The One Tax Deduction You're Missing Out On
Dear Advisors,
As a business owner, you’re able to deduct a lot of expenses which typical employees can’t deduct. There’s no reason to pay taxes to Uncle Sam when you could use your expenses to help people and lower your own tax bill! The one tax deduction I bet you’re missing out on is financial planning. There are 2 ways you can get a tax-deduction from financial planning, and one tax warning to understand.
When you, or any of your business owner clients, hire a financial planner or a business coach, this is actually tax-deductible! Most advisors never hire their own financial planner. This puts you at risk of potential blind spots in your personal, financial, and business decisions. Every business owner has a doubly-complex financial plan and would be wise to work with a financial advisor. This is tax-deductible if you file a Schedule C and cover topics like your business during your financial planning meetings.
It seems weird to me that we offer our financial planning services to the whole world, but exclude the our own team, or as I like to call it, “my work family”. If you want your employees to be more engaged and become advocates for your firm, try putting them through the process! Offering this as an employee benefit in-house poses legitimate confidentiality issues. You may choose choose to engage in a reciprocal, paid agreement with another firm to do financial planning for your employees, or provide your employees with a budget to choose their own advisor. Both of those options provide you with a tax-deductible business expense.
Tax Warning - Unfortunately, financial planning is not recognized as one of the various tax-qualified employee benefits that you can offer to your employees tax-free. Unless you pay for it through a non-discriminatory Section 125 cafeteria plan, you must include it as W-2 income for the employee. That means the employees have to pay taxes on that phantom income. It’s important to warn employees about the tax withholding on income they won’t receive directly, so they can plan their cash flow accordingly. This tax issue is negligible, compared to the personal benefits they receive from financial planning. Also, recent studies have shown that employee financial wellness has several benefits for your firm, in addition to the tax deduction:
cuts down on absenteeism
helps them make better decisions on how to use their employee benefits which makes them more satisfied employees
reduces turnover because they have a better relationship with their income and how to use that to enjoy life
For more information, you can read the Kitces Nerd’s Eye View article on financial planning as an employee benefit here. Financial planning isn’t simply about managing your accounts and increasing your returns. It’s about living a happier, healthier life, and getting a tax deduction while you’re at it!
Warm regards,
Brooklyn
P.S.
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