Top 10 Missed Tax Deductions for Business
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- Опубліковано 29 вер 2024
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For Non-Business PERSONAL Deductions: • Itemized vs. Standard ...
This Video is for the top 10 business tax deductions that are most often misused, misunderstood, missed, and/or abused...
00:03:46 - What is deductible? All Ordinary and necessary expenses...
00:06:30 - Skip Intro, go to HOME OFFICE EXPENSES
00:11:21 - VEHICLE EXPENSES
00:18:04 - INSURANCE EXPENSES
00:24:08 - CHARITY AND POLITICAL CONTRIBUTIONS
00:27:41 - MEALS AND ENTERTAINMENT
00:31:27 - TRAVEL EXPENSES
00:36:53 - EMPLOYEES AND SUBCONTRACTORS
00:41:02 - RETIREMENT AND DEFERRED COMPENSATION PLANS
00:43:25 - WRITING OFF OPEN RECEIVABLES, PAYABLES, AND INVENTORY
00:49:19 - START-UP EXPENSES AND OTHER EXPENSES PAID OUTSIDE OF BUSINESS BANK ACCOUNTS
00:51:08 - BONUS: QUALIFIED SMALL BUSINESS AND PASSTHROUGH ENTITY DEDUCTION (Sec. 199A)
Most new entrepreneurs ask they accountant this real common question: “Which expenses are deductible for my business?”
The answer I give to all my clients is: “Any expense that is necessary, ordinary, reasonable, documented, and legal may be deductible…” …and what do these terms mean?
* Ordinary: means it is commonly accepted in the industry and seen often with other businesses in the same trade
* Necessary: means the expense was required in order to generate the business income or it was incurred as a consequence of the income producing activities. But it does not need to be indispensable in order to be deductible
* Reasonable: this is very subjective, but in essence it means it is not lavish or extravagant
* Documented: means that the taxpayer has the burden of proof to prove the expense existed, that the amount reported is accurate, and it has a true business purpose (necessary)
* Legal: the expenditure cannot break any laws, be considered a bribe, or made in connection to an illegal activity / or activity in which the business does not gave the legal capacity to perform
It also also worth mentioning that there are 10 tax deductions very commonly missed, misused, and/or abused, and those are:
1. Home Office Expense: Frequently failing to document the square footage of the home, creating a business-only environment, and document its business purpose is the most common issue
2. Vehicle Expense: mixing personal and business use of vehicles and not properly tracking milage is a large are of non-compliance
3. Insurance: Specially with health and life insurance, which have very special rules in order to be deductible.. in many cases these may NOT be deductible if rules are not followed
4. Charity and Political Contributions: For pass-through entities, such as S-Corporations and Partnership/LLC’s, charity is “deductible” only on the persona return, but most taxpayers cannot get any benefit for it because of standard deductions. Political contributions are NEVER deductible
5. Meals & Entertainment: the “entertainment” factor really affects the deductibility of this expenses. NOTE: in 2018, there are significant changes in the tax code for Entertainment expenses
6. Travel Expenses: frequently combining personal with business travel is a large priblem
7. Employees and Subcontractors: not properly correctly categorizing employees or contractors and reporting them as such; which may lead to large payroll tax penalties or disallowance of contractor expenses
8. Retirement and Deferred Compensation Plans: failing to include ALL the employees in the company plan and/or not taking advantage of the income deferral tax deductions
9. Proper Write-off: of open invoices/receivables that are deemed uncollectible, open bills/payables that will not be paid, and adjusting Inventory quantity/valuation. For ACCRUAL-BASIS taxpayers
10. Pre-startup costs: made before the business started and.or in connection to setting up the business. Also some business owners tend to “cover” business expenses with personal funds or personal credit cards (outside of the business bank accounts) and forget to register it in the business books
11. BONUS: Section 1099A... More to come
my e-mail: hector@garciacpa.com
Can you make a video about depreciating equipment as a tax deduction?
Antares Luna dont have one.. because most tax software does it automatically
heavy duty vehicles are typically a 20% depreciation rate over 5 years, if it's rentals I think You can write off 50% of the property value after 5 years of leasing.
Broooooo, when that door opened I was like, "GHOOOOOOST!!!!" 38:53
AvoriThing that was one of my kids, LOL
Hi Hector, have watched almost all of your QBO videos. You're heaven sent. Thanks.
QUERY: if home office is located outside US but business is registered in the US, can it still qualify to book home office expenses? thanks
This video is so organized, I’m in awe. VERY helpful (especially giving the time stamps), thanks Hector!
Wow... thanks
@@HectorGarciaCPA lioi
There is a great article on Section 199A deduction here: www.nolo.com/legal-encyclopedia/the-new-pass-through-tax-deduction.html
Thanks for your time, it was a great informational video.
You welcome
Can you help with deferred taxation in USA
Hi Hector, thank you for the very informative video. I would appreciate much if you could also spare a video about deductible expenses for an individual tax filer. Thank you so much.
ua-cam.com/video/W-U07iKrCmA/v-deo.html
I enjoyed this clip! I appreciate the detailed info....(small business owner)
Awesome
LOL, skip this crap and become a PMA *Not registered version (there is a difference) your EIN Number would be "For banking purposes only, check this box when getting an EIN number"
Thank you Hector. You are very knowledgable CPA We should move to a flat tax system and don't waste so much talent and money on nonproductive activities.
Mohammad Pourheydarian I partially agree
38:00 um.. ok? I believe he did this for editing purposes either that its some type of accounting ritual that we (normies) don't know about.
I really appreciate the video. I took notes all the way through and it was well worth my time. Thank you!
This had a TON of great information, especially for business owners that aren't CPAs or EAs.
Awesome
Great video, thank you for sharing so much!!
Thanks for sharing
Many thanks. I would like to see more videos in Spanish from you regarding QBO.
Ok, thanks for the feedback.
Thank you very much for sharing with us.
Thank you for your time and information it is greatly appreciated. Very informative.
Thanks
Sir will u plz let me know that if any amount paid to discharged employee for obtaining assurance that he cannot compete with the business of taxpayers in future, is it allowable as deduction or not under PGBP, plz reply
No clue
@@HectorGarciaCPA Sir means?
Should I record all business expenses even if not tax deductible...such as meals. Should I record all gas and vehicle expenses even if I plan to use the mileage calculation? These are still expenses even if I do or don't get reimbursed?
You should record them all if they were paid with the biz bank/creditcard account , and back them out at the end of the year
Amazing, informative video! This was such a big help for me. I need to find a CPA who specializes in small farm businesses.
Btw, where are you located?
I’m in Miami... but i don’t specialize in small farms.
Hector Garcia CPA Thanks for the reply. I will try to find a CPA in CA.
Auto, meals, travel, cell phone, internet, clothing, business credit card paying for personal items.
Personal items wouldnt be dedutible
Hector this video made me understand so much being the first time doing our business taxes 2019-- thank you
Awesome
As entrepreneur property manager and real estate what do you recommend for s Corp.
this is fantastic you definitely know taxes. Dayum you explain these things well. Thanks for the help
SCorp works if the owners are 100% US persons and less than 100 owners, no matter them activity type
In IL they just passed a law in August 2019, that we can get paid by the same LLC in which we advertise to generate business. So, many realtors who do alot of business above $1 million in commissions are getting an SCorp to get their commissions checks since they cannot get paid through their business names.
AT 35:30 Mr. Garcia is referring to CONUS AND OCONUS. That's "Continental United States and Outside Continental United States reasonable meals and entertainment expenses you can claim without a receipt. This number can be quite high for cities like Osaka at $170 plus a day. There is also a formula for figuring this amount. Airline people use these tables. As I remember if you stayed there for 25 hours you could possible claim 1.5 times the daily amount. etc etc. The cities amounts can change a few times a year.
IRS allows the simplified home office deduction of $5 per sq ft to a max of 300 sq ft (instead of using the regular method).
Is this deduction allowed even if you live rent free, ie with relatives and dont have any home expenses?
IS SECTION 199a still the same as when you made video
Yeap
Thank you so much. I have been trying to find the right information for weeks.
:)
Hi hector,
I'm a follower of yours and will like to see some of your top videos in Spanish as well. Can that be possible?
Thanks
M. Lopez
Lots and lots of great info... specially on the vehicle part... Thank you!
Lilly Navarro you welcome
Thanks :)
EXCELLENT VIDEO, please make one for 2020. Earned a subscriber
Is short term and long term unemployment insurance deductible?
I don't know if the home office recommends taking a deduction when you paid rent a full year too.
Proportionate to the business use and the months of the year
@@HectorGarciaCPA thanks
The Tax Genius must be your second name!
Hehe,. Not really,
Very thorough information, most appreciated! I understand working from with mlm business qualify me to get business deductions while I still work a 9-5. I want to pay my daughter using one of the deduction can I get an ein to set up a bank acct and pay her that way? Also can my mother who is retired join my homebased business as an affiliate, get the tax deduction of a homebased business owner and not effect her retirement funds? Thank you in advance. Sheilah
Did this change with COVID-19? Did you do a video for COVID-19 costs?
What about section 179 for writing off vehicles that have a GVWR between 6,000 and 14,000 lbs? Grant Cardone has mentioned that he wrote off $125,000 because he intentionally bought a vehicle that has a GVWR over 6000 lbs, that being a $125,000 Range Rover.
I didn’t mention it, because it changes every year.. but yes, depreciation is an important one.
Hi All, 2019 a company hired a temp agency to find some 1099 people to do work for their client in 2019 and I get paid as 1099 from this sub contractor. Do most of your topics apply to me as a whole meaning when I do my taxes it’s a mix of personal and business expense since I’m the sole person being paid on a 1099 ? I have no business name and using my SS ID to file my taxes. I’m told the company pays the agency based on a Purchase Order and in turn the agency pays me a lump sum weekly on 1099. Thoughts?
usasupra23 gettingna 1099 is “business income” therefore the expenses I mentioned are deductible for the most part as long as they where ordinary necessary and reasonable
Good info about Insurances!
Thanks
You should receive a check from everyone who actually watches this video. This was great information, presented wonderfully.
thank you... I wish that was true :)
Hector Garcia, if I just become a qbo pro advisor and I have my first client who I will help with qbo from home. Will you recommend me to open a home based business or not? Also should I ask for a 1099 or a w-2. I work full time as a bookkeeper during the day and this will be a part-time position. If you recommended it, I know I will be able to only deduct a percentage of some of the home expenses, how should I record that in my qbo accountant file: will it be the full amount and then on the tax return I will multiply that amount to the percentage, so I can matched with the bank or the percentage of it as business expense and the rest as equity draw or just pay it with my personal account and then at the end of the year show the documentation and deduct it? Thanks in advance for reading. Great video by the way, as always I learned a lot.
leyanis valdes hi, there are so many moving parts to this, that I can’t answer via a UA-cam Comment. But, generally; you probably should setup an LLC or SCorp and pay yourself some payroll (w2) when. You hav enough income.
Can you help me with my tax work
Just suscribed to Hector's channel because you can tell that he really wants to educate and help his fellow humanoid. Spoke clearly in layman terms which is greatly appreciated! Anyway, I found this very helpful as a small business owner.
Thanks.
I am'new here'2021.You know everything💙
401K/403B limit is now $19,000 and IRA limit is $6,000 for 2019
Thanks.
Thank you so much for a such informative video.
I use the garage as my office/work space but there's also storage stuff/yard work equipment/etc in there. Does this qualify for a workspace deduction?
it might.
Hector I am very confused with the new QBI deduction, I am not sure if I have to subtract the half of self employment tax deduction. Thank you.
Yes
Thx for the video. Very informative.
Dan Mckenna you welcome
So we can take mileage deductions cuz I thought that was no longer something people can do?
Business miles yes.. personal or commuting miles no. But you MUST have business income.
Hi, Hector. Could you please let me know regarding the "meals" part of the video, is it accepted to declare meals/supplements as business expense for low level/beginer bodybuilders. Thank you so much.
Adriele Adriele wow... good question. Whatever the equivalent of breakfast, lunch, and dinner wouldn’t be deductible. Anything beyond that would, assuming you are drawing income from body building activities.
Hands down the best video on tax deductions. All the others from other UA-camrs are so vague
Karina Gonzalez thanks... Tax in general is a little vague, so it’s not easy.
Great video.
Quick question. I have an property investment LLC. If I’m planning on a trip out of town to visit potential property acquisitions, can I deduct the expense of hotels, meals.. mind you my business dosnt involve clients. Except maybe a real estate agent that’s showing me the property. So how does this work out for me?
Thanks
Sounds like is plausible; but without details I cannot give you a formal opinion
Thanks for the videos. What about life insurance paid to a bank for a dental practice loan? Also is disability insurance itemizable for a dentist business owner?
Bryant Irawan of the business is the beneficiary of the insurance policy then it may be deductible... but if the owner/individual is the benefactor is not.
@@HectorGarciaCPA the beneficiary would be the bank I am loaning the money to directly so Im guessing yes?
How much do you understand about classifying deductions for "Social Benefit Corporations" or "B-corps" various social/ecological benefit efforts?... Could you offer a video on typical B-Corp Expense Categories as well?
I don’t work with B-Corps.
@@HectorGarciaCPA Aww Darn. You really seem like someone who would be good with explaining the unique value and benifits of being a Benefit Corporation... even without aiming for B-Lab Certified B-Corp Status!
Eileen Callejas there is only so much...
@@HectorGarciaCPA I learned about them in 2012 in MBA school and it never made sense back then... Until 2019 when hubby's business unexpectedly passed 'break-even' at the same time as start-up equipment-depreciation ended... We were saddled with heavy un-planned pass-through tax-burdens right in the middle of the COVID crisis... even though he had borrowed from the biz to do a small agricultural projects in an under-developed area where he grew up as well in 2018-2019... All of the farming efforts would have been justifiably expense-able from the Business as a B-Corp on a Mission... instead of him investing crumbs from his paycheck or agreed-on partners-loans... If only more businesses were at least better prepared with the basic value of B-corp Freedoms... It is very fitting with your topic here at explaining the Four Justifications the IRS uses... ua-cam.com/video/G9OUjlxqE9A/v-deo.html
your video was great! Thank you!
I wish I had this video before I taught myself. Life would have been so much easier. I enjoyed this video. Thanks.
:)
What if you purchase the vehicle for your business? Would you qualify for the deduction then?
Dat Brooklyn Life if it’s not owned by the business; then just use business mileage as the deduction.
Hector Garcia CPA thanks but I was trying to find out if a business is eligible for a full deduction if you purchase a vehicle paid in full without financing or taking out a loan?
Dat Brooklyn Life no, that is never the case. Vehicles are depreciated, so you take about 10-20% first year.
For retirement can you speak on a SEP-IRA please?
Good idea.
Hi Hector good day, in this video you mentioned that "The employees as subcontractors have to be classified correctly in order to be deductible" and my doubts are, How is the correct way to classify them? Is there a special document as backup to do it? I think that we have to create a special P&L account to record it, right?
I appreciate your attention and time to answer me, thanks in advance.
Eduardo Perez the comment is not related with classifying them in the P&L.. has to do wether you are correctly putting them in Payroll and or giving them a 1099 based on how they are supposed to be classified. There is another video that talks about that in detail.
@@HectorGarciaCPA thank you very much for your answer. Could you please tell me the name of the video you mentioned? or give me the link?
Have a nice day.
@19:14, you stated “…. But if you have an S-corporation in contrast, the officer’s own 2% or more of that business, that will not be able to deductible to the business, it will actually be income to the business owner….”
I followed up with this information via IRS.gov and it states “Health and accident insurance premiums paid on behalf of a greater than 2-percent S corporation shareholder-employee are deductible by the S corporation and reportable as wages on the shareholder-employee’s Form W-2, subject to income tax withholding.”
Ref: www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues
So, either I’ve misunderstood your explanation or there is some discrepancy between your stating the S-Corp can’t take the deduction and the IRS explaining premiums paid by S-corp are in fact deductible by the S-Corp. Can you clarify or reconcile your explanation to the IRS’s explanation.
Great question.. so the way it works, is that if the health Insurance is paid by the business, the insurance itself will NOT be deductible to the business. HOWEVER, you would include that in the owners’s salary. Effectively increasing the owner’s income (so in theory will pay more taxes, But the health insurance then becomes deductible in the personal tax return)
I think when the its says “are deductible AND reportable as wages” is confusing.. because they are NOT in fact deductible.... they are ONLY “deducible” because they are reported as wages; but not BOTH.
Does that make sense.
Thank you Hector, yes I believe I understand... this is how I'm interpreting it- the officer's "salary/wages" is deductible (which includes insurance premiums paid) by the firm, but not the premium expense (as a stand-alone expense). The premiums are however, deductible on the officer's personal tax return.
@@HectorGarciaCPA can I do deduct my insurance premiums if I am still receiving a W2?
Muchas gracias Hector! I write as a CPA grateful for your 2018 tax info, as well as for your QB presentations.
udfleet de nada... I am glad you like it.
Very helpful. Thank you.
Good presentation
What about buses?
Do you do taxes?
Excellent video
Thank you so much for the video
You welcome
Great explanations!
Very valuable info great overall video.
Thanks.
Hector, I want to congratulate you for your videos. They are just great!! I have a questions on inventory. Are you required to do inventory regarles if you do accrual or cash?
Cash basis could ignore inventory for the most part
But i would always recommend tracking inventory at least for management purposes
Awesome information, Thank you very much
ptrodrigu thanks..
Thank you very much for sharing this video
You welcome
I was a little confused how you determine the percentage so if you have a house that is 900 square feet for example and it is used for daycare so the basement is exclusive for daycare what's a 400 square feet do you add up all the utilities and times it by that I was just a little confused thank you for the video by the way
Correct.. the square footage percentage times all the costs
@@HectorGarciaCPA okay so I have another question if they put in a new air conditioner that cost $12,000 you take the 12,000 and put it under indirect cost and do you only put the percentage under other expenses on the 8829
I don’t give this level of tax advice via UA-cam. I would recommend you ask your CPA that question.
@@HectorGarciaCPA do you have a contact
LNK INC what do you mean? You need to contact a CPA?
The wage earner is being taxed on his wages. It is explicit in the tax code that wages are the only income that are NOT to be taxed! Trust me on this it's absolutely true, they simply ignore that fact, biggest racket in the world!
Peter Feeney wow haven’t seen that
Ah, the ol' "trust me" argument. That means, "don't look into it because I haven't actually verified this, I just heard it and am mindlessly repeating it, so just trust that what I heard is correct because simply because of how evil it sounds and don't verify it because I don't want this to be false".
The 16th amendment gives congress the power to "lay and collect income taxes, _from whatever source derived"._ You are wrong. Not only is this explicitly laid out in the 16th amendment, but there have been dozens of actual court cases before the supreme court making the same argument you are (albeit far more eloquently), and the courts have rejected the argument each time. There might be some case that judges are corrupt (though you'd need to present evidence of such a claim), or some other plausible thing, but what you cannot do - and be taken seriously - is suggest that there is no law which allows taxes on wages to be collected. Not only is there a law, but it's literally in the constitution clear as day, and there are applicable cases involving precedent on the amendment. The decisions are in.
If you wanna challenge this, have all your withholding stopped on your wages, and just stop paying your taxes. See what happens.
@@willoughbykrenzteinburg don't trust me look it up it's absolutely true, the only income that's taxable legally is money earn on investment not wages. They are illegally taxing wage earners.
@@willoughbykrenzteinburg you can challenge them on this and you can win problem is it doesn't change their practice for others but the individual can challenge and win after hiring an expensive lawyer I know of at one person who has won this case. It's true it is clearly written in the tax code.
@@willoughbykrenzteinburg you have to understand when they presented the idea of taxing people it had to be accepted by the people, that's how they got it passed by promising not to tax wages because it would never had been accepted otherwise, they simply ignore that claim.
This was amazing. Simply amazing.
Wow thanks
Please do more videos! You helped us a lot!
I do have several on tax.
@@HectorGarciaCPA thank you so much!
Thanks for this video! Great information!
Edward Lindsay you welcome and thanks.
Thank you.
Awesome video
Ml Moore thanks
You didn't cover sales tax.
Sea Hawks sales tax is not a tax deduction for business... is just something you receive and pay right back to the state.
@@HectorGarciaCPA you can itemize and deduct up to 10k in state sales tax, I don't know what you mean. Washington state has no state income tax.
@@HectorGarciaCPA personal sales tax, not collecting sales tax from buyers.
Sea Hawks yes you are right... by the video is about “business deductions” not personal income tax deductions. You make a good point that I should probably address on a different video, thanks
Great info 👍
Thanks
Thank YOU!
You welcome
THANKS.
You welcome
Excellent!
Two Sisters Bookkeeping :)
Great
Jorge Fraga :)
This is outstanding. You make it so simple and plain and well understood. Can you one day do a return that includes a W2 and 1099 misc? You just never know what I might learn from you.
Hi Garica, I hope you going great! Your videos are the best thanks for helping all. I have a question, Is a charity (GoFundMe) could be deducted against 1099 income?
Go fund me is not automatically a charitable organization; so in order for it to be deductible it needs to be an expense ordinary and necessary to the production of income
I love this country. I love its diversity and I especially love that someone like Hector whose primary or first language is NOT English can succeed.
Very interesting comment! Like anything less should be expected. English as a first language is not a recipe for success. Get out there and see the world.