Turn Everyday Costs Into Tax Deductions (Maximize Deductions)

Most business owners are spending money the wrong way.

Every dollar you spend is either pre-tax or after-tax. 

Pre-tax dollars give you the full $100 of value. But with after-tax dollars… you’re only keeping about $65 once the IRS takes its share

That difference adds up fast. 

The key is knowing how to shift ordinary, everyday expenses into the pre-tax column legally and with the right documentation. This blog explains the pre-tax vs after-tax mindset, what the IRS requires, and the types of costs you’re probably paying for anyway that could instead become deductions.

Pre-Tax vs. After-Tax Spending

Here’s the simplest way to think about it:

• Pre-tax spending: Costs you pay before taxes are applied. For business owners, these are legitimate business deductions.
  
  
• After-tax spending: Costs you pay with what’s left after the IRS takes its cut.
  
  

The mindset shift is simple: Find opportunities to move after-tax expenses into pre-tax deductions.

What the IRS Requires

For an expense to qualify, the IRS says it must be both:

• Ordinary: Common and accepted in your line of work.
  
  
• Necessary: Helpful and appropriate for running your business.

It doesn’t have to be indispensable, just reasonably tied to your business.

Everyday Costs That Can Become Deductions

Some expenses are obvious, like office rent or supplies. But many costs you’re already paying can often be shifted into deductible territory.

Home Office

• A portion of rent, utilities, and mortgage interest can be deducted if part of your home is used regularly and exclusively for business.

Vehicle Use

• If you use your personal car for business, like going to client meetings, conferences, or even the airport for a business trip, you can deduct mileage or actual expenses.

Meals

• Meals with clients, prospects, or even friends where business is discussed are 50% deductible.

Travel

• Plan personal travel around conferences or vendor visits, and the business portion becomes deductible.

Cell Phone and Internet

• If you use them for business (and you do), part of the cost is deductible.

Technology and Subscriptions

• Cameras, software, cords, lights: If they help you operate your business, they qualify.

Hiring Your Kids

• Paying your children for legitimate work in your business shifts family expenses into deductible payroll.

The Credit Card Audit

Use this practice: pull out your personal credit card statement and go line by line asking, “Is this business-related?”

You might be surprised at what qualifies. Commonly overlooked deductions include:

• Gas station charges tied to business travel
  
  
• Business books purchased on Amazon
  
  
• Meals with friends or contacts where business was discussed
  
  
• Costco memberships partly tied to business purchases
  
  
• Utilities and lawn care that support a home office
  
  

This simple audit can reveal deductions you’re missing every month and shift those expenses from after-tax to pre-tax.

Documentation and Reasonableness

The IRS won’t just take your word for it. To defend deductions, keep:

• Receipts with who, what, where, when, and why noted
  
  
• Mileage logs or business purpose notes for travel and vehicles
  
  
• Records organized under an accountable plan if you’re an S Corp or C Corp

Also, be reasonable. Not every meal, every purchase, or every expense is deductible. If it looks excessive to you, it will look excessive to an auditor.

Pre-tax spending is how business owners keep more of what they earn. 

By shifting everyday costs like meals, travel, home office, and even family support into deductible expenses, you can save thousands every year.

Transcript

Introduction: The Mindset Shift

[00:00:00] Mike: Here's the mindset shift that changed everything for me. As a business owner, every dollar I spend is either pre-tax or after tax, and most people spend the wrong way. Today I'm gonna show you how I turn everyday expenses into tax deductible business costs. Legally the right way. And I'll walk you through a real life routine.

[00:00:17] I used to spot these opportunities in my own business. So if you're tired of giving away money to the IRS, this one is for you.

[00:00:44] Understanding Pre-Tax vs. After-Tax Spending

[00:00:44] Mike: So I wanna start out by talking about this base concept. What is pre-tax versus after-tax spending? And the best way to describe this, if we look at pre-tax spending, this is money that's spent.

[00:00:54] Prior to those funds being taxed and after tax spending is obviously money that you spend after the [00:01:00] money's been taxed. And the best way to look at this is let's think of a W2 employee. As a W2 employee, you get your gross wages, but before you get that money sent to your bank account, your employer takes out all these different things, whether it's taxes, whether it is retirement contributions, everything else, but you get gross wages, all these taxes taken out, and then you get your take home pay.

[00:01:18] And that is what is get put into you. Your bank account, and then any spending that you do with that take home pay is considered after tax spending. Those funds have already been taxed and those taxes have already been taken out. Now let's flip the switch and look at it as a business owner. As a business owner, you have your sales or your revenue, and then you have all these expenses that offset that, which comes to a profit and you're taxed on the profit.

[00:01:42] Of your business. So any spending that you do prior to that profit amount, any spending that you do for business related items is considered pre-tax spending. That's spending, that's done prior to it being taxed. And that's this concept of pre-tax versus after tax spending. 

Turning Everyday Expenses into Business Deductions

[00:01:56] Mike: And the mindset shift is how do we turn after tax spending into pre-tax [00:02:00] spending?

[00:02:00] 'cause let's go through a quick example. Let's just assume that easy numbers, you're in the 35% tax bracket and if you make a hundred dollars. $100 after tax, it's gonna be $65 that's put into your bank account. So you gross a hundred dollars, taxes get taken out, you get a $65 check in your bank account, and then you spend on it.

[00:02:19] You're spending on that 65, not the a hundred 'cause taxes were already taken out. Now let's instead look at that and say that you spent a hundred dollars pre-tax. You just save $35 in tax by doing that. And so if you can shift spending from after tax spending to pre-tax spending, you're automatically.

[00:02:37] Saving. Now, when we talk about this concept of, and that sounds great so lemme step back a point. That sounds great. This concept of after tax spending versus pre-tax spending, that does not mean go intake, never put anything on your personal card and run everything through the business. That's not what that means.

[00:02:53] But what we're talking about is can we find opportunities to move some of that after tax spending? Some of that items that we're gonna pay [00:03:00] for anyways. We're gonna have these expenses anyways. Can we move some of that? Into a business expense. And so in order for an expense to be considered an allowable expense in the iis, it's gotta be ordinary and necessary, and ordinary just means that it's common and accepted in your industry based on the type of work that you're doing, the industry that you're in, if you're a lawyer, if you're a landscaper, it's ordinary in that industry.

[00:03:23] And the second piece is necessary. Which just means it's helpful and appropriate in operating your business. It could be helpful for you to gain clients. It could be helpful for you to retain clients. It could be helpful for you to get employees or retain employees. That's what the IRS says. In order for an expense to be an allowable expense, it's gotta be ordinary.

[00:03:41] And necessary in your business. Now, one thing to note is that not all spending is always 100% deductible, but sometimes a portion of some expenses might be. And we're gonna talk about some examples, some opportunities, some ways that we can get this moving from pretext after tax spending into pretext spending.

[00:03:59] So [00:04:00] let's dive into that. What are some areas or concepts of this? 

Examples of Tax-Deductible Expenses

[00:04:03] Mike: Number one, the home office deduction. You're gonna live in a home no matter what. So whether you're a business owner or not, you're living in a home. But as a business owner, if you have an office in your home, and we talked about this in a previous topic that we talked about.

[00:04:18] Most business owners should have some sort of home office deduction. Even if you have an office elsewhere, you should have some opportunity for a home office deduction in your home. So these are expenses that you're gonna have anyways. Those utilities that rent that mortgage interest all of those items you're gonna have anyways.

[00:04:32] But now. As a business owner, you can have a home office in that home and you can get a portion of those costs deductible as a business expense. So again, costs that you are gonna have anyways. Now you get a portion of 'em as a business. Next year, you're moving a portion of those costs from after tax spending into pre-text spending.

[00:04:49] That's a great opportunity. What about vehicle use? Maybe you have a personal vehicle and maybe you don't drive much for your business, but you have a personal vehicle that you do go. You go to the airport when you go to conferences, maybe you go get business supplies with [00:05:00] that vehicle. There's different things that you do with that vehicle.

[00:05:02] Again, if you're using a personal vehicle for business, you get a reimbursement for that. You get to take the business use of that vehicle again, turning after tax spending. You're gonna have that vehicle anyways, but now you're turning after tax spending into pre-tax spending. Meals is a great opportunity, and we always talk about this.

[00:05:19] Now meals are 50% deductible, so just keep that in mind. But there are so many times when you meet with a friend, a family member, that you're just talking business and to you it's just a meal with a friend or just a meal. With a family member, but you're talking business and you don't even realize it. And I had this conversation the other day where I was with a friend and we'll talk about that conversation a little bit later in this presentation.

[00:05:40] But meals are an incredible way. You can take advantage of this opportunity as well. Travel. Me and my wife used to always do this. When we would travel, we would look. For places that we wanted to travel and then find business reasons to go there, whether it's visiting a client, visiting a vendor, attending a conference.

[00:05:57] We always wanted to go to Washington DC so we said when are some [00:06:00] conferences in Washington DC gonna be there that are related to our profession or related to continuing education? And can we plan that travel that we wanna do anyways around a business conference? And now turn that into a deductible business trip.

[00:06:13] Again, be careful. A lot of things you need to do right here. But there's plenty of opportunity there. Cell phone and internet. As a business owner, you're always on the internet and you're always using your cell phone, so cell phone on the internet, a portion of that is gonna be a business deduction.

[00:06:25] Think about technology costs. As I look around my office, I have cords, I have cameras, I have lights, I have all these different things. Of course, those are business related items. And so when we think about this pre-tax versus after tax spending, it's trying to think of when you're swiping these card, is there some things.

[00:06:41] That make this business related, whether it's fully or partially. Can a portion of this be moved from after tax spending into pre-tax spending? Another one is hiring your kids. This is one that I absolutely love, and I think if you have kids between the age over the age of seven, you should be hiring your kids in some sort of way in your business.

[00:06:58] Now, it might not be [00:07:00] $20,000, $50,000 of course, but your kid should be doing something in your business because guess what? As a parent, you're supporting your kids and you're using after text dollars left and right all the time to pay for these different things that your kids wanna do. But if you hire your kids in your business, now you get a business deduction, your kids potentially pay no income taxes and then they go and pay for that amusement park they wanna do with friends or they go pay for that basketball camp that they want to go to.

[00:07:24] That is one incredible way to move after tax spending. Into pre-tax spending. Other things to think about is education, software subscriptions. All these different things are opportunities to take advantage of this Now. 

Live Practice: Auditing Personal Spending

[00:07:42] Mike: Next, I'm gonna go through a live example of a practice that I do personally a few times a year to help me understand and get that mindset shift to help me be a business owner and see where the opportunity is.

[00:07:47] To move items from after tax spending into pre-tax spending. But real quick, if you are a business owner and you are tired of guessing when it comes to taxes, we just released a brand new tax saving starter kit and it's a hundred percent free. [00:08:00] Inside. You're gonna get our ultimate list of business deductions.

[00:08:02] You're gonna get real case studies showing how others saved 5,000 to $25,000 or more. And you're also gonna get access to a bonus discovery call with our team. Just head over to tax savings podcast.com/starter kit, that tax, that's tax savings podcast.com/starter kit to grab your free copy. Alright, now back to maximizing deductions.

[00:08:22] And I thought for this specific topic, it would be cool to, to do a live practice of kind of what I do on my end and how I audit my own spending. So what I'm gonna do here, I have printed out a credit card statement, a personal credit card statement, and I'm gonna go through a practice that I often do, and I ask myself, can this be connected to business?

[00:08:44] Can this opportunity be something that is business related? So As you continue to do this, there's gonna be less and less things because your initial mindset always is gonna be, oh. There's some business use to this, so keep that in mind. When I look at this, there is a lot of things on the statement that of course, don't qualify.

[00:08:59] Would not [00:09:00] qualify as a business expense. A movie theater, bowling the zoo, maybe there's some business expense, but in my case it wasn't, I looked at those situations that was going with a family, but now I have one here, it's a gas station. Obviously gas, there's business related, there could have been business related there that I need to look at.

[00:09:16] Did I include that in my reimbursement for automobile? There was a purchase on Amazon for a book that I bought. Amazon account was tied to my personal credit card automatically. Was there, that book was business related and that book helped me in my business. So that's something that I need to think about.

[00:09:29] Okay, I need to change that card or I need to make a reimbursement there. I have a dinner at Buffalo Phil's, and this was with a friend of mine. In that friend, and this is that story I wanna tell you. I was having lunch with a friend to catch up with a friend, something that, all of us do, and I didn't think business related at all.

[00:09:47] That whole meeting with a friend.

[00:09:49] We talked about his business, we talked about my business. He gave me some ideas to help me out. He said, I need to get you a referral. That whole meeting is definitely business related. And at the time, I didn't think of it that way [00:10:00] because I was meeting with a friend. But as I look back here, I said, yeah, we spent an hour and a half talking about business and he gave me tips and insights into my business, and he has three referrals that he's gonna send over to me.

[00:10:10] That's a business meeting. So that's something to be thinking about. Here's Google Storage and opportunities. There. Definitely like some business related items there. So I need to find out what is the business use, make a reimbursement there. And then we have Amazon.

[00:10:21] And that's probably mostly my wife. And so I think that this also could bring up an opportunity where you have the opportunity to check in on some of the spending that maybe a spouse is doing and saying, do we need all these things from Amazon? But anyways, I digs. I have an oil change on here.

[00:10:37] That's something that I'm gonna include in my reimbursement because my business is partially, or my vehicle is partially business related now. It's a lot of personal, but it's got a personal business relation to it as well. So that's opportunity. Having to, BP is gas. We went to a brewer game, Milwaukee Brewer game, and went with a client who happens to also be a family member, but it's a client and someone that we do advertising with.

[00:10:58] There's a definitely an [00:11:00] opportunity there, depending on what we talked about at that meeting to do that, I'm looking here. I got Verizon. There's a Verizon cell phone bill, so obviously a good portion of that's gonna be business related. Make sure I'm including that as a reimbursement. And another Amazon purchase, charging cables, things like that.

[00:11:14] Spectrum, our insur, our internet. Of course, that's gonna have some business related. Here's a membership for Costco. Costco membership. There's a lot of things I buy at Costco, our business related. I don't think of it that way. 'cause I also buy food and I also buy all these other things at Costco, but there's a lot of things business related.

[00:11:29] So of course I'm gonna take a portion of that membership cost as a business item, a cleaning lady, utility company. All of those are gonna be part of that home office deduction. Lawn care services I'm showing on here again, part of the home office deduction. Utility companies purchased here on Walmart.

[00:11:46] That was for a tv. Hanging in the office that I have over here. Here's an apparel company that, now this one I didn't do. So this was an apparel company that I bought, or I was getting t-shirts for a soccer team. And I [00:12:00] didn't think about this, but. I could have easily, instead of just buying t-shirts for a soccer team and letting that be a personal expense, I could have easily put a logo on the back of it and made it be a sponsorship for that team.

[00:12:10] So there could have been a planning opportunity there. Here's a haircut, and because I, do video haircut. Oh no, just kidding. Yeah, haircut definitely would not be considered a business expense. So this is a practice that I like to do every once in a while. And as you start to notice these different things, you're gonna be sitting down at those meetings where you're talking about talking with a friend, talking about business.

[00:12:30] You're gonna be sitting down at those meetings where you're also like, wait, it's time to pay. And what did we talk about? We talked about business related items this whole time. So instead of pulling out my personal card, I'm gonna pull up my business card. Or maybe you're going into Amazon, you're like wait.

[00:12:46] A good portion of these items are business related, so I'm gonna separate them out and make sure business card and personal card, you're gonna start to see those as you start to have this mindset shift of this after tax versus pre-tax spending. 

Framework for Business Expense Deductions

[00:12:58] Mike: Now there's typically a framework that I typically talk.

[00:13:01] Members attack 'em through. And the first thing is we want rationale. Are we recording it? And is it reasonable? So the rationale is there a business purpose? Of course, if we're gonna take a business expense for something, it has to be business related. That's something we cannot play with.

[00:13:16] But is there a business purpose and do we have documentation or the intent of use? So if I swipe a card at that dinner that I had with a friend, that. Paid for personally, but should have been business. Do I have documentation that says, okay, I met with this person, and do I have documentation? Whether that's notes, whether that's just writing on the receipt, you know what we talked about, documentation, and then reasonableness, be reasonable with all these things.

[00:13:40] If you were sitting across the street, across the table from an auditor, what, and you were telling 'em about these stories and why this is business related, would they believe it? If I bought 10 TVs from my house and said, yep, those are going in the home office. If I'm sitting across a table from an Iris Otter and I say, yeah, I got 10 TVs in my home office and my home office is 12 feet by 12 feet, what do you [00:14:00] think that auditor's gonna say?

[00:14:01] They're gonna call me out on that. So make sure that these things are reasonable. If every single meal that you eat out at is a business deduction. Does that make sense? Probably not every single meal is a business deduction. Be reasonable with these different items. Now, proof is the biggest thing.

[00:14:17] How do we prove these items? We want receipts. So on the receipt, right? Who, what, where, when, why? Directly on that receipt, if you had lunch with Bob, say, I had lunch with Bob. We talked about, these 30 things in our business, and he talked about referral opportunities, right? On the receipts, who, what, where, and why.

[00:14:33] And just like a quick description of why there's a business related item there. Why is that business related? Take a picture of it, save it on the file. You're likely never gonna need it, but if you do, you have that documentation. Say, here is why this is business related. And if you paid for something personally, and you are an S Corp or a C corporation, make sure you have an accountable plan in place to reimburse yourself for the business use of that item.

[00:14:56] That's one thing to be very clear. Now, one thing I [00:15:00] also wanna talk about is that if you have something that's a hundred percent business use. Of course run that through the business. This is not what we're talking about. What we're talking about is other opportunities. So if you have something a hundred percent business use, run that through the business.

[00:15:12] And I like to always tell this story. I had a friend that was starting a photography business and they listened to a lot of stuff we talk about and all these cool planning opportunities and different ways that we can talk about it. And they said, Mike we're doing lunches, we do those types of things.

[00:15:23] Of course but. I have a camera can, is that deductible? And I have this photo editing software. Can I take a tax deduction for those things? And I said, of course. So they got so caught up into these different planning opportunities and deep mindset shift that they forgot about the obvious ones.

[00:15:39] Don't make that mistake. If there is obvious business expenses, of course, we're taking those. What we're talking about here is how can we go above and beyond that? How can we find those other opportunities, whether it's the home office deduction, whether it is, vehicle use, meals, travel technology, cell phone and internet, how your kids in your business, education, software, subscriptions, whatever it [00:16:00] is, we're talking about, those above and beyond.

[00:16:02] Of course your a hundred percent everyday use business expenses. 

Action Items and Final Thoughts

[00:16:06] Mike: So let's talk about some action items. One, start small. Look at one bank account and see if you can find one transaction that you paid for personally that was actually business related. Pick one expense type category, whether it's meals, whether it's travel, and start thinking about it more strategically.

[00:16:23] Pick one category a time. If it's meals, make it a point that every time you're swiping a card for meals, think about. Was that business related? Of course, it's not gonna be a hundred percent, but was there business related items there? Set up a system this week to track and categorize these items better.

[00:16:40] $50 here, $75, there might not seem like much, but it starts to add up that $50 and $75 charges can end up to $2,005,000 and more. And it also makes you a more aware business owner. And just remember, $100 with pre-tax spending is worth a hundred [00:17:00] dollars. $100 with pre-tax spending is worth a hundred dollars.

[00:17:04] $100 using after-tax dollars. Is just $65. Let that sink in and show you the opportunity that you have as a business owner. So the truth you're already spending the money. So the real question is, are you spending it smart? Pre-text spending is how the wealthy build wealth faster. Start thinking like the CFO of your life.

[00:17:24] And if you wanna see more examples of this exa of this in action, subscribe. Now. If you've found this helpful, don't forget to hit that subscribe button, hit that like button and share it with a business owner who's sick of paying too much in tax. And if you want help from our team of tax professionals implementing strategies just like this, along with so many other strategies, visit www.tax elm.

[00:17:44] That's TAX. elm.com or click the link into the description for a free discovery call. We are helping people like you legally lower your tax bill every single day. Thanks for coming up and I'll see you on the next one.