The Confident Entrepreneur With Jennifer Ann Johnson

Strategic Tax Moves to Boost Your Business's Bottom Line

• Jennifer Ann Johnson • Season 2 • Episode 41

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Maximize your business’s financial potential with insights from Fernando Torres of Serro Taxes. Curious about the best structure for saving money? Fernando reveals the benefits of C-Corps, S-Corps, and LLCs, including C-Corps' health insurance offsets and tax-free gifts. He covers strategic points for transitioning structures around the $40,000 to $50,000 profit range and offers practical tips for expense tracking and audit prevention.

Discover methods for employing children for tax benefits, utilizing the Augusta Rule for personal property, and more. Fernando’s guidance will help you make every dollar count while avoiding common pitfalls—essential knowledge for both new and seasoned entrepreneurs!

Visit us at jenniferannjohnson.com and learn how Jennifer can help you build the life you dream of with her online academy, blog, one-on-one coaching, and a variety of other resources!

Jennifer Johnson:

Today we welcome back into the studio Fernando Torres, and he is with S Taxes. Welcome back.

Fernando Torres:

Thank you so much.

Jennifer Johnson:

You were on our last podcast. We chatted about what's new for 2024, for taxes, and, wow, I learned a lot, thank you. Now I want to know about business write-offs. Okay, like everybody wants to know, right, what can I write off? What do I have to do to not pay taxes or get a refund? Yes, so what are?

Fernando Torres:

some common business write-offs that we can legitimately take advantage of. 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. So each tax structure provides you different benefits and different deductions. So, for example, the C-Corp there's the.

Fernando Torres:

S-Corp, there's the single member LLC. 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. They're stuck with one structure for their entire business life and they're limited to what they can deduct. So, for example, c Corp, the C Corp. I love the C Corp. 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. So, like medical expenses, I have a family and medical expenses can be heavy some years. I have a son who has eye issues and so we have some out-of-pocket costs, things like that. There's a tax law that allows for health insurance reimbursement. I take full advantage of that, and so that's available to the C-Corp for owners of the C-Corp.

Jennifer Johnson:

So the question about that and this may be. 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? Is that true or is that fictitious?

Fernando Torres:

They're the same. It would be the sole proprietor. 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. So they both basically do the same. It's just how things are structured and how things are taxed. That's the difference between a corporation and an LLC.

Jennifer Johnson:

And for our listeners who may not know. When do you determine what type of business you are?

Fernando Torres:

So I would say the easiest structure is the LLC. So when you first start you'll be that single member LLC and it's the least expensive. You register with whichever state you're in and then maybe you get the local licenses and permits and all that stuff. Even if you're a home-based business you still need a home-based license with the county or city. I would say that's the easiest because a lot of people treat their business account as a piggy bank. So as you upgrade to corporation you need to be careful on how you withdraw money. So C-Corp is the strictest. You can't take any money out unless it's a repayment of a loan or a payroll. So you can't do distributions from a C Corp. That's only available to S Corps and LLCs and sole proprietors.

Jennifer Johnson:

Okay, otherwise you're basically just taking money from the company. Yeah, how it's looked at.

Fernando Torres:

Yes, so you have your company. Let's say you have an LLC. You have your company and you make $10,000 on a contract. That's pure profit. 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. So, going back to your original question, when does it make sense to maybe change structures? They say usually around $40,000 to $50,000 of profit from an LLC that you should think about converting to an S-corp. Okay, but not a C corporation, okay. 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. But it's very rare. Most people who come in. They have to be trained and their mindset has to change, right.

Jennifer Johnson:

What other business write-offs are there out there that we may not? We know that there's the meals and all of that, but what else is there that we may not be taking advantage of?

Fernando Torres:

Sure, I think a big one is. Like I said, I'm an employee of my C corporation and I get an achievement award.

Fernando Torres:

So that allows me to get a tangible gift from the business, tax-free. 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. It has to be something tangible. 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. So what is an achievement? So it's Probably if you're in a manufacturing industry, if there's no accidents for a year, that could be an achievement. 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.

Jennifer Johnson:

And you can award it to yourself.

Fernando Torres:

If you're a C-corp.

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.

Fernando Torres:

Correct If it's more than it becomes taxable income, the difference.

Jennifer Johnson:

Oh my gosh. So how does it work? Now that we're on the subject Bonuses, employee bonuses Okay, bonuses, they have to be put in their check to be taken out. You can't just give them a gift card, you can't just give them cash. How is that looked at? How does that work?

Fernando Torres:

So another great deduction is gifts. I think people underutilize that. I use it all the time.

Jennifer Johnson:

I have multiple businesses, so I gift to each businesses, but it's technically at $25 per person per year. Oh, that's it. Yeah, I know it sucks.

Fernando Torres:

Oh my gosh Because people would take advantage of it.

Jennifer Johnson:

Right.

Fernando Torres:

And so if you give $25, that's tax-free to the recipient, the employee. 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. Sometimes I don't know if you've heard people who get like $100,000 of a bonus or something.

Jennifer Johnson:

Wow, I would like that yeah.

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. So there's a bonus withholding. It's usually 25% or you can just use the regular tax bracket that they're in. But usually people will take the bigger portion because they might owe more with this extra $100,000 plus their regular W-2.

Jennifer Johnson:

So what are the benefits of taking some of these write-offs?

Fernando Torres:

Of course it's a comfort of life lifestyle. So, like I said, for me I'm paying for. 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%. 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. That's going to be taxed and then that's going to be reportable in my tax return. So you're potentially paying two taxes.

Jennifer Johnson:

Double taxed right yeah.

Fernando Torres:

Wow. So, yeah, I think just knowing knowledge is power. 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.

Jennifer Johnson:

Is your closet overflowing, or maybe your kids' closets are as well, or maybe you just want to redecorate your house. 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. 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. 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. Welcome back, friends. We are back in the studio with Fernando Torres from Serro Tax Services. Did I say that right? It's Serro Taxes.

Fernando Torres:

There's no services, no, no services. Serro Taxes.

Jennifer Johnson:

DBA. 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. It's the way to not avoid paying taxes, but to get more bang for your buck, I guess. So how can businesses maximize their write-offs?

Fernando Torres:

The biggest thing is understanding what their tax structure allows them.

Jennifer Johnson:

Which is what the S-corp C-corp yes.

Fernando Torres:

C-corp, yes, and utilizing your CPA. I think the biggest misconception is that when you hire a CPA that they're going to do everything for you. You have to communicate with your CPA what are you going to provide me for this fee? 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. 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.

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. 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?

Fernando Torres:

Sure, yeah. So I want to do quarterly. 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. 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.

Jennifer Johnson:

Once a year, but not the once a year do my taxes, so you're really seeing them twice a year. 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?

Fernando Torres:

Yes. 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. For example, check one, two, three, four. 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. 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. That's probably the best. So as you grow, you want better systems.

Jennifer Johnson:

That makes complete sense. 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. How, as a business, can you prevent being audited, or can you prevent that Sure?

Fernando Torres:

I would say first, don't DIY if you have a business. 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. So just stay away from those people. Reviews people can fudge with reviews and things like that. 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.

Jennifer Johnson:

Yeah, because otherwise you're opening yourself up, I'm sure.

Fernando Torres:

Yes, and so that's the first step, and then the next. Everybody's going to say it again documentation. As long as you have a box where all your expenses are, that's fine, I'll take that any day. Expenses are, that's fine, I'll take that any day. And the problem is is when you need something, those receipts become faded over time. So I don't know if you've kept receipts for years they become faded.

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. In case something happens and you do get audited, what do they do about that?

Jennifer Johnson:

Sorry, the time faded the thing.

Fernando Torres:

So hopefully you still have your bank statements, because if you pay cash, your receipt is your defense Right. 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. 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.

Jennifer Johnson:

What is dividend tax?

Fernando Torres:

So the C corp pays the tax of any profit. So how do you take the profit out of the business? You have a loss the following year or you do a dividend which is, depending on the timeframe of the earnings. 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%.

Jennifer Johnson:

But if you are an S-corp or any other, then you pay your taxes as your business personally. Is that correct?

Fernando Torres:

Correct. 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.

Jennifer Johnson:

I see Interesting. Is there any other tax information that you wish your clients or future clients knew? What do our listeners need to be enriched or enlightened on from your world?

Fernando Torres:

So I would say, if you're going to DIY it, the proper publication, the proper source is big. So are you getting? Are you reading articles from, let's say, accounting today, a CPA journal, maybe from another reputable CPA? Are you just Googling because you see TikTok videos? I hate TikTok videos, oh my gosh. My client sent me hey, is this something that you can do? And so TikTok videos is like it's 15 minutes, I'm sorry, 15 seconds of the sexy write-off. How like? Okay, the Augusta rule, Like you can rent your-. What is the Augusta rule? So the Augusta rule is it became because of the wording came from the Masters Tournament. 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. 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.

Fernando Torres:

Wow. So yeah, like I said, there's great tax levels. You just have to know where to find it, who to trust and be able to apply so that you're not taxed.

Jennifer Johnson:

Right, wow, so that's a really good nugget. What else?

Fernando Torres:

Let's see. Sorry, what was the original question?

Jennifer Johnson:

In your world. What do you wish that people knew?

Fernando Torres:

Okay, so a reputable source. Don't listen to TikTok or Instagram. The fake news. Yeah, utilize an expert early on. You go. I know I do the same thing. Something happens, I have a runny nose, my throat hurts. What do?

Fernando Torres:

we do, we go online first Dr Google, we all. Something happens. I have a runny nose, my throat hurts. What do we do? We go online first Dr Google, yeah, dr Google, and then it gets serious. Then, okay, we go to the doctor urgent care, whatever it is. As a business owner, you specialize in whatever you do. You're a plumber, you specialize in that industry. Go ahead and start delegating that industry. Go ahead and start delegating. That's how you're going to grow your business. 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?

Jennifer Johnson:

You know that's right, go ahead. No, that's a great tip. You're right, because, tiktok, everybody becomes an expert, right, and nobody really knows. And what can you tell me in 15 seconds? That's going to grab my attention. That's really going to be legit. 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. Correct, yes, it's $13,000?. Yes, the standard deduction rate.

Fernando Torres:

I think it's $13,000?. Yes, the standard deduction rate, I think, is about $13,000. Now, is that true? Yes, it's true. You just have to do it the right way though. 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.

Jennifer Johnson:

Got it, but you can pay your child. Yeah, very cool. Well, fernando, if our listeners would like to get a hold of you, how can they do so?

Fernando Torres:

Sure. My email is info@serro taxes. com S-E-R-R-O. My cell phone is 954-999-2300. And you can text me. Call me.

Jennifer Johnson:

Fabulous it's been great having you back. Thank you!

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