Glenn Harper [00:00:00]:
Hello, everyone. Welcome to another special edition of the Empowering Entrepreneurs Podcast. I'm Glenn Harper.
Julie Smith [00:00:04]:
Julie Smith.
Glenn Harper [00:00:05]:
What's going on, Julie?
Julie Smith [00:00:05]:
You know, you did another great intro. I mean, two in a row.
Glenn Harper [00:00:08]:
We're on fire today, what can I say? And it's decaf coffee. It's a boot. Have you got on the bandwagon, all this iced coffee thing, drinking a notoriously hot beverage cold.
Julie Smith [00:00:18]:
I just. No, I just want it hot. There's something about that routine, and I obviously am very routine oriented, that I just, I want the hot coffee.
Glenn Harper [00:00:27]:
People are raving about it. I've not delved into that. You know, I was in a California.
Julie Smith [00:00:30]:
Although there's a place in Austin, Texas that serves it from a. It's like, what do you call those? Like a tap. A tap.
Glenn Harper [00:00:38]:
Cold or hot?
Julie Smith [00:00:39]:
It's cold. And it's the only one where, like, I will go to get that. I don't even remember what it's called.
Glenn Harper [00:00:46]:
But it's called the gateway drug for a reason. So who knows what that's going to look like. Well, we've got a special thing we want to talk about today, especially with the new big, beautiful bill that had just passed and is now law, as everybody's trying to digest, comes up to like, well, what are the cool things? Right?
Julie Smith [00:01:02]:
Yeah. I mean, what, what kind of hacks are you going to be able to provide?
Glenn Harper [00:01:04]:
What kind of hack? Golf course hacks, really?
Julie Smith [00:01:07]:
The Internet hacks?
Glenn Harper [00:01:08]:
The Internet tax? I don't know anything about that. I'm not a tech guy. You're thinking tax hacks is what you're thinking. So as we are a business owner or even perhaps just an individual, what's out there that we should be thinking about that can really help us save on taxes? And, well, I'll break this down in two buckets. We'll do like an individual that has, quote, a real job. I mean, that's probably the majority of people out there that have jobs. And one of the couple things that you can always do is ultimately, you know, you're always taxed on the money the first time you make it with your W2. That's just the way it is.
Glenn Harper [00:01:42]:
And the only way you can not pay tax when you first make it is if you defer it. So sort of like you have a 401 or a simple plan, you should definitely try to maximize that to as much as you can afford to do, especially if your employer matches some of that. So some of the employers on a 401, if you put away 5% they'll match you 4%. So you just got a 4% raise by just putting some of your own money away. So that's a really good one to start with. And the other thing is if you have a health insurance through your employer is try to do a pre tax health insurance. See if they offer that that effectively lets you deduct your premiums for the health insurance right off of your income. Right away at your W2 level in it saves you a lot of money.
Glenn Harper [00:02:21]:
And maybe they even pair it with a health savings account, which is always nice. That's a plan where you pre fund an account that you get to deduct that you use that money to pay your out of pocket medical expenses. And that's just a wonderful, I think.
Julie Smith [00:02:36]:
Something that goes with. That's an FSA, right?
Glenn Harper [00:02:38]:
Yeah, that's a different kind. Sometimes the FSAs, those are use it or lose it type plans. And the hsa, you get to carry that over and use it going forward, which is always a nice thing. So those are a couple big ones. And then if you are lucky enough to itemize on your tax deductions on your tax return, you maybe want to do some charitable deductions you might donate to charity. You want to make sure that you charity stack, which means your standard deduction is here. But when you add up all your itemized deductions, you might only get to here. Well, if you take a year and you say I'm going to pre fund, say five years of charity, whoa, I'm way over the standard deduction.
Glenn Harper [00:03:15]:
And now I get to take that deduction today. I don't have to give it to the charity. I can put it in a donor advised fund where I can use that money and pay it out over the next five years. But I got the big deduction today. And sometimes you can do that with if you're retired, you can take money from your required minimum distribution and you can go directly to a charity, which means you deduct it straight off the top, federal and state, which is the best way. The second best way is you can donate appreciated stock, which means you get to deduct the value of it today, even though you paid maybe real less for it. You get to deduct that fair market value today and you didn't pay tax on the gain, which is really nice. You can donate clothes and other types of items and you can also just donate some cash and checks if you feel like giving it to your favorite place.
Glenn Harper [00:03:56]:
And the other thing is if you're lucky Enough to have a portfolio, meaning you have some investments on the side. You know, you might have retirement monies, but maybe you have an account with Schwab or your financial advisor or Fidelity or Ameriprise or wherever. And inside there, maybe you have some stocks in there that are not doing so good. Sometimes we have cycles in the market where great income and not so good of income on your stock market. But if you have some right now.
Julie Smith [00:04:22]:
I'm betting on your hand motions and if you're going to actually spill your coffee or not, no way. There's an over or under a. I'm.
Glenn Harper [00:04:28]:
Like a surgeon with that. I'm almost part Italian. I can do this very well. So what will end up happening is if you have some losses realized losses in your account. Say you bought Apple for, you know, 100 bucks a share. Now it's only worth 80 bucks a share. I know that's not the price today, but for an example purposes, you have this loss on that stock. You could sell that stock, recognize that loss on your tax return, and then you can wait 31 days and go buy that stock back if you like it.
Glenn Harper [00:04:56]:
So if you have that, you can deduct those losses up to your gains plus 3,000 bucks. Well, that's just if it's sitting in your brokerage account and you're losing money in there, but you're not doing anything with it, or why not at least take the loss on your tax return? So that's another big one that most folks that maybe are just have a real job and have a brokerage account, they should do that. That's definitely a good tip. And I know you're going to ask, well, what should business owners do?
Julie Smith [00:05:22]:
How did you know?
Glenn Harper [00:05:23]:
What's the question?
Julie Smith [00:05:24]:
So what should business owners do?
Glenn Harper [00:05:26]:
That's a great question. So all those things apply that we just talked about for business owners. But business owners get another provision, the tax code, where there's a lot of leeway on what you can do when you run a business. The tax code is more written for business owners than it is for individuals. Individuals. You just, here's what you make, here's what you pay business owners. You get to deduct things. And deducting things are things that we would say that have to be the intent.
Glenn Harper [00:05:52]:
Is it for business? Is it ordinary, necessary and reasonable?
Julie Smith [00:05:57]:
I always say yes to all of them.
Glenn Harper [00:05:59]:
You probably would be that way. But most people would. But we look at it from a different lens, and this is just learning the language of what is a business? Business expense and it would be something like, hey, my business makes $30,000 a year, and I think I want to go buy a helicopter. All right, well, is my intent pure? Yeah, I need a helicopter for business. I got to get back and forth to the office. I don't like traffic. Is it ordinary? Yeah, people deduct helicopters all the time. Is it necessary? Yeah, I have a phobia for driving in traffic.
Glenn Harper [00:06:28]:
Is it reasonable? If I'm only making 30,000 a year, it's probably not reasonable to buy the helicopter. But If I'm making 3 million a month, why would I buy a helicopter?
Julie Smith [00:06:36]:
Man, you're just killing my dreams over here.
Glenn Harper [00:06:38]:
You know, it's a tough thing, but that's up for debate on what is the right way to do that. But if you apply those four tests to whatever that deduction might be, is it ordinary, necessary, reasonable, and intent?
Julie Smith [00:06:48]:
I think. I think our clients are going to start calling me on these.
Glenn Harper [00:06:51]:
They probably will. Please don't call Julia. I'm kidding you. She'll at least give you one side, and then you call me and we'll get the right answer for you. But that's. That's part of the fun. So those things are great. And what we want to do when you're a business owner is we don't necessarily.
Glenn Harper [00:07:05]:
The perfect scenario is somebody pays you money and you didn't have to spend a dime to make it. You just mailbox money. Oh, I got a check for a million dollars because I did a good job on my business today, but I have no expenses. That's the best scenario. You'd have to spend money to make money. But if we have to spend money to make money, how great would it be to be able to deduct that? And under that prior thing I just talked about, you, you can deduct ordinary, necessary, reasonable expenses for that. So we're not trying to create expense. I made a million dollars.
Glenn Harper [00:07:34]:
Let's go buy a grand piano and a whatever. If that isn't helping you make money, why would you buy it?
Julie Smith [00:07:39]:
If you ask me for advice, I'll definitely tell you that's it.
Glenn Harper [00:07:42]:
We got to keep you in your lane, and that's okay. So part of this thing is when you have a business is, again, what is a deduction? You want to be able to take advantage of that, but also you're looking at to make sure you have the right entity selection set up. Like, what kind of entity are you? Are you an llc, A single member, a sole propriet, a partnership, S Corp, A C Corp. There's different scenarios that are better or worse for your circumstances. So you always have to work with your CPA to make sure that you have the right entity type so you can take advantage of the tax code with those different things. Because some are great for some businesses, some are great for certain income limits, and some are good for different types of deductions. So you gotta look at the whole picture on that, right? Which is very complicated, but it's fun to do. Why are you smiling at me? You think that's funny? I hear I'm a comedian today.
Glenn Harper [00:08:33]:
A big thing too is when you have a business, sometimes you get to do some income shift. And we call that paying your kids to do work for you. Right? Because kids can make some money and they don't have to pay tax on it. But you can put your kid in the business doing some things, doing janitorial work, secretarial work, marketing work, because all kids can run a computer. We can't do that, but kids can do that. So you want to be thinking about how you can shift money out of your tax bracket to lower tax brackets, say your kids. We also like putting in retirement plans for your business. And it's a tough decision to say, should I put in money invested in Apple through a retirement plan where the government pays me to put money in this qualified plan and then I go invest it? Or should I take the money that I make and invest it back in my business, which is going to give me a better rate of return? Some people like to take money off the table and put it over here and buy into other investments.
Glenn Harper [00:09:25]:
And other people like to keep doubling down on their own business because they think they're going to make more money there.
Julie Smith [00:09:29]:
So I think our listeners will want to know what happens when you have someone who's a W2 earner and you also have a business owner. Right. Sometimes I feel like that's the question we oftentimes get is, well, should we do both?
Glenn Harper [00:09:41]:
You can. It just depends on the type of plan and how you make your money. It's like you can only put a certain amount of money away into a simple plan or a 401k. We call that your elective deferral. Your money you put away, no matter how many jobs you have. You can work at 20 jobs and they can all have a 401. But in the total, there's a cap to how much you can put away each year.
Julie Smith [00:10:00]:
Year.
Glenn Harper [00:10:01]:
Now there's another component, which is the profit sharing piece, and that's the Employer money that they get to put away on behalf of the employee. And it doesn't matter if you've got 20 companies and all have a profit sharing, you can get those all funded. You just have your cap on your elective deferral, which is kind of so great question, Julie. What's going on with that? Where'd that come from?
Julie Smith [00:10:19]:
Well, I just figure like the ultimate, the ultimate answer is you should talk to your cpa.
Glenn Harper [00:10:24]:
That is a definitely a good answer. And again, what's great about, you know, we were talking, we have a priority podcast special. We talked about, you know, money leaks and things of that nature. And it's funny, if you can tighten up your company where you're running lean and mean and you tighten up your personal, where you're lean and mean, you have this extra cash that creates some opportunity to put some money, some other things.
Julie Smith [00:10:45]:
Which then leads us back to another podcast episode about how chicks and dudes spend money.
Glenn Harper [00:10:50]:
That's another one we don't want to get into that one that's talking about lean and mean.
Julie Smith [00:10:53]:
And I like.
Glenn Harper [00:10:55]:
Yes. And again, when you have a business, again you get to control Sometimes when you're an employee, your employer is either going to have a retirement plan or they're not. They're going to have an HSA or they're not. They're going to have pre tax health insurance or they're not. Well, when you're an employer, when you're self employed, you get to pick if you want those, if you probably need them. But again, you try to do those pre tax, you try to fund those things to the max ability that you can because all those little things add up to a really big number at the end of the year if you can take advantage of that. Sometimes when people are self employed, maybe they have a spouse that's not working, employ your spouse that's not working at home and double dip and throw money in their retirement plan as well. It's a great option.
Julie Smith [00:11:36]:
They're going to have to come to the office and earn that, correct?
Glenn Harper [00:11:38]:
Well, we look at most spouses, they're on the board of directors, if you will. Yes, that's exactly true. And I think part of the other ones that people love to talk about is this Augusta rule or a home office type of thing. And that's a great one as well. Where the government basically allows you to rent out your house and, and the 14 days of that is tax free to you. You don't have to claim it on your tax return. There's Certain rules you have to do to do that. But again, if you have a, you know, a house that's very small and it's in a non desirable area, that deduction is really small.
Glenn Harper [00:12:13]:
But if you have a nice house in a desirable area, wow. You might be able to get a lot of money. You can shift some income out of your company, out of your personal, and it's basically tax free to you, which is kind of odd because most of the time you have to pay tax on both sides. Right. But this one, you get to deduct it, which is kind of nice. So those are a couple hacks that are really good that we like to incorporate for our clients. But it's about understanding what the client needs, what understanding what the business owner needs. And you should have those conversations with your business advisor to make sure that you qualify for any of those.
Glenn Harper [00:12:42]:
And what are the rules therein that you have to do? Because just because we say it doesn't mean you qualify for it, but most people do. If you do it right, that doing it right part, that's a big, that's a big thing. If you don't do it right, you're setting yourself up for a visit from the man and nobody wants that. Well, there you have it. I hope those were helpful for all of you today. I'm Glenn Harper.
Julie Smith [00:13:02]:
Julie Smith.