Episode 57. 3 Tax Planning Strategies To Use Mid Year

In this podcast I tell you three tax planning strategies that business owners can use mid year to save money. These are the exact strategies I use with my clients in our tax advisory firm, and there is still plenty of time left in the year to put them to work.

First I cover the accountable plan and the Augusta strategy. The accountable plan lets you pay yourself back for home office costs like mortgage interest, property taxes, utilities, and insurance. One of my clients saves about 36,000 dollars a year just from this. The Augusta strategy lets you rent your home to your business for up to 14 days a year completely tax free. You can use it for meetings, holiday parties, or client presentations, as long as you keep good documentation.

Next I break down reducing your salary to a reasonable amount. This does more than lower your Social Security and Medicare taxes. It also raises your QBI deduction and your PTET deduction, which can add up to thousands of dollars in extra savings. In my example, these two moves alone created 40,000 dollars and 20,000 dollars in additional deductions.

Then I cover bonus depreciation for self rental. If your business rents a building you own, you can use cost segregation to speed up your depreciation and create a large write off. The best part is you can still do this even if you bought the building a few years ago, by doing a catch up.

As a bonus I explain why so many business owners are missing the QBI deduction completely, and how one client got a 120,000 dollar refund after we caught it. This is one of the most overlooked tax planning moves for S corporation owners.

🆓  Download FREE PDF: 7 Write-Offs Every S-Corporation Business Owner MUST Know:   https://7taxwriteoffs.com/?el=podcast&htrafficsource=buzzsprout

*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, you are advised to consult with your attorney, accountant, tax preparer, and/or other advisor regarding your specific situation or your client’s specific situation. The information and all accompanying material are for your use and convenience only.

Transcript

Three Mid-Year Strategies Overview

SPEAKER_01 0:00

If you are a business owner, I want to give you three tax planning strategies that you can use mid-year. We're using this for our clients in our tax advisory firm, and these are the core strategies we're gonna look at. First things we look at for our clients. So one of them is accountable plan and Augusta Tax Strategy. These are like two strategies, but I treat them as one. So accountable plan is the way that you can reimburse yourself for home office expenses. Now, a lot of people will be like, home office may not be a big expense. Actually, you may be wrong because I've got clients that own homes that are worth millions of dollars. They pay huge uh mortgage interest and huge property taxes. For example, one of my clients reimburses herself about $90,000 a year. That's a $90,000 deduction. So accountable plan for home office is really important. That's exactly what we're gonna talk about. And of course, the Augusta strategy. Uh the second strategy that we do for all of our clients uh is reduce their salary. Now, we're not reducing salary just because we want to save money on payroll taxes. Reducing your salary really affects your PTET deduction. It increases your PTET deduction, which I'm gonna get into details, and also increases your QBI deduction, which again I'm gonna discuss in details so that when you're doing mid-year planning for your business, if you don't have a tax advisor, obviously, get a tax advisor, you'll know exactly what you need to speak to your accountant about. And the third one is bonus depreciation for self-rental. If you have a real estate property in which your business rents, right, you're renting from yourself, there's a huge strategy right here. Even though you purchased the property a few years back, we can actually recoup what you missed out, and that is exactly what I'm going to show. So let's get going.

SPEAKER_00 1:39

Welcome to the tax reduction podcast for money-making entrepreneurs with Boris Musheev. Boris has helped entrepreneurs across the United States collectively save millions of dollars in taxes with the power of tax planning and advisory. The only way you, the business owner, can save money on taxes is by using proactive tax strategies. And this podcast is all about saving you money on taxes. Or Boris will share with you in-depth and easy-to-understand tax reduction strategies that you can implement in your business within 30 days or less. Let's jump into today's episode.

Accountable Plan Basics Explained

SPEAKER_01 2:13

Okay, so let's start with an accountable plan and Augusta tax strategy, right? Let's start with an accountable plan. What is an accountable plan? Accountable plan is basically a piece of document that has some rules set forth in it that says, hey, employee has a certain amount of time to submit expenses to the business, and the business has a certain amount of time to reimburse it. For our tax advisory clients, we actually do it on a monthly basis and we help them to do it on a monthly basis. You don't have to file this with the IRS, okay? You just have to keep it internally. When you have an accountable plan, what it allows you to do is deduct home office expenses. Okay? So whatever you spend for your home, that could be mortgage interest, property taxes, right? So I'm just gonna put mortgage, we're gonna put property taxes, we're gonna put there's utilities, there's insurance, right? Insurance, utilities, all of this you can reimburse yourself on a monthly basis. The reason this is a mid-year tax planning strategy, because if you haven't done it throughout the year, start doing it right now. You still have six months, seven months to do this. This is what we do for our clients. All of our clients do this. Some of them fall through the cracks. So we're like, hey, let's get this done. By the way, if you don't have a tax advisor that you're working with and you are a profitable business owner, I can guarantee you that you are overpaying in taxes because you may not be using tax strategies like this. Or if you are, you may not be being proactive. So with a home office, let's say, for example, like for example, in my client's situation, I think she takes up about 10% of her home. Her home office takes up about 10% space of her entire home, and she has a very expensive home. When she adds all of this up, she gets about $90,000 a year that she reimburses herself. She is in about 40% tax bracket on the federal and state level. Okay, that is $36,000 in tax savings that she produces from just using an accountable plan and reimbursing herself for the home office. So when people say home office is a myth, you can get audited by the IRS. That is absolutely false. Okay. Back in the day in the 80s, if somebody claimed home office deduction, that could be true. Now, when everybody works at home, like there is no even separate line item on the tax return that will say that, hey, uh, this is a home office deduction, you're going to be audited. When we're doing it for our clients, people ask us, like, Boris, how do I implement this strategy and how do I record it on my books and our QuickBooks Online file? Which we tell them, book at this rent expense because that's what it is, right? You're paying rent to yourself. It's just the business writes you a check on a monthly basis. So in her case, it's about $8,000 or $7,500, excuse me, per month. She writes a check, or you can do you can do whatever you want, Zell, wire transfer, write a check, whatever that is. It's a rent expense to your business and it's tax-free income to you. It's not a W-2, it's not a distribution, it's not taxable at all. All right. So that's the accountable

Augusta Rule And Compliance Proof

SPEAKER_01 5:08

plan. As far as

Home Office Reimbursement Example And Setup

SPEAKER_01 5:09

the Augusta tax strategy goes, and let's kind of talk quickly about the Augusta tax strategy and what it is. I like to call it a 14-day rule. Okay. Now, some of you may be familiar with it, but I want to tell you how do we use this mid-year tax planning strategy for our clients that we do tax advisory for. Now, we work with clients across all over the United States. Uh I think we're in about 40 states right now. We're doing tax planning and advisory and helping them save money on taxes, starting with the smallest strategies all the way to the advanced strategies. Um, and if you're interested, how you can learn, how you can save more than $100,000 on taxes, I put together a free training. It's down below in the description. Just click on it, it's yours. Like watch, learn, and save. Okay, so it's yours. I did it for you because those are exactly the same things that I do for our clients. Now, uh 14-day rule. What does that mean? So basically, anybody in America can rent their home up to 14 days, completely tax-free. You can rent it to your neighbor, you go on away, put it on Airbnb. Up to 14 days, you don't pay any taxes that you receive on that rental income. Now, this creates an opportunity when you are a business owner and obviously you have a home. Now, it doesn't matter if you are renting your home or if you are uh owning your home. Okay, your business can pay you for using your home up to 14 days. Now, you might be asking, well, Boris, what can I use the home for? It could be many different things. You could use it with your partners, you can use it with your employees, you can do presentations for your clients depending or customers, depending what type of a business you run. So think of it this way: like instead of renting out a conference room where you can pay for it, you can just do it in your home and get reimbursed, or you can run a holiday party at your home. Like if you were to rent a venue. Like, for example, uh in December uh at Boris and Tax at our firm, uh, we actually hosted the entire holiday party at our home, okay? And uh that was an Augusta strategy where hey, the restaurant would have cost me this much. Instead, I posted it at home. We bought our own food and we catered the food, and Marianna actually made some food herself, but we actually, you know, paid me for using my home uh instead of a venue. And what's the comparable rate for the venue at that time? So for your case, it could be for many any other reason, right? So make sure that you have comparable rate. There was a court case recently about Augusta. Three doctors, three partners paid themselves for Augusta's strategy up to 14 days, $3,000 a year. When they first started doing the strategy, they were complying, they were following the rules, doing everything. After the second year, they got very sloppy, just paying themselves $3,000. When IRS audited, they're like, look, the first year you were doing everything right. You had the documentation, you were reimbursing yourself reasonably. Now, like, how'd you come up with this? So IRS said, you know, they disallowed the $3,000 deduction per doctor, and they allowed $500 a day. Uh when I said $3,000 uh per doctor, I meant $3,000 a day they were doing, okay? So $14 days, that's $42,000 deduction per each doctor that they took. So IRS had $500. Um, $500 is actually a good number, it's a safe number, but what we tell our clients, how much would Airbnb cost in your own in your area? Okay, how much would Airbnb cost in your area? That's how much you would rent it to yourself for. And to be in compliance, what we do for our clients, we actually have a document we put together, it's a business meetings document. Like we there's an objective, the purpose, and what's the objective meet met? Like they have to define it, and there's an attendance sheet. Everybody that attended that has to sign it because remember, you create an expense for yourself, you're not going to a store that they're giving you a receipt, right? This is a pretty good documentation to have. So, this is as far as an accountable plan and an Augusta tax strategy.

SPEAKER_00 8:51

If

Free Tax Resources Mentioned

SPEAKER_00 8:52

you have a tax preparer and you do not have a tax advisor, the only way you can save money on taxes is by using proactive tax planning strategies that only a tax advisor can give you. Boris put together a free PDF for you, the business owner. Seven tax write-offs every S Corporation business owner must know. In this PDF, you can find seven tax strategies that you can start using in your business to instantly start saving money on taxes. Click on the link in the description below for a free download.

SPEAKER_01 9:22

All right, cool. Let's jump to our next strategy. So

Reduce S Corp Salary Strategically

SPEAKER_01 9:25

I think uh the second mid-year planning strategy is reduce your salary. Okay, and I want to talk about why this is super important. A lot of business owners become an S corporation because they want to pay less money in a source skill Medicare taxes and they pay themselves a reasonable compensation. That's all good with me, but that's not the only reason. Let's draw two lines, right? And then I'm gonna explain to you what I mean. Let's do an example. Let's say your W-2 salary as an owner is uh $300,000. Okay, I think everybody can see that. And then we're gonna write profit as an owner, $700,000. Okay, so your business made a million dollars. Out of that million, $700 was profit, and $300,000 uh was your salary. Okay, so let's say you came to a tax advisor, like, hey, tax advisor, how how much should my salary be? And hopefully you have a tax advisor at this point. And your tax advisor, by doing some numbers, said, you know what, your salary, your reasonable compensation should be $100,000. Again, I'm just using a very good round number example so that you can understand

QBI Deduction Math And Mistakes

SPEAKER_01 10:27

it. So let's start with a QBI. Now, how is this important to QBI and what is a QBI? QBI is a qualified business income tax deduction. It is 20% um either of your net profit, okay, uh, or your taxable income. So whichever is lower. I'm gonna keep it very simple. We're gonna use profit so that we can understand the numbers here, okay? So you get 20% of your net profit as a deduction. It's a free gift to you from the IRS as part of the Tax Cuts and Jobs Act. And with the big beautiful bill, they've actually uh made it permanent. So $700,000 profit. Remember, $300 W2, $700 profit, you multiply that by 20%, you got a hundred forty thousand dollar deduction. You're like, wow, that's not bad. But I'll tell you what, a lot of times when we review tax return for new clients that come to work with us, I notice that QBI is missing. Now, QBI deduction, most of the business owners qualify for it. The only business owners that lose QBI deduction when their income is over like threshold amounts, which is like 400,000 and change, are accountants, doctors, attorneys, and certain group of consultants. Okay, very small group. Uh so again, speak to your tax advisor, but most of the business owners actually get the 20%. But I get tax returns from uh business owners, and I look at those tax returns, I'm like, wait a second, the you're missing QBI deduction. We actually just amended the tax return for a client. I believe that was the issue. He didn't have a QBI, he got a hundred and twenty thousand dollar refund, okay, from the IRS for two years because this was missed. So make sure this is on your tax return. I believe it's on line 10 of your 1040 personal tax return. Um, so this is it. But if you reduce your salary, let's come back to our example. If we reduce our salary from a 300,000 to 100,000, let's say this is the reasonable compensation, the new profit now becomes $900,000. Okay, new profit becomes $900, because remember, you still made a million minus a hundred thousand dollary, new profit is nine hundred. Now we take the nine hundred thousand dollars and multiply it by twenty percent. You get a hundred and eighty thousand dollar new tax deduction, a difference of forty thousand dollars. And if you are in a 30% tax bracket, that's just easy $12,000 tax reduction. And we've amended returns and we got $12,000, $18,000, $20,000 refunds just from this, okay? So that's why reducing your salary to a reasonable compensation is important. This is it's a very important strategy for us when we do for our clients for mid-year planning. We'll especially if they're new clients, like, hey, what is your salary? Let's reduce it down, let's do reasonable compensation analysis, and let's make sure that that's done. So that's that, okay? So reduce salary. Now,

PTET Deduction Boost From Lower Wages

SPEAKER_01 13:15

how does it affect PTET? Again, reducing salary plays such a big role, okay? How does it affect your uh PTET? Now, PTET, I'm not gonna get into a lot of details, but every business owner should be using PTET tax strategy. And if you are an educated business owner right now and saying, Boris, well, Salt Cap went from 10 to 40,000, I don't care. Use it. You know, once I think the threshold now, if you're making more than $600,000, it still drops to $10,000. And even it's if it's at $40,000, still use the PTT. It does not hurt to use PTET. It does it does more benefit than no benefit. Okay, so why is this important? I'm gonna use a New York City and New York State combined rate of 10%. Okay, so if you elect to pay pass-through entity uh taxes, that means that you're telling your state government, like, hey, I want to get a credit for the state tax that I pay, but I want to pay a business tax instead. Same tax, but what happens is that you now get a deduction. If you are in the state of California, the time to apply for this every year have to make an election is June 15th. You have to make it with an estimated tax payment. New York State, unfortunately, was until March 15th. Every state is different, so speak to your tax advisor. So 10% of your net profit is a deduction. So if your net profit was $700,000, well, guess what? Your old deduction was $70,000, right? Uh $70,000. Now, because we reduced your salary and gave you a new net profit, which is $900,000, your deduction now is $90,000, which brings you to $20,000 difference. So now by just doing these two strategies, we found in this example additional $40,000 in deductions and additional $20,000 in deductions. Okay, really, really important, guys. So reducing your salary doesn't just save you money on social security and Medicare taxes. It also helps you with QBI, it helps you with the PTET. Like there's many other things in play when it comes to retirement as well. But this is a really uh very, very important, and this is why this is a mid-air tax planning uh for us. By the way, like I said, for those of you that are like Boris, how do I save hundreds of thousands of dollars on taxes? There's a training below. You guys can click on it, or you can just go to save100know.com, can get swatched

Self-Rental Bonus Depreciation Play

SPEAKER_01 15:35

it. All right, the uh third strategy that we said is um self-rental bonus depreciation. Now let's talk about self-rental tax strategy, the way it works and why I refer to it as a self-rental. So let's say you have a business, okay? I'm just gonna write an S corporation here, and you've got this triangle, this could be your LLC that owns the building, or you can own it personally. Honestly, it doesn't matter. I just like to put it into triangle, and I'm gonna write B L D G right, a building. So if you have a building where you are renting from yourself, and this strategy works well when you are owner-occupied, like 100% you occupy uh the building in which your business operates. Okay, so with that being said, if you own the building with your spouse, this also qualifies and meets the economics test. The problem, this may not work, I just want to get it out of the way. This strategy is not gonna work if you have a partner, let's say it's you and partner, and only you own the building, okay? But if you and the partner own the building, that works. So I had that question come up yesterday, so I just want to get this out of the way and let you know. So, how does this work? Your S corporation pays rent to you to you for using your building. You're gonna pick up rental income, plus you're gonna pick up some expenses, but most importantly, is that you have a depreciation. You can do accelerated depreciation by doing cost segregation analysis, which roughly, again, roughly, is gonna give you about 25% deduction in the first year from the building value. So let's say you purchase the building for a million dollars, okay? Net of land value, let's say it's 800,000, and times that by 25%, that gives $200,000 additional depreciation deduction. If you say, Well, boys, I didn't purchase this building this year or last year, I purchased it in previous years. That's okay, you can still do a catch-up. That's an amazing thing about this. This will work for your 2025 taxes if you haven't filed it yet. If you already filed it, then just leave it for 2026. Get yourself a tax advisor and speak to the tax advisor about this. Because this, generally speaking, by the way, any losses from real estate are considered passive. A lot of business owners don't qualify for passive losses because they don't have either don't have a passive income or they have a business in which they actively participate. So you can, you know, any investment in real estate, those losses are not deducted against your business income or W2. But if you own a building in which you operate, okay, your own business, then this loss can be deducted against the S corporation profits. Now, people ask me yesterday, well, does my NP have to be an S corporation? No, it could be an LLC or it could be an LLC partnership, you and your spouse or with your partner. But in order for the strategy to work with your partner, then you and your partner need to own the building. All right. So this is actually a huge strategy that we use for our clients. The reason we put it into mid-year is like if they own a building in which they operate, whether it's an existing client that bought a building or a new client that signed up to work with us, what we do is that we start this process right away, right away, cost aggregation depreciation. We produce these losses, right? Basically, uh when I say produce, this steps have to be taken. Uh, they have these losses. Now we know when we're filing their tax and doing a year-end November projections, we know, hey, this client has $200,000 in losses coming up. And uh that is a really, really, really cool thing.

Closing And Next Steps

SPEAKER_01 18:54

All right, guys, thanks so much.

SPEAKER_00 18:56

That's it for today's episode. Be sure to check out the description below for some free tax reduction resources that Boris put together for you. If you're ready to work with a tax advisor on your tax planning, be sure to schedule your call by heading over to www.taxplanningcall.com. That's www.taxplanningcall.com. And be sure to subscribe to our podcast to be notified when the next strategy is released.