Ep. 25 Part 2 | Making Your Money Work: Tax-Saving Secrets for Your Business with Guest Mike Jesowshek
Join us for Episode 25 with special guest Mike Jesowshek. In this episode we discuss some crucial _tax saving strategies for small businesses_ based on the insights from our recent podcast. We delve into topics such as *maximizing business deductions*, *retirement planning*, *entity structure*, *real estate investing*, and the benefits of *hiring family members*. Learn about legitimate ways to write off various pre-tax business expenses including travel, meals, and home office costs.
Discover how retirement plans like SEPs and solo 401ks can aid business owners in contributing larger amounts to tax-deferred retirement funds. We also talk about how the decision to incorporate as an *S-Corp* can reduce self-employment taxes.
We also dissect the advantages of real estate depreciation deductions and the role of short-term rental losses in offsetting business income. Understand the financial benefits of hiring family members and how, with correct tracking of their work hours and pay, it can result in significant business deductions.
Lastly, we put stress on the importance of businesses reviewing their structure and adopting strategies such as tracking mileage and receipts to withstand an IRS audit. If you are a small business owner, this video is tailor-made for you. Don't forget to like, share, and subscribe for more such valuable content
www.taxsavingspodcast.com
Msbizpod.podbean.com
www.facebook.com/MsBizPodcast
www.BoltzLegal.com
www.BoltzMedia.com
Full Episode Transcript:
Brooke Boltz: As a business owner, your highest paid employee is the IRS. Boo! To grow your business, it is crucial that you learn and implement tax-saving strategies. This has been such a pain point for my business that I started searching for tax strategy experts and I came across the podcast called Small Business Tax Savings. From the very first episode and every episode thereafter I learned something new and valuable.
I am truly honored to have as our special guest today, certified public accountant and the host of the Small Business Tax Saving podcast, Mike Jesowshek.
Rachel Boltz: Listen Notes ranks this podcast in the top 1% of podcasts globally. Mike also offers a tax minimization program to teach small businesses how to legally shrink their tax bill. You are guaranteed to receive massive value from today's episode. So stay tuned. Hey lady bosses, are you working even after putting the kids to bed but still not getting results?
Brooke Boltz: Are you tired of spending money on ads that aren't getting engagement?
Rachel Boltz: Do you feel burdened that you aren't fulfilling your purpose in life because you are so consumed with work.
Brooke Boltz: I'm your host, Brooke Bolts. I'm an attorney and founder of Bolts Legal. I started my business and in one year was bringing in seven figures and am now bringing in multi-seven figures.
Rachel Boltz: And I'm your co-host, Rachel Bolts, owner of Bolts Media. I've helped many businesses build their online presence and increase their revenue through digital marketing.
Speaker 2: Want to hear how we did it?
Rachel Boltz: We are here to help you achieve your goals personally, professionally, and spiritually.
Brooke Boltz: So kick off your high heels, sit back, and let's ignite that passion.
Rachel Boltz: We're Miss Biz where we're putting the Miss in Biz. Let's get Biz done.
Speaker 2: So Mike, a lot of tax strategists tell you to save money on taxes, to go out and buy a bunch of expensive things that you don't really need. But that's not your advice. How are your tax strategies different?
MIke Jesowshek: Yeah, no, I think that that's such a common thing. I always say, if you do need a new truck, if you do need a new piece of equipment, sure, let's utilize tax code the way it's written. But let's not go buy things we don't need because at the end of the day, if you buy something for $100 as an example and you save 32 cents in taxes, you're still out, you know, whatever that 78 cents is in total. And so you're just getting something on a discount that you didn't really need anyways. And so when we look at this idea of maximizing deductions, I think it's so important to understand kind of what that means.
And the best way to describe it is to look at this idea of pre-tax versus after-tax dollars. And most people think of after-tax spending and the best way to describe after-tax spending is let's think of a W-2 employee. So a non-business owner, just a W-2 employee that's working for somebody and they have gross wages and then they have all these taxes taken out that the employer takes out on their behalf. And then they have their take home pay. And any spending that they do, whether it's paying for kids' basketball camps or buying groceries, anything they do is considered after-tax spending because they're using the dollars of money, the dollars that they're spending with is money that's already been taxed.
And so if we look at this flip side, as a business owner, you have sales, and then you have all these expenses that go into it, and then you have your profit of your business. And any spending that you do prior to that profit piece is considered pre-tax spending because as a business owner, you get taxed on the profit of your business. And so that's this idea that we constantly want to be thinking about when we think of this idea of maximizing deductions is how can I turn after tax spending, spending that is done after being taxed, how can I find a business purpose and move that into pre-tax spending? And I think that's the power when you talk about this idea of maximizing deductions, I think that's where the majority of the power is. And so the best way to illustrate this as well is let's imagine when COVID hit.
If you were a W-2 employee, you were working in an office, now you get sent home. You go, you're using a home office, you're putting heat and AC in that home office, you're buying a desk, you're buying a computer chair, you're buying a laptop screen all for that home office that you have now. And you get no deduction on that. All that spending that you're doing on that is considered after-tax spending. You don't get a deduction for it as a W-2 employee.
But as a business owner, that desk you bought, that home office that you're sitting in, that computer screen that you bought, that's all business expenses. And all that spending you're doing now is pre-tax spending. It's a business expense prior to those funds being taxed. And so that's kind of this concept of moving after tax spending to pre-tax spending. And there's so many things in the day-to-day life of business owners that we can tie to our business.
And we'll talk about some of those ideas like hiring your kids and meals and travel and all those different things about there's as a business owner, our business is engulfed in our life in many different areas. And there's ways that we can intertwine that to move spending that we're already going to do. We're going to do no matter what, but now we're going to get a pre-tax deduction for instead of using after-tax dollars. And so Home Office is a great example of that, where if you have a home, you have that expense. Whether you're a business owner or not, you're gonna have that same exact expense.
But now as a business owner, we can take a deduction for it. We can take a deduction for our cell phone. We can take a deduction for our cell phone. We can take a deduction for our internet. And those are all pre-tax spending.
And so when people come to me and say, hey, you know, it's end of the year. Should I just go buy a new truck and get a bonus depreciation and clear out my income? I say, well, do you need a new truck? Is there a reason for that new truck that you're going to go buy? And they're like, no, I mean, the one I have is perfect, but, you know, obviously I need a tax deduction.
I say, well, let's look at different things first. Let's look at the other spending that you've done throughout this year personally and see if we can find some ways to be creative and think about, hey, is there a way that we could turn that from after tax spending into pre-tax spending? If
Rachel Boltz: you enjoy the Miss Biz podcast but still have questions or need advice, We have some exciting news for you. Join us for Miss Biz Connects. Miss Biz Connects is a weekly one hour Zoom call on Fridays at 10 a.m. Eastern Standard Time.
Brooke Boltz: This is one hour each week dedicated to you. We want to meet you and put our brains together to help you grow personally, professionally, and spiritually. To access the meeting
Rachel Boltz: link, visit us on our social media pages at Miss Biz Podcast or send us an email to missbizpod at gmail.com.
Brooke Boltz: Join us this Friday and let's grow the Miss Biz Nation.
Speaker 2: And That is what I love about your teachings and your podcast is the creativity that you bring to the things that we're already spending money on and categorizing it now or showing us how to properly categorize it as a business expense. I have gone on a search for tax strategists to help me lower my tax liability and every time they just tell me the same things I already know. And for the first time when I started listening to your podcast, I heard new ideas I hadn't heard before. And That is why I was so impressed with what you were teaching and thought other business owners need to hear these strategies. So let's start talking now about the top five tax saving strategies for small businesses.
And you talk a lot in your podcast about maximizing business deductions. What are some ways that a small business can do
MIke Jesowshek: that? Yeah, so again, it's this idea of moving after tax spending and into pre-tax spending. And so if we look at an example, let's look at travel. When you travel for business, that's a deductible business expense. The hotel, the Airbnbs, the airfare, all of that is deductible business expenses.
And what the IRS looks like, it looks at as a business day, means that the majority of the day you spend on business, then that day is considered a business day. And when they look at the majority of the day, they're looking at, you know, average day is eight hours, a work day is eight hours. So if you spend four hours and one minute on business for a day, that's considered a business day. Now the IRS doesn't care if you then go to the beach, you go to amusement parks with your family, whatever you're doing, they don't care as long as the majority of that day was spent on business. And so I think that this provides a really cool opportunity for business owners to say, hey, we have a family vacation planned.
We have a family vacation coming up. Can I intertwine that with some business? Can I maybe attend a conference on that trip that we're taking? Could I visit a rental property? Is there clients?
Is there a vendor? Is there something out and where we're going that I can tie some of this to business and at least get some business days as part of that travel. Now I always kind of tell people like you don't want to do this every time or your spouse is probably going to kill you but you know we want to try to think about this and be creative in these ways of hey you know if we're going to Disney with the family, you know, is there a conference going on in Disney that I can spend four hours and one minute or five hours a day doing that conference and then doing everything else I'd normally do with my family on that trip? And now it's a business trip. So that's this kind of idea of okay, we're playing this trip to Disney How can I tie this to business and get at least a partial business deduction for it now obviously?
With all tax strategies, and this is kind of this overall concept of tax planning whenever I'm looking at tax strategy I have to hit two pieces one is it legal and obviously we would never do something that's illegal. So if we hit a strategy that can't pass that mustard, then we're throwing that one out the door. But the second piece is, are we dotting our I's and crossing our T's? Are we doing what we can to protect ourselves? Because that's the important piece.
The home office deduction is completely legal. But is there a way to make the way that we datarizing crossing our T's make it illegal? Yeah, absolutely. If we take a home office deduction for 100% of our home, that's blatantly illegal. Like how is it a home office if it's 100% office and it's not a home then, it's just an office.
And so there's ways that we wanna look at those things. And that goes with all of our planning is saying, okay, concept makes sense, it's legal, we found ways to do it, now we just need to make sure we're doing it right. We're dotting our I's, crossing our T's. And so if we look at that travel as an example, if we're going to Disney with our family, obviously if our family's not part of our business, the travel associated with them is not included as that business expense piece. Or if we're buying a five-bedroom Airbnb instead of a one-bedroom hotel, you know, we'd have to account for, okay, we don't need a five-bedroom Airbnb if it was just me traveling for this business piece.
And so those are just some factors that we need to factor into it. But travel, I think, is a great way of saying, okay, how can we intertwine business with the travel that we may be doing anyways? And so that's kind of one idea when it comes to maximizing deductions. Another one that's very common is meals. And you know, we say that as a business owner, you're constantly talking about your business, whether you realize it or not, but you go out to dinner, you go out to lunch with a friend, a family member, you know, is it, are you guys talking about business?
Are you asking them for referrals? Are you asking them for advice in an employee that you have or asking them for advice in a client situation that popped up? You know, there's all these different times where you think that you're just going out to lunch or dinner with a friend or family member, but at the end of the day, you talk business at it. Well, that's a business deduction. You can find a reason that's ordinary and necessary.
Why is this a business deduction? That's something that we should be taking care of. And so, those are kind of the ideas we want to start being creative again of saying, okay, everyday life, what are we doing in our everyday life? What's the spending we're doing? Every time I swipe my credit card, is there a business purpose for this?
Can I find a business purpose that I can validly back up and support? If so, let's take advantage of it. Let's utilize the code to our advantage, but also let's make sure we're protecting ourselves. We're keeping receipts. We're keeping that documentation to back up that business proof and that spending that we're doing.
Rachel Boltz: Absolutely. And I really appreciate the clarity that you bring to business owners. I was listening to one of your podcasts recently and it was disgusting about going through your personal account and seeing if there were any business related opportunities. For example, you might have went to lunch with a friend and then ended up talking about business the entire time. And another tip that you had brought up specifically about travel was using an app to track your mileage and then using different documentation factors to kind of reinforce the fact that you had used this for travel.
Just in case the IRS did question you about anything, you had the receipt of where you had visited for lunch or for coffee, and you had, you know, like a calendar entry kind of validating where you were in that moment. So I really do appreciate you kind of encompassing everything and just making it very clear and concise to people who may not think that might not be top of mind for them. And I know a lot of times in your different podcast episodes you talk about different different tips for different corporations and talk about reviewing your entity structure. So is an S corporation, is that what you recommend for most small businesses?
MIke Jesowshek: Yeah. So, you know, I think an S corporation is definitely a strategy and we can talk about, you know, that strategy, why we like it. And it's a strategy that, yes, we see a lot of small business owners that we work with geared moving towards that idea of a NASA corporation. But I think the first and foremost thing is kind of understanding what you have. And we always say kind of part of that tax planning process or this idea to pay in least amount taxes legally possible is first just having a core understanding of taxes.
You don't have to be an accountant, but you just have to understand how does my business entity tax? How does this work? And then that second piece is building a foundation for your business. And I think this entity is a huge part in that foundation of your business. And so we always say, you know, when does an S corporation make sense?
First off, when would, why would we decide to be an S corporation? And one of the main reasons that we would utilize the S corporation as a tax strategy tool would be to help minimize the amount of self-employment taxes that we pay. And so, you know, let's set this up the stage of when it starts to make sense is that most businesses start out as a sole proprietorship. They're just no entity at all, or they start out as an LLC, which is what we see most commonly, a sole proprietorship or an LLC. And if you're just a sole proprietorship or a single member LLC with no S-corp election, you have to pay your normal income tax rate on 100% of your income, and then you also pay self-employment taxes on your business income as well.
And so with the sole proprietorship single member LLC, we're paying our regular ordinary income tax rate on our percent of our business income, and we're paying self-employment taxes on a hundred percent of our income. And so when we look at an S corporation, what we're trying to do is saying, okay, how can we help minimize the amount we pay in self-employment taxes? And an S corporation is simply just a tax election. It's not an entity structure. You start at the state level.
You're just electing for an entity that you already have set up to be taxed as an S corporation at the federal level. And so you need to have either an LLC set up in order to elect S Corp status, or you would need to have a corporation set up. And then again, you would elect for it to be taxed as an S Corp. But with an S Corporation, we take your profit or your income and we split it into two pieces. As an S Corp, you're required to take a reasonable salary as the owner of the company.
So you have to take W-2 payroll salary as the owner of the company. And that salary piece is good, you're gonna pay self-employment taxes on. But the beauty behind the S corporations that we split that income into two pieces, the salary and then anything over and above your salary, we take in an owner's draw or a distribution and you avoid self-employment taxes on that. And self-employment taxes is 15.3%. So depending on where your income level is, there can be some pretty significant savings there.
As an example, if you're making $100,000 a year in profit in your business as a single member LC or a sole proprietorship, you're going to pay your normal income tax rate plus $15,000 in self-employment taxes. Now, we take that same business and say, hey, let's do an S-corp election. Now, we're splitting your income into two. And let's just say, as an example, we say $50,000 is a reasonable salary for the work that you're doing for your business. Now we're paying self-employment taxes on $50,000, but we're avoiding it on the $50,000 over and above that.
And by simply doing an S-Corp election, we're saving $7,500 in taxes in that year. And so that's kind of really the power behind an S-Corporation. Now a lot of people say, well, why don't everybody do an S-Corporation all the time, every time? And the reason being is that if your income's at a lower dollar amount or some various other situations, sometimes it doesn't make sense. And the reason for that is that with an S corporation, you're required to take a reasonable salary.
So that means you need to take W-2 payroll. There's costs associated with that. You need some type of a payroll provider, and there's gonna be monthly or annual costs to do that payroll piece. So there's costs with payroll, and you also now need to file a separate business tax return, which is gonna be a little bit more complex of a tax return. It's still all gonna flow through to your personal return, but you have to do a separate filing specific for your business.
And there's obviously some costs associated with that. So we typically say once your business starts to hit about $50,000 or more in profit, generally stating that's when an S corporation starts to make sense underneath that it's not necessarily going to hurt you, but the taxes that you save are gonna get eaten up by some of those additional costs. ["Wacky
Brooke Boltz: Wacky"] -♪ You don't wanna be wacky, coo-coo! -♪ We will cut you some slack, we got you! -♪ You just wanna make a big stack. Falling. Listen to our Biz Hack.
Rachel Boltz: Are you tired of waiting through spammy messages on LinkedIn? Here is a biz hack trick. Click on your profile picture, navigate to data privacy, and let freedom ring. Turn off the option that says allow others to send you open profile messages and while you're at it, switch off allow LinkedIn partners to show you sponsored messages. This will force individuals to have to connect with you first before sending you messages.
Brooke Boltz: It's like putting a no spam sign on your digital doorstep. Because let's be honest, no one likes spam on their sandwiches or in boxes.
MIke Jesowshek: So to go back to like how your original question, do we recommend or isn't S Corporation right for everybody? Now, it's not right for everybody, but I think that, you know, having a solid foundation, having an LLC set up and obviously being on the legal side, you can talk about the benefits of that. I love this idea of having an LLC set up for that protection piece. And when it makes sense, when your business gets to the profit where it makes sense, or when you have that opportunity where, yeah, I want to do an S corporation, now you can easily do it. You can easily do that as corporation because you have that entity structure set up.
You have that foundation built from the beginning. And so that's kind of the key piece of, you know, build that foundation and then that foundation is there to build upon as your business gets to the point where it's growing beyond that.
Speaker 2: So when we talk about the third tax saving strategy for small businesses, you talk a lot about retirement planning. How is retirement planning something that has an impact on your tax strategy?
MIke Jesowshek: Yeah, you know, I always look at retirement planning. I think that's one small business owners oftentimes don't think about retirement. You know, they're so engulfed in their business, they're putting money away from taxes, they're living life and they just don't think about this idea of saving for retirement. And they think, well, my business is, I have my business and that is my retirement plan. And a lot of people get to retirement and realize that their business really isn't worth as much as they maybe thought it was for various different reasons.
That's the main part of the business and without them, the business doesn't mean much. And so what do they really have to sell? Other people, very completely different scenario, but I think it's important for business owners to think about that idea of retirement because it just doesn't come as natural as it maybe would for a W-2 employee. But when we look at retirement from a tax standpoint, I really kind of talk about that as like a deferral. You know, if you put money into a pre-tax account, you're gonna eventually pay taxes on that money when you get into retirement.
If you put money in a Roth account you get no tax break today but that money grows tax-free which is obviously a great opportunity as well. So you know there's there's still like and there's no tax completely avoidance when you're talking about retirement plans but it does provide some really good planning. And so as a business owner, I think it always comes down to you, how much do you want to put away towards retirement? That's going to tell us what type of plan you want to go with. If you're saying, I want to put five, $6,000 of you away towards retirement, we're going to say go do like a traditional IRA or Roth IRA.
Don't even worry about setting up a business retirement plan. But if you're a solo business owner, you're saying, no, I want to put away, you know, more money than that, then we might be looking at a SEP IRA or a solo 401k. And these are all plans that allow you to contribute a bigger amount than just your traditional IRA into retirement and once you start to have employees you know we'd look at a simple IRA or a safe harbor 401k. I think the the plan or the retirement plan is don't get into a plan that is too big for you or doesn't make sense for the business in your state. And so it's almost like thinking about it.
What is the reason that I want to open this retirement plan? Is it to fund my retirement or is it to help attract new talent to my team or retain current talent to my team. You know, find out what that plan is and it can be a combination of them. And then also find out, okay, how much do you want to put away into your retirement plan? Or how much do you think your employees will want to put away towards their retirement plan?
And how much of that do you want to help fund? And that's going to lead you to to what kind of retirement plan you set up. Again traditionally we say if you have no employees outside of maybe you and your spouse we're looking at a solo 401k or a SEPI array. If you have employees, we're looking at a simple IRA or a safe Harbor 401k as being the most common type of retirement plans that we're backing into for that.
Rachel Boltz: Retirement planning is huge. And I feel like a lot of people don't really even consider retirement planning until they start to get a little bit older and start thinking about their exit strategy. So I love that you bring up retirement planning and ways that you can utilize it. Now I also have a question about real estate investing. You had mentioned something about that briefly.
So how does real estate investing relate to tax saving strategies for small business?
MIke Jesowshek: Yeah, no, we could dive down a long haul talking about real estate and the all sorts of type of planning opportunities that are involved in it. But I like to kind of talk when I talk about real estate, there's kind of two things that we talk about and where your opportunities are. The first one is more of a traditional real estate, you know, like where you're just holding a long-term rental property where you buy a single family home and rent it out to somebody and they stay there for years upon years. And then there's this short-term rental strategy and there's sometimes called the short-term rental loophole in how we look at that. But When we look at real estate in general, real estate is traditionally considered a passive type activity.
You invest in something, it gains some income, you get those rent checks. Maybe you're doing a little maintenance here or there, but you're not actively involved in it if it's just some rental properties and you have a day job. And the big thing about real estate is that you get a deduction for the cost of that real estate in the form of depreciation. And oftentimes depreciation is heavy up front where you can create a cash flow, you can create income, the depreciation, which is a non-cash expense, but it's going to offset that income that you're making. So you might make $10,000 of income from a rental property over the course of a year, but now you have $10,000 in depreciation that offsets that.
So you're paying zero in taxes, you're showing zero in income on your tax return, but you just cash flowed actually $10,000. And that's kind of the beauty behind real estate is that you get this idea of depreciation, which again, is a non-cash expense that can help offset a lot of the income that you have coming in. So when we look at real estate, I think it's very powerful in not only an investment that's going to continue to grow, but an investment that's oftentimes not, you're going to get positive cash flow without having to pay taxes on it, which is a benefit of itself. But if you can start to qualify as a real estate professional or you have a spouse that can qualify as a real estate professional, then we can look at real estate and say, how can we start creating losses in real estate that we can use to offset my business income. So if your business is doing really well, how can you create a loss or bring a loss over from real estate in those non-cash losses that we can use to reduce the income from our business?
In order to do that, we need something called a, you need to be a real estate professional, you need to have a spouse that's a real estate professional, or something along those lines. And so that's where you can really see power. You know, when we look at people were attacking And when President Trump found out his tax returns come out, a lot of people said, Trump paid $700 in taxes a year, and he's a billionaire, and that's not fair. When we look at what Trump was doing, at least from what we can tell from the information that was released, is he's using real estate losses to offset the majority of his income. So he might be cash flowing really well and bringing in a lot of cash, but he has these losses from real estate qualifying as a real estate professional that we can use to offset a lot of that income.
That's something that everybody can do, but the key thing is qualifying as a real estate professional. Then you bring in this idea of short-term rentals, where short-term rentals kind of throws that all up on its side and saying, oh, if we have a short-term rental with an average day of seven days or less, now we can use a short-term rental loss to offset active income. We can use a short-term rental loss to offset our business income. With a normal rental activity, you have passive income. You can't use that to offset business income unless you qualify as a real estate professional.
But now with a short-term rental, because it's not considered a passive activity because it's seven days or less, now we can utilize it to offset our business income. And that's kind of you'll see a lot of different things we talk about on our podcast. But this idea of the short-term rental loophole, that's where this idea of where you can utilize that idea of taking rental property losses to offset your other income, it opens up the door for people that don't qualify as a real estate professional, which can sometimes be a little difficult. So there's a lot of planning opportunities in real estate, not just looking at how can we help reduce your taxes or lower your taxes, but also just the investment itself and in where that can grow and kind of be a form of retirement planning, right? Like if you're not into the stock, bonds, mutual funds, those types of things, you know, maybe real estate is kind of your form of that idea of retirement planning.
And we see that with a lot of business owners going down that road.
Speaker 2: So for the fifth tax saving strategy for small businesses, tell us about hiring your kids. What are your thoughts on hiring your kids as a tax saving strategy?
MIke Jesowshek: Yeah, this idea of hiring my kids is one of my favorite strategies because it's something that if you have kids, it's something that you're spending a lot of money on them. You're paying for basketball camps, you're paying for amusement parks to go with their friends, and all of that again, we're we talk about after tax versus pre-tax dollars. Anything you spend on your kid, you're always consistently thinking, oh, that's just after-tax dollars. You know, how could I ever say that a basketball camp is a business expense? You're right.
That doesn't make sense. But is there a way that we could hire our kids in our business and then the kids could help pay for that basketball camp themselves? And the idea behind this is saying if we hire our kids in our business we can get a business deduction and our kids potentially pay no income tax on the income that they receive if they're under the standard deduction which this year is is somewhere upper thirteen thousand dollars. So you could pay your kids you know up to just under fourteen thousand dollars in income this year from your business get a business deduction for that your pre-tax expense for you and your child would pay no income tax on that income that they receive. This is a great way to shift that income into a lower tax bracket, a zero tax bracket, while still getting a business deduction for it.
Now, it's not as easy to say, okay, you know, we're going to pay little Johnny $14,000 this year, get a business expense for it and move on and everything's going to be great. You know, there's, there's again, this idea of, is this legal? Yes, absolutely. Directly talked about in the IRS code about hiring your own children and the tax benefits behind it. But the second piece is, are we dotting our eyes and crossing our T's?
Just writing a checkout to little Johnny for $14,000 is not dotting our eyes and crossing our T's. And so it's important to know the basics. The child has to be doing actual work for your business, you know, do we have a job description? Do we have an employment agreement for it? We need to be tracking their hours, you know, what are they doing?
What are the tasks that they're doing? Are we paying them a rate that's reasonable? So You might have them cut grass around your office, but are you paying them $250 an hour when the local professional is going to charge you $80 an hour? Yeah, that doesn't make sense. You know, we'd probably want to figure out what's a reasonable rate for their experience.
So If the professional is charging $80 now, we're probably going to charge even less than that because we have a child that's maybe inexperienced. Those are the things we want to start to link about this idea. But now we can get a business deduction, child pays potentially no income taxes, And the benefit then is that they can then go, they want to use those money to go to a basketball camp, go to a amusement park with friends. Essentially, we just moved after tax spending into pre-tax spending in that case. There's also this idea of funding a Roth IRA that I absolutely love.
Because when we think about a Roth IRA, as we talked about this whole idea of retirement planning, the problem with a Roth IRA is you get no tax deduction when you fund it. But if you have income that you have to pay zero tax on, You don't need a tax deduction. And so why, if we fund that Roth IRA, we get no tax deduction, which we also didn't need one because we have no tax. But now that Roth IRA, when you're 12 years old, you've put $5,000 into a Roth IRA, think about the compounding growth that that Roth IRA can gain over the course of however many years until you hit retirement. That's going to be tax free, withdrawals are tax free.
So I love this idea of now that we have earned income, let's and if we don't need to use it for basketball camps or whatever it might be, could we think about funding a Roth IRA with this. The other cool thing about Roth IRAs is that you can pull back the principal without any penalties, fines, and interest. So if from the age of 12 to 16, you put $5,000 into a Roth IRA each year, and now your child gets to college and they're like, I need some money, I need whatever it might be, and you don't have other resources for them. Well, they could go back and pull the principal back out of that Roth IRA without any kind of penalties or interest. And so it's really kind of this idea of hiring your kids is something we want to make sure we do right, but it's something that I think every business owner should be taking advantage of.
As long as you have kids, at least, you know, I say between the ages of seven, 17 is kind of where the sweet spot is of this. If your kids are older than that, There's different planning strategy around that and ways that we go about that. But there's definitely some planning around this idea of, of hiring your kids. And you know, just to kind of end that thought on is a lot of people, when I first talked to that, they say, sounds great, but you know, you said this thing about dotting your I's and crossing your T's and how you need to make sure that they're doing actual work. They might say like, I'm an attorney, like what could my kid possibly do in my business?
And I always say that there has been yet to be a business owner that I couldn't find something that we could say their kid was doing for the business. We couldn't find something that their kid could do in their business. You know, and it might not be as obvious as it might be initially. You know, could they be shredding papers? Could they be stuffing envelopes?
Could they be cleaning around the office? Another one I love for people that are kids that are in that like 15, 16 age and where they're starting to get into social media is, you know, couldn't they do some social media posts for you? Can they be researching different articles and sharing them on your social media? That's all part of this idea of let's be creative. Let's think about things that they can do and let's make sure that we're implementing them in a way that makes sense for it while also making sure that we're doing things correctly.
So a lot of planning opportunities, I just think it's something that if you have kids in that range, it's something you need to be thinking about and just start research in that process. You know, when we talk about tax planning, it's this idea of let me learn, let's hear all these good things, let's hear about these tax strategies, but we can't just stop from learning. We have to actually take, put our feet on the ground and start to implement those and so that implementation piece could be researching a little bit Tweaking that strategy to get to where it needs to be for your situation specifically
Rachel Boltz: You know, we're all about that case about that case no trouble all about that case about that case no trouble All about that case about that case no trouble all about that case about that case
Brooke Boltz: We are all about your case. Text or call to schedule a free consultation for all your legal needs. Boltzlegal.com.
Rachel Boltz: I love that fifth tip. I am a huge advocate for putting my kids to work. It builds a strong work ethic, but then if you can use that as an investment for their future and their future goals, like that to me is the icing on the cake. So I really appreciate those tips that you shared with us today.
MIke Jesowshek: Yeah. And that's a great, that's a great point. You know, it's, it's, we're looking at a tax strategy and that's where my mind's always like tax saving tax savings, but you bring up a good point. Like not only are we potentially saving taxes or we are saving taxes, but we're teaching them this idea of working for a living, working for money. Maybe they might be, this might be a business that they want to look to take over, you know, down the road, 20, 30, 40 years from now.
What a great opportunity to get them in at a very young age. And they might say, I want nothing to do with it. Well, that just made your succession planning a little bit easier because now you know, okay, it's not going to the kids. What other options are there? And where's kind of the exit plan in here?
But yeah, I think that there's so many benefits over and above just the tax savings that you mentioned there.
Speaker 2: Rachel and I both put our kids to work at communities. They are great at handing out air fresheners or whatever it is that we're passing out.
Rachel Boltz: People don't want to say no to kids. You know, they'll say no to adults all day long, but they don't want to say no to kids. So we send them the kids out.
Speaker 2: A couple of summers ago, I had my daughters, they were like nine and 10 at the time, work at the office in the summer, and I thought, I'm going to put them upstairs. We have just kind of a little loft upstairs in the office where they would be away from people and not like disturbing the staff. But, turns out they can still disturb the staff. Cause I'd be sitting here like on a phone call or something, and I'd hear, get up! You know?
And they'd be fighting. And so if your kids get along, that's a little easier than a fight all the time like mine do. But they definitely, the task that they did, just in case people are looking for ideas, is they sent out emails asking my former clients for Google reviews. And so I made a template email for them and gave them the list and they sent those emails. And then I gave them Robux for every review they actually got because they don't really care too much about money.
I did pay them, but that's not what really motivates them as much, but Roblox money, they were into that.
MIke Jesowshek: I love that. That brings up a good point. I love that idea of what are some things that they can be doing. Now, I do have to ask, Was there any funky emails that they might have sent out where the template got tripled or they were fighting and all of a sudden the keyboard was typing a bunch of different things?
Speaker 2: Yes, so many times. They would send three emails to the same person or forget to change the name. So it would say, Dear John, I'm supposed to say, you know, plenty of errors, but people were, were very gracious with, with I would say that was my kids. I'm sorry. I'm trying to teach them how to, I'm trying to help them, you know, start learning how to work and seeing what work is like and so people were very gracious thankfully.
MIke Jesowshek: Yeah I love that concept and you know another thing I had an attorney that I was talking to about this strategy and again they're like well what can they do for my business? I said, throw them in social media, have them start doing that social media stuff. And he's like, why don't do social media? Like, I don't need to, I grow from referrals. Like I don't need, I don't need to grow my business at all.
I'm like, well, what would it hurt to have someone manage a social media account for you? Again, we're looking at this from a tax strategy standpoint. You know, we're getting a business deduction, kids are paying no income taxes. What would it really hurt by having them do social media for you? And hey, maybe you have some really good clients that always come from referrals, but now they're starting to see your stuff more often, now they're gonna come work for you, think about you more often in various different things.
And you might not need the business, but was it gonna hurt if we're looking at it from a tax standpoint as well?
Speaker 2: Absolutely. The social media, Rachel's given a statistic before that millennials and younger will look you up on social media before they'll go to your website. And having a social media presence is important, especially to the younger demographic.
MIke Jesowshek: Yeah, 100%.
Speaker 2: Well, thank you so much for your time today. This has brought massive value to our listeners, and I just cannot thank you enough for volunteering and sharing your time today with us to teach us these strategies. And if anyone has not heard of or listened to the podcast, tax, Wait, I'm going to say it wrong. Small business tax savings.
MIke Jesowshek: Yeah, that's it.
Speaker 2: Small business tax savings. I highly recommend it. It's in the top 1 percent of podcasts globally, according to ListenNotes, and on the first page of Apple Podcasts when you search tax and it is highly valuable. We'll give you all kinds of great ideas to save on taxes for your small business. So please check it out.
And with that, thank you for tuning in until next time.
Brooke Boltz: Take care.
MIke Jesowshek: Rachel Brooke, thanks for having me.
Rachel Boltz: Thank you so much. We appreciate you and are honored to be on this journey with you. We can't wait to help you, to encourage you, and show you how to grow personally, professionally, and spiritually.
Brooke Boltz: If you found Miss Biz helpful, please leave a review and share with others.
Rachel Boltz: You can follow us on social media at Miss Biz Podcast.
Brooke Boltz: For legal questions or services, please visit BoltsLegal.com.
Rachel Boltz: And for digital marketing needs, please visit BoltsMedia.com. Let's get biz done.
Sign in