Tax Strategies That Look Forward, Not Backward. Keep More, Pay Less.

Episode Notes

Transcript

Announcer:

Managing your law practice can be challenging, marketing, time management, attracting clients, and all the things besides the cases that you need to do that aren’t billable. Welcome to this edition of the Unbillable Hour, the Law Practice Advisory podcast. This is where you’ll get the information you need from expert guests and host Christopher Anderson here on Legal Talk Network.

Christopher T. Anderson:

Welcome to The Un-Billable Hour. I am your host Christopher Anderson, and today’s episode is about metrics and about you, but you really in today’s show as the business owner, right? So yeah, we often talk about you as mindset. We talk and there’s going to be some mindset today, but this is as the business owner, something that’s really core to being a good steward of your business. But we will remember that in the mean triangle of what it takes for a law firm business to be successful, you’ve got to acquire new clients, you’ve got to produce results that you promised, and you’ve got to achieve the business and professional results that the owner wants. And that’s what we’re talking about today because in the center of it all driving it, putting their life blood, sweat, and tears into the business is you and you deserve to get the results from the business that you want.

So we’re going to talk again today about metrics and you more to the point we’re going to dive into the sexy world of tax planning. Yes, except you know what it is when you do this right? And when you meet folks like Jackie and Adam who we’re going to talk to here in a second, you’ll find out it is sexy. It’s one of the most sexy things because it’s like all this hard work and keeping what is yours, yours, and paying what isn’t yours properly. It is about doing things right. So my guests today are Jackie Williams and Adam Williams. When they’re co-owners of Pennywise Tax Strategies, they have built Pennywise tax strategies to help small businesses keep more of their hard earned profit using tax strategies. Jackie is a CPA and a certified tax coach. She’s got a background in big four auditing and accounting policy at a Fortune 500 firm, and she built Pennywise to help her clients and their clients proactively strategize and document their tax positions consistent with the tax code.

Adam got involved in starting this business at a frustration from accountants who, and man, Adam, I totally, totally identify with this, who congratulate you for having a large tax bill or even worse, are shocked and amazed that you grew this year and that you had more taxes to pay that they didn’t expect because they didn’t ask the right questions. He’s a serial entrepreneur and he’s inspired by entrepreneurship in small business, direct response marketing, non-traditional, unexpected solutions, mindset and personal development. And he helps create businesses that serve the, and I’ve gotten to know Adam for quite some time as well, and he really helps a lot of businesses do better for their owners. So really, really proud and excited to have both you, Jackie and you Adam on the show today. I will also just note before I go that in each of your bios, you mentioned that you love driving, but you mentioned it in very different ways. So let’s start the show there. Jackie, what about driving gets you going?

Jackie Williams:

One of my goals when I was turning 30 was I wanted to learn how to drive a manual transmission. And so I learned, learned. Adam actually bought me a Volkswagen bug for my birthday and I learned on that, which was actually my first car too.

Christopher T. Anderson:

So let me translate that. Adam bought you a car so you wouldn’t learn on his transmission.

Jackie Williams:

Well, would’ve been probably been afraid to learn on his transmission because, well, we can get into what his cars are like. It was very sweet because I was already then comfortable with the car because that was very nerve wracking for me. But as I got more comfortable with it, I seek out manual transmission vehicles. I always have one in the summer because I feel like it’s a good mind break for you. You’re focused on it, you’re present in the moment and getting yourself to work in the morning consciously, I guess get your mind. So that’s what I love about driving.

Christopher T. Anderson:

That’s really cool. And I love the manual transmission thing until I loved it. I still do love it, but until my wife took me to Scotland a couple years ago and we went up into the Highlands where the roads are barely one car wide and I got to have the fun of manual shifting with my left hand in a right hand drive car on a small road with trucks that are bigger than the road coming on the other side. It was just a wonderful, wonderful experience. Adam, you take driving to a different level. What turns you on about driving?

Adam Williams:

What’s funny is you said we were going to make taxes sexy, and then you took all of the romance out of me buying Jackie a car for her 30th birthday. Like that saying it was only out of self-preservation. Anybody who knows Christopher knows he’s always playing chess and not checkers. Yeah, I mean I’ve always been a car guy, but I’m into race cars right now. That’s how I get my adrenaline rush. Actually, I was just talking to somebody the other day about the fastest I’ve ever driven a car and I had to explain that it wasn’t on the road,

Christopher T. Anderson:

But share that number. What’s the number?

Adam Williams:

It was 169. It was at Daytona in a portion nine 11. But yeah, I mean that, that’s the ideas. There are ways to do fun, cool, exciting things and stay out of trouble. One of my mentors taught me not to get my adrenaline rush from my business, but to get it through my hobbies, which is really good advice and to do it in a controlled environment. And then the other piece of it is I am hyper competitive and race cars are one of those things where I maintain the vehicle, I upkeep the vehicle, I operate the vehicle, and if things don’t go well, I have no one to blame but myself and I go out there and try and figuratively bash some skulls in, so I get my fix that way too, which is probably more healthy than doing it in other ways.

Christopher T. Anderson:

Yeah, absolutely. I can definitely see that. All right, well, let’s get into what we’re talking about today. Taxes. A lot of people at first will think that’s not very tax sexy, but first of all, this is the right time of year to be doing this show. So people are starting to think about it, get their stuff together. If you’re owning a business, your first reporting date’s coming up, by the time this show airs, it’s passed, but you’re in the season. We’ll start here because as people are preparing for this and getting their act together, let’s just talk about this very beginning. As people think about getting their taxes prepared, how are they doing that wrong? What’s wrong with that approach?

Adam Williams:

I mean, the entire industry is broken. So I think for us, what we learned, and you kind of referenced this in my bio, and I really want Jackie to explain the difference types of accountants as we get into this, but we had this gut feeling that when our accountant said, here’s how much you owe. Congratulations. Something just seemed off, but they’re the Wizard of Oz. They go behind the curtain, they punch some numbers into a form and say, here it is. Here’s the black and white reality of what you owe. And I think a lot of entrepreneurs just have this feeling of, man, something isn’t right about this. There’s got to be a better way, which is precisely why we created this business. There is in fact a better way. It’s just clients don’t know any better and accountants either don’t care enough or are too scared or were never also, maybe we’re never trained that there’s a better way.

That better way is we are right now as we record this early in 2025, we’re not worried about filing your 2024 taxes. We’re worried about what is 2025 going to look like? What is next April going to look like? And we’re planning and we’re preparing for it now. And what we’ve learned over probably the last five or six years of developing this business is those proactive business owners, the sophisticated business owners, the millionaires and billionaires that you hear so much about are not paying their fair share. Their tax rates are lower because they’re thinking about this year round, not just showing up to their accountant in the first quarter of the year with the shoebox of receipts and saying, do the best you can. So I think Jackie’s experience as a CPA, I’m merely a lawyer, but Jackie’s experience as a CPA, she’s understood and learned the different types of accountants and how that applies to small businesses. So Jackie, maybe if you want to explain the different roles, the team of accountants that people have, whether they’re the team or they outsource it.

Christopher T. Anderson:

Yeah, Jackie, before you get there, definitely I think that’s what we want to hear next, but I just want to, I’m having this, especially since we were talking about driving, just having this visualization here, Adam, what you were just talking about. It’s really running that part of the business, running the results of how much money you’re going to have to pay as a rear view mirror exercise, right? It’s just like people are looking at the past rather than looking at the future.

Adam Williams:

That’s a great analogy that I will probably rip off and deploy and use in other speaking engagements now,

Christopher T. Anderson:

But so Jackie, how does that relate to the different kinds of tax strategists, tax professionals that people should be dealing with or accounting professionals?

Jackie Williams:

So there are several types of accountants to bring the driving analogy back into it, we’re not always very conscious. Like I said, with the whole manual transmission thing. When you’re working with someone that’s a trusted advisor and you’re putting the pieces in, what year are we in here? So let’s go first to bookkeeping. That’s our foundational type of accountant. They’re not going to give you advice per se. They’re going to historically put the numbers in and you need a good bookkeeper, you need good numbers. Everything starts on that. So that’s like first gear, right? But then we need to shift into other accountants. They’re not going to do everything. They’re not going to do your payroll necessarily. You got to ask that question. So you’re going to want a payroll accountant, don’t do your payroll by yourself. I’ve never done payroll by myself. There’s too many compliance issues and whatnot.

Then at that level, you probably also have a tax preparer. That’s who we are often talking about and thinking about the people who are going to take the bag of receipts that you mentioned and put them in the forms and it’s going to be reactive and it’s going to be a record of your taxes, but it’s not going to be a plan. It’s just done. You can’t do anything about it. Now it’s written in permanent marker basically. You can’t open the year back up. I guess also we tend to see from there, as you grow, you want to have more people that are your trusted advisors that are proactively helping you. So from a financial accounting side, from the side of things where you’re looking at things beyond just taxes, you’re looking at what’s the cashflow that I need to make sure that I’m making payroll, that I have my cost of goods handled and whatnot.

So you need a controller, someone that works on a budget with you, and then that’s where I like to see us as tax strategists, as your trusted advisors. We are there with walk and step with that budget with what are your experiencing when you’re not on the budget and what is coming up and how can we plan for that on a monthly basis? Even having a tax plan similar to a budget, but then also tweaking it and pivoting it when we see the numbers change so that you’re not at the end of the year, what happened? You’re like, oh, okay, well that makes sense and this is what we did.

Christopher T. Anderson:

So you guys often talk about this as a mindset issue, as a mindset shift that a business owner needs to make to keep more of what they earn, but also just to think about their strategy and their planning in a different way. What is that mindset shift? How would you explain that to our listeners who are all the listeners of the show are all small business owners. What is the mindset shift they should be considering

Jackie Williams:

That you should pocket more of your profit? Just because you are a business owner doesn’t mean that you should get, I mean, profit first is something that you focused on a lot, and I think part of that is keeping more of it from a tax perspective too, and you can plan for that. So you’re worthy of that time. You need to make sure that you invest in those resources that give you the tools you need to keep more of it.

Adam Williams:

I think the mindset shift for me, and this is actually why we’re a really good business partners, is I’m that typical entrepreneur that’s focused on sales, sales, sales, sales, sales, revenue, revenue, revenue, clients, clients, clients, and we measure those vanity metrics and we win the awards for revenue growth. We do the law firm 500, we were on the Inc 5,000. That has always been my focus in the business, but it turns out that if I can keep more of what I’m already earning, I don’t need as many clients. So that the same business that generates a million dollars of revenue and the owner makes $300,000, well, if your tax rate’s 30%, you got 200 grand left. If your tax rate’s 10%, you have $270,000 left over. So it’s 30% less revenue that you have to generate in order to keep the same exact amount of money. So for me, that’s been the biggest mindset shift is yeah, I can sell my way out of any problem, I can bring the money in, but I’m really fortunate that I’ve got someone and many people on our team that help me keep more of it on the backend so I don’t have to go and keep hustling and bringing in more on the front end where it turns into a superpower is now we do both keep more of our money reinvested in the business. Rocket fuel, right? Well, I was just going to say, because yeah,

Christopher T. Anderson:

The money you save, sure, some of it can go home with you and be another race car or whatever, but some of it can go into marketing, some of it can go into your sales team, some of it can go into investing in the business so that you deliver a better product for your clients, all of which actually just then feeds that flywheel. Right. That’s a great way to think about it too. It all just feeds on itself and when you pay unnecessary amounts, you’re just bleeding off the energy from the business. So one of the other mindsets I wanted to ask you about is how people think about this, right? Because I think a lot of particularly small business owners think about tax planning as something that once you really are rich, once you really become wealthy, then you should be thinking about tax planning. They don’t know when to get started because nobody ever really feels like they’ve reached that point or very few people feel like they’ve reached that point. How should they be thinking about that? Where should they get started with this?

Adam Williams:

Man, we’ve been spending a lot of time talking about this. We believe that we are helping to democratize tax strategy. It’s not just for the billionaires. We got plenty of millionaires that we work with. But I think for lawyers in particular, we work with a ton of law firms and the reason is as we educate them about what tax strategy really is, they connect the dots between something seems off in our proposed solution, they get it. They start to understand that taxes are not black and white. Taxes are based on statutes and regulations and court cases. Lawyers understand that better than anybody and what does all of that stuff create for us gray area? But the key is understanding that you can have support and you can have help with this and those, I don’t like calling them loopholes, but those opportunities and those incentives that the tax code creates are designed for business owners in general, not just the rich ones.

The reality is if you take advantage of this stuff and you learn about these opportunities, you become rich faster. But something as simple as your choice of entity, the way that you establish your business, it could be an LLC or a corporation or an S corporation or whatever, that can have a ripple effect on your business. And if you do it right, it opens up the playbook for so many other opportunities. And there’s a range to these things. And Jackie had this really good analogy of the clothes in her closet the other day. Some of this stuff is easier, it’s less complex and it’s less expensive to implement. So you need somebody that understands how to advise you on what’s appropriate for your business. But then on the other end of the spectrum, we have clients that are bottom line taking home eight figures. Well guess what? They can do a lot cooler stuff and save a whole lot more money, but there’s some complexity with it. There’s some sacrifice that has to be made with it. So it really depends on where you are. But the point is the tax code is designed one as a revenue generator, but two as a way to create incentives and disincentives. And if you understand those incentives, then you reap the tax benefits from it if you know how to take advantage of ’em.

Christopher T. Anderson:

Cool. So what I’d like to do is, first of all, we do have some people that help to make this show possible and they like to have a word. So we’re going to get them one and then we’re going to come back. And what I want to do is talk a little bit about entity choice, you mentioned that, and then let’s just do some examples because I think I want to put some concrete examples here that really the listeners who have seven figure businesses who are just approaching that area can identify with and say, yeah, I can get started on that. So we’ll take a break and we’re going to come back with those questions, Adam and Jackie Williams, Pennywise tax Strategies, we’ll be back in a moment and we’re back with Jackie Williams and Adam Williams of Pennywise Tax Strategies. Now that we’re back, I wanted to just circle back to what Adam had mentioned about your choice of entity. I don’t want to sort of just breeze past that. We’ve got a lot of other cool stuff to talk about. But really in a sense, this is the first step, right? The first decision and someone who’s listening might be in business five years, 10 years, 20 years already, but it’s still worth thinking about this decision right here. So can you talk a little bit just about what that journey is? What is this entity selection about and why is it important?

Adam Williams:

Yeah, that’s a really great question and I don’t want to get too deep into the weeds on this. So I’ll give an example and then Jackie can go a little bit further into it. But when a lot of people start their business, they usually go and talk to an accountant and a lawyer or they go and Google, but we all know what they’re going to get from that and they’re going to read things about setting up an LLC or being an S corporation, or they may look at the cost and time and complexity involved in that and decide to be a sole proprietor. As I mentioned, we work with a lot of lawyers, we work with a lot of real estate agents and many of them never bother to create an entity they run as a sole proprietorship. The challenge with that is you are missing out on direct tax benefits of proper entity selection plus some indirect benefits of some other opportunities that can create for you.

So one of the examples that we see pretty often in our business is if somebody comes to us as a sole proprietor, they’ve never bothered to set up any type of entity or make any type of tax election. If they’re making $250,000 a year, their total tax bill is about 45 grand, right? It’s a good chunk of change if that same business owner, we’re not telling them to spend any more money, we’re not telling them to give money away, we’re just saying change the way that you pull the money out of the business. That same business owner, assuming they check all the boxes and follow all the rules, could set up an LLC and could make an S corporation election and they can put themselves on payroll. So now they’re getting paid as an employee of the business, but also as an owner of that business as an investor.

So that same $250,000 of income as an example, you can put yourself on salary at say $80,000. That one move, that single move will cut your tax bill to about $34,000. So we’re talking 10, 11, $12,000 per year every year, not in tax deferral, not in kicking the can down the road. This is tax elimination. You save this money every single year, year after year. That’s direct benefit. And then if we talk about some other strategies, we can talk about how choice of entity matters, but like Jackie likes to say, this is not a set it and forget it thing. This is something that we’re looking at at least annually with our clients.

Jackie Williams:

When you are looking at that, there’s a few things. Obviously if you’re going to bring other partners into the business, does that entity structure still work? If you are going to really reinvest a lot in the business, does a pass through entity like an S corp, which is everyone seems to set and forget still something that makes sense? Those are things that we like to think about. Also your involvement in the entity and if that reasonable salary still makes sense for you, whether you’re going to have passive involvement or you continue to be non-passive. So there’s a lot of things that we like to think about each year when we are reevaluating whether the entity structure still works. It’s not so simple to reclassify an entity structure, but is something you’re going to want to think of proactively.

Adam Williams:

But even beyond the entity structure, that reasonable salary, that amount that you pay yourself. We had clients come to us at the end of last year, three partners in a business. They each make a million bucks a year, pretty healthy business. Their accountants put them on payroll at like $168,000 a year, but did not actually do a calculation of what a reasonable salary was. So they came to us and we said, what jobs do you do? How much time do you spend doing it? What are the rates that people in those positions would get paid? And we reduced their salary to 60 to a hundred thousand dollars depending on the partner. So we’re saving them each just just by reevaluating that reasonable salary calculation. We’re saving them each about five grand a year because their prior accountant, it’s a brown number where they pull those out of, but they pulled it out of thin air with no justification for it. So that’s why it’s so important to analyze this as your business grows and changes, circumstances are going to change. So let’s make it work in a tax advantageous way.

Christopher T. Anderson:

Absolutely. I’d say like you said, something to at least revisit once a year. You don’t change it every year, but you revisit it and you think about it. Alright, so let’s get some nitty gritty. So let’s deliver some quick hits for our listeners here. From what you’ve been saying, it seems pretty clear that business owners are overpaying on their taxes year after year and you’re probably seeing the same missed opportunities over and over and over again and you’re helping your clients to save money based on not missing those opportunities. So let’s talk about a few. Let’s say, let’s start with a tell you what, let’s go for the biggest one. What’s the biggest win you’ve had for a client implementing a strategy that they weren’t doing before?

Jackie Williams:

Well, we had one client that they had a lot of strategies, but in total we were saving ’em over a hundred thousand in tax in this plan. And it included doing, utilizing a short-term rental and using a cost segregation study. So a short-term rental is a strategy that you can use when you actually have non-passive or ordinary income to offset. As long as you have material participation in that short-term rental with bonus depreciation opportunities with a cost segregation study done, then you can accelerate depreciation, which gives you some losses to offset some of your ordinary income. And so that was a big piece of it. And then they also had their eye on a vehicle that they could justify a hundred percent business use for. And so that was a vehicle that would bring in a pretty significant bonus depreciation it being a gwa. So I mean using those together saved them a lot.

We do see a lot of strategies too with our approach is to look at what the business owner needs or the business needs and find the strategy that also saves them on their taxes. We’re not just going out there to buy per se a deduction. We often see as companies grow, looking at things like where they are underinsured and looking to see if captive insurance is a good fit is also very helpful. There’s a lot of, sometimes that’s a controversial strategy, but if it really meets the different concepts that captive insurance is supposed to, it saves you on your taxes and it keeps you in a good position from a business perspective.

Christopher T. Anderson:

And you said for this particular win, it was over a hundred thousand dollars and you find a hundred thousand here, a hundred thousand there pretty soon. We’re talking about real money. So let’s bring it down a level. What’s a personal expense that a lot of business owners can turn into a tax deduction that they don’t even realize that they don’t take advantage of?

Adam Williams:

So you asked our biggest savings and yeah, I mean, investing in real estate is massive. Captive insurance can be massive. One of my favorite cocktail party stories to tell this is not the most money, but a couple grand here and there is the Augusta rule or the Eisenhower rule as they call it. And the idea was that this originated with the Master’s golf tournament. People would rent out their homes, but they’d spend money fixing it up and marketing it and staging it. And the IRS said, well, you’ve got to report that income, but because you’re not a real business, you can’t take any of those deductions. So these people raised a stink about it. And the IRS created this new rule during the Eisenhower administration and said, fine, if you rent a dwelling for 14 days or less per year, you don’t even have to report that income.

Okay, cool. If you live on a big fancy golf course and you’ve got a PGA tournament coming to town, but how do us mere mortals make this work? Well with proper entity selection, Jackie and I own our home and we have two businesses with proper entity choices made and S-corp elections made. Our business can rent our home from us, so it’s not some stranger drooling on our pillows or shuffling through our cabinets. It’s our leadership team going for a quarterly retreat. It’s shooting marketing content and videos. It’s hosting client events at our home. If we wanted to go and rent the art museum downtown, we’re going to pay an awful lot of money just for this space. Well, we can take that same money and pay it to ourselves for owning and controlling that venue. This is money we were going to take out of our business anyway, but now it becomes a rent expense to the business, which reduces our taxable income. And we don’t report that income on our personal returns as long as we follow all of the rules

Christopher T. Anderson:

Because if you keep it under 14 days, the rule says you have to.

Adam Williams:

That’s it. So that’s a really fun strategy. I mean, it’s going to be a couple grand over the course of the year, but the way that we do it is we do the research on the reasonable rates and we plan it out in advance and we create these invoices. Some people try and do it at the end of the year, but it’s too late. You’re going to get in trouble if you try and try and recreate or rewrite history there. So that’s one of our favorite moves of like, this is money that we were already going to take out of the business and now let’s do it in a way that’s not going to cost us as much.

Christopher T. Anderson:

Cool. That’s super cool. I’ve also heard about some people, and for some reason I don’t know if things become popular or less popular, but one of the things I’ve been hearing about lately is hiring your kids. And so talk to, because a lot of our listeners have minors, your children of school age, how can that help a business owner?

Jackie Williams:

It helps you save on taxes, obviously, but it also teaches your kids life skills. So it, it’s a double whammy. So your kid does need to work in the business, but you can pay them up to the standard deduction and they can pay zero taxes on those dollars that you’re going to invest in them anyway because kids cost money. So for this upcoming tax year, we’re at the $15,000 mark Now in standard deduction, while we’d want to make sure that that’s a reasonable wage, you have a job description for them, you track their hours, you can pay them up to that amount, and it takes it off of basically your tax return, those dollars and puts it on a tax return for them at a zero tax rate. Additionally, when you have earned income, you can contribute to a Roth IRA. So then you can also be saving for them with tax, basically tax free dollars that are going to grow tax free that they will get to then use tax, tax-free.

So you’re building wealth for your kids in that way as well. That’s a really great opportunity actually, and people, what’s the right age for this? Is this something I do for my kids who have flown the nest? Well, if you’re still providing for them and they don’t have other jobs, then it could go beyond kids, other people that you care for. This could be helpful for where you provide financial support, but we recommend, I haven’t really seen anybody be put on payroll under the age of seven. Obviously you’ll have your state laws and your child, your child labor rules, et cetera, and we won’t get into that, but generally they have to be able to do something, right? The modeling thing, I’m sure we’ve heard that on TikTok that comes and goes about how reliable that stands up in court. But yeah, it’s definitely a great opportunity to teach your kids some skills and build wealth for them.

Christopher T. Anderson:

Yeah, I think that’s completely fascinating. Everybody talks about their kids are still on the payroll, but we could actually literally put ’em on the payroll. Alright, one more tip that I want to go through and then we’ll probably take one more break and we’re going to talk about what we need to be thinking about with the new administration, new tax rules that we’re expecting to come in. But the last one I want to talk about, because you mentioned the GWA earlier, we talked about driving at the top of the show, vehicle write-offs, everybody talks about ’em, but everybody’s afraid of ’em and nobody really seems to understand them. What can you tell our listeners about what some of the misunderstandings are about vehicle write-offs and how they actually can work for a business owner?

Adam Williams:

So let me say the most important thing, and then Jackie will explain the rule. Don’t buy a car to save money on your taxes. If you don’t want a new car, don’t go spend a hundred thousand dollars on an escalator or $200,000 on a GWA or a Tesla. God forbid you drive a Tesla. But don’t do that if you don’t want a new car. There’s so many better ways to save money on your taxes. Now, if you’re in the market for a car, Jackie will explain the tax advantageous ways to do that and maybe some of the changes that are upcoming with that. But that’s question number one is like, don’t disrupt your life, don’t spend money unnecessarily. Let’s use your business, and I know you talk about this on your show. Let’s use your business to support your goals and not hijack your goals by doing other things just to save a couple dollars here and there. So that’s the foundation

Christopher T. Anderson:

That’s so important and I’m really glad you put that there because a lot of people do that. It’s like, oh, look at what I just did. I just saved so much on taxes with this thing in my backyard that I don’t want.

Adam Williams:

Yeah, this depreciating asset that doesn’t even fit in my garage. So what are the rules, Jackie?

Jackie Williams:

Okay, so this year, so I guess let’s start with this. Bonus depreciation has been all the age, right? Bonus depreciation allows us to take that big deduction all at once or accelerated. We talk about full tax savings, we talk about accelerating or deferring taxes. So in this case, we’re accelerating the savings. So we’re deferring taxes because you get depreciation normally on vehicles, but for 2025, bonus depreciation currently is at 40%. This is going down from a hundred percent that we had when TCJA first started when it was very sexy topic. So it’s still there. We still have accelerated depreciation, but I think one thing everyone should be thinking about is yes, that’s on the vehicles that are over that 6,000 pound. That’s why you see some of these big vehicles driven and it is 40% bonus depreciation in that first year, but that’s to the extent that you use it for business.

So some people, it’s not I’m going to buy my wife a new car in the business’s name and she’s going to drive it, but she doesn’t work in the business. Don’t go doing that. That’s going to get you in trouble, but you need to have a business purpose and you need to be driving it for business purposes at least 50%. And then you get the deductions up to that business use. Now, where that gets really great though is it’s not just depreciation. When you own the vehicle, you get the maintenance of the vehicle, you get car washes if it needs, that’s the new tires. So you really can your insurance, all of that becomes a business expense when you have a business vehicle in the name of the business. So get it in the name of the business and have a business use for it.

I mean, that’s where you really can do it and do it right. If you don’t want to buy it in the name of the business, you don’t think that you’re going to have enough business use. We still have mileage reimbursement, which is great. And when we talk about things like when you are doing this plan, this roadmap with a trusted advisor, you set up a home office through an accountable plan. If you’re an S corp, then that business use question gets a lot easier because any commute from your home office to your physical office is business use mileage. Now a lot of these strategies work together to get to the right answer. So if you’re thinking about doing the vehicle thing, I think like Adam said, think about if you need a new car, how you’re going to use the car, what kind of car you’re looking at, because those are the things that will really determine how you can be successful in getting some tax deductions for it.

Christopher T. Anderson:

Cool. That really helps to demystify it. Thank you. That’s really key. So what we’re going to do here is we’re going to take one more break and get a couple more words in from the sponsors, and then we’d mentioned that we’re doing this show right here in the very beginning of 2025, and we have a new administration in the White House. We have tax rules that are either set to expire or not going to expire and some new rules coming in. So I’d like to just give our listeners some ideas about what they should be doing to prepare to think ahead for 2025, and we’ll do that after these words. Alright, we are back with Jackie Williams and Adam Williams, a Pennywise Tax Strategies. We just spent the last segment of the show talking about some strategies that our listeners can implement right now, or at least what I would actually suggest is that you can talk to your tax planner right now and get them to put all these in context with the big picture. But as part of that big picture, what I said we’d talk about here in the last segment are what we should be planning for 2025. Jackie, Adam, what are some things that business owners should be doing right now so they can have a successful 2025 and be planning and taking the right steps to not make some mistakes regarding the changes and how their business will be paying taxes in this new

Adam Williams:

Year? Yeah, let’s not undersell the changes. We’re heading towards a brick wall at a hundred miles an hour. In 2017, they passed the tax cuts and jobs act. Most of those provisions are set to expire on December 31st of this year. If they expire, taxes will increase for 63% of Americans. And it’s not just high income and it’s across the board, it’s going to affect the vast majority of Americans. So we’re keeping a really close eye on this. Who knows how fast things are going to happen, but there’s a deadline. There’s some pressure on Congress right now, but the last proposal from the Republicans on the tax bill still left a 4.5 trillion gap in what they wanted to cut and the spending that they still need to reduce. But here are some of the things that we are keeping an eye on that are set to expire that will have a really big impact, particularly on business owners and law firm owners.

The first one, like Jackie was just talking about with the vehicles and with the cost segregations when you buy real estate, and we didn’t even talk about a common strategy of buying your own office building and renting it to yourself, but that bonus depreciation, if you buy the car and it’s big enough and it checks the boxes this year, you get to write off 40% of it this year. Well, last year it was 60% and the year before that it was 80 and the year before that it was a hundred percent, you could write off a hundred percent of the cost in one year. That goes away at the end of this year. So we are hoping that they bring that back because it is a good reason to invest in a business, whether it’s a vehicle or a piece of equipment or real estate or whatever.

We’re keeping a close eye on that because that bonus depreciation, we think incentivizes investment or spending depending on how you want to classify it. So that’s one we’re keeping a close eye on. I’m hopeful that they make it retroactive so that maybe they bring back a hundred percent and it’s effective for 2025. Jackie is not as hopeful as I am. She’s become so jaded, more jaded when it comes to politicians than I have. So that’s a big one. I think the other two that I personally am keeping an eye on are the standard deduction. So we talked about you can pay your kids less than that 15 grand or you don’t pay tax on that first 15,000 of income. That number may drop back down. So we want to keep an eye on that. And then I’m going to let Jackie explain this one because I’m not an expert on it, but cubit the qualified business income deduction where you basically don’t pay tax on another first chunk of your income. Maybe if Jackie can explain that for us.

Jackie Williams:

Unfortunately, for US professionals where, so accountants and attorneys, it’s a lower threshold, but for the first up to a certain threshold, you can deduct up to 20% of your business income. It’s called the qualified business income deduction. And so we do phase out of it at a certain point, depending on the status that you file your tax returns under, there’s a threshold, but this is big for a lot of businesses. And so if that goes away, that will have an impact. I think that is one thing that they would like to keep going if they can decide on that. But yeah, that’s money right off the top that a lot of us were enjoying for several years.

Adam Williams:

I mean, think about the impact of that too. Yes, there’s a phase out for income and for lawyers it’s an even lower threshold. If you’re making over a certain amount, you don’t get any of this, but think about our clients. You got a client that makes a hundred thousand dollars a year in a business, they don’t pay tax on the first 20,000 of that income. Well, if we’re talking about a 30% tax rate, that’s basically a 6% pay cut that they will take when this goes away. What do you think they do with that extra $6,000 a year that was handed to them? It’s going to cause some pain if that goes away for many of us.

Christopher T. Anderson:

And quite honestly, for those who haven’t heard of it, it is a really great opportunity, but things are changing, right or not. And I guess how does a business owner deal with that uncertainty? I mean, Adam, what you just described is we’re driving at this brick wall, all these things are going to change or not, or they’ll come back or whatever. How does a business be thinking about planning in the face of all this uncertainty?

Adam Williams:

So have we beat the car analogy to death yet, or can I?

Christopher T. Anderson:

No, one more.

Adam Williams:

You would be foolish to try and do this on your own. Just like so many other things in your business, don’t build your own website, don’t do your own payroll. A tax strategist, a proactive forward-looking tax strategist who actually cares about you versus paying the IRS an over inflated amount, they will create the roadmap. They’ll give you the GPS directions and they’ll say, all right, we’re going to go this way. Maybe there’s an accident, maybe there’s traffic. Maybe there’s changes to the laws, maybe there’s changes to your business and you adjust course, but someone is there guiding you through all of it versus you driving down a dark alleyway with your headlights off saying, I’ll probably be able to figure this out on my own. Right. So I think that’s the key is with all of the changes that are coming, I don’t care what the changes are, whether you think they will be good or bad, the reality is with every change comes great opportunity and the people that you want to work with in your business know how to spot that opportunity and advise you on how to make it work for your business or help you implement it in your business.

So I think it’s really important for people to talk to their tax preparers and see if their taxpayers are even paying attention to this, or are they just saying, well, we’re going to run into a brick wall. And sometimes things like that happen, but they’re very reactive and like you said, they’re backwards looking, but the ones that are there to help you are forwards looking and they’re anticipating changes and they’re recognizing patterns and they’re taking action based on it. So that got a little woo woo there, but I think it was a good explanation.

Christopher T. Anderson:

And quite honestly, that is a perfect place to leave it because my next question for both of you is us. This is a half hour show. There’s no way we can really do justice to this topic. But I think we’ve put some information out there that should get people thinking, and when they’re thinking and they have more questions, how can they reach out to y’all?

Adam Williams:

So the two best options, our website is Pennywise Tax, or if you go on Facebook, we’ve got a Facebook group, Pennywise Tax Strategies. We’re in there sharing tips and ideas and stories. And I think that’s the important thing is people that are saving money on their taxes are thinking about this stuff now. So we’re just trying to continue educating and helping people understand this stuff a little bit better.

Christopher T. Anderson:

Fantastic. So again, that’s Pennywise Tax Strategies on Facebook and Pennywise Tax on the interwebs.

Adam Williams:

That’s it.

Christopher T. Anderson:

Fantastic. Well, thank you Jackie. Thank you, Adam, on this wraps up the unbillable hour for this month. I want to thank all our listeners for sticking with us, our guest today. One more time, heaven, Jackie Williams and Adam Williams, co-owners of Pennywise Tax Strategies, and we’ve given you their website and how to reach out on the social media. And of course, my name is Christopher T Anderson. I look forward to seeing you next month with another great guest as we learn more about the topics that help us build the law firm business that works for you. And don’t forget that you can subscribe to all the additions of this podcast at the legal talk network.com or on iTunes. And more importantly, you can join us on the Community table where our guests join us every month to answer your questions directly. You could be part of the show, and that’s the third Thursday at 3:00 PM every single month. And in fact, if you can’t be there on the third Thursday at three, though, we really hope you will. You can also come here to legal talk network.com and post your questions and we’ll answer ’em live on the show on the third Thursday at 3:00 PM every single month. So don’t miss it. Welcome to the Unbillable hour. We’ll be talking again soon.

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