Question on time spent at customer

[EXODUS]

I was wondering if I did customer visits to gain more business in essence it’s like marketing as I don’t provide an item, I provide my services as in my skills to troubleshoot and repair machines.  Would I be able to deduct this from taxes like the travel and time spent at the customer?  I am basically there marketing my services in a sense.  

[VolvoGirl]

Sorry no.   You can only deduct expenses you actually pay.   And you can't pay yourself.  You are not an employee of the business.  

[Hal_Al]

Q.  Would I be able to deduct  the travel (mileage), because I'm marketing my services?

A. Yes.

Q.  Would I be able to deduct the time spent at the customer?

A. No. You have no deduction, because you had no actual "out of pocket: expense.  You cannot deduct the "value" of your time.  

[Opus 17]

If you are self-employed, you can deduct ordinary and necessary expenses of your business.  If that involves traveling to customers for site visits, training, relationship-building, and so on, those travel costs are deductible expenses.  

The value of your time is not deductible because it is not an expense you paid for.  If you choose not to charge them for the visit, your tax "reduction" comes from the fact that you have less income to report.

[EXODUS]

So what if I chance to a SCorp and pay my self for those visits, would I then be able to deduct that on the business side as it’s an expense and the business is not charging for it; but I still have to get paid for my time?  I am changing to S Corp because I make too much and will have an employee other than me working in the next few weeks as well.

[Opus 17]

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@EXODUS wrote:

So what if I chance to a SCorp and pay my self for those visits, would I then be able to deduct that on the business side as it’s an expense and the business is not charging for it; but I still have to get paid for my time?  I am changing to S Corp because I make too much and will have an employee other than me working in the next few weeks as well.

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If you are the owner of an S-corp and you participate materially in the business, you must pay yourself wages or a salary at a fair market rate (what you would have to pay someone else to do the same type and quality of work, if you hired a manager instead of doing it yourself.).  Those wages are reported on a W-2, and are subject to tax withholding including social security and medicare taxes.  If there are extra profits, you can take them as a distribution that is not subject to payroll taxes.  What you can't do is pay yourself a nominal salary (like $1 per day) and take all the profits as a distribution (so you can avoid paying self-employment or payroll taxes). 

If you take a fair market rate salary for the work you do for the company, that is a way to get paid for time spent with customers even if you don't bill them.  You deduct the salary as a business expense.

But it's really no different in the end. 

Suppose you could bill $120,000 for your time over the year, but only bill $100,000 because of this free time situation.  Assuming $40,000 of other expenses, you have $60,000 of net income instead of $80,000.

If we suppose instead that you pay yourself a salary of $50,000, then at the end of the year you have $100,000 of revenue, $90,000 of total expenses, and $10,000 net profit.  Your income (salary plus profit) is about the same either way.

[EXODUS]

Thank you, I see I am just trying to figure out how to pay less lol I am getting killed right now and i am assuming because I’m an llc and I should switch to an S Corp and pay my self a salary so I don’t pay self employment tax on say 200k or more that the business makes.  I never expect to make as much as the business makes.

[Hi Palms]

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@EXODUS wrote:

......I should switch to an S Corp and pay my self a salary so I don’t pay self employment tax....

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But you'll have to then pay FICA (see https://www.irs.gov/taxtopics/tc751) and also FUTA (see https://www.irs.gov/individuals/international-taxpayers/federal-unemployment-tax).

You'll also have federal and state compliance costs, such as filing annual reports (fees), quarterly withholding, federal and possibly state corporate income tax returns, et al.

[Opus 17]

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@EXODUS wrote:

Thank you, I see I am just trying to figure out how to pay less lol I am getting killed right now and i am assuming because I’m an llc and I should switch to an S Corp and pay my self a salary so I don’t pay self employment tax on say 200k or more that the business makes.  I never expect to make as much as the business makes.

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You should get professional tax and legal advice.  You must pay yourself a fair market salary (what you would pay someone else to do the same job).  If your business has a net profit of $200,000, but a fair salary for what you do is $100,000, then you are doing pretty well for yourself.  If you pay yourself a salary of $100,000, you and the business will pay employment taxes and you will pay regular income tax.  Then you could take the other $100,000 as a dividend, and pay the regular income tax on that, but not social security, medicare or self-employment tax.  In other words, save about 7.65%.  

You aren't going to save any more money than that by giving away your services.  You simply make less profit because you don't bill as much as you could have billed.    And there are other costs and risks of forming an S-corp. 

Deductions are not the magic formula to keeping more money after tax.  For example, suppose you bought a $100,000 Cadillac or F250 (depending on the business).  That could cut your profits and tax in half if you claim section 179 depreciation.  But's not free money -- you might have saved $25,000 in taxes, but you spent $100,000 to do it, and now you have a very expensive vehicle you might not really need, instead of having $75,000 in the bank.

You may want to be looking at an SEP-IRA, you can contribute up to 25% of the profits (up to around $70,000 in total) to a pre-tax retirement account.  That's a way to lower your taxes and have the money invested.

https://www.irs.gov/retirement-plans/plan-sponsor/simplified-employee-pension-plan-sep

There may be other things you can do, but see a professional.