In early July, I was asked to speak at a “First Time Homebuyer” seminar. As it turns out, the room was filled mostly with realtors and only a handful of first-time homebuyers.
After I finished educating everyone on the benefits of homeownership, I opened it up to questions. The very first question I received was from a realtor in the audience, asking:
“this is all fine, helping our buyers with tax write-offs, but what about us?”
Of course, why wouldn’t you want to know what could help you save money? We go into business intending to become extremely successful, and the last thing we want to do is give half of it to Uncle Sam!
The following is a brief summary of some tax mistakes that could cost you thousands:
1. The Wrong Entity. One of my favorite presentations I like doing is comparing tax returns for various entities – Sole Proprietor, S-Corporation, C-Corporation, and Limited Liability Company (LLC). I have a profit and loss statement for the graphic design business of my fictitious client Rob Blind (this is what happens to you without proper tax planning) and show how much each entity would pay in taxes or not, and why. It is truly eye-opening, yet it is often the last thing a real estate agent focuses on when they start off in their business.
2. Hiring Family. My daughter is a lot like my clients – she hates taxes and definitely hates tax season. When I would jokingly tell her she will take over the family business when she graduates from college, she would break out in tears. You could truly see the fear that she would be destined to be a tax preparer for her whole life. I certainly didn’t win the parent of the year with that statement. But imagine all that money we spend on soccer, swim lessons, college fund (in my case, psychiatrist fund) with no tax benefit. Wouldn’t it be great to pay our children for working in our company and then “they” pay for those expenses?
3. Home Office Deduction. How many of you have said, “I don’t want to take a home office deduction because my tax return will have a higher chance of being audited”? Ever since the .com era produced telecommuting, this deduction is far less likely to attract attention.
4. Car and Truck Expenses. Document, document, document. How many of you take the standard mileage deduction versus actual? Would it be better to lease a car versus buy?
5. Meals and Entertainment. Again, document, document, document. The rule is you can deduct the cost of meals (50%) with a bona fide business purpose. How many of you entertain at home? Do you discuss business? Are you deducting the cost of those meals, too? You can deduct entertainment expenses if they take place before or after a bona fide business discussion.
6. Tax Plan! One of the biggest mistakes made is the failure to plan.
