005 | $10,000.00 Tax Savings Challenge

Episode 005 | $10,000.00 Tax Savings Challenge

Welcome to the Vital Strategies Podcast. We believe that we can save everyone that is listening at least $10,000 in income tax from this show alone.
We are on a mission to help entrepreneurs. And our goal is to save $1 billion in income tax. We feel like the dollars are better served in your hands versus the government. On average, we’ve saved our consulting clients over $280,000 in income tax per year, considering we can’t take any more consulting clients for 2023.
We thought we would give away some strategies that you can execute on that will save you money. The key thing is these need to be done before December 31st to create the tax savings for 2023, please go to www.5minutetaxmakeover.com and download all the free resources available to you. There, these strategies will apply whether you have a side hustle or you’re an entrepreneur making over a million dollars per year.
We believe that the money you don’t send to the IRS will be used to build more wealth. We believe there’s two types of wealth. The first is financial wealth that can be measured on your balance sheet. The second is experience wealth that contributes to a great life. If you save $20,000 in this exercise and you use those dollars to build your business and also take a trip with your spouse that creates memories and strengthens your marriage, that is experience wealth.
This is the foundation for what we do at Vital. We think paying less tax helps you build more wealth so you can live a great life. I’m your host, Patrick Lonergan, and I’m thrilled to share today’s topic with you.
Let’s dive in.
The most valuable things in life come from this acronym we’ve developed called REACH. The R is for relationship. There’s a book called The Good Life and they found when you don’t have close relationships, it reduces your life expectancy more than smoking. We all know that relationships are valuable. We think about how hard it is when we lose someone close to you.
E’s for experiences. Think of the amazing places you’ve been and the fun you’ve had. Also consider the hard times in life and how they’ve shaped you. All of this is valuable. A’s for advancement. This is our growth. We see this in the value of growing in our marriage, as parents, in our faith career and personal development. We also see the value of advancing wisdom in our children.
If we had a choice of giving our children wisdom or money, we all know that wisdom is the right choice. They’ll figure out how to create more wealth with that wisdom. On the other hand, a fool with money will soon be a fool without money.
C is for contribution. The scriptures tell us it’s better to give than receive. We should leave this world a better place than we found it.
H is for our health, our spiritual, emotional, and physical health. These are the most valuable things in life. Not a big balance sheet, but what that balance sheet can do for those arenas in that acronym, it really matters. Now, the world tells us to pursue things outside of our reach.
Go buy a bigger, faster, shinier fill in the blank. I was just talking to a client yesterday that bought a Ferrari and is ready to sell it. He’s like, it’s not doing anything for me. It’s just a burden. So don’t buy into the lies things outside of our reach are not that important, it’s relationships experiences its advancement growth.
It’s contribution in our health. Now, why am I talking about all this? Okay, so if we have an extra $10,000 to build wealth or go on a vacation. We think that’s where it’s at. So our focus today is we want to save you $10,000 of money. You don’t have to send to the IRS before year end. Now we have only a couple of weeks to get this done.
So we’re going to give you some incredible tools in this podcast, but we want you to go to www.5minutetaxmakeover.com and download the free resources there. Those resources will be the step-by-step guides to help you save the money so you don’t have to send these dollars to the IRS. They’re going to be incredible resources for you.
Oftentimes we’re charging clients thousands of dollars to help execute on these things and we’re giving them away to you for free. So, let’s dive right in. The reason we’re executing on these right now is they have to be done before December 31st. So, we have two weeks to get these pieces done. So, the first strategy we’re going to look at is the home office deduction.
There’s a standard deduction that allows you to take $1,500 as a deduction for your home office. What we found almost universally across the board is when clients take all of their expenses for their home, they take the square footage of their home and their home office. Let’s say the house is 2000 square feet. The home office is 200 square feet. That’s 10% of their house. They take 10% of all of their expenses from mortgage interest, utilities, internet, housekeeping, lawn care, all of those things. It oftentimes adds up to be two or three times the standard deduction amount. It can take 15-20 minutes to get those pieces put together.
Even if it takes you an hour, it might save you an additional thousand dollars in income tax. We think it’s worth your time to get those pieces done. So go to www.5minutetaxmakeover.com. download the spreadsheet that we’ve got for you. You put the numbers in, it will automatically calculate the deduction.
Then what we want you to do after you have that spreadsheet completed is transfer the money from the business to yourself personally and book it as home office expense. Okay. We like to see it on the PNL.
All right. The next strategy we’re looking at is called the Augusta rule. In code section 280 AG, the IRS lets us rent our house out for 14 days and not have to claim it as income.
Now, I know you probably don’t want to go put your house on Airbnb and rent it out to strangers, but I’m sure you take opportunities to meet with clients, members of your team, prospects. Mastermind groups, peers, that type of thing. You’re doing that out in the world. So, when you have those meetings at your house, we should compensate ourselves for that time we spend in our property.
That’s where the Augusta rule comes in. Your business can make the expense to yourself personally. So, it’s an expense on the business side, but not income on the personal side. So, you get a shift dollars from your right pocket to your left and take the deduction from the business. We think it’s a fantastic strategy.
Now, we can’t abuse this strategy. So, there’s three different ways that we can justify the market value. We can look at comparable properties that are close to you on Airbnb, figure out what the daily rate is. Again, we’ve got a spreadsheet for you at www.5minutetaxmakeover.com that you can put these numbers into.
So, we go to Airbnb. We find comparable properties. We typically like to find three to justify the expense to the IRS. If they ever come look at it closely and we take that deduction. Okay, now this might be $1000 a day, depending on where you live. It might be $500 a day. It might be $200 a day. If it’s $1000 a day, that’s a $14,000 deduction that you just created.
Now, we have to legitimize it. We have to have actually had business meetings at our house with potential clients, our team. If we have a quarterly two day meeting at our house with our team, there’s eight days right there. If we had six other prospect meetings at our house, there’s our 14 days. Okay. So that’s an example of how that can work out again, check out www.5minutetaxmakeover.com and download the free resources. It will walk you through all of the steps for how to make this deduction happen.
We can also use a service called Peerspace.com. That’s an hourly rental. It’s very similar to how we could rent out our space. If we were holding a mastermind meeting or a client appreciation event or something along those lines.
So, another way to justify the value. Again, we like to find three comparables and use that. And finally, if we really want to cement this deduction in the eyes of the IRS, you can get an appraisal, a qualified appraisal, an MAI appraiser can help you calculate these figures. Now the challenge is going to be getting that done before year end.
Cause we’ve got to get that figure and we’ve got to transfer the dollars from the business to ourselves personally to book that expense. And we like to put that in our software. We typically like QuickBooks, but I don’t care which software you’re using to manage your books. You just code it as a venue rental.
Okay. We also have a lease that you’ll sign, you’ll put the 14 days that you use the property. You’ll execute a lease from the business to yourself and make that transfer to book any expenses. So again, a fantastic strategy that can create thousands of dollars of income tax savings, just taking advantage of things you’re already doing.
Now, the next strategy we’re going to look at is putting your family on payroll. If you have family members that work in your business, but you don’t compensate them, you can pay them up to $13,850 and they will pay zero tax on those wages at the federal income tax level. The reason being is the government gives us a standard deduction of $13,850 that we don’t have to pay any income tax on.
We get to earn those dollars for free. Most often we see this applied to your children that work in the business or retired parents that maybe you’re helping support. If you have four children, this allows you a deduction over $55,000 which moves it from your top tax bracket to the 0% tax bracket.
Now your kids can use that money for everything from private school tuition to clothes for school, gas for their vehicles, even funding Roth IRAs. Now, we want to make sure that you’re applying this strategy legitimately. So go to www.5MinuteTaxMakeover.com and download the guide to putting your family on payroll.
You’ll see everything from step-by-step instructions to a job description that you can fill out for each one of your family members. But if you have four family members on the payroll, And you’re paying them the $13,850 a year. That would save you over $13,000 in income tax if you’re at the 24% tax bracket.
And that number goes up even higher if you have state tax or you’re in a bracket above that. Now, this strategy is the most complex out of the items on the list. Please make sure you download the guide to putting your family on the payroll at www.5minutetaxmakeover.com.
The last strategy we’re going to look at is fringe benefits for employees. Now considering we have a home office and we have family on payroll, things like if I’m paying an outside company to do pool service at my, if I have a pool in my, on my property, okay. Now that service is a benefit to my employees. I can deduct that expense. If I have a Peloton that my employees use, which could be you, your spouse, your children. And I’ve got a subscription service that I’m paying for that’s tax-deductible.
Meals for the benefit of the employer are also tax deductible. So, here’s how I want you to handle these expenses. If you go back and look throughout the year and go, okay, I see how much money I spent on the pool or the Peloton service, or I can identify certain meals that were, we went as a family and utilized while we were working, you know, if we had, if we worked late one evening or on a weekend or something along those lines, and we had to have a meal for the benefit of the employer, that is a tax-deductible expense. I want you to go add all that up, go into your bank account and transfer the dollars as a reimbursement and code it as pool service, gym service, reimbursement for meals.
Get that done in the software. Moving from the business to yourself personally. Okay. Again, it’s going to be one of those expenses for the business that you don’t have to claim as income on the personal side. We think this strategy makes a lot of sense.
Now, looking at all of these opportunities, we think you should easily be able to find $10,000 in tax savings every night, execute on one of these strategies and over the course of the week, you’ll have saved yourself $10,000. I don’t know how much work you have to do to go generate $10,000 in revenue, but if we can save you $10,000 in tax. We love that idea. Now this applies, whether you’ve got a side hustle or a business where you’re making a million, $2 million, $3 million a year, we think these strategies make sense and we think you should look at which ones apply to you and execute on them.
Here are your steps to save up to $10,000 in income tax or more before year end.
One, visit www.5minutetaxmakeover.com. to download and take action on each of the items we discussed that apply to your situation. Again, this all needs to be done before December 31st of this year. Three save thousands of dollars of income tax.
So, you can live a great life. I look forward to having you back next week. When we talk with Bruce Gendein about the power of the cash balance plan and how entrepreneurs can save hundreds of thousands of dollars in income tax using this tool.