How to reduce your taxes if you are in sales? How sales people can reduce their taxes!

How to reduce your taxes if you are in sales? How sales people can reduce their taxes!

By Jeffrey Brooks, CPA, CFP, MBA for JBrooks Wealth Advisors, PC, a Professional CPA and CFP Firm  jeff@jbrookswa.com  602-292-2009  Please consult with your professional tax CPA regarding your specific circumstances!

 

 

By chance, Don (not his real name) contacted me in Dallas where I was visiting one of my dentist clients who owns the most beautiful ranch north of Dallas.  I then attended a two day financial services workshop in Dallas because I am a licensed Certified Financial Planner ™.

Don came down to Dallas to meet with me and discuss how I could help him reduce what he felt was an outrageous amount of unnecessary income taxes.

 

The hotel restaurant prices were very high so I asked the concierge where there was a more reasonably priced restaurant. The directions given by the concierge were probably accurate but we got lost. Fortunately, I was walking with my IPAD which helped us find the restaurant.  Don and I discussed how his previous CPA was not a tax planning CPA but was a tax person who just filled in the information on the tax return.  That evening I sent Don the following recommendations.

 

Don, thank you for dinner.  I have 56 tax strategies that I used consistently.  I have included just a couple of these ideas along with ideas on how to increase your net worth.

 

  1. You do not have an office. You work from your home.  I recommend writing off a percentage of the house as reimbursed expenses of the S corporation. By paying the corporation the money back as a loan or Additional capital, you will get a second deduction and you will also help your basis in your stock.
  2.  Remember my example of the tree farm in Florida in the 1980s that allowed taxpayers to get a bigger deduction than their basis even though they had a negative basis in the tree partnership?  Now once your basis becomes zero you are prohibited from deducting in the current year your losses and if you have distributions that put you into a negative basis you end up generating additional capital gain income and tax. We discuss that nondeductible expenses like 50% of meals entertainment also reduce your basis.
  3. For example, if you put $1000 into your S Corporation and had a profit in your first year of $10,000, you would only be able to take distributions of $11,000 until your capital basis was zero. If you took out $12,000, you would have $1000 of capital gain tax generated because your basis cannot go below zero.
  4. For example, if you put $1000 into your S Corporation and had a loss of $2,000 in the first year, you could only deduct $1,000 of the $2,000 loss because your basis can only go to zero. You are not allowed to take a loss unless you had contributed additional capital or loan of $1,000.
  5. Don, you planned on buying a second home in Michigan. My Recommendation is to not purchase second-home because your liquidity is so low, you’re not a good repair person, and there are the travel costs and the maintenance costs of keeping the Michigan home and the home here in Texas. What happens if a pipe burst and you have our situation in Prescott that we ended up having a huge amount of cleanup and costs?  You adjusted gross income is too high to deduct the loss on the rental in Michigan.
  6. You employer in California should pay you 10 to 15% more to let you be an independent contractor. That income will help you maximize your retirement plan contribution for the current year and future years.
  7. The best economic decision is to buy a used vehicle that weighs over 6000 pounds and call that your business vehicle.  The vehicle would have to be recorded in your corporate name.
  8.  It is dangerous to NOT have a mortgage on a home because of legal liability.
  9.  By not having a mortgage on your home, you are losing the potential benefit of investing at a higher rate of return on a tax deferred or tax exempt investment then your after-tax cost of interest on the mortgage.
  10.  We discussed different retirement plan options that could result in the max amount of retirement plan contribution for the least amount of salary.

 

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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JBrooks Wealth Advisors, PC.

Certified Public Accountant
Address: 4647 N 32nd Street, Suite B245
Phoenix, Arizona 85018
Phone: 602-292-2009
Email: jeff@jbrookswa.com