When it comes to tax deductions and business expenses, business owners can often fall into two extreme mindsets, either trying to deduct everything under the sun or being too conservative and missing out on legitimate tax savings.
In this episode, Danielle Hayden, CEO and founder of Kickstart Accounting, Inc., and Kelsey Chester, Kickstart’s Lead Account Manager, break down tax deductions in a way that’s clear and strategic. They’ll walk you through what truly qualifies as a business expense, how to avoid common tax mistakes, and why smart financial planning is about more than just lowering your tax bill, while still claiming the savings you deserve.
Key Takeaways:
- Understand the “Ordinary & Necessary” Rule: The IRS allows deductions for expenses that are common in your industry and essential for running your business. If you can clearly explain the expense’s purpose in an audit, you’re likely in the clear!
- Avoid IRS Red Flags: Overspending on out-of-the-ordinary purchases or misclassifying personal expenses as business ones can trigger unwanted IRS attention.
- Your Business’s Health & Goals Matter: Trying to write off too many personal expenses can hurt your ability to get business loans or sell your company later.
- Separate Business & Personal Finances: Keep all business expenses on a business account or card to ensure clean, organized records. Your bookkeeper can only track and make deductions based on what they see in your business accounts.
- Smart Travel Deductions: Business travel is deductible, but the primary purpose must be work-related. A "board meeting" at Disney with your family? Not so much.
- Invest in the Right Money Team: Your bookkeeper, accountant, and tax strategist should be working to keep your finances organized, tax-efficient, and strategically planned all year long, not just at tax time.
- Think Long-Term with Tax Strategy: Lowering your tax bill is great, but don’t do it at the expense of your business’s future. Plan ahead so deductions today don’t limit growth opportunities tomorrow.
Topics Discussed:
What Qualifies as a Business Expense? (00:00:06 – 00:02:14)
Finding the Right Balance with Business Expense Deductions (00:02:14 – 00:05:37)
The Importance of Paying Yourself a Reasonable Compensation (00:05:37 - 00:07:45)
Common Business Expenses & What You Should Be Deducting (00:07:45 – 00:12:55)
Operating & Personal Expenses: What’s Deductible? (00:12:55 – 00:20:52)
Travel Expenses: What’s Legitimate vs. What’s Risky (00:20:52 – 00:22:54)
Tax Strategy & Planning with Your Money Team (00:23:39 – 00:29:25)
Resources:
Episode 211 | The Smart Way to File Taxes: Why Tax Extensions Are Better Than Last-Minute Filings
Episode 212 | How to Pay Yourself as an S Corp Owner: Reasonable Compensation & Payroll Setup
Episode 213 | The Tax Write-Offs You’re Missing as a Business Owner
Episode 126 | Small Business Gift Giving: A Holiday Tax Guide
Episode 136 | Health Care Tax Deductions for Small Business Owners Explained
Episode 137 | Can You Legally Hire Your Children?: How to Pay Your Kids, Get Tax Advantages, & Create Generational Wealth
Episode 188 | Beyond the Business: Preparing for a Secure Retirement
KSA Tax Partners | https://ksataxpartners.com/
Book a Call with Kickstart Accounting, Inc.:
https://kickstartaccountinginc.com/book
Connect with Kickstart Accounting, Inc.:
Instagram | https://www.instagram.com/Kickstartaccounting
YouTube | https://www.youtube.com/@businessbythebooks
Facebook | https://www.facebook.com/kickstartaccountinginc
Episode Transcript
00:00:00:00 - 00:00:03:20
Danielle Hayden
Kelsey, welcome back to Business by the Books.
00:00:04:01 - 00:00:06:10
Kelsey Chester
Thank you, I always love being here.
00:00:06:12 - 00:00:21:06
Danielle Hayden
All right, today we are talking about the tax deductions and business expenses for business owners. Now, I always like to start with the high level overview of just what is a business expense.
00:00:21:06 - 00:00:39:19
Danielle Hayden
And I think that the IRS actually gives us a ton of autonomy and freedom in this. So the IRS says that in order for there to be a business expense, which means it reduces the amount of net income a business owner has, which therefore reduces the amount of taxes that a business owner pays.
00:00:39:21 - 00:00:49:10
Danielle Hayden
It needs to be ordinary and necessary as a business. What does that mean to you when you talk to clients? How are you using that to describe a business expense?
00:00:49:12 - 00:01:10:20
Kelsey Chester
Yes. So it needs to be something that you could expect to use for your business. Otherwise, it can come off as a red flag for the IRS. And what that can include is what you're actually purchasing. And I'll go into that here in a second, but also the cost of that item. So if an expense line tends to be at a certain level
00:01:10:20 - 00:01:37:00
Kelsey Chester
for your business, it is much higher than that. That can be deemed as not ordinary or a certain purchase isn't deemed as necessary for your business if it's something that's not typically purchased within your industry. So when you file your tax return, there is a code on there called an NAICs code, and this is a code that is assigned to each industry.
00:01:37:02 - 00:02:00:14
Kelsey Chester
So with that, the IRS now knows what they would expect to see on your tax return based on your industry and compare that to what's actually on your tax return. So if they're expecting to see certain levels of expenses, certain percentages of expenses, but they're actually seeing something a lot higher than that, it can typically be a red flag for expenses that they won't deem as ordinary or necessary.
00:02:00:16 - 00:02:28:14
Danielle Hayden
I think we see with our clients falling into two extreme camps around mindset around business expenses. We have some clients who really run their business to be able to take as much personal expenses as a business expense, because they want to reduce their taxes as much as possible. There's nothing wrong with that, but that is a mindset. We have other clients who are really afraid to put business expenses through their business.
00:02:28:15 - 00:02:35:17
Danielle Hayden
They're afraid that the IRS is going to come after them. They're going to land in IRS jail. So they are paying for way more personally
00:02:35:17 - 00:02:42:23
Danielle Hayden
than they need to. What's your guidance for somebody who's struggling determining what their mindset is going to be around business expenses?
00:02:43:01 - 00:03:01:09
Kelsey Chester
I think it's really just familiarizing yourself with what those guidelines are and taking full advantage of what is actually available to you. If it really is a business expense, make sure you put it on the business. Swipe that business card. Make sure you take advantage of that deduction. My kind of personal guideline around this if someone's not sure
00:03:01:09 - 00:03:12:09
Kelsey Chester
if an expense is really for business, sometimes the purpose of it can be a little bit of a gray area, especially when it comes to travel, things like that, is if you were to get audited and,
00:03:12:09 - 00:03:15:04
Kelsey Chester
the auditor says, what was this expense for?
00:03:15:06 - 00:03:37:14
Kelsey Chester
Would your explanation of that makes sense to them? Do you think that you would feel silly explaining that to them, or do you think they would say, okay, that that makes sense? You know, we'll accept that. So if you feel comfortable in your explanation, then go ahead and we can count that as a business expense. But if you, you know, in that explanation, if you're getting a sense that they would be like, oh no, then maybe not.
00:03:37:16 - 00:03:58:04
Danielle Hayden
Use your gut. I like your reference like it's your risk tolerance as well, and it depends on where you want to see the business go long term. Yeah, we have some clients who eventually want to sell their business, or they really want to have a business that they can at any time, go and apply for a loan, car loan, a mortgage.
00:03:58:10 - 00:04:28:04
Danielle Hayden
They want to be able to show that they have a healthy, profitable business. And if we're taking every personal expense as a business expense, we're diluting our business. We might even want to like, if we're only running our business or taxes, we will be tempted to show a loss so that we're not paying as much in taxes. However, then we're diluting the actual health of our business and being able to obtain that and possibly a seller.
00:04:28:06 - 00:04:49:01
Kelsey Chester
That's right. That's a really great point. I think any spending in your business should be strategic. And whether with a thought of the overall picture, the big picture of your business, the business can still fund your personal expenses just as an owner's draw or through salary. It doesn't need to actually pay for all the business expenses. There's a holistic picture here.
00:04:49:02 - 00:05:12:10
Kelsey Chester
You know, what is your overarching goal for your business? Is it to pay zero tax? If so, then of course, you know you can throw all the qualifying expenses on your business and make it show zero profit. But if you look at the big picture, that really can disqualify you from being able to obtain a loan. If you want any type of funding, they're going to want to see some profit on that business.
00:05:12:10 - 00:05:33:00
Kelsey Chester
They're going to want to know that your business is sustainable, to be able to repay that loan, or if you need a mortgage personally and you're presenting financials to your mortgage lender that doesn't have any profit on there, that doesn't really communicate confidence to your lender that the business will be able to pay you enough to pay them back.
00:05:33:02 - 00:05:37:12
Kelsey Chester
So really big picture, having a profit there is a good thing.
00:05:37:14 - 00:06:10:19
Danielle Hayden
We're going to go through a list of a lot of the common expenses that we see for our clients. So we're going to dig in deep. But I just want to touch quickly on reasonable compensation and S Corps, so for anybody who is in S Corp, we strongly suggest as a firm that you pay yourself a reasonable compensation. All of our KSA tax partners’ clients, so if we do the taxes for on your behalf, we provide our clients with a reasonable compensation report annually.
00:06:10:21 - 00:06:36:14
Danielle Hayden
That's how important we find this to be, because we have to pay ourselves a reasonable compensation before we can start taking owner’s draws. Now that reasonable compensation is going to lower your net income, you're going to be paying less in taxes on the net income of your business. You're putting those dollars in your personal account so that you can afford to take a vacation, to pay your kid's daycare, to go grocery shopping, right?
00:06:36:14 - 00:07:03:08
Danielle Hayden
Like we're putting those things in the necessary personal account. And when you go to buy a car or a vehicle or something personally, you have the personal credit to go do that. I went to buy a vehicle over the summer, and I didn't think twice about it. I didn’t even tell them I was self-employed. Literally, I just wrote down Kickstart Accounting and gave them my W-2 because I paid reasonable compensation for so long through payroll that I didn't have to play with that.
00:07:03:10 - 00:07:10:13
Danielle Hayden
So there is a benefit to having that security to know that you can fund yourself responsibly and personally.
00:07:10:18 - 00:07:26:03
Kelsey Chester
That's true. Some lenders, unfortunately, do have a hard time accepting just business financials as proof of income. So we do have a lot of clients that even will pay themselves more than the reasonable compensation, so that they have the security of the higher W-2.
00:07:26:05 - 00:07:28:17
Danielle Hayden
Anything else that I missed on reasonable compensation?
00:07:28:19 - 00:07:45:06
Kelsey Chester
No, I think that's it. I think the important part is just making sure that you have someone to give this to you every single year. It does change with the market, with average wages in your area and nationally. So making sure that that's updated for you every year will help make sure that you stay within guidelines.
00:07:45:08 - 00:08:06:06
Danielle Hayden
All right, let's review some of the common business expenses that small business owners either should or could have as a business expense that's reducing their net income. So the first category is advertising and marketing. I really can't think of any reason why any marketing expense would be paid for outside of your business account
00:08:06:06 - 00:08:07:19
Danielle Hayden
and paid for personally.
00:08:07:19 - 00:08:20:16
Danielle Hayden
But what are some of the examples of advertising and marketing expenses that small business owners have that are 100% no brainer business expense that somebody can ensure that they're paying with their business card?
00:08:20:17 - 00:08:48:08
Kelsey Chester
Definitely. So if you're paying any marketing consultant, that is a business deduction. So anyone helping you create content and anyone helping your strategize on your marketing, anyone assisting putting together paid advertising for you, any of those marketing consultants are going to be a business expense under advertising and marketing. Any client gifts. And we do have a podcast episode that outlines what would qualify for a client gift and what those limits are.
00:08:48:10 - 00:09:19:07
Kelsey Chester
Those are also advertising and marketing business expenses. Any business groups? So, Danielle, I know you're part of one called EO. Any business groups for professional development, personal development related to the business or anything like that, or even in your industry. The fee for those are all a business expense. Any business promotion. So any type of additional marketing for the business, conferences, anything like that is going to be an advertising and marketing expense; expos, website, conferences, those all qualify. Any marketing software.
00:09:19:07 - 00:09:48:02
Kelsey Chester
So MailChimp, Flodesk, email marketing, any marketing analytics, anything like that that helps you be able to market your business better is a fully deductible business expense. Paid advertising. So of course, actual paid ads, Facebook, TikTok, whatever it may be. Google, all of those qualify. Sometimes we do see that clients will put-let's say you sponsor an event and they have, you know, your logo up for an event-
00:09:48:03 - 00:10:07:09
Kelsey Chester
sometimes clients will put that on your charitable contributions. However, if you have a logo or any type of slogan as a part of that payment, that is considered paid advertising so you don't get a full deduction for charitable contributions, but you do for paid advertising. So just make sure that you're strategic in the way that that you handle those.
00:10:07:09 - 00:10:15:18
Kelsey Chester
Any website expenses. So website hosting, web development, any updates to your website. All of that are a deductible expense for your business.
00:10:15:21 - 00:10:39:12
Danielle Hayden
Now the job of your bookkeeper, so every small business owner listening should have a money team. The job of your bookkeeper is to keep organized all of your spending. So as you're out making money, spending money, your bookkeeper is behind the scenes organizing this data. So for our clients, we are taking their activity and we are organizing it into these categories.
00:10:39:14 - 00:10:58:22
Danielle Hayden
However, we are relying on business owners to use their business account for business activity. If a client accidentally runs all their Facebook ads through their personal account, we won't see that activity. We'll only see it if they put it through the business account. So it's really important for you as a business owner to make sure that you're using the right accounts.
00:10:58:22 - 00:11:12:07
Danielle Hayden
That's your responsibility. It's then your bookkeepers responsibility to categorize those correctly, and then your tax accountant’s responsibility to actually put that into the tax return. I just want to clarify those roles.
00:11:12:09 - 00:11:31:19
Kelsey Chester
That's right. And things happen. Sometimes business expenses accidentally go on personal cards, or you don't have the business card with you or whatever it may be, but in those events, just go ahead and let your bookkeeping team know, hey, I paid for this or this amount on this date personally. Please make sure that that's included on my financials and your bookkeeping team will make sure that that's categorized appropriately.
00:11:31:19 - 00:11:39:05
Kelsey Chester
So if it happens, just make sure that we actually communicate that it happened with the bookkeeping team because like Danielle said, we can't see the personal accounts. Now
00:11:39:05 - 00:11:52:03
Danielle Hayden
is there any extreme examples that you can think of? You know, the boat that we take our client out on one time per year, or wrapping our whole car in our logo. What are your thoughts on those?
00:11:52:03 - 00:11:54:18
Kelsey Chester
Yeah. Or working from an RV.
00:11:54:20 - 00:11:55:09
Danielle Hayden
Yeah.
00:11:55:11 - 00:12:19:17
Kelsey Chester
We see it all, you know, but just ensuring that it actually relates back to the business. So just a car wrap, not a business expense. If you're wrapping the car with a business logo, that could be a business expense. That is an advertising cost. You’re creating signage for the promotion of your business. So again, this kind of goes back to would your explanation be received well by an IRS agent?
00:12:19:22 - 00:12:37:22
Kelsey Chester
You know, just kind of thinking that through. I know there's a lot of gray area, especially when it comes to travel. You know, we have a lot of travel agents and sometimes they will travel for ideation, and that tends to be a little bit of a gray area. But the primary purpose of the trip needs to be for the business.
00:12:38:00 - 00:12:54:11
Kelsey Chester
And then if you're going to do that, just be intentional about what expenses from the trip you have as a business expense. I wouldn't put every single meal in there as a business expense, especially if you have, you know, friends and family there with you. Just be mindful and intentional about what we put
00:12:54:11 - 00:12:55:08
Kelsey Chester
on the business.
00:12:55:08 - 00:13:05:16
Danielle Hayden
Okay, let's go into operating expenses. What are some of the common business expenses that you see that are just general operating expenses?
00:13:05:21 - 00:13:35:15
Kelsey Chester
Yeah. So just general expenses needed to run your business. So these can include business insurance. I know we have a lot of clients these days that have co-working spaces. Those rents are definitely a business expense. Any office expenses. So, pens, papers, printer, or anything like that is a business expense. Any subscriptions. So Zoom, Canva, Asana, any subscriptions to run your business and run it efficiently is a business expense.
00:13:35:17 - 00:13:53:07
Kelsey Chester
Any postage related to, you know, mailing off marketing materials or mailing client gifts, anything like that is a business expense. Any taxes related to the business, any license required to run your business. Those are all deductible expenses for your business.
00:13:53:07 - 00:14:10:01
Danielle Hayden
Now, we're not talking about estimated taxes or our tax payment. These are like licenses that you have to create to pay payroll tax in your state. Or some of those smaller general business expenses, our estimated taxes would not be considered a operating expense.
00:14:10:01 - 00:14:31:13
Kelsey Chester
Correct. Or like if you have a property tax for a building that your business owns, things like that. A little bit of a gray area tends to be telephone and internet because these are two items that are used often personally as well. However, they are necessary expenses to run your business. So you know, if you have a telephone that, for the sole purpose of your business, that’s a 100% business expense.
00:14:31:15 - 00:14:53:12
Kelsey Chester
If you have an office for your business that has internet, those are a 100% business expense. If it's something like a telephone that you use for personally, IRS guidelines are that whatever your percentage of personal use is, only the percentage of business use is expensed through the business, and that personal use would be like a an owner's draw, so to speak.
00:14:53:12 - 00:15:14:20
Kelsey Chester
Another area that tends to be a bit of a gray area is uniforms. So I know a lot of parties and yoga studios and anything that has a special type of clothing that should be worn on the job, like exercise clothing, leisure, athleisure, things like that. IRS guidelines are for those to be a business expense, it should be used solely for the purpose of the business.
00:15:14:20 - 00:15:16:07
Kelsey Chester
So the way that they define this is
00:15:16:07 - 00:15:41:04
Kelsey Chester
it has to have a business logo on it. So unfortunately, the IRS wouldn't accept just athleisure as a business uniform unless it has a business logo. And their reasoning for that is just that you can wear that anywhere. That's not something that's only for the business. Now, if you're purchasing hard hats or something like that, that doesn't have a business logo, that is something that it's really dedicated to the work of the business
00:15:41:04 - 00:15:42:18
Kelsey Chester
so that is still required.
00:15:42:20 - 00:16:03:04
Danielle Hayden
Yeah. If it's something that is solely dedicated to the business that you're only going to wear for work, it's different than the workout gear that you're going to be wearing to the gym and to the studio, but applying our logo is a great way to make that a business expense-That's right-and advertising for our business. How about outside services?
00:16:03:05 - 00:16:09:09
Danielle Hayden
Is the cost of our money team, our bookkeeper, our CFO, our tax accountant? Are they all considered a business expense?
00:16:09:12 - 00:16:30:23
Kelsey Chester
Yeah. So this is actually a question that we get often is, hey, are your services a business expense? And the answer to that is yes. So any outsource services that help you run your business, a bookkeeper, if you outsource the CFO, your tax preparation for your business, a virtual assistant, all of those are business deductions. They are helping you to run your business.
00:16:31:01 - 00:16:33:13
Aubrey Phillip
Quick break before we dive back in.
00:16:33:14 - 00:16:35:07
Aubrey Phillip
If you're an entrepreneur ready
00:16:35:07 - 00:16:44:16
Aubrey Phillip
to streamline your financials, Kickstart Accounting has the solution. Our proven bookkeeping services are designed for entrepreneurs like you to provide
00:16:44:16 - 00:16:46:17
Aubrey Phillip
clear, accurate financial
00:16:46:17 - 00:16:48:11
Aubrey Phillip
records, giving you time to focus
00:16:48:11 - 00:16:50:04
Aubrey Phillip
on growing your business.
00:16:50:04 - 00:17:06:07
Aubrey Phillip
Book a discovery call at KickstartAccountingInc.com/book or click the link in the show notes. Let's get your finances in order so you can scale with confidence. Now back to the show.
00:17:06:07 - 00:17:17:09
Danielle Hayden
All right, let's talk about payroll. So we're going to link in the show notes. We have episodes on 1099s, our contractors, how to pay ourselves as business owners between payroll, reasonable compensation, owner’s draws.
00:17:17:09 - 00:17:30:08
Danielle Hayden
But overall, in general, when we think about the payroll category of our income statement, what are some of the overall expenses that are included as a business expense and therefore a tax deduction?
00:17:30:10 - 00:17:52:03
Kelsey Chester
So any contractors that you brought on board to help on your business, those are under that payroll category and they're a deduction for your business. Your reasonable compensation, so your salary is going to reduce your taxable income like we touched on before. Any other employees that you have that receive wages through a payroll service that is a deductible expense for you.
00:17:52:05 - 00:18:15:16
Kelsey Chester
Any fees to make that happen. So like if you use Gusto or ADP or Paychex and they charge you a fee for their payroll services, those payroll service fees are also a business deduction. Any company payroll taxes paid. So the company paid payroll taxes. Those are also a deduction for your business. Any company contribution to your employee benefits,
00:18:15:18 - 00:18:33:18
Kelsey Chester
those are also a business expense. So not only are you contributing to your team and the retention of your team, you're also reducing your tax liability at the same time. That can include retirement in 401(k), medical, any company contributions are a deduction for the business.
00:18:33:19 - 00:18:53:17
Danielle Hayden
Now, we need to watch and talk to your money team to ensure that we're classifying it correctly between what type of account that you have who's paying for it. Again, I don't want to go down a rabbit hole on retirement and health insurance. We have a separate episode for each of those. However, talk to your money team and they'll help you decide which parts of that are a business expense.
00:18:53:17 - 00:19:07:23
Danielle Hayden
But if you are paying for your retirement and your health insurance personally, is there an opportunity to make that a business expense and offer that as a group of benefit? It's something to explore annually as a business.
00:19:07:23 - 00:19:19:03
Kelsey Chester
owner. Definitely. That's a great point. The benefits do need to be set up a certain way for them to qualify as a business expense. So if that's something that you're considering, make sure that you're talk to your money team so we can get you squared away.
00:19:19:05 - 00:19:32:03
Danielle Hayden
Now how about some of the tax strategist I hear online are talking about, you know, babysitters, nannies, the lawn care guy because you work from home. What is your stance on that being a business expense?
00:19:32:03 - 00:19:52:19
Kelsey Chester
As much as I would love for a babysitter or childcare to be a business expense-because, you know, we need it to be able to work-unfortunately, the IRS does not allow that to be a deductible business expense, so that can actually go on your personal return as a childcare expense of certain criteria, you know, that goes into that as well.
00:19:52:19 - 00:19:58:05
Kelsey Chester
But that could definitely be a personal deduction with a limit on there, but unfortunately not a business expense.
00:19:58:08 - 00:20:17:17
Danielle Hayden
So for our kids let's classify correctly. So we have the opportunity to get the appropriate deduction, right? Like if we're trying to make that a business expense and we're not showing that in our personal funds and not having that conversation with our money team, we may oversee the legal and the right way to actually deduct those funds, right?
00:20:17:17 - 00:20:39:13
Kelsey Chester
Any miscellaneous expenses associated with your home or your office. So like lawn care or home cleaning. So if you have a home office, you actually can deduct a portion of those expenses on your business. It's going to be based on a percentage of what that portion of your home dedicated to the business is compared to the whole home.
00:20:39:13 - 00:20:52:18
Kelsey Chester
So it is something that you want to talk to your money team about, or your tax operation team to make sure that we get that correctly on your tax return. But you do get a benefit for those expenses. It's just not the entire expense. It'll be a certain percentage.
00:20:52:18 - 00:21:31:05
Danielle Hayden
Alright, let's talk about travel because this is a big area for business owners. Again we'll link all the episodes that we've done in the show notes for you because each one of these topics, we talked for 30 to 40 minutes on each of them. But I want to give a high level overview. You are allowed and able to deduct the business expenses for you to travel for a webinar or a conference, for a leadership meeting or a board meeting, we're allowed to deduct the flight, a car rental, Lyft, Uber, the meals, the actual conference.
00:21:31:07 - 00:21:53:02
Danielle Hayden
All of those are deductible. What I fear is the business owner who creates a board of their family members and says, well, I can fly my board and have a board meeting in Orlando at Disney, and I'm going to write off the whole thing as a business expense. What are your thoughts on that? And some guidelines to keep people on the up and up?
00:21:53:04 - 00:22:15:20
Kelsey Chester
Yeah. So again, the primary purpose of that trip needs to be for the business. So if we're doing all of this just so we can go to Disney, I wouldn't say that the primary purpose of that is for the business. And so it's really just ensuring that the primary purpose and the majority of your time on this trip is going to be spent doing something for the business.
00:22:15:22 - 00:22:38:16
Kelsey Chester
This is also going to go back to is your explanation reasonable? Can I justify this trip as an ordinary and necessary trip for my business? Going back to how the IRS defines a business expense, if you're not able to explain and justify this trip as being ordinary and necessary so it can't be extravagant, and the IRS uses that term as well.
00:22:38:16 - 00:22:54:06
Kelsey Chester
It can't be an extravagant expense because that's not ordinary. But if it's something that has a primary purpose for the business, then you can. But if it doesn't meet those criteria, it's not within those guidelines, I would second guess putting that on the business.
00:22:54:08 - 00:22:57:21
Danielle Hayden
Alright, are there any common business expenses that
00:22:57:21 - 00:23:18:09
Danielle Hayden
we didn't cover? We have done a overview of our entire kind of income statement that we use for our clients here. The only other thing that I can think of are the fixed assets or major equipment purchases that somebody might make. We have a policy for our clients that expenses that are over $1,500,
00:23:18:09 - 00:23:39:14
Danielle Hayden
and if it's, you know, a computer or a large camera or something to that effect, we will capitalize those on the balance sheet for our clients to be depreciated over time. However, if it's under that $1,500 threshold, we will put it to that income statement to take that business expense in that year. Anything else that you can think of?
00:23:39:14 - 00:23:58:08
Kelsey Chester
And playing with the way that those are categorized is going to be a tax strategy. So it's going to be a strategic decision how those are treated based on how everything else is looking. You know, is there a lot of profit this year or should we try to get that profit down as much as we can with depreciation, or are we expecting even more profit in future years?
00:23:58:08 - 00:24:16:16
Kelsey Chester
If so, then we want to make sure that we're strategic with how we depreciate those more significant expenses, so that you also have a tax benefit waiting for you in future years as well. The only other thing that I can think of is for those clients that rent offices and have some facility costs, those are also a business deduction.
00:24:16:16 - 00:24:28:20
Kelsey Chester
So if you rent an office or if you own a building or anything like that, the cost associated with having that facility and maintaining and upkeeping that facility are all business expenses.
00:24:28:22 - 00:24:52:19
Danielle Hayden
Now, when you go to Home Depot and Lowe's and you're picking out the stuff that you need to maintain your building, it is important that we're using separate cards for our business expenses and our personal. And again, you might not get audited and there might not be an audit looking at those specific expenses, but we also want to maintain the health of our business and maintaining the integrity of our business.
00:24:52:19 - 00:25:05:07
Danielle Hayden
That business expenses go on the business card, we take the owner's draws, the owner salary appropriately, pay ourselves so that we can afford in our personal life to buy the repairs and maintenance for our home separately from our business.
00:25:05:08 - 00:25:17:19
Kelsey Chester
It's really all about making sure that you're keeping the big picture of your business in mind. I know it can be really tempting to try to get that profit down as much as you can when you see a tax bill, you know, that you weren't expecting. But
00:25:17:19 - 00:25:30:19
Kelsey Chester
just keep in mind that, you know, am I expecting to have to get funding in future years? Or do I really want to keep that door closed for me, where I'm consistently showing either zero profit or loss because I don't want to pay tax?
00:25:30:21 - 00:25:42:01
Kelsey Chester
We've said this before to pay tax is not a bad thing. It's just about making sure that you don't pay more than you need but while keeping the big picture of your business and how you want your business to serve you in mind. Our
00:25:42:01 - 00:26:11:03
Danielle Hayden
goal has always been for our clients to be able to run healthy, sustainable, and that includes profitable businesses. And part of being profitable is maintaining this balance of tax planning. Can you tell us a little bit when clients work with KSA Tax Partners, you know, what's the process and how do we look at some of these things? You know, our bookkeeping team is keeping everything organized and accounted for appropriately throughout the year.
00:26:11:05 - 00:26:28:02
Danielle Hayden
We're sending regular reminders to our clients for statements, W9s, keeping you compliant for 1099s, and reviewing personal expenses and subscriptions, but then we land in tax season, and I think that's a next level of overwhelm for people. So how does KSA Tax Partners partner
00:26:28:02 - 00:26:29:08
Danielle Hayden
with our clients during that time?
00:26:29:08 - 00:26:51:05
Kelsey Chester
Yeah. Great question. So we are keeping up with our clients throughout the year. So if you're making these significant purchases or these big changes in your business, we're going to know about it before the year end. So we are addressing those changes throughout the year in conjunction with your bookkeeping team. And then when it comes to actual tax preparation, we have what we call a tax prep call.
00:26:51:07 - 00:27:12:15
Kelsey Chester
And this is where we get on a call together. And we have a full picture of how the year ended up fleshing out. And so at that point, we're starting to strategize: okay, how do we want to handle depreciation? Do we want to depreciate more this year? And because we're face to face and discussing, we're able to talk about what are your plans for, you know, the next few years of your business.
00:27:12:15 - 00:27:32:01
Kelsey Chester
What are you expecting? Are you expecting things to kind of slow down a little bit because you're stepping back from your business? If so, then we'll keep that in mind as we strategize how to deal with some of these deductions. But if you're expecting your business to grow exponentially in the next few years, all of that goes into how we treat, you know,
00:27:32:01 - 00:27:35:11
Kelsey Chester
certain deductions and certain credits during that tax prep call.
00:27:35:11 - 00:27:56:09
Kelsey Chester
We also go through what we call our deductions deep dive, where we take the initiative to ask you the questions and to take the initiative to make sure that we're diving into every possible deduction or credit that you may qualify for. So those tax prep calls, we do ask a lot of questions, but it's because we want to make sure that we're exploring every option for you to help minimize your tax liability.
00:27:56:09 - 00:28:27:00
Danielle Hayden
You know, we really took everything that we felt like was wrong with our industry and doing everything that we can to change the tax industry. We do not see our clients as a transaction. We have long-term, strategic partnerships with our clients. It is important to us. You are important to us. We are not just going to have you send your documents into some portal somewhere where the return is going to get done at some point when it's convenient for us and we will communicate when we get to it.
00:28:27:03 - 00:28:56:00
Danielle Hayden
We are really strategic in the way that we work with our clients. That's why we do the tax prep call so that we know about you, you know what we're working on, when we're going to be working on it, and really partnering with you to make sure that you understand, not understand like each line of the tax return, but that you fundamentally know and understand the high level of where you and your business are from a tax perspective, and then partnering with you throughout the year to make sure that it's not-Things change, right?
00:28:56:00 - 00:28:56:18
Danielle Hayden
Like there's so much that
00:28:56:18 - 00:29:12:17
Danielle Hayden
changes throughout the year. If you're doing better this year than you expected, you want your money team to know about that and to help you plan for that. So that's the purpose of those tax check-ins throughout the year. And I'm really proud of the work that we do with our with our clients at KSA Tax Partners,
00:29:12:17 - 00:29:25:21
Danielle Hayden
and I think it's a really incredible opportunity. So if you're feeling frustrated with the way that your tax accountant, your CPA is doing things, you're not alone. We feel it. We hear it all the time. And that's exactly why we're doing what we do.
00:29:25:22 - 00:29:45:16
Kelsey Chester
You know, we didn't always have tax preparation services, as, you know, a lot of our listeners know, and so we've had a lot of time to understand our clients' biggest pain points with the tax operation process and just the accounting industry all together. So we've really put a lot of thought into how we are going to structure our services.
00:29:45:18 - 00:29:59:21
Kelsey Chester
I say this all the time, but we go a step further with everything that we do. We didn't just create another tax preparation firm to be just like everyone else. We did it to be an answer for the concerns and the pain points our clients are having.
00:29:59:21 - 00:30:22:00
Danielle Hayden
Well, thank you so much for being here today. I hope this is really helpful for everyone. Go through your income statement and go through your transactions for the year. Make sure that you have all of these captured as a business expense. If anything snuck through on your personal card, send that information over to your money team. Let your bookkeeper enter that information into your accounting software.
00:30:22:00 - 00:30:28:11
Danielle Hayden
Include that as a business expense. Take what you deserve and we are there to be your partner along the way.
00:30:28:12 - 00:30:44:11
Kelsey Chester
And for those listeners that are clients, if you're not sure, take advantage of the resources that you have. Just shoot your bookkeeping team a quick email, like, hey, is this a business expense? They'll get back to you. We have a 24-hour email turnaround time. They'll get back to you with an answer. Maximum 24-hour turnaround time.
00:30:44:11 - 00:31:02:03
Danielle Hayden
Yes. Yeah. Use the resource. We're here for you. And if you do not have a money team, we would love to be part of your money team. You can go to KickstartAccountingInc.com, book a call. You'll talk to Kelsey, Aubrey, or myself, and we would love to be part of your team. I hope you enjoyed today's episode of Business by the Books.
00:31:02:03 - 00:32:12:05
Danielle Hayden
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