Understanding Tax Write-Offs: Myths and Realities

Tax write-offs require legitimate business expenses and proper documentation, not just personal desires or misconceptions.

### Understanding Tax Write-Offs: Debunking Common Myths
* 💼 Many people believe that simply forming an LLC allows them to **write off personal expenses**, but this is a misconception that can lead to **trouble with the IRS**.
* 📉 A tax write-off refers to legitimate business expenses that can be deducted from taxable income, but it does not mean these expenses are **free**; they merely **lower the amount of taxable income**.
* 🔍 The IRS has strict rules regarding what constitutes a business expense, and simply claiming **personal care items or vacations** as business expenses without proper documentation can lead to **audits**.
* 🍽 Meals with business discussions can be partially deductible, but only **50% of the cost is allowed**, and **adequate record-keeping is essential** to prove the business purpose.
* 🏖 Vacations cannot be fully deducted unless there is a **legitimate business purpose** and **documentation to support the business activities** conducted during the trip.
* 🚗 Automobile expenses can also be written off, but taxpayers must ensure that they meet the **50% business use requirement** and maintain **accurate mileage logs**, excluding commuting expenses.
* ⚖ It's crucial to differentiate between **tax avoidance**, which is legal, and **tax evasion**, which is illegal; understanding the nuances of tax laws is vital to **avoid mistakes**.
* 📲 Relying on quick social media advice for tax matters can lead to **significant errors**, emphasizing the importance of **consulting tax professionals for accurate guidance**.

[Music] All right, BR, let's talk about the second myth. So, that was myth number one. Myth number two, and you have heard this no doubt if you have been on any sort of financial content or maybe if you've just been at a cocktail party, you've heard this one: just write it off. I got to have deductions. I need write-offs. I need, I need, I need deductions. I need write-offs. Just form LLC. Just do that, and it's going to be okay. Again, if you don't believe us, check out these influencers. What's the things, the top things that people won't even have a clue to they go write off? Did you know you write off your birthdays? Here's how you can write off your vacation. How to make your vacations tax deductible. Your wedding expenses are a tax write-off. I can write off the private chef in the food that went into private chef. Getting massages is now tax deductible. Even any clothing that you wear, your lash, the lashes. I like her ideas on the car. Guess what? Tax write

off baby who has to go get this money. All right, so there, so there, tax write-off, tax. Well, first off, let's talk about what a tax write-off is. A tax write-off is an expense, generally a business expense, that can be deducted from your taxable income. So, a tax write-off is an actual thing. If there's an expense that you incur to do the business that you do, you can get a deduction based on the expenses that you incur. Now, all this stuff that these folks were talking about seems a little great to me, and I think there's a common misnomer about how tax write-offs actually work. It doesn't mean it's free. I mean, I'm always shocked. Oh, that really attacks. Even if something is legitimate and it is deductible, your tax rate is kind of just the deduction or the coupon you get off of it. It's not a tax credit. A tax credit can be dollar for dollar offset your taxes. A deduction just means it's going to lower your taxes. If you're in the 35% tax bracket, you're

basically getting a 35% deduction because of it comes in, but don't. It doesn't mean it's free. That's something that I feel like a lot of people let that tax tail wag the entire dog. But see, I know people out there, and they say this all the time. They say, Hey, guys, guys, guys, guys, I got this figured out. I've got an LLC or I'm going to establish a business. I'm going to establish Bansen Holdings, and I'm just going to run all these expenses through Bansen Holdings, and then I'll be able to write them off. I'll be able to decrease my taxes. It's just that easy, right? Well, that's where the IRS, they're not fools. They are very smart, actually, and they have what's called hobby loss rules. So that's why when you have a business, that's why all the content out there just saying form an LLC, I'm like, Well, there has to be a business behind this that's actually viable that you can sit across the table from the IRS and

feel comfortable describing what it is, and that's why there were just so many things that were described there, um, that just, if it doesn't pass the sniff test, if you're not keeping good records, if you're not showing income that you can even offset those expenses to, you're probably going to get red flagged and even audited pretty quickly. So, let's talk about some of the mistakes that we heard that were mentioned in there, and again, you said this to kick off the show, Bri, you said the difficult part about these financial lives that are going viral is that there are glimmers of truth inside each one. Well, what I love is that as we sit here, you happen to be a tax expert, you're a CPA for the last, like, 45 years, and so you get to tell us, okay, what's the letter of the law, how's this actually work, and what are some common write-off mistakes that we see. And the first one, personal care. This is what the lady said. She said, you know what, uh, if the clothes that you

wear or the makeup that you wear or the massage that you get. All of that, if you're doing it for business purposes, it counts as a write-off, right? Well, and I don't know if this because we all know that you see out there on the surveys that most people want to be on YouTube and they think this is their thing, but if you never make money, you can't even monetize, and you can't create enough income, it's going to be considered not a true expense. I mean, so personal care and then close. Remember, we even reacted to this guy who just sewed the name of his business on the inside, and he said, Now my suits are deductible. Now look, the glimmer of Truth was if you go run, if you have a real business, like if I did a run of Money Guy shirts and we had a merchandise store, I gave it to every one of the team members here at the Money Guys show, yeah, that's probably a deductible expense, but that doesn't mean

that you know just like on Toy Story, you write Andy on all of your toys. It doesn't mean that that's now a deductible expense. So, you just, there has to be a viable actual real business purpose, and it also means that you can't be super aggressive with how you do it. Hey, I right now I'm on YouTube, and I'm wearing this shirt. Well, if it's required also just for the job, it's not deductible. That's the thing, that's the part that everybody, the government is smart, they don't let you just deduct it if it's part of the requirement to even go to that job. Like clothing is most of the time, it's not. Now, maybe if you have a specialized uniform or something, yeah, you can probably play up some of that, but just because you put a camera in front of you for YouTube, not necessarily deductible. How about this one, Bri decided, you know what, I'm going to do, I'm going to take out some of my buddies, and we're going

to go out. We're going to have a delicious meal, and while we're there, I'm going to explain to them what a Roth IRA is. Surely, if I do that, that means that meal must be deductible, right? Without a doubt, there are some, once again, partial truths here. Is that, and first, everybody needs to know, outside of what happened post-pandemic, meals and ENT meals, it's not even entertainment anymore, meals are 50% deductible. So already, the government is like, No, look, even if this is a true expense to your business, you don't get to take 100%, you get 50%. The second thing is, it really does need to be viable. So I would encourage you, it's going to be all about the record-keeping. Can you show who you went out to, to have the meal with? What was the business purpose? I wouldn't do anything on my tax return that I'm not prepared to sit across the table from the IRS for. Okay, well, what about this, that same group of buddies that I

want to take out of dinner. You know, I'm going to do. I think we ought to go on a trip, and we're going to go on vacation. We're going down to the beach, and while we're down there, we're going to hold a meeting, and we're going to spend an hour talking about personal finance. And that way, that whole long week that I'm going to be at the beach, I am going to deduct because that's a write-off for that vacation. I went on once again. I mean, look, if you had just like we've done Team Planning sessions where we go to a different city, we rent conference rooms, we have moments where we're doing team building and other things, that's a deductible expense. But if I just load up my family of four, you load up your family of five, and we all go on a trip together just so we could have the company pay for it, and we'd never cover business, we'd never do anything that actually shows the viable interest, that that's fraud. I mean, that's just not true.

so once again, glimmer is a truth, but it's not something I'd feel comfortable sitting across me IR. That's why we showed the clip of the private chef. Who would have thought that was going to be our first 5 million view? The problem with that is that he was talking about how it's for his family members, and I made the joke that you yell at your daughter, Hey, don't call me 'I'm CEO' as you hit past that Parmesan bread. The problem is that it's not going to be a viable thing, especially every night of the week. The IRS is going to be like, This sounds like personal that you're trying to make deductible, and that's a no-no. All right, BR, let's talk about this next one. This next one is, I think, this is, in my opinion, the most egregious and the one I see the most often abused because, again, there are glimmers of truth in there, but I think people really go deep into the gray on this one, and it's automobiles. Well, once again, very

likely there are a lot of people who use their vehicles, and they can be business expenses, but are they doing everything that's required? Have you actually looked at what's required? First of all, is it 50% for business use? You can't do everybody's always talking about, Hey, go buy a 6,000 lb vehicle. So, because if it's 6,000 lb, now we can 179 or take accelerated depreciation on it. But I have to ask you, are you tracking the mileage? And don't count the commuting expense. Commuting expense doesn't count if you're driving to the same office every day. Do you reach 50%? Do you also know, are you keeping a travel log so everybody knows your mileage and you're able to show this to IRS? I think a lot of people aren't using this appropriately, and they could be setting themselves up for a big oopsie when the IRS writes a letter for as a cautionary tell Brian as someone who has sat across on behalf of clients from the IRS is

that a situation you want to be in. What is it like when they come and ask you these questions, and there's something gray that they uncover? First of all, you ever get in a full audit with the IRS? Don't represent yourself. I've told you guys I've had business owners, I've had salespeople who were just too dagam cheap to hire me to represent them at the time, and then they call you crying because the IRS can mushroom out any of the questions that they have. But that's the problem. I've dealt with these situations. I've represented clients before the IRS, and that's why you just always want to be on solid ground. Look, the government wants you to maximize your deductions. There is nothing wrong with that, but they need to be legitimate. They need to be real expenses. If you're out there doing all these crazy schemes and you're drawing a red flag to your personal situation, don't be surprised when you see that the teeth of the government is a pretty scary thing. Remember, tax avoidance is

highly encouraged. There's an entire tax code built around you figuring out ways to avoid paying taxes in an illegal manner. High encouraged tax evasion is illegal. Not paying tax that you owe is against the law. You don't want to find yourself on the wrong side of that equation. So, if you're in the gray, your red flag Spidey senses ought to be going off. And if you're getting your tax advice from a 30-second TikTok video, perhaps you're not doing it the right way. You probably just heard right there, there are a lot of nuances to all these tax rules. You want to make sure before you put something on your tax return, you actually understand the letter of the law, what is allowed and what is not allowed, so that you don't make a huge mistake.

Stop Falling for This Viral Money Myth!

Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life.

Subscribe today to stay up to date with our latest episodes, livestreams, and highlight videos: https://www.youtube.com/c/MoneyGuyShow?sub_confirmation=1

Are you ready to go beyond common sense when it comes to your money? Check out all the free resources The Money Guy Show provides: https://moneyguy.com/resources/



The Money Guy Show

Tax write-offs are commonly misunderstood, with many believing they can deduct personal expenses like vacations and weddings.

A tax write-off is an actual business expense that can lower taxable income, but it doesn't mean the expense is free.

The IRS has hobby loss rules to prevent abuse, emphasizing the need for a viable business behind the write-offs.

Mistakes in claiming business write-offs can lead to red flags and audits.

Personal care expenses, like clothing and makeup, are only deductible if there is a genuine business purpose and income generated.

Simply labeling items for business use or wearing them for a job does not guarantee they are deductible.

Business meals are only 50% deductible, and proper record-keeping is essential to justify the expense.

Taking a trip with friends for a vacation and claiming it as a business write-off is not legitimate unless there is a clear business purpose and viable interest.

Attempting to deduct a family vacation without a genuine business purpose is considered fraud.

Misuse of Business Expenses: A Cautionary Tale

The speaker discusses the problematic use of personal expenses, like a private chef, as business deductions, highlighting the IRS's potential scrutiny.

They emphasize the common abuse of claiming automobile expenses, questioning whether individuals truly meet the requirements for business use.

The speaker warns that failing to track mileage and maintain a travel log could lead to trouble with the IRS, urging caution in how business expenses are claimed.

Dealing with the IRS can be overwhelming, and it's crucial to have professional representation.

The government encourages legitimate tax deductions, but engaging in questionable schemes can lead to serious consequences.

Tax avoidance is legal, but tax evasion is not, so it's important to understand the nuances of tax rules before filing.