Helping a $1.5M Painting Business Save Big in Tax

We lay out practical tax strategies for an S-corp painting company, focusing on simple systems that capture real deductions without playing games. We compare low-risk moves like an accountable plan to higher-scrutiny tactics like hiring teenagers, then zoom out to retirement plans and dealing with a painful tax bill. 
• setting up an accountable plan to reimburse owners and employees tax-free 
• tracking mileage properly and reimbursing at the IRS rate 
• separating personal vehicles from company vehicles for clean deductions and depreciation 
• handling a shop on personal property using home office rules and square footage allocation 
• hiring teenagers for legitimate marketing work with time logs and market wages 
• avoiding unnecessary payroll taxes by paying kids through a sole proprietorship structure 
• using a Roth IRA to turn teen wages into long-term tax-free growth 
• choosing between 401(k) options and understanding a mega backdoor Roth 
• considering an IRS installment plan when cash flow is tight 

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And if you ever want to watch the video version, you can find it on the
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Transcript

Tax Planning Goals And Context

SPEAKER_01 0:00

Some of the the generic questions are what are some of the ways we could be trying to improve our strategy this year in the sense of mileage on vehicles. I know the owner wasn't tracking his mileage, little things like that, or the shop is an exterior building behind our owner's home. So we don't have a storefront, but we do have a shop. I know we've heard some things about paying kids to work. So I just come looking for some low-hanging fruit write-offs and really anything you can offer there, even if it's very boilerplate for painting companies, just so we have a bullet list going into our tax planning.

SPEAKER_00 0:36

Sounds good. And just for context, you guys are doing about $1.5 million and you're PLC taxed as an S-corp right now, correct? That is all right. So let's start with the basics. The kind of alluded to this already. The basics would be in your S-corp setting up what's called uh an accountable plan. Okay. Accountable plan is just a fancy term that basically means a reimbursement plan for the owners of the company, but also the employees. Okay. Because what's

Accountable Plan Basics

SPEAKER_00 1:09

probably happening, and you you already mentioned it, is that there are personal assets like your vehicle, maybe uh you mentioned the shop, maybe a phone, these different things that are personal assets, but they're being used for the business. And they're probably not being tracked on the books, like getting those deductions. Okay. So the going on with the accountable plan is basically we're every at least every quarter, but maybe more frequently every month, you're going through those different items. So your mileage, your if you if you have a home office, if you have any kind of cell phone use or or utility use, going through those items and allocating a portion for the business and submitting that expense report basically to the business to reimburse you under the accountable plan. So it's it's like a reimbursement plan. And this is something that we'll sit down with you probably at the next session. Yeah, a spreadsheet, it's an accountable plan spreadsheet, and figure out okay, are we tracking the mileage on the vehicle?

SPEAKER_01 2:14

I'm assuming this is a personal vehicle that's used in the business or um is um and that's what I need to find out is um the owner has an SUV, but I don't know how he's treating that. If he's treating that as like a company vehicle or whatever else, we do have a handful of vans as well. Um, those are company-owned vans, we can't do that,

Mileage Logs And Vehicle Deductions

SPEAKER_01 2:36

correct?

SPEAKER_00 2:36

This is strictly of like employees driving their personal vehicle, or is there a way to right for the mileage reimbursement under the accountable plan? This would be for employee vehicles that they're using for the business. So in your case, you have a reimbursement plan set up for you where you're using your personal vehicle to do business stuff. And so every month, at least every quarter, but let's let's just say every month, you track your miles. Uh, there's something called mile IQ where you can easily slot you know left or right to track the mileage.

SPEAKER_01 3:11

Yep.

SPEAKER_00 3:12

And then you submit that mileage log to the company, and they'll write you a check or through the next payroll cycle, you know, reimburse you tax-free up to the IRS mileage rate, which is like per mile for 2026. So um would be for any personal vehicles, either by the owner personal vehicle or or for your any employee. Okay. Then for the the company vehicles, you should be getting those should be depreciated, and the the fuel costs and and things like that will be deducted on the books. So that that should be on the books if it is a company vehicle. Then for the uh the shop, this the shop is uh shop, and this is on his property, correct. But it's owned by him personally, but it's used by the business, right? Okay. Basically, this is a a home office type situation where he has a area that's regularly and exclusively used

Shop Space And Home Office Math

SPEAKER_00 4:13

by the business. Yes, and so he can there's either the simplified approach where you can take the square footage and multiply it by a certain rate to get a deduction uh reimbursement from the business, or you can do it um that's be more advantageous for you would be to actually figure out okay, is the mortgage interest? Uh is the utilities, etc., etc. Take the square footage divide it by the overall square footage of the property. Okay. But basically, um those costs for the utilities, the rent, or the mortgage interest that will will um count on the spreadsheet, and then put a journal entry in the books to basically say this was a deduction, and the check was paid to Damien each quarter for that reimbursement amount. So, bottom line is that the employee or the owner gets a tax-free you know from the company, and then the company gets a deduction. So it lowers the tax income for the company and thus will lower the taxes as well. So that's a great basically the accountable plan, uh getting reimbursed for those personal expenses to the business. That's a great way to and a great basic tax strategy you can implement for sure.

SPEAKER_01 5:34

Excellent.

SPEAKER_00 5:36

All right, so let's move to the next one you mentioned, which is the kids. So who's kids and what are the ages?

SPEAKER_01 5:43

Um, we have many teenagers in our family. Um Damien's um kid, but it's his brother who he basically has custody of. Um also a high school age student. So we

Hiring Teenagers The Right Way

SPEAKER_01 5:56

were thinking if it would be appropriate to want to do a bunch of door hangers in neighborhoods, and teenagers would be absolutely perfect for that. Yeah. Just kind of want to know what some of the parameters there were, what they legitimately need to be doing. We're we're not looking to just make up a task, we're looking for something that's actually going to benefit everyone. Um, but we did want to know the parameters around because we've heard that in multiple places is find a way to pay your kids. And obviously, not like a six-year-old, but right now general parameters.

SPEAKER_00 6:24

Yeah, uh, so they need to be at least seven or older, which it sounds like that's the case, just to make sure you're abiding by labor laws. And then, like you said, find some legitimate work that they can do to bring value uh because this is a higher risk tax strategy. Um, the accountable plan, super low risk as long as you're documenting. So accountable plan is super low risk. The hiring your kids a little bit higher risk because it is going to be scrutinized. So, not to say that you shouldn't take it, I'm just saying we do need to make sure we're dotting our I's and crossing our T's here. So, first is making sure they're old enough, which sounds like that's the case. Next, um that it's legitimate, you know, what they're doing, and then track those tasks with an hourly um logging in and out when they're tracking their time, and then paying them a wage that is market rate. So not paying them you know $50 an hour that wouldn't pay someone else that and whatever amount that you would pay someone else. Now, doing um door-to-door or marketing tasks, I mean make a good amount of money. There's door-to-door people that make a lot of money, but uh just whatever you pay someone at market rate. Okay. Then we want to track the hours. Then the other piece is how to who pays them and how how they are paid. So now if I'm not mistaken, you're on track to become an owner, if I'm not mistaken. Correct. Okay, this might be uh more of a consideration in the future when you're an owner, however, um for now, also for Damien, uh, in terms of now for his brother that he has custody without a teenager. So when you have an S-corp, which is your any business's taxes, an S-Corp, when you put somebody on payroll, you have to pay FICA taxes. So those payroll taxes for every dollar uh that you're running through payroll, you got to pay 15.3 cents in payroll taxes. So that's a big chunk, and that

Sole Proprietor Setup To Avoid FICA

SPEAKER_00 8:24

can cut into the benefit of putting your kids on payroll. So the way to get around this is to set up a different company, and you can call this like a family business services company or something like that. And this would be a sole proprietorship, okay. The sole proprietorship would do, let's say, marketing tasks for businesses, and the reason why it's a sole proprietorship would be because as you have a sole proprietorship and you hire your kids, you don't have to pay FICA on that. So you avoid that 15.3% for your kids uh when they are below the age of 18.

SPEAKER_01 9:08

Okay.

SPEAKER_00 9:08

So in your case, you'd start a sole proprietorship, and all the way to start a sole proprietorship is literally to say, Hey, I have a sole proprietorship now, and you just started one. So need to file anything, uh state or IRS. And then basically you your kids, and then you customer will be the S Corp, the painting S Corp. And you painting S Corp will hire your family services business to do marketing tasks in your neighborhoods, put fires out. So the S Corp is going to pay your family service business uh company, and that money will go on to your tax return as income, um, Schedule C business. Okay. And then you're going to pay wages to your teenagers of you know what we said by the hour, market rate, make sure it's documented, and uh you want to show a profit because you don't want the IRS to designate your business as a hobby. And ideally, you would do this for more than one company, um, legitimizes the business even more. Um, the painting company pays your sole proprietorship, you show a slight profit, and then you pay basically the the majority of the funds to your uh teenagers. They as long as they get paid lower than the standard deduction for the year, and you know, paying them through the sole proprietorship, so there's no payroll taxes, there's no income taxes, basically, they get tax-free money, and then you can extend that even further by having them put money into a Roth IRA, and then it will grow tax-free. So you could say, Hey, we're hiring you. My only requirement is that you put 50% of your earnings into a Roth IRA to set yourself up for the future. And then basically they have tax-free income now, and then they can grow that tax-free income for however long they keep it in the Roth IRA and grow it. And that's kind of like one of those tax strategies that is very rare where you get tax-free money and then it grows tax-free as well. Sure.

SPEAKER_01 11:17

And that has to be your children. This can't be you starting an S-corp, hire somebody else's kid. It has to be the owner's child, or is that something that theoretically my kid and three of his buddies under the threshold that works, or is that it needs to be family?

SPEAKER_00 11:33

Yeah, it would have to be family, it has to be your kids.

SPEAKER_01 11:35

Yeah, I thought that was the you have many, so we could probably roll this for a while.

SPEAKER_00 11:39

Yeah.

SPEAKER_01 11:40

Um, we have kids uh ages eight to uh eighteen and six of them, and uh seven's on the way, so that one won't be ready for the field for a little while.

SPEAKER_00 11:49

But yeah, amazing. I have four, but that they're all under or eight or under, so I'm on so you're in that space. Yeah, you're at me by a bit. Um we talked about accountable plan, yeah, definitely the low-hanging fruit basic things that you would want to implement. Once you implement that, then I would take a look at the the kids' tax strategy. Um have four minutes left. Yes. Um, so we could go further on taxes. The other kind of big lever for taxes or another big lever is saving for retirement. Do you is that a thing that you guys want to do or setting up a retirement plan, or is that something that you're not super?

SPEAKER_01 12:32

Yeah, we've been looking at the benefits aspect because we are planning to keep only a few painters as employees and we're going to go mostly submodel, but

Retirement Plans And Mega Backdoor Roth

SPEAKER_01 12:41

certainly for our admin team and then future growth. Um, that is something we're not currently doing that uh I know for me personally would be a huge win.

SPEAKER_00 12:50

Okay. For retirement plans, there's a few flavors out there, and it kind of depends on the owner and what usually makes most sense for them, and also coming up with a compelling compensation package. So I'll start with the 401k, which is the most commonly known. This is great if the owners really want to put away as much money as possible into retirement and save as much money on in taxes as possible. So if you're super aggressive with retirement savings, the 401k is probably the best option, especially with employees. And the way that this would work, you can contribute tax-free up to about $25,000. Okay. And this changes every year, but it's approximately $25,000 right now. That would go into your retirement, and that would be tax-free, assuming it's a traditional 401k. Okay. If you want to put even more into retirement, you can do that as well by uh contributing over that $25,000, but then basically converting those contributions into a Roth IRA or a Roth 401k, depending on the structure of your 401k. It's basically called a uh a mega backdoor Roth, where you contribute up to $25,000, which is for tax purposes, that will save you several thousand dollars in taxes. But then uh let's say you want to contribute you know $70,000 into retirement, you could do the first $25,000 into a traditional 401k, which will save you in taxes, and then the next $45,000 would be taxable in that year you contributed it, but it gets into your Roth, which would grow tax-free. Okay. So that's a way folks can get caught up on retirement savings um using that 401k factor Roth.

SPEAKER_01 14:43

Okay. Good to know. Yeah, looking forward to our uh tax planning because I know we got zero help there. Our our tax bill right now. I don't even know if there's a way to defer any of that or not, but we're just getting slammed by our tax bills right now from this past year. Gotcha.

SPEAKER_00 15:01

Yeah, I think set up an installment plan with the IRS potentially, depending on how much taxes you have owed. Uh some believe it's under $25,000. If you owe the IRS more than uh under $25,000, you can set up an automatic six-month installment plan if I'm remembering correctly. And

IRS Installment Plans And Next Steps

SPEAKER_00 15:20

uh if it's over that amount, um are other ways to get something worked out, but it's a little bit more work involved.

SPEAKER_01 15:27

Sure. But getting some giant hole, I I think it's just you know hit pretty hard right now because our accountant's trying to make sure we don't. Um obviously uh we're looking forward to you guys giving us some guidance there to lower this burden come to this year.

SPEAKER_00 15:40

Yeah, cool. All right, sir. Well, um your time uh was this helpful at all?

SPEAKER_01 15:46

Yeah, was