As that dreaded day of April 15 approaches, receipts are gathered, deductions are added and ulcers get their beginnings. It is a day described by many as a fair spring day ruined. Soon, though, the tax man will come knocking again. Filing taxes is certainly a dreaded event for millions of Americans.
But it doesn’t have to be that way. With a little work, ingenuity, planning and creativity, the burden can be lightened. Then the tax day experience could resemble something like a crash-up derby, where there is plenty of carnage to witness, but it can be viewed at a safe distance from the sidelines.
Everyone is familiar with the saying, “it’s a write off,” but what exactly does that term mean, and what can be written off? A write off is defined as, “a reduction in book value; depreciation.” In other words, it is simply an amount that is taken off the bottom line of profit from a person or business. There are plenty of those expenses in every line of work, but there is still a fine line as to what constitutes a true deduction.
“People want to write off everything,” says Scott Symes, a CPA of 35 years and partner of Laser, Symes and Lisonbee, a Salt Lake City accounting firm. “What they don’t understand is that not everything is deductible. The I.R.S. (Internal Revenue Service) has been around for a long time. They know what is going on and are wise to the methods.”
Symes adds that everybody would use every trip, golf outing, dinner or you-name-it as a business expense, whether it was legit or not, if they could. But the I.R.S. says you can only expense half of what you spend on those types of outings, taking the luxury write-off down a notch. “People are not quite as frivolous as they once were with taking out a client,” he says.
With stricter laws, and a government agency looking over one’s shoulder, what options are there to make tax planning a more pleasurable experience?
Michael Gourley is a financial planner who works from his home in Midvale. He says that depending on just how creative someone is willing to be, there are still plenty of tools to save a few dollars.
“Operating out of my house I can write off a few things that many people don’t consider,” he said. “I can write off my landscaping, for example. If I buy a new bush or tree, or people come mow my lawn, I can use that because it is part of the presentation for clients coming in.”
Another little-known advantage Gourley uses is a donor advised fund, which is a charitable giving vehicle wherein an individual, family or corporation makes an irrevocable, tax-deductible contribution of personal assets to a charity and at any time thereafter can recommend grant distributions to qualified charitable organizations.
“They are not that well used by everyone,” says Gourley. “What it means is you can take [funds] and basically invest [them] in a charity fund. I had a client that took $50,000 and gave it to his church to invest. His money turned into $100,000 and he used that earned money to pay for a few missions. He doesn’t get the money back, but he could use it to his best interest and still use it as a deduction.”
Another money-saving tool that Symes recommends is a little vehicle called election to expense. It is used to purchase equipment for a small business or a large company and is exactly what it sounds like.
“The purchase of equipment is a big break because you don’t have to count the depreciation,” says Symes. “A company has to buy equipment anyway, so they will do it at the end of the year and get all that amount written off.”
Symes also says it doesn’t matter whether the equipment is payed for with cash or financed, but businesses can only write off a certain amount of it. “I will play with the numbers over and over until I get a company or individual just into a lower tax bracket and then they can deduct more over the next five or six years with depreciation,” he says. “You also don’t have to decide how much you want to write off at the time of purchase. You can wait until you are doing your taxes, and you can kind of manipulate your income using the election to expense.”
Being able to find tax breaks, loop holes and saving methods is difficult, so for someone like Salt Lake City dentist Chester Smyth, who has his own pediatric dental practice, there is an easier method to trim his tax payments.
“I really try to play it by the book when it comes to tax matters. It just isn’t worth trying to cut any corners,” says Smyth. “With my limited knowledge of how everything works that way, the best way I can save money is to spend some. I think it is best to find someone that does it for a living, that you are comfortable working with, and turn it over to them. It may cost a little up front, but in the long run, you are going to be a lot better off and won’t have to stress over it.”
The days of jetting off to Hawaii for a week, stopping in to visit a business associate for a minute and then deducting the whole trip from your taxes are long gone. Uncle Sam wants his slice of the pie. But with the right know-how and tools, that doesn’t mean you still couldn’t take a little nibble off his plate.