Tax Saving Idea Thread

[Brandon McLean]

Hello!  Let's start a list of ideas we all can do to pay less taxes!  

I heard someone on the podcast recently just briefly say "Learn to live on pre-tax money." And I haven't been able to get that out of my head since. I've been searching around a bit for some real strategies we can start doing to "live on pre-tax" money, but haven't found a real list yet, so I figured we could all collaborate here. 

I have an idea...and maybe a CPA or some other knowledgeable tax expert can help on this...

...so here's my idea:

I want to start paying all our regular ongoing bills and utilities with money straight from the LLC rental income....cell phones (we use our phones for mostly work anyway), electric bill, internet, water, etc etc....

I'm thinking of making a lease where my business rents the home office space from me and my wife, and the rent is roughly equal to the utility payments, or just have that on the lease..."XYZ, LLC will pay Brandon rent by paying the utilities directly"...Our home office is a whole bedroom in our house with desks and printer and computer stations and everything, white board, filing cabinets. The room is 100% used by my business, so I think it's legit to rent it like that. I think it will be better than the home office deduction. (I use the home office deduction for my band, which is my sole proprietorship, another bedroom totally taken over used 100% for band rehearsals)

Please don't say "ask your accountant"...I know, and I have and I will talk to her more about this stuff.  Just curious of what you think of my idea and curious of other ways to legally pay less taxes.

[Michael Plaks]

@Brandon H.

"many people like to twist things to their own benefit" - that would include myself :)

[Paul Allen]

Originally posted by @Brandon H.:

Your last sentence, "Resolving all 'grey areas' on terms favorable to the IRS would cost my clients much more than what is risked. Probably by a factor of a hundred."  Really echoes my comment about the risks not being worth it (e.g. risking dollars to save dimes).  

Not to beat a dead horse, but the risk is actually pennies to save dollars.

Say you have a 'grey area' tax issue for $100. 

Statistically, if we just pay it our expectation value is to lose $100.

If we venture into the grey area and don't pay it our expectation value is to lose {[$100 PLUS penalties and interest] TIMES [probability of having to pay it]}

If our penalties and interest run 25% total, then we are looking at {[$100 + $25] X [probability of having to pay it]. In which case the probability of the IRS examining your return, discovering the grey area issue, taking the opposite position, and winning on appeal would have to be greater than 80% for your expected losses to be higher than just paying it.

In their best year ever the IRS is never going to get that probability above 2%

At 2%, we are risking an expectation of losing $2.50 by 'going grey' against an expectation of losing $100 by not going into the grey. 

As you said - the value the tax professional adds is knowing which areas are not already black & white. 

[/extreme nerdism]

[Ryan Longhurst]

Don't play with the tax department. You will only get burned, regardless of how sneaky or right you think you're being. There are some great tricks  to save a few dollars that any good accountant will advise you on, but that is a discussion you should be having with your accountant. I have known some people who have put themselves in serious legal trouble for trying to beat the taxman.

[Michael Plaks]

Notice my outfit on the profile picture. This is how you beat Uncle Sam. :)