Transcription
There are a lot of tax tips floating around online right now. And honestly, some of them are bad, some of them are oversimplified, and some of them could cost you a lot more than you think.
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Now, today, I'm going to be diving into the real stuff. I'm going to be talking about my own taxes, which I recently filed. And I'm going to tell you about the things that I did as a CPA that are totally legal and helped reduce my tax bill about 50% from what it would have been otherwise.
This video is going to be especially relevant to small business owners and self-employed individuals because you get a lot more opportunity when you have a business to be able to reduce your taxes. Hi everyone, I'm Jamie Trull, CPA and financial educator, and here on this channel, I love to bring you all the things you need to stay informed, organized, and profitable in your business finances, including taxes. So, make sure to like and subscribe.
Now, before we get into some of these tax savings tips, I want to clarify who might be a good fit for this. A lot of business owners think that they're paying way too much in taxes. But if you actually look at what your effective tax rate is, that's what's really going to tell you if there are some money-saving opportunities. Thankfully, I did an entire video recently about that as to how to actually know whether you truly are overpaying in taxes. In that video, I walk you through how to determine what your effective tax rate is, and also how to determine if that is normal or if there's a lot of room for you to find some tax savings opportunities.
Now, before I start spilling all of my secrets on the internet about how I actually cut my taxes, I want to talk about some of the things that I didn't do and you shouldn't do either. First and foremost, I do not reduce my profit on purpose to save on taxes. That is like cutting off your hand to spite your face. Your profit is what pays you. And if you're reducing your profit just to reduce your taxes, guess what? It's also reducing how much you can pay yourself. And just like you would never take a job that paid less money so that you pay less in taxes, you shouldn't spend money in your business that isn't going to provide a return on investment just to reduce your profit and save on taxes.
Now, along those same lines, my least favorite advice online and something I did not do is to go buy a G Wagon and write it all off. I see that advice all over TikTok and it drives me insane. Remember, a write-off is not free money. It is not a free car. And you can only write off the business use of that car. So, if you're only using it, say, 20% of the time for your business and the rest you're running errands, that's the only deduction you're going to get. And remember, you can always deduct expenses related to the vehicle you're using for business. So, rather than go out and buy a car that you don't actually need, the key is to make sure that you have a system for tracking actual expenses that you incur with your vehicle for business purposes or that you track your mileage. Those are deductions you can and should get. And they don't require you to spend thousands of dollars in order to be able to get it.
My simple rule when it comes to expenditures in your business is don't let the tail wag the dog. In this case, your taxes are the tail. It's important to consider them when you're making decisions, but they should not be the reason that you're doing anything in particular. You want to make sure that the money that you're spending in your business is really going to have a return that helps grow your business. And then, when you've made the decision to make those purchases, you find the most tax advantaged way to do it.
All right, so now let's talk about what I actually did to slash my tax bill. And importantly, this is something that I planned for all year long. I don't make decisions at the last minute based on taxes. Now, some of these savings may apply to you, some may be more specific to me, but I'm going to go ahead and share it all.
Now, the first thing that I did that is probably not a surprise at all if you watch this channel, is I made sure to elect as an S corp. I'm not going to go into this in detail, and no, S corp isn't going to be right for everyone, but I have tons of videos on why an S corp can save you money and who it might be able to help. Overall, being an S corp means that there is a whole chunk of my earnings that I don't have to pay any payroll taxes on. And that saves me about 15.3% on that bucket of earnings. So, if you're wondering if that could be right for you, definitely check out some of my other content on S corporations.
The next thing that I do, and this one's pretty basic, is just make sure that I'm optimizing my retirement contributions. Now, that's going to mean different things for different people in different situations. But especially when I'm in high tax years, when I know I'm probably going to be in a higher tax bracket based on how much I made, those are the years that I will put more into a traditional 401k or essentially a type of retirement plan that is tax deferred. Now, that means I'm putting in pre-tax money, and therefore, it's reducing my taxable income. So, it's essentially like having a deduction where I don't have to pay taxes on it, but I get to keep the money. Sure, I can't touch it for a little while without some penalties, but again, that's better than just spending money for a deduction. I love retirement contributions because it's a really easy way to both prepare for my future, but also get a benefit now. And as a business owner, you can set up something like a solo 401k or a SEP, and that is a great retirement vehicle for you. You don't need to have a company 401k.
And the third thing that I actually do in part to help me reduce my taxes is I pay my kids. They are on payroll, they do work for my business. It's limited work, but they do actually do it. They have jobs within my business even at the ages of 9 and 12. Now, importantly here, there are a lot of things to know when hiring your kids to make sure that you're doing it legally and also that you're not overpaying in taxes because if you do this right, they will be fully exempt from all taxes. Again, I'm not going to go into that all right here because it would make the video way too long, but I have other videos that you can see right here that you can go check out after this if you want to learn more about hiring your kid.
Now, you might be saying, "Well, yeah, Jamie, but if I pay my kids, then they get the money versus me." That's true. However, you can actually use that money to pay for things you were otherwise paying for. So, for example, the money for my son's music lessons and summer camps actually comes from his account, which is essentially a way to make them deductible. Now, my kids don't go to private school, but I know other people that do something similar, and then they use the funds to pay for private school. Of course, I also recommend making sure your kids get a little bit of money to be able to learn how to save and spend themselves and gain that financial independence. Plus, I also teach that you can actually open up a Roth IRA for your child if they are working for your business, which means you can turn their paycheck into their legacy, all completely tax-free. I'll make sure to put the relevant video links down below as well.
Now, those three things that I just talked about apply to a lot of small business owners and self-employed individuals. But now, I'm going to tell you about some of the more specific things that I do that relate to my family and my business, and perhaps some of this applies to you as well.
So, one of these more advanced things that I do is I itemize every other year. Now, most people don't itemize because the standard deduction has gone up so much. Actually, this year, I think it's north of $30,000 if you're married filing jointly. So, for most people, taking the standard deduction is going to be better because if they itemize, they would get less of a deduction. However, it is possible to stack your deductions such that if you itemize every other year, you end up getting the best benefit. So, who does this specifically apply to? Well, I would say anyone who makes significant charitable donations, this is something that you can do. This is really popular in the charitable donation world.
Now, my specific business, as part of its mission, has committed to donating 10% of our profits to causes that we care about. And generally, what we're doing with that money is donating it to nonprofits that are doing a great job in their communities supporting women, children, and marginalized communities in lots of different ways. Now, because I am an LLC who has elected S corp tax treatment, I am a pass-through entity. Only C corporations can actually deduct those charitable contributions at the corporate level. And that puts pass-through entities at a major disadvantage. That includes sole proprietors, LLCs, and S corporations and partnerships. And the reason it's a disadvantage is because the only way to get credit on your taxes for those donations that you've made and get deductions for them is if you itemize.
Now, importantly, one exception to this just came in 2025 with the passage of the one big beautiful bill. So, that now if you make charitable contributions, you can actually take a deduction for them up to the first $1,000 if you're single or $2,000 if you're married, even if you don't itemize. But if your business, like my business, has a mission to give larger percentages of profit, then that $1,000 or $2,000 might not actually go very far. So, in order to maximize the benefit and also to free up more cash that you can use to donate more, I highly recommend stacking your deductions. So, for example, what that means for me is that in 2025, I made charitable contributions for both the year 2025 and also for my estimate for the year 2026. Again, that could just be the difference between paying something in January or paying it in December. And that means that because I put two years' worth of donations together, it is more likely to exceed that itemized deduction limitation and therefore, the better benefit I get. Remember, with itemized, it really doesn't benefit you to be just over the standard deduction. You're really only getting an extra benefit for that slight amount above what you would have gotten from a standard deduction. But, if you can go significantly above the standard deduction limit, that's when you really start to see tax savings.
Now, if you really want to go pro move when it comes to charitable contributions, look into setting up a donor advised fund. That is what I use in order to be able to gift appreciated stock that we have to charity. And the amazing part about doing it that way is that I actually can gift stock that has grown significantly in value, and otherwise I would have had to pay capital gains taxes on if I sold it. But instead, I can gift the full amount to charity and get a deduction for the entire amount. Now, I have lots to say in terms of the topic on charitable contributions. So, if you want me to do a video that goes deeper into some of this, please let me know below. This is an area that I'm super duper passionate about. And it is a way that you can actually get some advantage from a tax perspective while also making a big positive difference in the world. What could be better than that?
Now, moving on to some of the other things that I do. So, in addition to stacking my charitable contributions, the other thing that I'll do when it comes to maximizing my itemized deductions on those years I plan to itemize, is I actually will go in and calculate my state and local taxes paid. Reminder that you can deduct the state and local taxes. A lot of people don't realize that. Again, it's only if you itemize, but this is especially important if you are in a high tax state, then you might be in a situation where this could be heavily advantageous for you to actually itemize. And even if you're not, I'm in Tennessee, we don't have an income tax here. However, I do pay sales tax, and there is a way to estimate out your sales tax. You don't have to have all of your receipts and to be able to deduct those sales taxes paid. This is even more important if you made a big purchase. Like, let's say you bought a car, right? You probably paid a good amount of sales tax, and that is fully deductible if you are itemizing. Now, that doesn't mean you go out and buy a car, but if you're trying to decide what year to buy a car, maybe pick the year that you're going to be itemizing. And that's exactly what I did last year. I knew I needed to buy a car either last year or this year, but because I was planning to stack my charitable deductions and itemize last year, I decided to go ahead and buy it at the end of last year. Of course, making sure I negotiated a really great price as well.
Now, doing all of this strategically, I was able to triple the amount of deduction I would have gotten by taking the standard deduction by itemizing. Which, as you can imagine, had a massive impact on reducing my taxable income and therefore the taxes that were due.
Now, the last thing that I did to cut my tax bill was to make sure that I was getting all the credits that I deserved. And by that, I of course mean tax credits. Now, there are a bajillion tax credits out there, and if you're using a tax software, often times they're guessing at what's going to be relevant for you, and it may not even ask you the necessary questions to determine if a tax credit actually would fit you. So, that's why it's really important to know these things exist. And real quick, cuz this is important, a tax credit is a million times better than a deduction. A deduction reduces your taxable income, which is great. So, let's say a $100 deduction times a 25% tax rate means you're getting about a $25 tax savings for that deduction. However, a tax credit is a dollar-for-dollar reduction in the amount of taxes you owe. So, if you calculate all your taxes and you owe $10,000, but you have a $5,000 credit, guess what? Now you only owe $5,000. And that is why I do not leave tax credits on the table, my friend.
For example, I took two tax credits related to my business this year. This year, I got specific tax credits related to starting a a 401k program for my team. I actually did that last year, but it gives you tax credits for multiple years. And that means that I get a tax credit for a lot of the administration cost, and even some of the matching that I'm putting in on behalf of my employees. And I also claimed a tax credit related to money that I paid to an employee who was off for maternity leave. While it doesn't cover the whole amount that I paid, it does still reimburse me for a portion of that. And that is something a lot of business owners miss. So again, make sure you're either working with an accountant or you're just spending some time looking up potential tax credits that you might qualify for.
So, if this video made you rethink your approach to taxes, I want you to watch this video next. This video will help you calculate your effective tax rate and help you determine if there is room for you to find additional savings. And if you're intrigued by the idea we talked about earlier on hiring your kids, make sure to hit this button, which will take you to our free masterclass that talks all about the best way to do it and how to save the most. Thanks for joining me, and I'll see you next time.