Tax secrets every freelancer and entrepreneur needs to know | JD Itri | Skillshare

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Tax secrets every freelancer and entrepreneur needs to know

teacher avatar JD Itri

Watch this class and thousands more

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

    • 1.

      January Tax Secrets


    • 2.

      February Tax Secrets


    • 3.

      March Tax Secrets


    • 4.

      April Tax Secrets


    • 5.

      May Tax Secrets


    • 6.

      June Tax Secrets


    • 7.

      July Tax Secrets


    • 8.

      August Tax Secrets


    • 9.

      September Tax Secrets


    • 10.

      October Tax Secrets


    • 11.

      November Tax Secrets


    • 12.

      December Tax Secrets


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About This Class

In this course you'll learn ways to save thousands in taxes every year. For example, did you know that you can turn taxable income into tax-free income just by holding business meetings in your house once per month? Or that you can take legal tax deductions as part of a vacation? How about a way to eliminate capital gains taxes entirely? 

The course is structured to give you tips for each month of the year. These tips are critical for growing your company, maximizing cash flow, and outpacing your competition. Watch all the way through and then revisit the course once a month to implement the applicable strategies. Great for small business owners, realtors, salespeople, photographers, Uber/Lyft drivers, etc. 

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JD Itri

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1. January Tax Secrets: Happy New Year everyone. This is the first in a series of videos that will discuss tax related tips and strategies for small businesses. In this video, we'll discuss things to do in January. For this lens tax strategies, we're going to discuss your legal structure. If you haven't set up a separate legal structure for your business and your operating it just in your own name. January is a great time to change that. First and foremost, a separate legal structure provides you legal protection, that safeguards your personal assets. In addition, a separate legal structure can provide significant tax benefits. For example, if you set up an S-Corporation, you can pay yourself a fair and reasonable salary and then take additional cash as a distribution that's not subject to self-employment taxes. As an example, let's say you operate a small business that generates about 100 thousand in revenue and has no expenses other than your salary. If you take the cash as a $100 thousand salary, you'll need to pay approximately 15% in self-employment tax, or about $15 thousand if you're operating as a sole proprietorship or a single-member LLC, there's no way to avoid this tax. However, the magic of an S Corp is that you can split up the 100 thousand between a fair and reasonable salary and a distributed share. In our last example, let's say you determine that the market rate salary for your job is $60 thousand. This time you set up an S corporation and pay yourself a $60 thousand salary, you'll still pay approximately 15% and self-employment taxes, however, you will not need to pay a 15% self-employment tax on the remaining $40 thousand distributed share. In other words, you just saved $6 thousand in taxes. S corporations aren't for everyone. You may want to set up a partnership to be able to specially allocate income and deductions between partners. You may want to set up a C corporation if you're a startup looking to raise a lot of cash. Keep in mind that all of these taxing structures are also available by first setting up an LLC and then electing to be taxed as an S Corp or C Corp. January is also the perfect time to ensure all your books and records from the prior year are in good shape. This includes doing a urine bank reconciliation and trying out your fixed assets along with any associated depreciation in liabilities, taking care of this financial housekeeping in early January will set you up to have a successful start to the year for your taxes until next time. Thanks. 2. February Tax Secrets: February, that means love is in the air or that I've just touched on a sensitive subject. While you can't always count on Love, You can always count on taxes. And February's in important month for that, let's take a look at tips and strategies for the month often associated with Mr. Cupid? Well, there aren't any income tax filing deadlines in February. Those deadlines will be coming up shortly in March and April. February is a great month to get ready for them by gathering all your tax documents and reviewing income and expenses. Hopefully you use the advice in January's video to start making sure your books and records were looking good last month. If not, there's still time in February, but don't procrastinate too much longer to make things easier on yourself, put all tax related documents in an envelope or in a specific location. Now whether you're using an accountant or preparing your own return, compare all the documents you used last year and make sure you have all the equivalent documents this year, or at least a good reason why you don't have them. We recommend making a digital copy of every document using a scanner or just by taking pictures with your smartphone. A great free app for taking pictures on your smart phone is Adobe scan. It will automatically resize in dispute images to make them easier to read. Once you have everything digitized and organized, you can either send the information to your accountant or start working on the return yourself. Most accountants will prefer you sending them everything they need altogether. Or if you do send it piecemeal, be sure to tell them that you're waiting for things in addition to tips on getting ready to file your taxes, here's a strategy tip to save you big tax dollars, bringing your prior year returns to a new CPA every few years to look for possible amendment opportunities. Listen, you may love your accountant. You may trust her or him completely. That doesn't mean they're perfect. They might miss something that could end up costing you a lot of money. And if they do make a mistake, you have only three years to fix it in March or April of this year, depending on your filing type, the next filing deadline is going to pass and that third gear back is officially in the book, completely closed off to the opportunity of being amended. So find a different accountant willing to do a quick review of your three prior year returns to see if he or she finds something. If they do, you'll have time to fix it. And the savings could be significant sometimes in the thousands of dollars. If they don't find anything, you'll have additional reassurance that you're in good hands with your current accountant. Do this in early February while busy season is still ramping up and you should easily be able to find someone willing to review your returns. Well, there you go. Those are the things to be aware of in February. Thanks. 3. March Tax Secrets: March, it's the month that comes in like a lion and goes out like a lake with tax deadlines for businesses on the 15th. That phrase applies just as well to taxes as the weather. Let's take a look at some tips and strategies for this month. All right, escorts and partnerships or LLCs, taxes as corpse or partnerships. As the song goes, it's the final count then you have until the 15th of this month to file your return or submit an extension. Hopefully, you watched my video in February and are already done. But if not, it's time to get into Hustle Mode, get your documents digitized, get your net income calculated, and get everything your accountant needs to prepare your return asap. If you're preparing your own return, block off some time and just get her done with that reminder out of the way. The broader theme of this video strategy discussion is around retirement. If you run a small business, you should consider setting up a SEP IRA. These typically need to be set up by April 15th. Again, I'm giving you enough of a heads up in March, so you have enough time to get that done. You can think of a SEP IRA like a traditional IRA, but with the ability to receive employer contributions. In addition, steps have higher contribution limits each year than standard IRAs do. Sepsis are great because they have low administrative costs. They're easy to set up and they allow an employer to decide how much to contribute every year. The other strategic move you should consider is making retirement plan contributions before the annual deadline passes, generally for SEP IRAs, Simple IRAs and individual 401K. The deadline for making employer contributions is the employer or businesses tax filing deadline, including extensions. So if you're filing deadline is the 15th of this month and you're filing without extensions. That means you want to get in any employer retirement contributions before that date, depending on the type of retirement plan you're contributing to your seat, either a tax deduction now or the ability to withdraw money tax-free later. Generally speaking, if you think you'll be in a higher tax bracket later in life, it's better to pay the tax now and receive the benefit of a tax-free withdrawals later. Well, that's all for March. Thanks. 4. April Tax Secrets: Everyone knows that April showers bring me flowers, but do you know what May flowers bring? Pilgrims, my friends. Pilgrims. Ok, maybe that would have been a better job for our November video, regardless, here we are in APL and we wanna make sure you're all set for your small business tax needs. The strategic tips for April applied to your individual return form 1040, but they relate the situations most applicable to small business owners. The first strategic tip is that you can deduct the cost of your health insurance as long as you are self-employed, have no other health insurance coverage, including being covered by your spouses work health plan and have business income equal to or greater than the health insurance cost. Let's say that you paid $10 thousand in health insurance this year. If you have a marginal tax rate of 25%, taking that deduction yields tax savings of $2500. Be sure to take that deduction if you can. The second strategic tip is that if you use a room in your home as your primary place of business, you may be able to claim a home office deduction on your personal income taxes. Now you have to use that part of your home exclusively for conducting business. But if you do, the IRS allows you to take a deduction for actual expenses or through a simplified method. The simplified method caps out at 1500 bucks if you hit that ceiling and if you're at a twenty-five percent marginal tax rate, that's a tax savings of $375. If you already filed your personal taxes and didn't take these deductions, you should consider amending your return. Have a great day. 5. May Tax Secrets: Welcome to May. May is a great month for memes, Star Wars and mothers may also means that somewhere is right around the corner. And that's going to be the topic of discussion for this month strategy. I think you're gonna like today's strategy discussion even more than most, let's talk summer vacation on Uncle Sam's dime. You can't just take a personal vacation and call it a business expense, but you can blend personal and business travel in ways to reduce your post-tax spending. Let's discuss how to plan a trip to receive valid business deductions while also enjoin a personal vacation. First, make sure you're planning a trip that is primarily for a business purpose. Business purposes include activities like client meetings, attending a conference, being a guest speaker, doing research and development and so on. Generally speaking, for the trip to be considered primarily for business, the aggregate number of days focused on business purposes must outnumber the aggregate number of days of personal vacation. Second, make sure the trip expenses are considered ordinary and necessary for the business. Ordinary means it's typical in your business in terms of amount, frequency, and purpose. For example, when you choose where to stay, you'll want to select the place similar to places you normally stay on a business trip. Necessary just means it helps you increase your profits or expand your business. Finally, make sure to properly document every expense list where you were, what you did, and who you were with. To recap, to take valid business deductions, the trip has to primarily be for a business purpose. Expenses should be ordinary and necessary and everything should be documented on each day of the trip, you need to spend more than half your time during the business day doing business activities to take business deductions. That means more than four hours of the typical eight-hour workday. Once you cross that for our threshold, all ordinary and necessary expenses for the day become deductible. The most common expenses that fall into this category are meals and lodging. Expenses for your families. Meals can't be deducted unless they're actively engaged in the business. And you can show that their expenses both ordinary and necessary, depending on how much you spend on food and how much you want to track receipts. It may be more advantageous for you to take a per diem Neil's deduction, please note that only the meals per day and can be used for a self-employed person, not the lodging per dm. If you're going to include non-business stays as part of their vacation, try to arrange for those to be sandwiched in-between days you're there for business. That builds a better case for deducting the travel costs to and from the destination. Let's go over a quick example. Let's say you want to attend a Work conference in Florida that goes from Monday to Tuesday, you fly there and you bring your spouse with you after attending the conference, you go to the beach Wednesday and Thursday. Then on Friday, you spend the day showing existing or potential customers a prototype and gathering their feedback before flying home that night. Now let's calculate the costs and tax savings. Let's say it costs you a $100 for airport parking fees, $500 each on round trip flights for you and your wife, and another $50 per day for a five-day rental car. The conference costs $1000 to attend and your hotel costs or $300 per night. In addition, you don't want to track your actual meal expenses, but find that the per diem rate is a $122 per day using the per diem rate in lieu of the actual expenses. Total expenses for the trip come to $4,460. Now let's look at what's deductible. Since you're working on both the day you arrive and the day you leave. And since three of your five days are spent on business, your flight and airport parking fees are deductible. Sadly, your wife's airfare is not assuming she's not part of the business. So we're up to $100 for parking and $500 for your airfare. The rental car expense is good for each day you conduct business. So $50 per day for three days is a 150 bucks. The full cost of the conferences deductible. So add another 1 $1000 hotels their deductible for three of the five days, which ends up being $900. Finally, your per diem rate of $122 for three days comes to $366. There's a 50% limitation on meals. So we cut that in half to arrive at $183. After adding up all those expenses, you end up with a total deductible expense of $2833 at a twenty-five percent marginal tax rate, you just saved over $700, which reduces your after-tax trip costs from $4,460 to $3,752. So there you have it. Who says you can't next business and pleasure. Thanks. 6. June Tax Secrets: It's June. There are more daylight hours in June than any other month. So take advantage of the long days to get outside and enjoy some sights and sounds. In this month's video, we had two strategy themes to review. June is a great mid-year point to sit down with your accountant and review the year so far, we highly encourage you to do the following with her or him, review all financial statements so far for accuracy of data, compare current year income to the previous year, look at payroll increases for employees or other fringe benefits and discuss mid-year tax planning. Mid-year planning ensures that you're on track for a successful year. And remember, with all that extra daylight this month, it's not too terrible to sit down for a couple of hours inside to go over these things. The other strategic tip applicable to this time of year is hiring your children to work in a family business. The biggest benefits of hiring a child in the family business is the ability to shift income from the parents higher income tax rates to the child's lower tax rates. With the recent increase, standard deduction changed over $12 thousand. Children are able to earn just over $12 thousand and not pay any tax. Let's look at an example. Irving is the owner of Irvine's ice cream, a local ice cream store. If Irving were to hire each of his three children and paid them each $12 thousand. The deductions would reduce his taxable income by $36 thousand at a twenty-five percent marginal tax rate, this would lower his own personal taxes by $9 thousand. In addition, if we assume that earnings children have no other income, the entire $12 thousand salary for each child is offset by each child standard deduction. In other words, since Irving saves $9 thousand in taxes and the children pay 0 in taxes, the family is better off to the tune of $90 thousand. From a tax perspective, this is a much more beneficial way to provide an allowance or spending money to children and cutting out taxes in the process. This may be obvious, but make sure the child is actually working for the company and you are recording the hours worked and the jobs performed by the child to make sure you're in compliance with the law. Enjoy your month. 7. July Tax Secrets: July is the month we get to celebrate our nation's birth from a patriotic perspective, it's nice to know that our taxes go towards many of the things we love about our country. However, as citizens, we are entitled to pay the least amount we legally can on our taxes. And I'd like to continue helping you do exactly that. For this month's strategy piece, we're going to discuss deductions that are often overlooked or missed by small businesses. Be sure to listen all the way until the end. The last tip is pure magic for turning taxable income into tax-free income. We'll start with startup costs. These are costs you incurred before you open your doors for business, such as expenses to explore business opportunities, legal fees and other miscellaneous items related to getting your business off the ground. These expenses are often overlooked because they occur before the business is actually up and running. You can deduct up to $5 thousand of the startup costs you incurred before you begin operations in your first year of business. If the costs exceed $5 thousand, they can be amortized over a period of 15 years. The next deduction that sometimes goes overlooked as losses on bad debts. You're owed money that you can't collect, you can often deduct these amounts. The IRS defines a bad debt is one that was created or acquired in your trade or business or closely related to your trader business when it becomes partly or totally worthless. Types of bad business debts include loans to clients, suppliers, employees are distributors, and debts of an insolvent partner. They become bad debts only after you've tried to collect on them for a reasonable period of time, and you've taken reasonable steps to collect the debt, but were unable to do so, they become deductible in the year that they are deemed uncollectible. So if you've tried to collect a debt in the past and were unsuccessful, and you never took the deduction, try to collect it one more time and then take the deduction in the current year. This last trick relies on part of the tax code that allows you to rent your home without paying taxes on the rental income, as long as you rent it for fewer than 15 days a year as a small business owner. And you can take advantage of this law by renting your home to your company. This can be done for one-off company parties or monthly business meetings, as long as you rent it fewer than 15 times, you don't report any income for the rental. In addition, you need to ensure you rent to your company at a fair market rate, issue yourself at 1099, and document everything that happens if you're holding business meetings. Let's dissect what happens here using an example where you hold a monthly business meeting at your home if the rent for a comparable space and the area is one hundred, ten hundred dollars, you would pay yourself from your company, won $1000 each month, your company would take a deduction for this payment, reducing its taxable income in this case by $12 thousand annually at a twenty-five percent marginal tax rate. That's $3 thousand in tax savings, all by just holding a meeting at your home once per month. Again, none of that $12 thousand needs to be picked up as income on your individual return because you've rented your home for only 12 days, the stain below the 14 day limit. Even if you use this tip once a year for an annual holiday party, you can still reap big benefits. Well, there you go. The information in this video just put another $3 thousand in your pocket and go buy yourself a new riding lawnmower with all those savings until next time. 8. August Tax Secrets: July was the nation's birth month, and August is mine. August is when things start to heat up again from a tax perspective. So let's take a look and see what to expect this month. If you extended your tax return, August is a good time to make sure you have all your necessary documents for your final return. The documents you'll most want to be on the lookout for our final k1s. Often pass-through entities will extend their returns, which means they don't have their final numbers until later in the year. You'll need to make sure you receive all final k1s applicable to your business. And if you're operating a pass-through entity that extended its own return, you'll also need to issue all final cadence. August is also a good month to consider setting up a simple retirement plan. The deadline for self-employed persons or small employers to establish a simple IRA is October first, that gives you all of August and September to make that happen, a simple IRA is the small company version of a 401K plan that is subject to many of the same rules as traditional IRAs. This workplace retirement savings account allows eligible employees to invest a portion of their pre-tax salary into an individual account and receive mandatory employer contributions. Small businesses generally those with 100 or fewer employees, sometimes offer workers a simple IRA in lieu of a 401K because it's easier to set up and administer if you work for yourself, you're also allowed to contribute to a simple IRA. Although there are other retirement plan options out there that self-employed individuals should consider. Thanks. 9. September Tax Secrets: Well, summer is almost over, and the first month of fall is here. We have some upcoming deadlines to discuss. So let's dive in on what you need to know about your taxes for this month, for all the flow through entities out there, time to get your stuff together and submitted before September 15th, that includes partnerships as corpse and also trusts and estates. Don't forget to digitize your documents and provide them to your accountant. Remember, there's also a late filing penalty for filing after the deadline. The penalty is $210 per month per partner of a 1065. If you had four partners and you were three months late, that's over $2500 in penalties if you filed before the first filing deadline. Congratulations. You don't have any filing requirements this month. Let's jump over to other Tax Strategies. Last month we talked about setting up a simple retirement plan. This month. We're going to discuss setting up a medical reimbursement plan. A medical reimbursement plan, also known as a medical expense reimbursement plan or Merck, is very similar to a help reimbursement arrangement or HRA. A medical expense reimbursement plan is basically a way for employers to get their employees tax-free money that can be used to pay only medical expenses. This includes expenses for their privately-held medical insurance. So you can set up a plan that helps pay for some or all of their insurance premiums. Medical expense reimbursement plans are appealing to small business owners because they are tax exempt. Reimbursements are tax exempt and any employer contributions are tax-deductible business expenses. Once the employer reimburses the employee, the claim can be filed. Medical expense reimbursement plans are also extremely flexible. The business owner is able to decide how much money will be available and how much it will be dispersed to employees, as opposed to having a health insurance company dictate what the business can and cannot do. Thanks. 10. October Tax Secrets: Trick or treat everyone. Well, let's take a look at tax tips and strategies for October. Alright, for the C Corporations watching October 15th is your extended deadline, get your return filed on time. I don't want anyone watching these videos to ever have to pay a fine or penalty for tax strategy, this is a time to figure out your estimated tax liability for the current year. Why October? Because that gives you two solid months to make major purchases and other large business decisions. This is a great time of year to sit down with your accountant and discuss what kinds of purchases make the most sense based on your estimates and other tax strategy I'd like to cover in this video is the 1031 exchange. Many assets appreciate over time and when you sell them, there's often a high tax that must be paid. Typically, 1031 exchanges involve real estate assets, although other real assets can also be used at 1031 exchange allows a business to sell a property with built-in gains, then purchase another property shortly thereafter, and transfer the built-in gains to the new property. This delays the payment of tax. For example, if John buys a building for $200 thousand and it appreciates in value to $500 thousand. There's $300 thousand of built-in gain on that property. In addition, it's likely the John depreciated the building and the IRS will require tax to be paid on depreciation recapture, rather than selling the building and paying these taxes. Now, John can purchase a like, kind property and the new property can inherit the tax attributes of the former property. 1031 exchanges had very strict rules that must be followed exactly. It's best to work with a company that specializes in executing these rules properly. If you happen to fail one of the requirements, the IRS can disallow the 1031 exchange and imposed the tax on the gain on the sale. Well, we aren't going to dive into any additional details. Just knowing about these 1031 exchanges gives you a great tool for your tax toolkit. Well, that's all for this month's video. Thanks. 11. November Tax Secrets: Happy Thanksgiving every once in a month to be grateful for things, I'm extremely grateful for those of you who have watched our videos and supported us and our goal to help small businesses improve their tax situations. I'm excited to share with you today one of my favorite tax strategies, this is actually applicable to both businesses and individuals. And it's the strategy of donating long-term appreciated stock to charities. This allows you to take a deduction on the full amount of the donation, including any built-in gains. The charity can then sell the stock at its market rate. But since it doesn't pay taxes, it doesn't have to pay any tax on any of the built-in gains on the stock. Let's look at an example. Let's say you bought stock in a company for $10,000.2 years ago, the stock jumped up and price and is now worth $18 thousand. You decide that during the holiday season you'd like to support a local charity through your business. So you donate all $18 thousand to the charity. If you had sold that stock and then donated cash, you would have been required to pay tax on the $8 thousand capital gain you realized at a twenty-five percent marginal tax rate, that would be $2 thousand. Instead, by donating the amount to a charity, the stock can be sold by then without paying any tax on it, you still get to take a full $18 thousand as a deduction on your return, which at a twenty-five percent marginal tax rate results in $4,500 less in taxes that you have to pay. Combined with the $2 thousand you save, the $800 thousand donation you made, only cost you $11,500 in after tax dollars. Many people who use this strategy will purchase the same amount of stock as was donated immediately after the donation is made. This maintains the investment and then a year later the newly purchased stock can be used again to donate along with any gains that occur during the year. Like I said, you can make this kind of donation either through your business or as an individual. And it essentially works the same way. It's a great way to give to a cause you care about while minimizing your tax liability. 12. December Tax Secrets: Happy holidays, everyone. We made it to the end of the year, time to throw a holiday party. And don't forget the trick I showed you back in July for creating tax-free income by hosting it. The biggest thing you want to be focused on this time of year is accelerating deductions and delaying income. This video is going to assume you're using the cash method of accounting as opposed to the accrual method. The cash method allows for greater flexibility in timing year and expenses and to a certain extent, income in general, once a business has provided services or goods, they want to get that money as quickly as possible. Process typically includes sending out invoices. However, if you're a business using the cash basis method of accounting and if you're trying to minimize your tax liability for the year, that may not be the best approach. In fact, you might want to consider delaying sending out your invoices. Doing so will delay the receipt of most payments attributable to those invoices until the following year. This helps to minimize the current tax years liability by delaying when the income must be reported for another year. Another simple and effective strategy for cash-basis business owners seeking to reduce their taxable income at the end of the year to pay as many expenses as possible as noted above, so long as payment is made or sent out before the end of the year, the payment will count as a current year expense. Common recurring expenses to consider accelerating into the current year include contract labor, wages, utility bills, insurance premiums, short-term rental payments, office supplies, membership fees or do's, and many others, if you'd like to make these purchases, but you don't have cash sufficient to cover the costs. Remember that payments via credit card are considered paid at the time the card is swiped when purchasing certain assets, the IRS generally expects you to take the expense over a period of time that aligns with the useful life of the asset. However, there are provisions in place to accelerate this expense into the year the asset was placed into service. These provisions are known as bonus depreciation and section 179 expensing. We won't go into specific details on these provisions, but the key thing to know is that they can potentially allow you to take a full deduction in the year the acid is placed into service instead of over the useful life of the asset. And with that, we conclude our year of videos. Thank you for watching have a wonderful holiday season and don't forget to contact us with any questions we can help you with. Banks.