#539 The 4 Best Tax-Write Offs NO ONE Talks About... w/ Karlton Dennis
Oct 29, 2024
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Karlton Dennis, an enrolled agent and tax strategist with a notable YouTube following, joins the conversation to share hidden tax-saving gems. He discusses the advantages of switching from an LLC to an S corporation, emphasizing self-employment tax reductions. Strategies for involving kids on payroll as a tax deduction are explored, potentially saving families significant amounts. Dennis highlights the importance of year-end retirement contributions and the use of self-directed accounts for investing. A must-listen for entrepreneurs eager to optimize their taxes!
Reclassifying an LLC as an S corporation can significantly reduce self-employment taxes, providing substantial financial benefits for self-employed individuals.
Utilizing bonus depreciation and strategic board meetings can enhance tax deductions for small business owners while fostering asset protection and family engagement.
Deep dives
The Rise of Side Hustles
A significant trend in the workforce is the rise of side hustles, with approximately 45% of working Americans engaging in such endeavors. This phenomenon has led to over 100 million side hustles across the country, often involving activities such as freelance work, transportation services like Uber, and small-scale landscaping jobs. These side hustles serve as an entry point into entrepreneurship, but they also come with unique tax implications that entrepreneurs must navigate cautiously. Understanding the tax liabilities associated with side hustles is crucial for avoiding unexpected financial burdens.
S Corporation Benefits
Reclassifying an LLC as an S corporation can yield substantial tax savings for self-employed individuals, especially those earning more than $50,000 annually. By filing Form 2553, business owners can significantly reduce their self-employment tax burden, shifting taxation from self-employment to payroll taxes, which typically attract lower rates. This strategy allows for splitting income between wages and distributions, providing further tax advantages. Many entrepreneurs are unaware of these benefits, which can lead to significant financial losses over time.
Leveraging Business Expenses
Another effective strategy for small business owners is the implementation of annual board meetings, which can enhance asset protection and create potential tax write-offs. These meetings, even if held informally, allow business owners to deduct associated travel expenses including lodging and dining. By framing family gatherings as board meetings, entrepreneurs can further optimize deductions while ensuring compliance with business regulations. This tactic serves as a dual benefit, fostering family time while also achieving financial optimization.
Tax Strategies for Depreciation
Utilizing bonus depreciation can offer businesses substantial tax benefits, particularly for self-employed individuals acquiring large assets, such as vehicles or equipment for their business. Items qualifying for bonus depreciation must adhere to usage requirements, with certain vehicles allowing for significant deductions if they exceed specific weight thresholds. Understanding the interplay between section 179 and bonus depreciation can empower business owners to make informed purchasing decisions before the year's end, thereby minimizing taxable income. Careful planning around depreciation can lead to smarter investments and substantial savings.
In this episode of the Main Street Business Podcast, host Mark J. Kohler is joined by Karlton Dennis to share essential tax-saving strategies before the year ends. They explain how transitioning from an LLC to an S corporation reduces self-employment taxes and how you can benefit from bonus depreciation. They also cover creative ways to involve your kids in payroll, plus insights on using solo 401(k)s and Health Savings Accounts to maximize deductions.
Here are some of the highlights:
Mark and Karlton discuss their roles as tax strategists focused on saving money.
The concept of self-employment tax, which includes Social Security and Medicare contributions.
How self-directed accounts can be used to invest in rental real estate and other business assets.
Mark and Karlton discuss the benefits of switching from an LLC to an S corporation using Form 2553.
Mark encourages listeners to backdate the S corporation election to January 1, 2023, to avoid self-employment taxes for the year.
How to properly place children on payroll to reduce taxes and provide financial education.
Importance of setting up retirement accounts before the end of the year to maximize tax benefits.
Karlton introduces the Tax Free Wealth Challenge, a five-day event focused on tax strategies.