Benefits of Correctly Using Business Write Offs

Share on facebook
Share on twitter
Share on pinterest

Disclaimer: I am NOT a CPA and this is big picture stuff. Taxes are a lot more complicated than these examples, but it is to show the benefits of a business write off instead of using your personal account.

Business Write Off

Throughout my journey as a financial coach / small business consultant, one of the huge mistakes I see people making is not properly doing a business write off. I hear a lot of “It is my money, so it doesn’t matter which account I use personal or business.”

The issue with this is that it actually makes a huge difference in how much money you get to keep. At the end of the day, we want to have more money in our pocket, here’s a great way to do it.

Example 1

One of the examples can be a business owner that pays $30/month for their CRM. At the time payments started, they do not have a business checking account or credit card and just use their personal account.

A common misconception is that since the money is the owner’s it doesn’t matter which account it is taken out of. For accounting purposes, if the accounts are not separated and you do not keep specific track of where the money is spent, you are missing a big business write off that you are entitled to.

That $30/mo comes out to $360 per year. Suppose a 25% tax rate on this particular owner. You will save 25% ($90) as business income is taxed AFTER you subtract deductions.

Visualization

If you are like me, and need visualization:

Income $50,000.00 Tax Rate 25% COGS $10,000.00
Personal Breakdown Business Expenses
Income $50,000.00 Income 50,000.00
Tax $12,500.00 Purchase $10,000.00
Net $37,500.00 Net $40,000.00
Purchase $10,000.00 Tax $10,000.00
Money Left $27,500.00 Money Left $30,000.00
Net Benefit of Write Off 2,500.00

In both examples, the owner earned $50,000. However, in the personal breakdown, there is only spending power (net) of $37,500. However, in the business example, that $50,000 earned has the buying power of $50,000 on qualified business expenses.

Save Money

As you can see, the business write off deduction vs the personal account, even though they use the “same money” it is treated very differently when it is correctly deducted. Basically, you get a 25% discount on everything you buy (that qualifies) in your business account!

Example 2

If your industry has very low margins based on your costs of goods sold (COGS) you can actually end up losing money by incorrectly itemizing your deductions!

Let’s say you are a contractor, get a job for $50,000 and with all materials and labor, it costs you $45,000 to complete. To most people, that means $5,000 in your pocket. This is completely false! You actually end up LOSING $7,500 if it is incorrectly documented, which is why having a good coach to show you the ropes is so important!

Income $50,000.00 Tax Rate 25% COGS $10,000.00
Personal Breakdown Business Expenses
Income $50,000.00 Income 50,000.00
Tax $12,500.00 Purchase $10,000.00
Net $37,500.00 Net $40,000.00
Purchase $10,000.00 Tax $10,000.00
Money Left $27,500.00 Money Left $30,000.00
Net Benefit of Write Off 2,500.00

Free 30 Minute Business Coaching

If you find these concepts of small business write offs are a bit over your head, or just want some piece of mind to know you are doing the right thing when it comes to write offs and business expenses, feel free to schedule a free 30 minute phone consultation below!

Share this post with your friends

Share on facebook
Share on google
Share on twitter
Share on linkedin

Copyright © 2019 Lassise Financial Coaching |

Copyright © 2019 Lassise Financial Coaching | Powered by Rush Tech Designs