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Originally Posted by Buehler445
Lots of good information here.
Definitely some things to be weary of.
1. If you incorporate or start an LLC, it will indemnify you from business risk - biggest thing there is if you are sued for a billion dollars they fold up the business but can't touch you. If you dig too deep in deducting stuff it will pierce the corporate veil and you are personally liable.
2. Be careful on some of the small business deductions. Lots of asshats (not pointing fingers at DRU here) use a business to commit as much tax fraud as they can cram into one 1040. Accordingly, the IRS is a bastard on some of this stuff. IRS shows up, and they find something, they are going to go to looking.
If you pay the kids through the business, make them do some work. If you can't, they get cranky.
I wouldn't do meals. Like at all. Unless you are taking non-relative employees out to eat too. Travel expenses are just asking for trouble. I wouldn't do it. And besides, I think you can only take half.
Cars are a tough ask. You are going to have to assess a business use percentage for each listed vehicle. And (at least for farmers anyway) you can't deduct more than 75%. And then, you have to deduct a proportionate amount of fuel, repairs, insurance, taxes, and all that jazz. And if you **** up, they ding you on it. Moreover, if you deduct it, then trade it off, if the trade in value is more than the book value, it is gain. More tax.
If it were me, I'd keep a mileage log, and pay myself mileage out of the business account. It isn't too bad to keep a mileage log. I did it because I was using a personal vehicle for a bunch of farm stuff, and I wasn't about to go **** around depreciating the asshole, and splitting all that other noise out. Plus, if there is gain, it doesn't matter on a personal vehicle. Sure, you don't get to depreciate it, but I wouldn't go down that road.
The home office thing is a must do. Now, they have a rate per square foot that's really easy. As long as the space is ONLY an office (no treadmill or whatever).
Yeah, the correct answer is find a GOOD accountant (There are shit ones) and get to work. Even if it is a schedule C or E or whatever, keep track of legit stuff, keep the documents, take the deductions, be happy.
Don't take stuff that isn't there, keep the documentation, take what you can get, but only what's there.
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As I said...cautiously aggressive. You don't lie. That's where people get screwed up. You simply track all of your expenses, go over them with your CPA / EA, and you will be able to deduct all sorts of legitimate stuff that will save you thousands, and they will go to work for you (for free) if an audit happens. Some of them even offer audit insurance if you lose the case, so you're covered. Of course, that means they're absolutely doing things legitimately, so that never happens.
Meals and Entertainment, Travel...those are areas people do take advantage. Just don't take advantage. Use it legitimately, and you'll still have more money in your pocket at the end of the year than if you weren't doing that. You'd be surprised how easy it can be to make those types of things legitimate, too. For example, have a relative in another state? Make them part of your board of advisors. Guess what? Every time you go visit them or they come visit you...100% write off. Completely legitimate. Go on vacation once a year with the family? Make it your annual board meeting and the whole thing can be deducted. You just can't have 20 board meetings in a year, for example. That would be a red flag and you'd be in trouble (and your CPA/EA wouldn't let you do it anyway.)
Yes, of course, if you're paying your kids they have to be doing work. But guess what...you need a paper shredder, right? You need somebody to enter transactions and reconcile bank accounts, right? You need somebody to sort bills and trash all the garbage, right? How about social media marketers? You can find legitimate tasks for kids to do to earn their money, and it gets them started at a very early age understanding work, money, business.
They actually have a "simplified method" for home office deductions now where if you check the box you get $5/ft. at 300 sq. fb, so you get a $1500 deduction ($375 cash in your pocket if you're in the 25% bracket) right off the top. If you do have a large house in an expensive area with a big office then you can still do the standard method and use the sq. footage calculations, but in most cases now the simplified actually makes it better and easier.
So yes, absolutely, if you're doing this you don't want to be doing taxes yourself. The savings will be huge, though, and it can change your life financially. As he said, find a good accountant, track your expenses, and it will be WELL worth it.