How Can You Write Off Business Start-Up Expenses?

Welcome to another episode of Tax Tuesday, where tax experts Toby Mathis, Esq., and returning guest Jeff Webb, CPA, CFO of Anderson Business Advisors share their expert advice on writing off business expenses, end-of-the-year options for saving on tax deductions, inquiries about organizational vs. startup expenses, and how to borrow from your life insurance policy to invest in real estate. Submit your tax question to taxtuesday@andersonadvisors.

Highlights/Topics:

• All my LLCs are disregarded…. I’m in the process of setting up…What are some of the write-offs for 2023? - You normally can’t write off until the business has begun operating, but the cost of setting up, you can grab that, but you have to have income to benefit from those write offs.
• Can I 1031 a long-term rental single-family residential.. into short-term AirBnB rental.. Then do a cost seg? - Yes, but there’s a timing issue…the long-term rental cannot extend into the next/same year.
• How do I write off biz expenses before the bix makes money? - There are ‘organizational’ and ‘startup’ expenses that you can write off, of $5K each….but it also ‘depends’
• If we are flipping a home within 6 months, can we write off depreciation, closing costs etc.? - The home is considered ‘inventory’..if you bought it with intent to sell, no matter how long you own it, it is ‘dealer property’
• My husband owns and operates an electrical business… if a client doesn’t pay, is it considered a loss? Is it tax deductible? - You don’t recognize income until it is paid to you. You can only write off expenses.
• Please discuss pros and cons of borrowing from my life insurance to purchase real estate? Is any of the interest tax deductible? – The interest on the property is deductible. Different policies have different ways of accounting for the loan. I don’t see a lot of ‘cons’.
• How do I offset passive losses other than increasing rents and paying off debt?.. What can I do before the end of the year so I can use this year’s taxes? At this time of year, there’s very little you can do, you only get the portion from now until the end of the year.
• I am a licensed contractor working part-time as a salaried employee… am I a real estate professional for tax purposes? - Yes… if you’re the owner, and you have 750+ hours working in the real estate business… more than 50% of your time.
• Can I create a 401k for my real estate biz? Will this affect my employer’s 401k- Yes, but you can only contribute the total amount allowed by the individual by the IRS. You have to have an ‘active’ business, not passive income.
• Is there an age limit for hiring our kids? We have 6 and 13-year-olds. - Yes, but you have to have them working on actual tasks to be paid. Sweeping, modeling, acting, etc. What is the market value of those tasks? Labor laws don’t apply - you can put YOUR OWN kids to work, and pay them, at any age.

Resources:

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