(Please Note: This is not tax advice. Instead, these are the methods we use to minimize our tax burden that our CPA has advised for us. If you need a certified tax professional for your business, please contact Ingrid as we have a stellar tax pro we can refer you to. Please speak with a tax professional for legal tax advice.)
Taxes are a very complicated subject in the US but I am going to attempt to break it down into very simple terms so that you can better understand how the government taxes us and the best ways to legally minimize our tax burdens. Because more money for you and me, means more tacos for us and our families, period.
1. Business Write Offs: Charge it! (Corporate 21% tax)
One of the best and easiest ways we use to legally minimize our tax burdens are tax write offs. Some great examples of tax write offs are any business expenses (examples: your internet expense, your business / cell phone expenses, Influence expenses, domain name and hosting expenses, ‘business’ travel expenses, One Click Credits, and anything else you may purchase on behalf or because of your business).
Tax write offs are necessary and legal because they are costs associated with doing business – or costs that otherwise could not be foregone to run our businesses. Example: Your client is paying you $1,000 to run ads for them and you spend $800 in Ads. Should you be taxed on money you don’t even earn and money that you don’t ever realize as profits (the $800 spent on ads)? No. Hence why write offs are legal and effective. And dare I say, we have some wiggle room here. (For reference, the $200 you didn’t spend in ads, yet that you earned as profit or income is taxable. But don’t forget, you have phone bills, internet bills and other things to write that $200 you earned off with).
The great thing about owning a business, OR even just receiving money directly from clients (and not through a W-2 form as employees do), is that you receive your money pre-tax, meaning you get 100% of your money upfront. This is true for most 1099 contractors, S-Corps, C-Corps, and Sole Proprietorships.
When you receive your money pre-tax, you can take expenses ‘off the top’ and those expenses work as tax write offs for your business. And any money that is an expense or tax write off is not subject to taxation (please keep in mind in the USA there is a corporate tax of approx. 21%, so that can be a very substantial amount of money that you don’t have to pay taxes on, legally, very quickly).
Picture it another way: when you receive your income through a W-2 form, as employees do, (most wage earners or employees receive their income via a W-2 form), you are subject to a 7.5% FICA tax, state income tax, federal income tax, social security, and so on which quickly eat away at your hard earned money. The average W-2 employee will only ever see ~70% of their income from each paycheck: taxes are taken before they even see the money, so they receive their money post-tax.
Because the money earned in our business hasn’t been taxed yet, we essentially have 100% of our money before tax season whereas a W-2 employee will have about 70% of their money because the government taxes them before they even get their bi-weekly paycheck. Yes, you heard that right: 30% has already been taken out before they’ve even seen a penny. And tax write offs for employees? As far as I know, it doesn’t exist. Enter the beauty of owning your own business.
Even though as business owners we get 100% of our money upfront, we will be responsible for paying taxes to the government on the profit leftover in our business, or, the income less expenses: ($1,000 from client less $800 spent on ads, for the $200 profit leftover in our business). But again, you can minimize that big tax burden with expenses, or your daily operation costs. And there are lots of business expenses, aren’t there?
Ever seen your boss get a nice new vehicle, new office supplies, or take a big company trip before the New Year? That’s because they were minimizing their tax burden by creating tax write offs – they were investing (or expensing) with their company’s money (pre-tax: 100% of the money) vs. their own W-2 Employee income (post-tax: 70% of their money).
This is why business write offs are one of the best ways to ‘save’ money, or at least reduce tax burden. This is also why so many companies (like Uber and even Amazon) break even for so many years. If you break even on the books (showing zero profit gained or zero money leftover in your business at the end of the year) there’s no money leftover in the business for the government to tax you on. And mind you, paying yourself as an employee from your company, is an expense for your business as well. So you can still pay yourself a great salary (yes you will get taxed as a W-2 on what you pay yourself as an employee of your company) but your company gets to show the money you pay yourself with as an expense (confused yet?).
Yes, if your company is structured as an S-Corp or similar, you will have to pay yourself as a W-2 employee, but guess what, we’ve got a solution for that as well. Enter the next subject of topic today: Distributions.
But before we get into distributions, I want to take a moment to introduce you to One Click Credits.
For those of you who did make a profit this year (those of you who have money left over in your business at the end of the year). For those of you who still have that $200 from the $1,000 your client paid you to run ads for them after you spent the $800 in ads, we have a solution for you to play like the big boys (Uber and Amazon).
If you know you’re going to be using our services at One Click Influence in the future, you can invest the profits from your company into One Click Credits – good for any purchase in the store at any time in the future on a $1 per $1 basis. Think of it like buying a gift card for your business, these are credits you can use at any time – however, you are taking the expense on your business now to reduce your tax burden legally for 2018 (just like we illustrated in the examples above) in the same way big companies do.
The best part about One Click Credits? We’ll give you a 15% bonus in all credits purchased before January 1st, 2019. So you’ll get 15% more on your money, good for any purchase in the One Click store in 2019 onwards (example: every $1,000 invested is good for $1,150 in store credit). Now back to distributions and how to save you even more money on your 2018 returns.
2. Distributions: Don’t Pay it All to Payroll Tax (15%)
This is one I actually just found out about recently thanks to my pro CPA I was lucky enough to find earlier this year. Distributions are a great way we are going to use to save a bunch of money on our 2018 tax returns. While this will only work for you if you have an actual company, (sorry sole proprietors and 1099ers), it is absolutely amazing.
Here’s the gist: when we pay ourselves from our companies, we have to do so via W-2 form which puts us in the same position as an employee with lots of money already taken out, receiving our money post-tax. We spoke about that earlier in the examples above.
I’m going to make this super quick for y’all, but basically, just remember, when paying ourselves via W-2, we’re subject to a 15% payroll tax. Ouch.
The great thing about Distributions? Well, you can distribute the profits earned by your company (the leftover money in your bank account) to yourself and completely bypass payroll tax. Yep. It’s really that simple, and any experienced tax professional should be able to further enlighten you to that fact. Those profits will still be subject to corporate tax, and you will still have to pay yourself some income via W-2 payroll, but you will be saving yourself another 15% by not having to put down all cash through payroll tax by paying yourself via W-2.
That’s really all I can say on the subject. If you’re looking for more info on the subject, please contact a tax professional.
I hope this tax guide was extremely informational and informative to you and will help you and your family build a good ‘taco fund’ this tax season. If you’re interested in learning more about how you can earn back another 15% with One Click Credits, please message Ingrid on Facebook! Thank you for tuning in!
3. BONUS: Credit Card Points
Guys, I’m sorry, I just couldn’t help myself. I had to give you a BONUS. So here it is. If you didn’t already know, credit card points are amazing. For the last 2 years I have literally flown dozens of times across the USA completely for FREE.
How did I fly dozens of times across the USA for free while still having more than $1,500 in points available right now? The quick answer: Credit Card Points.
If you don’t already know, many major credit card issuers like Visa (through Chase bank) and American Express offer huge incentives for signing up for business credit cards.
When I signed up for my Chase Ink Business Preferred Credit Card and spent around $5,000 in business expenses in the first 3 months, they gave me something like $1,000 in free travel credit card points. And I’ve spent enough each month since then to be able to fly for free everywhere (literally everywhere) for the past two years. That’s a lot of doe saved there.
No affiliate links here, you know the scoop. The best two cards I can think of for this are definitely Chase Ink Business Preferred and American Express Gold. The American Express Gold annual fee can be pretty hefty but a great credit card hack here is to sign up for free the first year, spend the minimum to snag the points in the first 3 months, and then downgrade to a lower American Express credit card to retain those massive point bonuses you received.
That’s all folks.
Please don’t forget the amazing products and services we offer at One Click Influence including the new One Click Credits (which you should really load up on). It’s an honor to bring you the highest quality products, services, and freebies that we can shelf. Thank you for your continued interest in what we offer and I look forward to bringing you even more high quality services in the coming year. Have a great holiday. – The One Click Team
This is not tax advice. Please consult a tax professional.