
  Fernando Torres: As a business owner, you specialize in whatever you do.
• 17:58
  Fernando Torres: You're a plumber, you specialize in that industry.
• 18:02
  Fernando Torres: Go ahead and start delegating that industry.
• 18:07
  Fernando Torres: Go ahead and start delegating.
• 18:08
  Fernando Torres: That's how you're going to grow your business.
• 18:09
  Fernando Torres: But if you want to be that person who just has their own business, just for lifestyle, you don't want to worry about staff, you don't want to worry about anything, then, like I said, make sure you use the right publications, the right resources, right?
• 18:19
  Jennifer Johnson: You know that's right, go ahead.
• 18:20
  Jennifer Johnson: No, that's a great tip.
• 18:22
  Jennifer Johnson: You're right, because, tiktok, everybody becomes an expert, right, and nobody really knows.
• 18:29
  Jennifer Johnson: And what can you tell me in 15 seconds?
• 18:31
  Jennifer Johnson: That's going to grab my attention.
• 18:32
  Jennifer Johnson: That's really going to be legit.
• 18:33
  Jennifer Johnson: Employing your kids, so that's one that's been going around I have heard, yes, that you can pay your children up to a certain dollar amount.
• 18:43
  Jennifer Johnson: Correct, yes, it's $13,000?
• 18:44
  Jennifer Johnson: .
• 18:44
  Jennifer Johnson: Yes, the standard deduction rate.
• 18:45
  Fernando Torres: I think it's $13,000?
• 18:46
  Fernando Torres: .
• 18:46
  Fernando Torres: Yes, the standard deduction rate, I think, is about $13,000.
• 18:49
  Fernando Torres: Now, is that true?
• 18:50
  Fernando Torres: Yes, it's true.
• 18:51
  Fernando Torres: You just have to do it the right way though.
• 18:52
  Fernando Torres: Okay, so I know we have 15 seconds, but they have to be on payroll, a legit payroll service, or, if you do it by hand, you still have to do the 941s, w-2, w-3, all that fun jazz stuff.
• 19:05
  Jennifer Johnson: Got it, but you can pay your child.
• 19:06
  Jennifer Johnson: Yeah, very cool.
• 19:07
  Jennifer Johnson: Well, fernando, if our listeners would like to get a hold of you, how can they do so?
• 19:12
  Fernando Torres: Sure.
• 19:12
  Fernando Torres: My email is info@serro taxes.
• 19:17
  Fernando Torres: com S-E-R-R-O.
• 19:18
  Fernando Torres: My cell phone is 954-999-2300.
• 19:21
  Fernando Torres: And you can text me.
• 19:22
  Fernando Torres: Call me.
• 19:23
  Jennifer Johnson: Fabulous it's been great having you back.
• 19:24
  Jennifer Johnson: Thank you!