Like many small business owners, you are probably already aware of the financial advantages associated with utilizing one of the government’s basic tax incentives. However, did you know that there are also specific tax incentives that will reward you for helping your employees? In episode # 135, Gene Marks and Elizabeth Larkin discuss three tax incentives that will not only earn you additional deductibles, but will provide your employees with competitive benefits as well.
2:07—Today’s Topic: Which Tax Incentives will Enable Me to Offer Employee Benefits?
3:01—Small business owners who invest up to $5,250 a year on employee education will receive a full deduction, while their employees benefit from a tax-free education.
5:52—Another employee benefit that will enable you to earn a deductible is dependent care. You can spend $5,000 or reimburse the employee to receive the deductible and your employee will not be taxed. Employees can also inquire about dependent care credit with your accounting department.
8:19—The IRS will allow you to pay $255 a month on an employee’s commute. (If they are a biker, you can offer up to $20 a month.) As in the previously mentioned cases, these benefits will be tax-free for your employee and will earn you an additional deductible.
9:35—You should consult with your accountant or attorney to formalize these plans.
11:00—Gene encourages small business owners to apply to Amazon Storefronts so that they can use the platform to reach more clients.
Submit Your Question
Elizabeth: Welcome to another episode of the Small Biz Ahead podcast. I’m Elizabeth Larkin from The Hartford. I’m here with Gene Marks from the Marks Group, and Gene is also serving today as our small business expert.
Gene: That’s a good way to put it, yeah. You know, and it’s funny, we’re going to talk about taxes today, right, in this-
Elizabeth: Saving on your taxes.
Gene: Yeah, it’s taxes, so I never get introduced as a CPA.
Elizabeth: Oh my gosh, yes!
Gene: I am a certified public accountant.
Elizabeth: I’m here with Gene Marks of the Marks Group.
Gene: As a CPA, right.
Elizabeth: Small business expert.
Gene: So this is sort of bread and butter. We’ve talked about a whole bunch of topics,, but really up my alley is accounting stuff, and taxes, not as much as the accounting stuff, but a lot, so we’re going to talk about some good stuff.
Elizabeth: So I just had a Reese’s peanut butter cup before we started this so I don’t fall asleep, but for you small business owners listening-
Gene: Wait a second. You were going to fall asleep while we talk about taxes, is that what you’re implying?
Elizabeth: You’re going to want to pay attention to this as a small business owner because Gene is going to give you three tips on how to save money on your taxes-
Elizabeth: By providing better benefits-
Gene: Employee benefits.
Elizabeth: To your employees.
Gene: Yeah, yeah, yeah.
Elizabeth: So stayed tuned for that after we hear from our sponsor.
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Question: Which Tax Incentives Will Benefit Your Employees?
Elizabeth: So here’s a great question, and it’s really funny because we’ve for years, we’ve been doing this podcast for what, like two years now, and this topic has come up before, and we always say like oh, that could be a whole episode. We’re finally doing it.
Elizabeth: Because we got this question in-
Gene: And by the way, we’re only going to scratch the surface, let me just say.
Elizabeth: Yes, we’re scratching the surface.
Gene: Because we want to keep this, you know, short and palatable, but go ahead.
Elizabeth: So the question is I started an interior design business and now have five employees. Are there any tax incentives to help me provide better employee benefits?
Gene: Why yes, Elizabeth, there are as a matter of fact. A lot of people don’t realize that the IRS gives business owners certain tax breaks for doing certain things, and these certain things should help you provide benefits to your employees, so I want to give you three tax things that you want to know about.
Now first of all, let me also caveat this. I am a CPA. This is my opinion. This is all me. This is not, you know, don’t yell at The Hartford if for some reason there’s a … I know the information is right, but obviously check with your own accountant as well because your circumstance might be different, but-
Elizabeth: Always good advice.
Gene: Yeah, just to validate it, but there are three things, whether you have five employees or 500 employees that do apply, so number one. Educational expenses. Elizabeth, if you worked for me or you worked for any small business, as a small business owner I can pay up to $5250 a year for your education. It doesn’t even have to be related to the business. It doesn’t have to be technical. Anything that’s quote unquote with education. You had mentioned that some people on your staff, you’re going to get them trained on something and whatever, so it’s $5250 a year you pay, you pay or you can reimburse your employee for it, and you get a full deduction for doing it.
Elizabeth: That’s great.
Gene: And the employee does not get taxed, so even though the employee is getting the benefit of that education, it could be higher education, it could be a certification, it is certainly a good thing for them, they don’t even have to declare it on their tax return. You don’t have to declare it anywhere else, and you get a full deduction.
Elizabeth: Now is there any reason, because I have not, I have worked at a lot of places and I’ve never heard about this before.
Elizabeth: Is there any reason why employers wouldn’t want to do this?
Gene: Yeah, because you still have to spend $5000. Yeah, you get a deduction for your taxes, but it’s money that you spend, and-
Elizabeth: But you have better trained employees.
Gene: Well, of course, yeah. It just depends on what your culture is and what your objectives are.
Elizabeth: So do you do this at the Marks Group?
Gene: No, and I should, but, wait, let me take a, back off. First of all, we don’t have a formal plan, and what most experts recommend is that you do have a formal plan. When you do have a formal plan, then everybody benefits. That means you have to make it available to anybody. When you have a formal plan, you can’t make it just available to just you and your spouse or only the managers. It can’t be discriminatory. It’s got to be for everybody. What I do though, in all honesty, I do pay for certifications and training for my staff, so if my staff goes away for training on a Microsoft product or whatever, I pick up that cost.
Elizabeth: So you are doing this?
Gene: Yeah, and it’s just not a formal plan, but yeah, I do.
Gene: And when I pick up that cost, I can do it on their behalf for up to 5250. What I don’t do though is I don’t advertise it enough. An employee will come to me like hey, I want to go to this Microsoft class, is that okay, and I’ll be like yeah, okay, that’s cool. I should have it in the list of here are the reasons why you want to work for The Marks Group. One of the reasons is-
Elizabeth: I was just going to say that.
Gene: Yeah, we pay up to $5000 a year for your education expenses.
Elizabeth: That’s a huge … we were talking several episodes ago about how to attract young talent.
Gene: Yes, yes.
Elizabeth: That would be so attractive to me in a company if they said and they put it right in the job description up front, you can expand your skills by taking classes that we will provide you with the tuition for that.
Gene: Exactly right. Exactly right, so it’s a great benefit, so it’s not just attracting employees, but obviously you want to keep your good employees there, and like hey, man, our employer pays for education.
Gene: So the IRS gives you a break to do that. That’s number one. You talk about attracting younger employees. The definition of younger obviously is a wide definition. There are a lot of young people that are parents of young kids, and you want to attract them as well, so there’s dependent care. Like education, you as the employer can pay up to $5000 a year for day care or dependent care for your employee, and the employee does not get taxed on it, and you can take a deduction for it. By the way, this is for young kids or maybe an older parent or something like that.
Elizabeth: I was just going to say, is there an age limit on that?
Gene: No, there is not.
Elizabeth: So if you have to send your parent to an adult day service or something?
Gene: You can pay $5000 or reimburse the employee $5000 for up to that. You take the deduction and the employee does not get taxed on that at all, so it’s a nice benefit to provide. Now remember, you can also with just a little bit of effort, you can explain to your employees or have your accountant explain to your employees how they can take advantage of the dependent care credit, so okay, you might pay $5000 for the employee, that’s great, but then let’s say dependent care costs more than that, so they’re paying whatever out of their own pocket, well now with tax reform, there’s a whole new credit. It’s an expanded credit. It’s not new, so even if an employee is married and filing jointly, and if you’re making up to $400,000 a year married filing jointly, you can take a $2000 credit you get for your dependent care expenses.
And I think a lot of employees don’t know that, so if I was, and again I don’t do this and I should, as I go through this, I’m like why aren’t I doing more of this, you should be telling your employees, listen, we’ll take care of $5000 of your dependent care expenses and we’ll provide you with an hour of financial counseling so you can fully take advantage of the dependent care credit as well, so that when all the smoke is cleared, an employee is like wow, because I’m working for this company, I’m like really saving a lot of money on this stuff, and that’s a big deal for young parents. It’s a lot of-
Elizabeth: Or anyone, not even young.
Gene: Yeah, for anybody that’s parents. It’s just a big deal, and I think a lot of employers don’t realize that it’s out there and they don’t do it. Recapping so far, educational expenses, 5250 bucks a year you can pay, get the deduction, not taxable to your employees on any education. Dependent care as well, $5000 a year you can pay, and your employee. Again, my recommendation to have this as part of a formal plan, make it available to all of your employees as well, don’t discriminate, but I think it’s a great benefit that you can provide.
My last tax advice is commuting expenses. The IRS will allow you to pay up to $255 a month for an employee’s commute, so it is like a transit pass or a bus fare or if they’re taking train fare in, or believe it or not, even if it’s parking-
Gene: That they are making if you’re in a city. It’s $255 a month. You can take the deduction for it and your employee doesn’t have to include that as part of their income. They don’t get taxed on it. It’s a nontaxable benefit. In addition to that, you can pay an employee 20 bucks a month if they’re a biker to defray some of their biking costs. I mean, 20 bucks is 20 bucks.
Gene: Add it, it’s a few hundred bucks a year.
Elizabeth: Yeah, that’s great.
Gene: It’s great, and again your employee does not have to declare this as income and you get a deduction for it as well, and it’s, I don’t know if it may seem like a small thing to some, I think it’s a huge thing for a lot of people that are commuting to work.
Elizabeth: Yeah, definitely.
Gene: And for an employer to be like hey, we pay $255 bucks a month for your commuting expenses, that’s another on our list of benefits along with dependent care and educational expenses that we pay to take care of our employees. These are just three things that are available, and by the way, none of these are new. They’ve always been around. It’s just I go to clients and they don’t really know that they exist.
Elizabeth: So where would you start with this? Let’s say someone is listening and they’re like, I had no idea. I definitely want to do these things. Your first stop is your accountant?
Gene: Yeah, I would talk to your accountant first, or your attorney if you’ve got a business attorney that works with you, and you ought to formulate a formal plan, so you put it together, and another thing you want to advertise it to your employees, and again in these times where it’s really tough finding good employees and keeping them, to suddenly announce like hey, starting January first, we’re going to be paying for everybody’s commuting expenses, you know what I mean, and this is what the rules are, and you have a plan, a PDF document that you send around with what the plan is. It’s a nice thing to announce, and it’s a good reason to keep people working for you.
Elizabeth: That’s great.
Elizabeth: These are all really good tips, Gene.
Gene: It’s good stuff.
Elizabeth: Thanks. All right. We’ll be right back with Gene’s word of brilliance.
WORD OF BRILLIANCE: Storefronts
Elizabeth: Okay, we’re back with Gene’s word of brilliance.
Gene: So the word, it actually is one word.
Gene: But my word of brilliance today, I know, what a surprise, storefronts.
Gene: Amazon Storefronts.
Gene: Just recently Amazon has announced something called Amazon Storefronts, and Elizabeth, come on, ask me what exactly are Amazon Storefronts? Go ahead, ask me that.
Elizabeth: Can I make a guess or-
Gene: All right, go ahead.
Elizabeth: Am I just supposed to ask-
Gene: No, make a guess, go ahead.
Elizabeth: I’m assuming that if you sell on Amazon, you can create your own storefront?
Gene: Kind of, not exactly.
Gene: Storefronts is really just a branding name for a special new site on Amazon.com which you can easily get to right from the home page specifically for small businesses.
Gene: So Amazon, the statistics, I did a little bit of writing on this, the statistics are more than half of the items that are sold on Amazon.com are sold by small businesses. They’re small merchants.
Gene: There are over a million small merchants in the U.S. alone, but millions around the world that sell on Amazon.com. So Amazon’s like, you know what, sometimes we get some abuse about small business, oh, we’re putting small business … I’m a big, I believe they’ve created more opportunities than the other side, but what Amazon has done is they have decided to create this Storefront site, and they took 20,000 small businesses to start with that are selling a million items, and you can go there on Amazon.com, you can buy the same look and feel, you can buy the same stuff that you’re normally buying, it’s just that customers know that when they’re buying something, they’re buying it from a U.S. based small business-
Elizabeth: That’s great.
Gene: So they’re supporting small businesses, and then they’re also adding some extra things, like every week they’re going to highlight one of the storefronts and show them off and their specials. They’re going to do these in-depth profiles of the business owners, make a whole thing about small business, but what I like about it is that if you’re a small merchant selling on Amazon now, ask Amazon about how do I get on Storefronts, and you can tell your customers, or if you’re a consumer and buying from Amazon and you want to support U.S. small businesses, go to Storefronts, and that’s a good way to give a little something back.
Elizabeth: That’s an awesome word of brilliance.
Gene: That is my word of brilliance.
Elizabeth: When is this launching or it’s already launched?
Gene: It’s already launched.
Elizabeth: Oh, okay.
Gene: It’s out there and it’s available.
Elizabeth: All right, great, so this is for all of our retail and-
Gene: Anybody that’s selling anything online, and if you’re an Amazon merchant, you’ll take advantage of it.
Elizabeth: That’s awesome.
Elizabeth: All right, we’ll be back in a couple of days, and we’re going to be talking about another benefit which is vacation time, and we’re really going to dive into what the research says about different vacation policies. Thanks for listening.
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