Are you leaving money on the table when it comes to your taxes? If you're a small business owner, the answer is probably yes! In this episode, Danielle Hayden, CPA and founder of Kickstart Accounting, Inc., covers the essential tax deductions you should be using but might be missing or ignoring. From turning charitable donations into advertising dollars to maximizing deductions on equipment, training, and even paying your children, Danielle breaks down tax strategies that can save you money while still maintaining a healthy business in line with your goals.
Key Takeaways:
- Charitable Donations Can Double as Marketing: Sponsoring events or donating branded items makes them deductible.
- Clothing & Equipment Expense Write-Offs: Add your logo to business attire as a uniform to make it a deductible expense, and really think through what personal expenses you use for your business, such as a new laptop or webcam.
- How to Make Gift Giving a Deduction: There are strict IRS limitations on gift giving, however gifting your employees or contractors with equipment that is pre-loaded with work content and/or branded is a way to gift as a deduction.
- Continuing Learning is a Business Expense: Whether it’s a conference, a training session, or even a book, if it’s an expense that contributes to your business and industry knowledge, no matter how small the cost, it is a business expense.
- Retirement & Healthcare Expense Deductions: Utilize HSAs, IRAs, and other plans to save on taxes while securing your future.
- Paying Your Children through Your Business: A structured payroll for your children not only is a tax deduction but also helps them build wealth, financial literacy, and their resume as a tax-paying individual.
- Strategic Business Travel & The Augusta Rule: A well-timed conference or workshop can combine personal and business travel the right way to increase deductions. Plus, learn how the Augusta Rule can help business owners with tax-free rental income for 14 days per year.
- Balancing Tax Write-Offs with Your Business Goals: Deducting expenses is important for tax savings, but, depending on what you want out of your business, deducting too much does have an affect on the overall value of your business, so you want to make sure your write-offs are in line with your goals.
Topics Discussed:
Pre-Tax vs. Post-Tax Spending (00:0:52 – 00:04:26)
Charitable Donations as a Tax-Deductible Marketing Expense (00:06:51 – 00:07:39)
Clothing & Equipment Deductions (00:08:10 – 00:08:57)
Gift Giving as a Business Expense (00:10:22 – 00:11:25)
Conferences, Training, & Learning Write-Offs (00:11:25 – 00:12:26)
Retirement, HSA, and Healthcare Deductions (00:12:51 – 00:15:06)
Paying Your Children (00:15:06 – 00:16:25)
Capitalization Policy (00:16:26 – 00:17:53)
Business Travel Write-Offs & The Augusta Rule (00:17:53 – 00:23:50)
Striking the Balance between Deductions and Business Goals (00:20:02 – 00:24:27)
Resources:
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
Free Gift | ‘How Much to Pay Yourself as a Business Owner’ Calculator
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;29;23
Danielle Hayden
Do you think that you're taking full advantage of your tax deductions as a small business owner? Think again. Most small business owners are leaving money on the table, missing out on deductions that could be saving you real money, from turning your advertising into sponsorships to leveraging the Augusta rule the right way. We're going to be breaking down in this video tax strategies that you didn't know you needed.
00;00;29;25 - 00;00;51;28
Danielle Hayden
We're going to stop overpaying and start keeping more of what you earn. You're listening to Business by the Books, the podcast that teaches you how to use your financials to manage your business. My name is Danielle Hayden, CPA and founder of Kickstart Accounting, Inc., where we use bookkeeping and taxes as a vehicle to help business owners take control of their numbers.
00;00;52;00 - 00;01;17;27
Danielle Hayden
And I've helped thousands of entrepreneurs make informed financial decisions for over a decade. Today, we're going to be talking about the tax deductions that you didn't know you needed to be making in your business finances. Now we're going to start at the top. What does pre-tax and post-tax mean as a small business owner? And I want to use an employee as an example.
00;01;17;29 - 00;01;43;11
Danielle Hayden
When you are a W-2 employee, you are being paid with after-tax dollars. But there are things like your health insurance and your 401(k) that you can pay pre-tax, which is then lowering the taxes that you're paying as an employee, which therefore is lowering the gross amount or the net amount that you are taking home as an employee.
00;01;43;13 - 00;02;08;16
Danielle Hayden
Now, as business owners, we have a set of tools that we can be using to lower our net income that we are then going to be paying taxes on. So as a business owner, you are paying taxes on the net income of your business. So that is sales minus all of your cost of goods sold and operating expenses.
00;02;08;19 - 00;02;38;12
Danielle Hayden
That bottom line net income dollar. That is what you are paying taxes on as a business owner. Now the government wants you to use deductions to minimize the amount of net income that you are going to be paying in your taxes. Now the government gives the option to have these deductions in business or in real estate, because these are things that help drive the economy.
00;02;38;14 - 00;03;08;19
Danielle Hayden
The government is giving you the tool. Now, unfortunately, the government is not going to come knocking at your door as a business owner to say, hey, you forgot this deduction, you forgot this business expense. That was really your responsibility as a business owner to get educated and implement these tax deductions in your business so that you can minimize the amount of net income that you are paying taxes on as a business owner.
00;03;08;24 - 00;03;35;01
Danielle Hayden
Now, the goal is always to find the right mix between spending and saving. I want to be really clear-this is kind of an unpopular opinion-I don't ever want to hear that you are spending money just to minimize your taxes. Every fall, I cringe at hearing CPAs telling business owners to go spend their profits so that they don't have to pay money in taxes.
00;03;35;03 - 00;04;00;26
Danielle Hayden
When you start doing better in business, when you start doing well, you are going to be paying taxes. It is just part of our lives, especially as U.S. citizens. We are going to be paying money in taxes, and I don't ever want a business owner making an investment in equipment, tools, vehicles, travel conferences that do not align with their goals.
00;04;00;26 - 00;04;30;28
Danielle Hayden
As a business owner, we are not spending money just for taxes. We had a client who came to us a few years ago, and she was working with another CPA before working with us, and she signed on with us around like early February. And her CPA had her take a large bonus run paying herself in December. Now, the CPA did not have a discussion with the business owner to understand what their goals were for the next year.
00;04;31;00 - 00;04;59;06
Danielle Hayden
This business owner was put in such a difficult position because she had a new store opening in March. Now she had used her cash to run a large payroll run, and her family was so excited to have the dollars in their personal checking account that they spent the money. Well, there's nothing wrong with that. However, when it came time to open the new store, she ended up having to take on debt because January and February were actually her slowest season.
00;04;59;07 - 00;05;28;17
Danielle Hayden
She had an amazing November and December, spent her profits during that time on a large payroll run, hit her slow season of January-February, and when she went to go make the investment to grow and continue to invest in her business, she didn't have the cash and had to take on debt. She's still in this debt cycle. So I'm not saying that we can't implement strategies to save money on our taxes;
00;05;28;19 - 00;05;57;26
Danielle Hayden
I want us to implement strategies that align with our goals and the future of our business. Okay, now what does the IRS say is technically a business expense? The IRS gives the guidelines that business expenses have to be ordinary and necessary. So it would be ordinary for somebody in your industry to spend money on that and it is necessary in order to run the business.
00;05;57;27 - 00;06;28;21
Danielle Hayden
Now we have an episode that just recently air that we’ll link in the show notes, where we reviewed the entire income statement and all the potential business expenses that we can be taking that are ordinary and necessary in business. This podcast today is for somebody who is already in business, who is actively running their business, actively generating revenue and ready to take on the expenses that maybe you haven't thought of in the past.
00;06;28;23 - 00;06;51;11
Danielle Hayden
So what are those expenses that we are leaving on the table when we think about our business deductions? Again, these are not things that we need to spend over and above what we want to spend as a business owner to hit our goals. But these are ways of changing the way that we're spending money so that they can become a business deduction.
00;06;51;14 - 00;07;16;10
Danielle Hayden
So first, when I look at the income statement, I am thinking about advertising and marketing. Now, one thing that we see our clients doing frequently is making charitable contributions to their community. And for me, this is one of the biggest benefits of being a small business owner is that we get to contribute to our community in which we live in and we get to make this really amazing impact.
00;07;16;13 - 00;07;41;09
Danielle Hayden
However, when we go to make a charitable contribution, can we turn that contribution into a sponsorship? So if you have your son or daughter's little league who is asking for a contribution, can you turn that into a small business sponsorship where you actually have your logo on the back of their t-shirts, or you are sponsoring the event for that?
00;07;41;10 - 00;08;10;21
Danielle Hayden
Now that becomes advertising for your business and turns that charitable contribution into advertising dollars, which can be 100% deducted on your business tax return. A charitable contribution flows through your personal tax return and are subject to some limitations. So turning those charitable contributions into a sponsorship is a way of getting a 100% tax deduction on those dollars. Next is uniforms.
00;08;10;23 - 00;08;43;16
Danielle Hayden
This is a huge area for our clients and small business owners. I understand the temptation to want to deduct the cost for clothing that you are wearing for a photoshoot, or at work on a regular basis. Unfortunately, the IRS says that those are not actually uniforms and not technically a business expense. But the way around this, the way that we can make these dollars for our clothing, is to put your logo on it.
00;08;43;18 - 00;09;12;04
Danielle Hayden
If you are wanting to buy a jacket for the winter season, if you put your logo on that jacket, that has now become a business expense and can be a uniform cost. Next is equipment and office expenses. We are all purchasing as small business owners equipment for our business. There's not very much that I can think of in my life that I am not using for my business.
00;09;12;09 - 00;09;46;24
Danielle Hayden
New AirPods, I'm using them for business. Microphone, obviously I'm using that to record the podcast. New computer. Yes, that's a business expense. The camera that I'm using to record this podcast, the technology that I'm going to be using in my business, these are all things that can be a business expense. So I really want you to think through your personal expenses and what you are purchasing in terms of office expenses and equipment that you were really technically using for business.
00;09;46;27 - 00;10;08;25
Danielle Hayden
I have found working with our clients over the years that we really-depending on our risk tolerance-we're trying to leave dollars on the table because we don't want to overtake. And while I appreciate that, and I really do respect you guys, I want to make sure that we are taking the business deduction, that we are taking that business expense for any equipment.
00;10;08;27 - 00;10;33;17
Danielle Hayden
Telephone. Yes, that's a business expense. Like I said, those AirPods? Business expense. What are you technically using as business? Those need to be paid with the pre-tax dollars so that you are getting the deduction. Now as we think about gifts, we have so many limitations by the IRS in terms of gifts. Now I went into all of that disappointing news in episode 126.
00;10;33;17 - 00;11;00;09
Danielle Hayden
So if you are thinking about giving gifts to your employees, contractors or clients, go and give that a listen to first. But there are strategies that we can use to be able to gift as a business expense. For example, if you want to give a set of iPads to your employees, you can pre-load those iPads with email, with their email teams, and maybe a training that you want that team member to go through.
00;11;00;11 - 00;11;25;12
Danielle Hayden
You are now gifting the iPad to that team member. However, it's been pre-loaded with work content so that that can be a business expense and then you can always add your logo. So just like we did for uniforms, by adding your logo, we are able to gift our employees and contractors and clients as part of advertising and marketing for our companies.
00;11;25;19 - 00;11;57;06
Danielle Hayden
Training is another area where we are leaving money on the table. The mastermind that you're part of the conference that you went to, to learn from the coach that you have. Those are all people who are working with you or training and personal development for your business. I always say that being a business owner has been the number one self-help, personal growth journey that I ever could have imagined being on and having conferences to regularly attend.
00;11;57;12 - 00;12;25;19
Danielle Hayden
I have a coach who I can regularly rely on to be part of group masterminds, and what really help us as business owners continue to grow. All of those are business expenses. But we're leaving this small ones on the table. The book that you bought, the audible subscription, the Grammarly, those small things that we're using to learn and grow and to serve ourselves as business owners. Those are business expenses.
00;12;25;19 - 00;12;33;22
Aubrey Philipp
Real quick, are you struggling with tax deductions or how much to pay
00;12;33;22 - 00;12;38;29
Aubrey Philipp
yourself as a business owner? Get the ‘How Much to Pay Yourself as a Business Owner’ calculator
00;12;38;29 - 00;12;42;16
Danielle Hayden
and the guide to the ‘6 Tax Tips Every Business
00;12;42;16 - 00;12;44;07
Aubrey Philipp
Owner Should Know’. Go to
00;12;44;07 - 00;12;45;03
Aubrey Philipp
KickstartAccountingInc.com/gift
00;12;45;03 - 00;12;47;18
Danielle Hayden
00;12;47;20 - 00;12;51;22
Aubrey Philipp
to simplify your financials today. Okay, back to the show.
00;12;51;24 - 00;13;18;01
Danielle Hayden
As business owners, we cannot forget that we need to plan for our personal wealth. We need to plan for our retirement, HSA, and health care. And guess what, you guys? These are all ways of creating business expenses that lower our net income. Now there are a lot of gray areas and whether or not you're an LLC or an S Corp,
00;13;18;01 - 00;13;39;08
Danielle Hayden
so I'm going to link in the show notes for retirement planning. We have a full episode on episode 188 on all the strategies that you can use for retirement planning in your business. But this is a business expense. And if you do not have a retirement plan in place, you're thinking, well, I'm going to sell my business one day.
00;13;39;14 - 00;14;08;15
Danielle Hayden
That's my retirement plan. I want to encourage you that it's not that I think that you're not going to sell your business. I believe that every business owner, there's an opportunity for us to be able to grow and sell our businesses. However, I think it's important that we also have additional retirement and wealth planning tools in place. So episode 188, take action to make sure that you are utilizing retirement planning in your business.
00;14;08;17 - 00;14;34;23
Danielle Hayden
Next is our HSA. The HSA can be funded and grows tax free. The HSA is a great way for you to add on to your retirement planning if you have a high deductible health care plan. So if you have a high deductible health care plan, you can use the HSA plan in order to be able to fund the future wealth of you as a business owner.
00;14;35;00 - 00;15;06;15
Danielle Hayden
Next is health care. Health care can be a business deduction for you as a business owner. Go back and listen to episode 136 for all the details on how to implement the right health care strategy in your business. But these are dollars that you're leaving on the table. If you do not have retirement, HSA, and health care deductions going through your business, these are dollars that you are leaving on the table for the IRS to collect on.
00;15;06;17 - 00;15;27;13
Danielle Hayden
Next is to pay our children. Go back, listen to episode 137, where I go through all of the details on what you need to know in order to pay your kids. Your kids can be a business expense to your business, regardless of whether you're an LLC or an S Corp. You can pay your children if you are an LLC.
00;15;27;14 - 00;15;52;05
Danielle Hayden
Those dollars will need to be under $12,000 and can be a business expense and not taxed by your child. As an S Corp, you can still pay your kids. You're going to be enjoying the tax deduction, and they're going to start to build their wealth as a child. And your child is going to start to build their resume as a tax paying individual.
00;15;52;05 - 00;16;19;10
Danielle Hayden
So as an S Corp, your child would go on payroll. However, you as a business owner are enjoying the benefits of having that business expense and lowering your net income. You guys get it. The idea here is what expenses can we implement in order to lower our net income for our kids? You're paying for so much of their lifestyle post-tax and by paying your child,
00;16;19;12 - 00;16;48;27
Danielle Hayden
this is a way to take those dollars and make them pre-tax spending rather than post. All right, next we have the capitalization policy. The government allows us to treat large purchases up to $2,500 as a business expense this year, if we have a capitalization policy. Now as a Kickstart Accounting client, you already have a policy. Anything that's over $1,500
00;16;48;27 - 00;17;23;27
Danielle Hayden
we capitalize on the balance sheet and depreciate over time. However, anything under $1,500 we take as a business expense. So if you go and you buy a new computer and it's $1,400, we will automatically put those business expenses in your income statement so that you are taking that tax deduction in the year that that purchase is made. And that can be a great tax strategy if this year is very profitable for you and you need that new computer, new camera, new microphone, you need those equipment costs.
00;17;23;27 - 00;17;53;02
Danielle Hayden
Those are things that when we have a profitable year, we're not going to buy the truck or we're not going to invest in tools or strategies or conferences that we don't need. But when we have profit and we know that we have equipment or specific investment needs, this capitalization policy allows us to take those expenses in the year that we're profitable, rather than capitalizing them and depreciating them later in time.
00;17;53;02 - 00;18;19;01
Danielle Hayden
Next we have travel. I've seen so many tax gurus out there encouraging small business owners to form a board of their family members so that they can take quarterly trips or board meetings and fly themselves and their family to these vacation destinations for board meetings. And look, you need to decide, as a business owner, your amount of risk.
00;18;19;01 - 00;18;44;26
Danielle Hayden
There are going to be times that if you want to take your family to, let's say, Disney, that you can find a conference, workshop or seminar and then your travel as the business owner is a tax deduction. And the time that you have that hotel stay for the conference that has become a business deduction. And your meals during that time is a business deduction, not your family’s.
00;18;44;28 - 00;19;10;06
Danielle Hayden
Though, a few years ago I took my family to a conference with me. It was actually to Disneyland and I was going to Orlando. We went four days early, so my flight was a tax deduction. However, I paid personally for each of my children, my spouse, our Airbnb before the conference was paid for me from my personal funds.
00;19;10;09 - 00;19;36;20
Danielle Hayden
Once they left and I went into the conference, that's when my business paid for the hotel meals and the car rental during the time that I was there for the conference. Now, the IRS does say that a portion of your day needs to be spent at the conference or workshop. So maybe you're only spending four hours each day at the conference, and it's a longer conference that spans the time that your family will be there with you.
00;19;36;23 - 00;20;02;05
Danielle Hayden
In that case, the hotel stay, the car rental can be a business expense as long as during that time you are attending the conference, that workshop or seminar for at least four hours of each day. However, again, as a business owner, you need to decide on the amount of risk that you want to take with these deductions, and you need to decide on where you want to take your business in the future.
00;20;02;07 - 00;20;34;03
Danielle Hayden
For me, as a business owner, I'm not trying to put every personal expense I have through my business. I'm running a business which, with employees and team members, and it's really important that I have my cash for my business set in my business checking account and that my personal funds are paying for my personal lifestyle. And I want to be able to show over time that I have a valuable business, that I have a business that generates profit.
00;20;34;05 - 00;20;55;04
Danielle Hayden
And if I am putting through every meal that I have, every vacation that I take, everything that I spend on personally, I'm going to have a very low valued business. I'm not going to have a very profitable business. I'm going to have a low profit, which means I'm not going to pay very much in taxes, but my business isn't very valuable.
00;20;55;07 - 00;21;19;05
Danielle Hayden
I go to sell the business, or I go to invest back in the business and take out a loan or mortgage or buy a property. My business is going to be devalued because I am running my personal lifestyle through my business. So I want to encourage you all as you're listening and as you're preparing for this tax season, what is your goal of your business?
00;21;19;08 - 00;21;45;06
Danielle Hayden
Do you want to have a valuable, profitable business? Or is this really just a game for you to reduce your taxes and to take as much as a deduction as possible? Neither answer is wrong. To be clear, either answer is wrong. Please share my story and my viewpoint on that to give you guys that reference point. We have other clients who they use their business as a way to maximize their taxes.
00;21;45;08 - 00;22;11;27
Danielle Hayden
They know that they're never going to reinvest in their business. They don't need to take on debt. They're not making any additional purchases, and they're not concentrating on building a valuable business. So for them, that is their goal and their strategy. Lastly is the Augusta Rule. The Augusta Rule allows us, as business owners, to rent out our home for up to 14 days.
00;22;12;00 - 00;22;36;04
Danielle Hayden
Now, this deduction has received quite a bit of popularity over the last few years, and I want to encourage us not to take it, just to take it. If you have a valid rental reason, then we can take this deduction using the fair market value. If somebody would have rented something in the area and that has full documentation and support.
00;22;36;06 - 00;23;05;26
Danielle Hayden
So for instance, a few years ago I brought my team into town and we were having our leadership planning strategy and training conference. And rather than us going and renting out a facility or co-working space, we did part of that session in my dining room at my dining room table. So we had a valid rental reason. We had documentation and support.
00;23;05;28 - 00;23;25;07
Danielle Hayden
For me personally, as a business owner, I can't actually think of a reason why I want to have any type of rental reason for my home. This is my home. This is where I work from home. This is my office. And so for me, the Augusta Rule is not something that we will continue to take on an annual basis.
00;23;25;09 - 00;23;50;10
Danielle Hayden
However, if there is a valid rental reason-a photo shoot, a training, a very specific session-you can use the 14 day rule. But it has to be that you are taking the fair market value. If you would have gone and rented like a co-working space and then it needs to be documented. Remember, not all spending is a business expense.
00;23;50;12 - 00;24;27;18
Danielle Hayden
We need to find the balance between showing that we have a profitable, valuable business and taxes. So yes, the photo editing software is a business expense, but maybe we stop putting every meal and vacation through our business. We are devaluing our business. So think through what is the goal of your business? Where do you want to see yourself over the next three, five, ten years and then decide what expenses of your lifestyle that you want your business to be able to absorb for you?
00;24;27;24 - 00;24;51;24
Danielle Hayden
Again, this is finding a balance because I don't want us to leave anything on the table that could be a business deduction so that we can lower our net income and pay less in taxes. If you need help with this content, with your bookkeeping or your annual taxes, I encourage you to go to KickstartAccountingInc.com. Book a call.
00;24;51;25 - 00;25;18;22
Danielle Hayden
We would love to talk to you. We'd love to have the opportunity to help you classify and categorize and stay organized. Right? We need to have these transactions in the right category in order to be able to file our taxes. We need to have a money team that we can rely on to keep us compliant and to help us navigate these difficult decisions and conversations.
00;25;18;24 - 00;25;44;26
Danielle Hayden
So we would love to be your bookkeeping and tax team! I hope you enjoyed today's episode of Business by the Books. Don't forget to hit like and subscribe! This is the number one way we can help other entrepreneurs find this podcast, because here at Kickstart Accounting, Inc., it is our mission to help entrepreneurs understand their numbers, get access to this information, and grow and thrive in their business.
00;25;44;26 - 00;26;05;22
Danielle Hayden
So please help me, help other entrepreneurs understand their numbers so they can finally grow and thrive.