Will These 5 Write-Offs Keep You From Paying Any Taxes?

Everyone’s least favorite time of the year is tax season. However, knowing some write-offs can make the sting a little easier. Watch this video for advice from Matt (an enrolled IRS agent) on what you should write off and maybe lay to rest a few misconceptions. Save this video for when you do taxes next!

There are tons of people out on social media giving business advice. Some of it is good advice, but most of it isn’t good. In this series watch, CapForge’s owner reacts to different advice videos. He’s an expert in all things business and has 20+ years of experience under his belt. Some of the things he reacts to might even surprise you!

Video Transcript: 

Business Advice Video: 

Here are the top five write-offs for new LLC owners. Number one, take your home office deduction and make sure you’re taking the advanced method instead of the simplified method. The advanced method is technically called the regular method but it just allows for you to write off the square footage as opposed to writing off only 1500 dollars with the simplified method. If you write off your square footage and you divided by the entire square footage of your home you can take a percentage based on the expenses that you have for running your home office. The second write-off that you should be taking is your equipment. Most business owners have laptops, ipads, and cellphones but they’re not choosing to write them off. If you’re a business owner you need to make sure you allocate any expenses even before you started your business into your business so you can write them off on your tax return. Third write-off you should take on your tax returns is your vehicle. In order to make sure you can write off your vehicle, you need to make sure that the business is using the vehicle for more than 50% of the time for business. And if you choose to get a vehicle that weighs over 6,000 pounds you’ll be able to write off 80% in your first year on your tax return. The number four tax write-off you should take as an LLC owner is called the Augusta Rule. The Augusta Rule allows for you to rent your house to your corporation for 14 days rent-free. That’s right, you can rent your house for 14 days rent free every single year as long as you’re conducting meetings or your business inside of your house during those 14 days. The number five tax write-off you should be taking as an LLC is your marketing and advertising expense. If you’re a business owner, you’re not spending money on ads, you’re not spending money on marketing, you’re leaving a lot of money on the table to grow your business while receiving tax deduction at the same time. Many of your entrepreneur friends are on the internet they wanna be able to transact with you but if they don’t know you they can’t flow you. So make sure you’re taking your marketing and your advertising expenses. Follow for more tips.

Matt’s Review: 

Okay so home office, yes. Vehicle, yes, if it qualifies. Equipment, yes. Laptop, desk chair, things you use for your business, yes, those are just normal business expenses, and you should definitely be including them. And then marketing and advertising expense, yes. If you’re spending money marketing your business, spending money on ads, that is an expense. You should be taking those. All seems like pretty straightforward deductions that any business owner should be taking to maximize the amount that you’re keeping from all your profit, otherwise, you might be paying more in taxes than you really needed to.

Number 4 though, the Augusta rule, that is frequently thrown out as “Hey here’s a great way to lower your taxes. Just have your business rent from you as the owner of your house as long as you’re renting as your house less than 14 days. You don’t have to declare that income as the individual whose house is being rented but the business does get to rent it and have that rental expense reduce the profits of the business.” Here’s the catch though, it has to be for a legitimate rental purpose and it has to be a legitimate rental rate, right? If you have some divey studio apartment that you’re using for this and then you say “Oh my business is gonna spend $5,000 a day to rent my tiny little divey studio apartment for company events”, and the company event is you and your dog collaborating on watching something on Netflix, that’s not really gonna work, right? You can’t now – yes you put on your tax return and you send it in. It may not get audited but if it does you’re gonna have a very very hard time defending that. And not only are they gonna withdraw that deduction and then charge you the tax that would have been owed, plus penalties, plus interest, plus an accuracy-related penalty. If you’re just egregiously that far off but it’s going to be very difficult to defend. So if you wanna use this because you legitimately are using your home for business events that people are coming to your home for, then make sure you’re charging a reasonable rate for that effort. But just using this to put in large numbers and counting up 14 days and using it as a tax fraud basically, you’re playing really a risky game there, because you’re not gonna be able to defend that in the event that you know this ever gets looked at. And the IRS is obviously aware of this rule. They’re aware of this tax dodge, so if they see something that just doesn’t make sense with the rest of your return they will flag it. And they will call you out and they will ask you about it and if you can’t justify it with real events that happened at your house and real numbers that make sense, would somebody else rent that for that amount, you’re going to regret having made that decision to try and take that you know tax deduction, take advantage of that potential tax deduction. So the other four I think all make sense, but that Augusta rule, I would be careful on whether or not use it at all. Or if you use it, make sure you’re using it legitimately. The farther off you are from real life, the more likely you are to get caught with that and lose it and then pay the penalties.