Most business owners understand fringe benefits only as they relate to employees: cars, tuition reimbursement, gym memberships, etc. – pay in the form of “perks” on top of the employee’s salary. What they don’t realize is that the same bonus items available to their employees may also be available to them as the owner of the company in the form of tax deductions. These are owner fringe benefits, and they essentially put money back into your pocket for things you’re already buying.
(If you’ve ever read the book Rich Dad, Poor Dad, you know the author advocates for paying for things with pre-tax money instead of post-tax money. We agree, and one of the ways you can do that is by maximizing owner fringe benefits.)
Unfortunately, owner fringe benefits are often missed because clients don’t tell their accountants about them and/or their accountants don’t ask the right questions. And frankly, it stinks when they’re missed; they disappear forever, as they’re not the kind of deductions we ever advise going back to revise later.
Essentially, we can deduct the item if we can make the case that the item is proximate to the business. Outside of the basics (cell phone, computer, etc.), potential deductions include:
- Your car
- Your spouses’ car
- Meals – especially if your spouse works with you.
- Paying your kids – even the young ones can get paid a modeling fee for advertising, and it’s a great way to go from your tax rate to a ZERO tax rate!
- A round of golf as long as it’s proximate to a business meeting
- Your Taylor Swift concert tickets – if you were lucky enough to get them! Same caveat as the preceding bullet.
- Your vacation, as long as it’s around your required annual company meeting / retreat for strategic planning.
- Your nanny
- Your home office
- Your vacation home (were you really staying in it for personal use or were you there fixing it?)
- Your boat (thank you in advance for the boat ride to discuss your tax plan – now you have a business expense equivalent to the cost of renting an equivalent boat!)
- Your spouse’s retirement if your significant other works for you – and can’t we all make the case that our spouse is helpful in this regard – even if they stay at home?
Aside from initial hesitation about being “too aggressive”, many business owners shy away from these deductions for fear they’ll negatively impact the value of their companies. You won’t! These are all items that are considered add-backs for the purpose of calculating your EBITDA to arrive at your selling price. So, they are the best of all worlds: a tax deduction AND an add-back!
To really maximize the strategy, you can use the preceding list for planning purposes even if it doesn’t fit today. In other words, if you needed to justify buying a beach house by turning it into a tax deduction, you have our permission if you can make the cash work. See how our Managing Partner did this himself!
As we roll into the end of the year, it’s important to capture the deductions available to you now and begin planning. If you’d like some additional resources about maximizing the value of your business, check out our free eBook.