Tax Strategies for Business Owners

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In this episode of Wealth Office Hours Live, we break down tax strategies that business owners can utilize to maximize tax savings. Whether you’re a solo entrepreneur, S-corp owner, real estate investor, or scaling an operating business, these are core planning tools that can mean real savings. Then we finish the episode with Q&A, answering your specific tax questions and scenarios in real time.

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Transcript

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This is part two in our eight-part Wealth Office Hours series for business owners, and we're gonna be talking about tax strategies for business owners. Series one, or I should say episode one of the series. I don't know, series. Yeah. Episode one of the series, season one, was um entity structuring for business owners. Should I use an LLC? An LLC taxes an S-corp. What about an S-corp? What are the scenarios where I should use a C corporation? Uh we covered that last week. We're gonna transition a little bit on that today, on one of the points. But otherwise, I'm gonna go through 10 strategies for business owners that you need to know. These are some of the most common tax strategies that I've seen my clients use over the years. I've used most of these strategies myself on my own tax return. And they're tried and true methods. You can do every year. Now, each one of these strategies is not gonna move the needle big time on your return. It's not like there's one thing you do that saves you hundreds of thousands of dollars. But if you do seven out of ten of these, you're saving tens of thousands and possibly over a hundred grand in taxes by implementing these different strategies. Now, every situation is unique. That's why you need to know all 10. And maybe there's five or six in your situation, maybe seven or eight, maybe there's only one or two. I don't know. But there's only, but we got to get through the top 10. Now I'll say this: there's probably 30 strategies, but we don't want to be here forever. Not billing you by the hour for this. This is free. So we're hitting the top 10 list. I want to hit you. These are the greatest hits, though. All right, so let's start with the first strategy: entity structure and state. We talked in episode one about what type of entity to set up, but I left it short of what state do you set up your entity in? This is a common question a lot of people have. Where do I set up my business entity? The common answer, and what you should be doing, is setting up the state where you're conducting business. Now, a lot of people say, well, Matt, I thought I was supposed to be set up in Delaware or Wyoming or Nevada. If you're doing business in Texas, I don't give a shit. Don't set up an entity in Delaware. All right. Are you going to be a publicly traded company? Are you selling stock on a publicly traded market? If so, maybe go to Delaware. But even Elon Musk left Delaware and Tesla. Why? Because they want to put up the BS going on in Delaware in their corporate laws. Now, Delaware used to be a place big companies went. A lot of big companies are there. It no longer is the case. Nevada. A lot of people used to go to Nevada because they had privacy. But what happened in Nevada? They had a lot of scams and fraud artists go there. So what did Nevada do? They got rid of all their privacy protections on business owners. So those went out the window. The last state that I could see maybe someone going is Wyoming. But if you do a Wyoming LLC or corporation and you're doing business in Texas, you need to register that Wyoming entity into Texas. So why don't you just start in Texas in the first place or whatever state it is you're actually conducting business in? So bottom line, from the lawyer on the streets, helping real business owners across the country, putting in the 10,000 hours, and even for the 20 plus business entities I have, I'm setting up the entity in the state where we're conducting business. Okay. So focus on that, focus on the state where you're actually conducting business. Now I do have some slides we'll be going through here. We're really kind of putting together a whole workbook on this. And if you're listening to all eight of these in the series, I'm going to give you a certificate. You need this is an on and on your system. I need you to comment on the videos that once you've completed it, I completed this map. I listened whole thing. It was amazing. Whatever you want to throw in there. Anyone who's done on all eight, I'm going to give you a wealth building certificate or something cool. We'll come up with it once we get to the end here because we're making this up as we go. All right. So let's move on though. I want to get off entity. We talked about it a lot last week. Um, and go check that out if you missed that and have a lot of questions about what type of entity you should set up. But I want to touch on the state topic here because that does matter as it comes to what state you set it up in. And by the way, you don't get the tax situation of the state you set up in. So if you're like, well, I live in, you know, California, I'll set up a Wyoming LLC, but I'm doing business in California, but if you don't have any corporate tax, or there's no income tax in Wyoming, so I'll pay no income tax. That's not how it works. The state of California doesn't care where you set up your entity, it's where you make the money. That's where you're subject to state income tax. So don't think there's any gymnastics or rule or things you can play there. Again, set up the state, the entity, and the state you're conducting business. All right. Next point here again, related to the entity. We're going to get to the other strategies here. These are the last one. This is the last one on the entity is when to use an S corporation. All right, we talked about that last week as the primary business entity for the operating business owner. You're selling goods or services. The primary entity you should have is an S corporation or an LLC tax is an S corporation. But this only makes sense once you have more than $50,000 of net income a year. The reason it only makes sense once you have more than $50,000 of net income a year is the cost of an S-corp return, which is an $1120 return and quarterly payroll you have to do is probably gonna be about two grand a year. You're gonna need to pay an accountant or a third party to do it. You should not be hacking that out yourself. Use your time to go do more of the business where you make money, hire professionals to do this stuff for you. Okay, but that's gonna cost you two grand. So I need to make sure that the tax savings outweigh the cost of the additional structuring. When you're making about 50K a year, though, now we can justify maybe half of that, let's say, is profit or dividend, and that's maybe saving me now three or four grand a year in self-employment tax. I can use that money to pay an accountant to help me onto my S-corp return on my quarterly payroll. And meanwhile, I'm still ahead of a couple thousand dollars or a thousand dollars at the least. So now obviously, as you're making more money, the there's more tax savings in your pocket, uh, but we want to make sure you have enough income there to make the S Corporation move possible. Now we had a lot of questions on that that it came in in the chat that I actually have here for the end, just on that question alone of when to time that right. And it's okay. In fact, I had one of the questions that came in. This is from Ryan Builds89. At one income level does it actually start to make sense to elect an S-corp status? And what are the downsides if you do it too early? Okay, so this is a great question because it really is that 50,000 threshold. And let's say you do it too early. And sometimes I'll have a client that comes and says, Well, Matt, I think I'm gonna make 50,000 this year, at least net, but I'm not sure. Well, what's the worst case scenario? The worst case scenario is you're just paying an accountant two grand and you the tax savings didn't make up for it. So it's not like it's gonna cost you more in tax. It will never cost you more in tax. Let me just say that. But it will cost you more in accounting fees because there is a little more paperwork involved with an S Corp as opposed to doing a sole proprietorship. So I don't see there being a negative for an operational business owner again selling goods or services. And by the way, do not do S-Selection status on rental real estate or investment type businesses. We're talking about operational businesses selling goods or services. All right, let's hit into the next strategy here. And um, again, I got 10 of them here. We got to fly through them. So I'm going quick. Um, this is gonna be overview, and then of course I'm here to answer your questions on it for the second half of the of the hour here. Healthcare costs. Healthcare costs are a big expense. And whether you're self-employed or not, you've got to figure out how you're gonna deal with this healthcare expense. Well, when you're self-employed and you're a business owner, you you can deduct 100% the cost of your health insurance. So if I'm let's say you don't have any employees, let's say you're solopreneur, you're buying health insurance on the individual market, you can write off that health insurance 100% because you're self-employed. This is a benefit you're providing to yourself and your business, being self-employed. This is an expense. All right. Now, if you're an S corporation owner, there you've you and you this actually goes on your W-2. There's a little process on how you get to deduct this. So just make sure you're coordinating with your tax advisor as a business owner. Um, but you do get to deduct 100% of the health insurance costs that you're paying. All right. So let's make sure we're not missing out on that and make sure you're having some type of coverage or plan for your medical expenses. Now, let's say you're someone that has a lot of medical. If you're someone that has a lot of medical, there's an option called a health reimbursement arrangement or an HRA. And this is a little bit of a this takes some structuring. We've got other podcast episodes on the Mainstream Business Podcast, my partner Mark Kohler and I have done going into the HRA. There's other content on this, but but essentially you only need to know this if you're someone that has tens of thousands of medical each year. If you're someone that has tens of thousands of medical or in your family, you may want to look at doing an HRA. What an HRA is it's a benefit the business provides its employees for coverage. There's a little rule that says if you're a 2% or more shareholder, you can't offer it to yourself, but you could actually offer it to your spouse, or you you use a C corporation as a family management company, and there's a workaround of some of these rules. So there's some structuring that might take place on this, is all I'm saying here for you, particularly for US Corp owners. Um, but this allows you to essentially cover those medical expenses through a reimbursement arrangement where the company is expensing it and you're getting that cost reimbursed back to you. All right. So you may incur it personally, the company reimburses you as a covered employee and is in fact taking an expense for it. That is an HRA. Some larger companies have a modified version of an HRA, but you can also adopt it in your business as well. Not for everyone. I haven't used the HRA. We've had definitely had clients use it. It's something if you're a higher income earner, or excuse me, if you're someone that has higher medical expenses. One easy option that everybody should be doing is the HSA. Got a lot of content on the HSA. You can put up to $8,700 a year into it, a non-deductible contribution, excuse me, as a deductible contribution that reduces your taxable income, $8,700. You can invest that money in the HSA and you can use it to reimburse your family's your family's medical expenses. So an HSA is another healthcare strategy. That one's a little more tried and true. I see that one's a lot more common than the HRA, and anyone can do that. Business owner, individual, you just must have a high deductible health plan to qualify for the HSA. And by the way, you have until April 15th to do your 2025 HSA contribution. So long as you had a high deductible plan back in 2025. Another option, for those of you who have employees, if you're someone that has 25 employees or less, by offering healthcare coverage to your employees, you can actually get a tax credit for that. And this is up to a dollar-for-dollar tax credit. There's a lot of expenses that help you that encourage you as a business owner with less than 25 employees because you're not required to provide health insurance to your employees at that level. So there are some incentives and tax credits if you are going to offer health insurance to your employees. Okay, that is a little bow on healthcare. There's a few strategies and ways I want to make sure you're capturing those expenses and getting write-offs, but it all has to do with health care there. All right, next strategy. I don't wonder if I'm going, I need to go faster, I think. Oh shoot, we're 20 minutes in. All right. Next strategy. Auto trucks and vehicles. All right. If you're using an auto truck, any type of vehicle in your business, you better be riding it off. The most common method, the easiest, what I've done most of the time, what I see most clients do is mileage. It's pretty straightforward. You get 72 and a half cents a mile. Let's say you drove 10,000 miles for business during the year. You get a $7,250 expense on your tax return. This is one that won't be in your bank statements. It's not going to automatically show up in QuickBooks for you. It's not automated. You have to track your mileage, right? And a lot of times you might be paying for the gas personally or it's your personal car. That's fine. You can still take a write-off for it. It doesn't have to be in the business name or you don't have to be paying for it with the business card or other business account. We can still get a write-off as long as those miles are for business use. Now, commuting to work and back is not business use, all right? But traveling to see a customer, if you're in the real estate business, going to a property, if you're meeting a client, going to a conference, going to the office supply store, whatever it is in your business where there's actual you're using the vehicle for uh business use, you're gonna get obviously an auto deduction. Now, if you're a real estate agent, a landscaper, someone who's driving around a lot, a delivery person, driving Uber, okay, whatever, like you're gonna have a lot of mileage. If you're a dentist, you're not. So I would expect those of you in certain industries, you should be tracking and having a lot of mileage, which is providing a large write-off. Um, but other business owners, you might not have a lot of mileage. Like, I don't have a lot of mileage. I'm certainly taking mileage, but it's not gonna be a $10,000 plus write-off, but it might be a couple thousand bucks on my tax term. I'm getting a deduction for. Now, there is another option besides doing mileage where the IRS has said you can track all of your expenses on your auto. Let's say you use uh let's say you use an auto in your business, 80% for business, 20% for personal use. The IRS has said track all the expenses on that auto. All right, track that that lease payment, track the gas you put in it, track the repairs, all the insurance, all those expenses. Keep a log of that, track it all. 80% of those expenses you can take for business. The reason most people don't do actual is the mileage is pretty generous. A lot of people realize mileage wins out to actual. Now, if you're driving your vehicle for actual, you need to track your personal versus business miles there so that you have a good log of what's the percentage of use. And it must be more than 50% or more for business use to take actual. Now, the other instance where you may do actual is if you've taken a uh you want to accelerate depreciation or you've taken bonus depreciation on a truck or other large vehicle in the business. That might be a scenario where you're doing, you have to do actual, you cannot do mileage. But either way, um, want to make sure you're riding off the vehicles used in your business. Mileage being the most common and the simplest one to do, pretty straightforward, 72 and a half cents for 2026 that you get for every mileage of business use. And that's meant to just be an all-inclusive thing. It takes into account depreciation, it takes into account the gasoline. And I'll bet we're gonna have an increase in this middle of the year. The IRS always does that if gas prices jump up, as they've done. So we're gonna have a uh likely that 72.5 cents is gonna go up, but we'll see what the IRS says later in the year on this. All right. Um, let's go to paying your kids. All right, this is a cool strategy for you, those of you that have kids that also work in the business. All right, that key component there. If you have kids who work in your business, you can pay them from the business. You take an expense for that. You're in a high tax bracket. Your kids receive that income, they're likely in a zero to no tax bracket. If you pay them under their standard deduction, which is like 15K, they don't even have to file a tax return and they're paying zero tax on it. Meanwhile, you got a deduction on the amount that you paid your kids. That's an awesome strategy. One, it's a great tax strategy because you're getting expenses, your kids are picking up income. Two, you're teaching your kids to work and getting them involved in your business. And three, if we do this in a really sophisticated and smart way, we don't just give them that money or put in a bank account for them to waste on things. We put it in a Roth IRA for them because now they have earned income. Now your kids can have a Roth IRA, learning about investing and growing that for their future. Think about um your kids, you know, having a Roth IRA in their teenage years, how powerful that would have been for you to have that way back then. So uh I love this strategy. I've done this with my own kids. What I did, my kids literally came to the office every Saturday with me. And they and I would do a couple hours of work um and they would actually clean the office. So they would go around, they'd clean the office, they would move people's stuff around, they would even pretend to play office, they'd pick up the phones, they'd move people's stuff. My employees didn't love it, they would complain about it, and your your kids are moving all my stuff around on my desk. Can you tell them not to? And um, it was okay. They were they were nice about it. But um, but we did that on weekends. I was paying my kids for that, and I actually created them Roth IRAs for them when they were teenagers, and we were putting that money. But I was taking expense in my business, they had earned income. That was ending up in a Roth IRA. So a couple of good strategies there in one tax strategy to get you a write-off, another strategy to get your kids involved in your business, and then getting them started early with a Roth IRA. It's it's another version of the trifecta, okay, because the three things collided there. Now, when you're paying your kids from your business, if you're an S corporation owner, do not pay them directly from the S corporation. You will have a separate family management company. This can just be a sole proprietorship with a bank account, maybe it's an LLC if you want one, and your S-corp is going to pay the family management company for services rendered. That family management company is where the kids are paid from. When you pay your kids from a sole proprietorship, there's no withholding, no W 2. The procedures are very easy, and the kids can receive that income again if they're under standard deduction for federal and your particular state. There's no tax return for them to file. So now if you pay them directly out of the S Corp, it's not recommended. Maybe you've got an LLC with rental properties you're paying them from right out of, that's cool, but don't pay them directly out of your S Corp. We've talked before, we love the S Corporation, but not a good entity to pay your kids from, hence the family management structure there. All right. What about your spouse? You might have a business and you have a spouse who's possibly involved in the business. Maybe it's on a part-time basis, maybe it's not, maybe they're working full-time. Uh, but but when do you add your spouse to payroll? Okay, there's a number of misconceptions on this. A lot of people think, well, I need to add my spouse to payroll so they can get social security benefits. Not true. They even if they're not working at all, they can get something called the spousal benefit, which they get credit for your work when they go to apply for their own social security later. So you don't need them to be on payroll for them to get their own social security later on when you guys are in your 60s, 70s, and you're actually collecting on social security. Other misconception. Well, I want to add my spouse on and maybe at least pay them five grand so they can put money into an IRA, a Roth IRA or traditional IRA. Not necessary. IRAs, you can have spousal income. You can have income attributed to them. Okay, so if one spouse is working and the other spouse isn't, the non-working spouse can still put money in an IRA based on the working spouse's earned income. So there's no reason to add them on payroll for them to get income to do a Roth IRA, traditional IRA, or any IRA type of account. However, if you want them to put more money in as retirement plan contributions, let's say you're trying to put 20,000 plus or 10,000 plus really into a retirement account each year. Well, that's going to exceed the 7,500 bucks you can put into an IRA each year. So how do I get that more that much money in? Well, if you're if you're self-employed with no employees, you can do a solo 401. Um, if you're you have employees, you can do a safe harbor 401. At a minimum, they could be putting 23,500 bucks into a 401k, and at most, they can be doing 72,000 into a 401k each year, but they must be an employee in the business. In order to participate in a 401k, you must be an employee in the business. So you in that instance, you would need to add your spouse to payroll. And we've seen that as a reason on why it can make sense to add your spouse to payroll. Maybe another reason if you're doing the HRA I mentioned earlier, adding a spouse to payroll can make sense. If you're trying to adopt this HRA strategy, only something you want to go down the road with with your tax advisor, one of the attorneys on our law firm at KQS Lawyers, if you do have high medical. We're talking tens of thousands of medical, we're not talking hundreds or thousands of dollars of medical, but you're trying to write off tens of thousands or more in medical. Maybe adding the spouse to payroll makes sense, and that's part of an HRA type strategy. So I like it in those two scenarios. I think the more common one is the self-employed person wanting to add their spouse to maximize solo 401k contributions because someone in a solo 401k, by the way, business owner and spouse, they can be putting combined over 140 grand a year in new contributions that could be all Roth dollars, all traditional, a little combo of both. You can be doing that per year between a married couple if both of you are actually on payroll and working in the business. Let's uh interrupt for a second here. Questions. Let's break it up. It's a little too much math, even for me. Let's let's let's knock out at least two, and then we we have more as well. So what so we have a question from Bridge to Tomorrow Solutions. If an LLC is created in Wyoming and business and the business should be in North Carolina, how do we correct? Okay, great question. Let's say you're doing business in North Carolina, but the entity is established in Wyoming, you can do something called a domestication. Okay, we do these all the time. Most states will allow this. I'm not sure of North Carolina off the top of my head, but what a domestication is, is we can take that same LLC. Let's say it's Vandalay Industries LLC or Prestige Worldwide LLC, it's a Wyoming LLC. We can take that same LLC with the same tax ID, and we'll go to North Carolina and say, hey, this is a Wyoming LLC, recognize it in North Carolina as a North Carolina LLC, and we dissolve the Wyoming one. All right. So for someone that has like vendors and contracts and employees in place, where you've got a lot of stuff already going in this LLC, a domestication is a good way to go because you're not shutting one down and having to start over from scratch. So I like the domestication. I'm not certain in North Carolina where it works. Most states it does. Um contact the law firm at KKOS Lawyers. We can help answer that for you and get you set up with one of the attorneys on doing a domestication if it works in your situation. If this is a Wyoming LLC you haven't really used yet, I would just dissolve it and start over with a new North Carolina entity. Or if there's been very little activity in it, maybe you just have a bank account, but you haven't done much activity. There's not a lot of customer contracts or agreements or a lot of stuff in place. I'd probably just get rid of it and start with the North Carolina entity from the beginning. So either way, our fees for a new LLC or domesticating an LLC, they're pretty much the same. It's actually a little more to domesticate it. So there's a way to fix that. It works in most states. I just don't know of North Carolina off the top of my head. All right. A question from Gideon Shirazi, 8510. Can I do a cost is it? Can I do a cost segregation study for my house and then bonus depreciate a percentage of the whole house contents as part of my home office deduction? No, I don't that that's gonna be a stretch. Okay. So let's get we'll get to home office here and we'll get to bonus depreciation on this question. Um, but I don't like that for another for another reason, which is depreciation recapture, which you would have to do if you're gonna do this strategy. So let's come to uh we'll come back to that question, but I want to put this in context because I do have home office on here, and we got um bonus depreciation on and cost segregation here is a couple points. All right, well, let's go right to it. Home office. You were ready. That's actually the next strategy here. Okay. So there's two ways you can take a home office deduction. All right, the IRS has said you can take all your actual expenses, which is what this guy's question was about. Can I track all the expenses on my home? And let's say I use 20% of my home that is specifically and 100% used for business. So if I track all my expenses on the home, I get to take 20% of all those expenses as a home office deduction. All right, you can you can do that. That is called the actual expense and um and absolutely allowed. The the other method is something called the simple method, simplified method. All right, and this is where you can take up to 300 square feet, if you're using that much at $5 a foot, maximum of $1,500, $1,500. This is for people that have like a small home office in their home that they're using that's just dedicated for this. It's not like you're warehousing stuff in your garage or your entire basement as a business operation with multiple offices and inventory, and it's exclusively for business purpose. But if you're someone that just has like a small office in your home of a hundred square feet or a couple hundred square feet, you might be just wanting to do the simplified method here, and that gives you up to 1,500 bucks is a home office deduction. Now you can do either one of those methods. The iris is fine with it. Um, the actual expense method, you're gonna have to track all these expenses, all right? And all these expenses on your home, which you usually don't deduct anyway, so you're not really tracking. I mean, you might for for you know, kind of like your income and expenses and analyzing that, which is good. Um, but now those those details really matter. So um so I think the simplified method, again, think if you're someone that just has that little home office in the home that you're using, just go with simplified. Um if if actually, if you have a lot of expenses at your home, I don't know what that would be in your scenario, but you're making things, um, you have a much larger area because you need to store things or inventory, you're probably gonna be more on the actual expense method because you're gonna have a lot larger deduction. All right, now we're tying the next strategy together with the question, okay? Bonus depreciation and equipment purchases. So if I have a uh equipment purchase where I'm doing um let's just take like, let's say you bought $10,000 worth of equipment. Generally, and let's say, let's say these are tools, okay. You're a contractor. I believe tools you write off over a five-year window typically. So the IRS has said, hey, when you buy something that lasts longer in your business, we don't let you take an entire write-off of the whole thing. So let's say I bought $10,000 worth of tools. The IRS isn't like you don't get to just write off $10,000, those last for five years. So you write off $2,000 each year over five years, then you'll get the full $10,000 write-off for the cost of that. Even though you spent $10,000, you only get to take $2,000 each year. Again, just making an example here to illustrate the point. Well, with the bonus depreciation, I'm able to accelerate that and say, I want to take the whole thing in one year. Now, under the one big beautiful bill signed into law back July 4th of 2025, Republicans and Trump, the law changed to say bonus depreciation is 100%. It was set to at 40% for 2025, but it got bumped up to 100%, which is what it is for 2026 as well. What that means is that $10,000 of tools that I bought, I get a write-off, $10,000 this year. Okay. So that's the bonus depreciation that you get for equipment or items that you're that you're buying in your business that you don't typically get to immediately write off. So that is a huge advantage. Understanding the items you can buy and take 100% write-off is big. This could be a vehicle, this could be a truck, you could be a contractor, you know, that needs a new truck, you could be doing delivery service, whatever it may be. This could be, I'm thinking of the landscaper with all the tools that you're stuck, you know. I whatever your business is, the equipment that you're using in it, understanding when you get 100% write-off and knowing that that is on the table now. If you haven't filed your 2025 return, look a little more closely at the equipment and the things you bought in your business and whether you can take 100% bonus depreciation on that on your 2025 return, because that's going to accelerate the value of the expense you get now, which does what? That lowers my taxable income, which keeps more money in my pocket now. I'd rather take the write-off now typically than be writing it off over time. All right, next strategy: writing off cell phones and technology. The reason we mention this one so much is this is probably one people miss the most. And that I've heard clients over the years when they're like, oh, I forgot I bought this, and should I amend my return for that? And it's like, you know, there they forgot that this camera they bought that they use in their business was 600 bucks and they didn't write it off. And it's like, okay, is it worth amending this year to write that off? Probably not. Let's just add it on next year's return. But for whatever reason, these are items that just get forgotten. So we want to make sure you're aware of all these things. Be thoughtful about the things that you're buying in your business. This could be Bluetooth devices, it could be a smartwatch, this could be cameras, this could be equipment. I'm looking in the studio that we're in, all this stuff in here. You might not think, oh, did you write this? Yeah, we wrote off everything in here. Okay. This is 100% business use. There's no personal use. We're not shooting anything in here for personal use, okay? This is 100% for business use. So think of those other items, these technology things that you may be using, all the software that you're using. Like, do you have Microsoft Office on your computer that you're using for business? Did you pay for that personally? And is your personal card getting hit for that? What about Adobe and all these other things that we all of us pretty much have? Um, make sure that those expenses are being tracked and you're that you're writing those off in your business. And that really just comes down to good bookkeeping. Okay, travel. You definitely need to be writing off travel in your business. I just got back from I was in, I went from Vegas to Orange County, California, to LA, back to Phoenix over the last six days. I had a lot of travel, all for business. Okay. And when I go to the parking lot, okay, first of all, let's just walk through all this. Me driving my car to the airport, mileage. Parking my car at the airport, 100% expense for the parking. The plane ticket, 100% expense for the plane ticket. The Uber ride from the airport to the hotel, 100% business expense. The hotel stay, 100% business expense. The meals, 50% expense. All right, don't get 100% on the meals, but still, 50% expense as I'm traveling. I need to eat. Okay, this is all for business purpose. Okay, entertainment. I went to a comedy show. Okay, it was actually pretty fun. We went to the comedy store in LA and David Spade was there. Like, this was a Monday night. We just totally lucked out. I was in LA at a conference for work and went to the comedy store that night. Zero percent write-off. Okay. Entertainment is a zero percent write off. Even though I went there with someone from work, doesn't count. Even though we talked about business, it doesn't count. All right. So entertainment, not gonna be deductible. Um, even the Uber ride out there, not deductible. Okay. So now flight home, paying the parking on the way out, the Uber rides, any luggage fees, all of that is gonna be a hundred percent write-off. So think of these places where you're going. Did I visit and meet with a client? Did I meet with a vendor? Did I attend a workshop? Um, for you rental property owners, did I have a rental property that I went and looked at? Are you tracking your mileage to and from that? If you took a flight to look at that, did you write off the flight in the hotel if that was included? What about when you're going to the store to buy office supplies or shop for equipment? A lot of people forget to write off those miles and write off that travel as well. And also another big one, did you have a company board meeting? That company board meeting where you have other people that may be flying in, those are write-offs as well. This is where you want to make sure you have a board of directors. For those of you that have an LLC, you should have a board of advisors. These are people giving you advice in the business. This is your sounding board. This is people helping you grow and scale. This is your support system. So use them and realize that those expenses for those meetings and the travel associated with them, whether this is in your hometown and they're coming to you, or you're all going off-site somewhere, those are all 100% deductible. Those flights, the hotel, all that stuff, because those people are involved in your business and that has business purpose. Okay, those are the strategies for today for business owners. Um, let's hit the questions, Jordan. What do we got from people online? All I'm gonna go first to everyone online, and so if you have them. All right, we we have a couple questions uh about, and this this kind of falls in the category more of entities and structuring that we hit on last week a little bit. So we have a question from Nathan Coleman, 2732. Starting a new business soon. Would a DBA be a good way to separate from the business until you can set up an LLC? Yeah, a DBA could be a good way to go. By the way, that means doing business as. Some states call it a fictitious name like California. Some states call it a trade name like Arizona, some states call it a DBA doing business as. What this is, it's just a name you've reserved with the state that you can conduct business under. A bank will let you deposit checks under that, under that name. Um, but it's just a sole proprietorship. So as you're conducting business under that DBA, you're just a sole proprietorship. I depending on what you're doing, I may say just do an LLC. You don't need to have a taxes and S-corp yet, but let's at least get an LLC established. There's a couple reasons why you may want to do that. It's not automatic, by the way, but you may want an LLC if you want some liability protection. You're gonna start entering into contracts, you're gonna start promoting yourself to other companies where their businesses are customers to you. When you're operating as a DBA, that doesn't look too good. They don't want to be entering into a contract with Matt Sornsing doing doing business as Sorns and Industries. That sounds like I'm not very serious. They'd rather do business with Sorns and Industries LLC. Okay, it's a little more established. And if I know I'm gonna go down that route route eventually, having the LLC in place now just takes away me from having doing that later. Now, if you're like, Matt, I'm just doing some consulting on the side. I don't really market myself or put myself out there. The people I'm gonna provide the services for, I know. It's not like I'm it matters. Cool, I get it. Just do your DBA, don't worry about it. Um, but otherwise, I actually think an LLC, just tax is a sole proprietorship. We can keep your tax reporting easy. It's all gonna just flow onto Schedule C of your tax return. We charge $1,200 to set up the entity. You work with one of the lawyers in our in my law firm, KQS lawyers, um, and we can get you set on the right direction. So not necessary, but just a consideration of maybe it may make sense to go for the LLC. All right, so we have another question uh also about DBAs. There's a lot of overlap between this one and last one, okay, but the situation is a little different. So uh Brenda S1533 asks, can you use a DBA to dabble in a side hustle under an existing LLC? Yes, and I like that a little bit more. If you already have an LLC with a name that makes sense for a certain service you're doing, you're doing something a little different that you want some branding under that's gonna make a little more sense, just use it, do it, just do a DBA. Okay. You should see me in here when I'm shooting video. Sometimes, like this morning, I was shooting some YouTube video. There's some there's a lot of bloopers, you know, going live. It's just they've been stacking up. It just happens, yeah. I like that though. Just do a DBA, okay? You've got prestige worldwide, you know, and you're out there, you've got the best record label in the world, and you're like, oh, I want to do nails, okay? Maybe you need, you know, nails by Matt instead, okay, as a DBA. I don't know. Just making this up as I go, obviously. So um, so I like that though. And the DBA, it it gives you that option to have multiple names and brands that you operate under that people can recognize you by, and that also a bank will accept checks or other payments for under that name. Okay. Uh another question from Michael Hayes agent. I want to get my kids' custodial Roth started as early as possible. What's the earliest I can get started? Do they need to be on the payroll of the business? Don't want to get into FICA, et cetera. Okay. Yeah. The the first thing is the kid has to have earned income. That's the first requirement. So it's not really what age can they can they have a Roth IRA? It's when do they have earned income? Now, if you're a business owner, we need to go back to that third or fourth strategy I have of paying your kids. Is your kid working in the business? Is the first question. If you're like, no, then the next question is, well, when will they be working in the business? Once they are working in the business, that's when they can have a Roth IRA. Now, you may have teenagers that actually have a part-time job or they've had a summer job. They have earned income. Even though they spent it on stupid stuff, that's still earned income, which you can use to take your own money or give them money that goes into a Roth IRA because they have legitimate earned income. But if they don't have their own earned income yet and they're not working in your business now, you'll need to get them working in your business. So if this is the rental property situation, it's a lot easier. You just pay them out of the LLC where there's a rental property, there's no S selection status you should have on that LLC. If you have an S corporation where you're operating your business, you would do the family management structure that I mentioned, and you will pay them out of the family management company. There's no FICA, there's no W-2, there's no withholding, and there's no tax return either, as long as you pay them under under the standard deduction. Now you need to pay them, pay them a fair wage. You can't just be like, well, I'm going to pay them 15 grand and they'll be under the standard deduction because that's the maximum way I can amount I can get away with. Did they do 15 grand worth of work? You can only pay them what the value of the work they're actually doing. Um, so if you wouldn't pay someone else to do that same work for what you paid your kids, you might have a hard time justifying that expense. So uh if your kids aren't working in the business, just get them involved, figure it out. Um, again, you heard me why I love the strategy. We get the Roth account going for them, we get the tax deduction for you, and you teach your kids about what you're doing in your business, and they get to see what's actually happening in your business and learn the value of work. All right, next question from Sarah Lynn with five N's. Sarah Lynn. Okay. What about utility bills? Okay, I presume this is on home office expense. Yes. Okay, I'm like, what about them? I mean, you have to have them. Yes. Um, those would go in if you're taking actual expenses. So if you're doing the simplified method, it doesn't matter. But if you're tracking actual expenses, um uh you would track all the utility bills, and that would be a deduction partially. So, like the heat in your home, like the gas bill, if you're like or you know, electricity for AC or heat, depending on your state. So those would be a percentage, again, of your home that you're you would get a percentage of that, those utility bills. Now, um that question earlier about the depreciation and accelerating that on the home, that I don't like that strategy. I don't think that's gonna work, by the way. Um, in order to depreciate any asset, you have to be using it more than 50% for business. Um, if you're using your home more than 50% for business, I don't think it's your home anymore. I think that's your work location that you actually happen to live at. I don't know. That's a little odd situation. So um just looping back to that earlier question, I'm gonna guess that's not gonna work. All right. Uh one more from Bridge to Tomorrow Solutions. Company board meetings question. Is travel expenses 100% write-off? Yes. Travel is a 100% write-off. Now meals are 50%, but travel would be 100%. This is mileage to the airport. This is the the flight to wherever the if this is an off-site meeting or an annual board meeting, wherever that location is. This is the mileage from the airport to the off-site location or the Uber or whatever it might be. So absolutely all those travel expenses, the hotel, the lodging, just the meals are going to be 50%, um, as long as these are business meals. Any stuff you're doing personally associated with the trip, you're not gonna be able to write off, by the way. So if you're like, well, we're going, we're staying a few extra days and we're going, you know, snorkeling because we did the, you know, we did the uh board meeting in Hawaii. Cool. Well, you're not writing off those days. You're not writing off the mills on those days, you're not writing off the hotel and lodging on those days, you're not writing off any travel associated with those days. The flight in and out, I think you still get away with because you got to get in and out one way or the other. Um, but uh yes, travel would be 100% write-off. Again, the purpose of that trip needs to be business. You're having a real board meeting. Um, and so absolutely, it's 100% write-off. That's a that's the purpose of that trip and that travel. Okay, we're good. I'm gonna give you a lot of great questions. This came in from Jessica Miles22. She said, I'm a small business owner with limited cash. How do I decide whether to prioritize something like an HSA, a Roth IRA, or reinvesting back into my business for tax savings? It's a great question. I have something called the ideal order of investing. Okay, I've shot some videos on that. I have a downloadable guide on my website. We'll drop the link in the chat there for anybody that wants to see it. And it kind of goes over what accounts should I set up first? And the first one is always 401k if you work somewhere and your employer offers a match. Well, if you're self-employed, no one gives you free money in a match. So, really, your your next option, in my opinion, is a Roth IRA. You can put $7,000 in a Roth IRA still for 2025, $7,500 for 2026. So you can be dropping $14,500 right now in because you can make contributions for both years. 2025 you can do until April 15th of 2026. So you'll be putting $14,500 in a Roth IRA. Now, depending on your income, let's say you make less than what is it, $150,000 single. Um, what is the the phase out limits for where you when you need the backdoor Roth IRA? But let's say you're married, making less than $200,000. Okay, you can put money into a Roth IRA, that $14,500. And if you ever need it, you can pull it back out. One of the nice things I like about Roth IRAs is you can put the money in, start investing it. But if you ever need to take the money back out because you need it for some unexpected purpose, um, maybe you will need it in your business next year. For some type of growth opportunity, you can pull the contributions out tax and penalty free at any time. It's only the investment earnings and growth that you have to wait until you're 59 and a half. So if cash is limited right now, and so long as you're below the income restrictions on Roth IRAs where you don't have to do the backdoor Roth IRA, I like just doing the Roth IRA because I can get that money back out whenever I need it. And but we get the money in the Roth IRA so we can start investing it and growing it. We don't want money just sitting in a bank account doing nothing. All right. Um, we want to be have effective use of our capital. Now, on the other hand, if it's like, well, Matt, if I had $10,000 more in my business, I could, I would put that into marketing and that could drive $50,000 more of revenue. Okay. And let's say you've got a 50% profit margin. Okay, now you can spend $10,000 to make $25. I think you should do that instead. Okay. So for business owners, this is always the number one, I should say this is probably the most difficult question to answer is when do I make other investments in other assets versus putting more money into my business? I think you need to find a good balance of both because I have seen clients that get to the end, they're in their 50s or 60s, they have a business that's paid the bills over the year. They can't really sell it, not for much if they can, but they put every penny they had back into the business and they have nothing, nothing in retirement, no other investment accounts or assets to speak of, besides their business that they put their blood, sweat, and tears and every profit and dollar back into. So um, so just be a little cautious there and have a serious analysis and just like thought of like where is this capital most valuably put? If you don't have a really high level of confidence of spending more on my business will make me more, then I like doing the Roth IRA first. And again, right now you can do two years of contributions. So, what was the income limit for 2026 or 2025? What's the average for a single? Mary's okay, 150. Okay, I was close. Okay, 153,000. If you're making less than that, you can just drop money in the Roth IRA, pull it back out whenever you need it. So it's going to be somewhat accessible. If there is a business opportunity or something, you need to draw that money back out. You said you have limited cash. Um, if you're over those limits, you have to do the backdoor Roth IRA. The problem with that is you can't just pull the money back out. You have a five-year wait. Once you do a backdoor Roth IRA, you're actually doing a non-deductible contribution that you convert to Roth, and Roth conversions have to sit in the account for five years before you can pull them out, penalty and tax-free. So it's not as slick as a strategy. Okay. Um Marky Mark84 asks on the pay your kids strategy, what actually counts as legitimate work and what are people doing wrong that could get flagged? Okay. Um I I gave you my example of the office cleaning. For those of you that have a place of business, I like the cleaning because you can get your kids doing it when they're 10, 11, 12 years old, even earlier, possibly. And so that's literally what I did for my kids. Now, I was thinking back to things that I did for my dad that I never got paid for, that he could have paid me for. Mowing the lawn at the rental property. I did that many, many weekends. Okay. Mowing the lawn at the rental property, he had two duplexes. They were right next door to each other. I think he thought he was playing Monopoly and he was gonna go to a hotel soon, but I don't know. So I mowed many lawns there. Um, and you know, I he was not taking a ride off for that, and he should have. The other strategy though, the other thing I was in, we'd go to the warehouse where he worked. I would work in the warehouse sometimes. We would move stuff around, we go to the warehouse. Um, and so there's multiple things I could mention there, but it's very specific to your business. The one thing that I will just say is a gray area is I put I put my kid in the photos. I put a picture of my family on our website. Was that necessary for the business? Did it really need that photo of your family? Is that driving sales? If it's not, I don't think there's much value in that photo. I don't care how cute your family is. All right. So I don't know that you're gonna get a modeling fee to your kid because you put them in a photo of your family. Now, maybe you're a pediatric dentist and you take a bunch of pictures of kids getting dental work done and your kids are in the photos. I think that's okay because that's what you do that makes sense for your business. And if you're gonna do that type of stuff, I can see your kids getting involved in that. Another gray area one, or I think one that can work but could get abused too, is any of you that are content creators or you're using social media to market your business, and your kids are in your social media content and you're paying them this modeling fee, you're giving them compensation for being in it. Again, it's just gonna get into this reasonableness standard if you're under audit of would you have paid someone else's kid to be in this? If you wouldn't have, you're not likely gonna get away with paying your own kid to be in that content. So I like actual work that needs to get done in the business. I've got um uh one of my kids, they would they would show up at my events, they would work the actual events, they would sell books. These are things that actually had to happen. Someone had to do that. I was not gonna be selling the books, I had to be on stage or doing the event. So I needed to have somebody doing those uh items of work. So um think of those things, the things that may matter for your business. I've seen a lot of clients, they get their kids, they teach them QuickBooks, they get them in the QuickBooks. I've seen other um business owners whose kids are doing their social media and actually running the account, responding to comments, setting up automations, cutting the video content. Um, I don't know. There's countless possibilities really here. Um, so just think about it for your business, but have some rule of reasonableness here and don't go overboard with the modeling fee type compensation. And I'm sure your kids are adorable. That wasn't meant to be harsh. Okay. And maybe your kid is an actual professional model, in which case I'd lean into that. Pay your kid then. There apparently someone's doing it, so you should be paying them too. Take a write-off. Um, okay, this question is from Samuel TX. He says, for the 20% QBI deduction, what are the main things that disqualify someone or reduce the benefit at higher income levels? Okay, this is a great point. This is a good one to know. I didn't mention this one in the in the strategy, but there is the 20% qualified business income deduction for small business owners. So you go back to the Tax Cuts and Jobs Act that was, I don't know, eight years ago now. There was legislation that said, hey, corporations, your corporate rate's going from 35% down to 21%. And small business is like, well, what do we get? We're taxed at the individual level. What do we get? And Congress said, we're giving you a 20% deduction on your income. So if you're a pass-through entity where you're not paying corporate tax, you're an LLC, you're a partnership, you're a sole prop, you're an S-corp, we're giving you a 20% deduction on your business income. So if you're a business owner that made 200 grand, you're only taxed if you made 160. Okay. It's a really good deduction. Everybody needs to make sure you're getting that QBI deduction, it's qualified business income deduction. Now, Samuel asked, can you get disqualified or does this basically phase out for high income levels? Yes. Certain professions, lawyers, doctors, dentists, um, there's a number of others in that in this category. You get phased out on this. Once it's a few hundred grand, four hundred grand of income or more, the ability to take QBI starts getting reduced and eventually goes away entirely. So I think we can look at the QBI phase income. We can put that into the chat here. It's the QBI income phase out for professionals. Um, these numbers adjust every year. But if you're someone that is in a profession, a licensed profession, um, we're providing professional service. I think also like um actors were thrown into that. I don't know. Pretty much everyone that Washington doesn't like, you know, they threw into this bucket here. And they said, this wasn't meant for you. This is meant for like main street business owners. We didn't mean this to help give prof high-income professionals that are business owners that own their business to get a write-off. Whatever political consideration, I don't know. I I didn't like it, but um, obviously, um, because I can't take this deduction for my law firm income. Um, but but this uh it does phase out for you high-income earners that have a certain license profession. Okay, but you could be, you know, you could have a manufacturing business or um some other, I don't care, any business here really, uh, where you're making a million, two million bucks a year, and you're getting this deduction, 10 million, 100 million a year, you can be getting this QBI deduction. So just know the restricted businesses. We'll throw through those into the chat. They're pretty easy to find on QBI. Um, but great question, Samuel. This was from Chris, is it at Chris Solo Biz? He says, I haven't set up a solo 401k yet. Is it still too late to get tax benefits for last year, or are there still some moves I can make before filing? Great question. Very timely right now. It's not too late. Bottom line. You can still set up a solo 401k for 2025 and make 2025 contributions. Excuse me, which if they're traditional, you get a deduction for. If you're a sole proprietorship, you can set up a solo 401k now and you can still make employee and employer contributions into your solo 401k by April 15th. All right. So you this is not plus extensions. You do not get full contributions on this by if you also make an extension. So act on this now if you're a sole proprietorship, if you want to maximize 100% contributions. If you pass April 15th and you extend your return, it's possible to get employer contributions in, but you're not going to get employee contributions in. If you're an S corporation owner, you can still set up a solo 401k now and make 2025 contributions, but you can only do employer contributions. This is 25% of whatever your W 2 was. So if your W 2 for 2025 was $100,000, you could put in $25,000 as an employer contribution into the solo K still for 2025. Okay, so those are the most common scenarios we're going to see. The SOLP or the S Corporation owner. Um, but even for the C corps or partnerships, you're you still have some time too where you can still set up and make contributions to the solo 401k. Just know that if you're an S corporation owner, the employee contributions, you needed to do those in December for Sol Props, you have until April 15th. And I know this may sound super confusing for any of you that are like, whoa, this guy's going all over the place. I'm sorry. I have a webinar on this. We've shot some other content on this. We'll drop that link on solo 401ks where they went into the, we went into the details about what's the timeline. Do you need to have this set up? I think we even have an article on this. So we've got resources for you, Chris, and anyone else looking to still do a solo 401k. Now, we can set that up in my law firm, KQS lawyers. If you need a tax console associated with it, if you want to just get the docs only done at a lower price, we do that at our company directed IRA, where you can get all the solo 401k plan docs set up and your contributions in before year end, or excuse me, before April 15th or your extension deadline, depending on your situation, where you can still get a 2025 contribution in and a deduction if you're doing traditional dollars. All right. Well, thank you everybody for tuning in. Remember, if you got to the end of this and you want to get this wealth building certificate, I don't know, maybe, maybe there'll be one person that takes me up on this. Put a comment in here that you actually watch the whole thing. We're gonna come back. And by we, I mean probably Jared on the team, and he's gonna see who gets who has listened to all eight of these. And we're gonna send you something cool. And uh, but I appreciate everybody being on. Thank you so much for all of you that asked the questions live. Thank you for those that are being on live. Remember, we're here every Thursday, 4 p.m. Pacific time. We'll see you at the next Wealth Office Hours Live. Thanks for being here.