Frequently Asked Questions

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Auto                                           Furniture and Fixtures                       Office/Storage Rent

Cameras/Small equip.             Health Insurance Premiums             Office Supplies

Cell Phone                                 Home Office                                       Payroll

Computers/Tablets                 Internet                                               Retirement Plans

Continuing Education              Lead Sources                                      Software

Contractors                              Licensing                                             Staging

Dues and Fees                          Marketing/Promo Items                   and many more

Entertainment                          Meals

The QBID applies for tax years 2018 – 2025. This allows you to take up to a 20% deduction from your qualified business income as a sole proprietorship or from pass-through entities such as an S corporation or partnership.  

The QBID is taken as a deduction on your personal return, not your business return.  Realtors are not considered a specified trade or business so there is not a phase out for the deduction.  However, there may be limitations on the deduction for joint filers with income above $340,100 and single filers with income above $170,050. 

Meals are deductible when:

• With a current business customer, client, consultant, or similar business contact
• With a potential business customer, client, consultant, or similar business contact
• In connection with entertaining a business contact when the meal is separately stated
• Meals purchased for employees working overtime
• Lunch ordered in for staff meetings

Meals and beverages from restaurants are 100% deductible in 2022

Entertainment expenses are no longer deductible for tax purposes

There are two methods for taking deductions for the business use of your vehicle.  The standard mileage method and the cost method.  Both methods require maintaining a mileage log.  

Mileage logs should contain:

• Date
• Miles driven
• Destination
• Purpose

Standard Mileage Method

• Simply take the total business miles driven and multiply by the standard rate for the year.  In 2022 the rate is 58.5 cents/mile.

Cost Method

• Using your mileage log, you divide the business miles by the total miles.  This establishes the percentage the vehicle was used for business.  You then apply that percentage to the following:
  • If owned:
    • Cost of the vehicle
    • Interest paid on a loan
  • If leased:
    • Lease payments
  • Insurance
  • Repairs and Maintenance
  • Fuel
  • Taxes and Licensing

When you primarily work out of your home and have a dedicated space used exclusively for business, you can take some of your housing expenses as a business deduction.  The amount of the deduction is based on square footage.  You need two numbers: 

• Square footage of the workspace 
• Square footage of the residence 

By dividing the workspace sqft by the residence sqft, you get the percentage that you use to deduct certain housing costs as a business deduction.  You apply that percentage to the following:

• If you own your residence: 
  • Cost of the home depreciated over time 
  • Mortgage interest 
  • Property taxes 
  • Homeowners insurance 
• If you rent: 
  • Rent 
  • Renters insurance 
• Either rent or own 
  • Utilities 
  • Repairs affecting the home in general 
  • HOA dues 
  • Yard maintenance if you regularly meet clients in the home  

Expenses exclusive to the home office space are not subject to the percentage limitation.  They are 100% deductible.  This would include furniture, fixtures, remodeling, etc.  

There is a simplified method.  It is calculated by taking the square footage of the workspace and multiplying that by $5 (maximum deduction of $1,500 for the year).

LLCs have the option to be taxed as an S corporation instead of being taxed as a sole proprietorship or a partnership.  This is done by filing a Form 2553 with the IRS.  There are some tax advantages and disadvantages to having an LLC being taxed as S corporation v. a sole proprietorship or partnership.    

Advantage: 

• Earnings from an S corporation are not subject to self-employment taxes.  This can result in significant tax savings

Disadvantages: 

• Must pay officers reasonable compensation in the form of a W-2 
• Loses some of the entity’s flexibility 
• May run into a situation where excess distributions are taxed as capital gains 
• Auto expenses and home office deductions are done through an accountable reimbursement plan 
• Additional costs such as payroll processing 
• Loses some of the Qualified Business Income Deduction  

Not every LLC should make an election to be taxed as an S corporation.  There are many details that need to be considered before making an S election.   

SEP (Simplified Employee Pensions) 

• Only employer contributions (this is you if you are self-employed) 
• Employer must contribute to all eligible employees 
• Maximum contribution per employee for 2022 is $61,000 
  • Limited to 20% of SE income or 25% of W-2 income 
  • No catch-up contributions 
• Low cost and can be set up with most brokers  

Solo 401k 

• Employer and employee contributions (you are both employer and employee) 
  • Employee can contribute up to $20,500 for 2022 with a catch-up contribution of $6,500 if over 50. 
  • Employer can contribute up to 25% of W-2 compensation or net self-employment income. 
• Maximum contribution is $61,000 ($67,500 with catch up) 
• Cannot have any other full-time employees 
  • Part time employees are okay if they work less than 1,000 hours 
  • The only exception is a spouse 

You can hire your minor children and get some great tax benefits.  When a 100% parent-owned business, taxed as a sole proprietorship or partnership, hires their minor children: 

• The children do not pay any social security or Medicare taxes on their wages 
• The business does not pay any social security or Medicare taxes on the wages 
• The children get to use the standard deduction when filing their tax returns 
• The parent-owned business gets a full deduction for the wages paid  

How to make this work: 

• Children need to be able to perform the work 
• Pay a reasonable wage 
• Keep records 
• Pay through W-2 not 1099  

Hiring your minor children moves income from your marginal (highest) tax rate to your child’s rate.  If your child makes less than the standard deduction, this is a truly zero tax rate.  

If you are taxed as an S Corporation, you can still hire your minor children.  The downside is that their wages are subject to social security and Medicare taxes and the S Corporation has to match those taxes.