In this interview you’ll learn how you can make the most of your time before Tax Day, reduce stress, and save more money this tax season!
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The best way to get in touch with Hazen is by email at email@example.com. You can also reach out by phone at 208-939-1995.
Robbins & Armstrong offers:
• QuickBooks setup, sales, training, answers, and tune-ups
• Tax planning, preparation, and problem resolution
• Small business and non-profit accounting, payroll, audits, and business formation • Individual estate planning
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Hi, Allison Dunn, owner of Deliberate Directions your business executive coach. Today on our podcast. We have Hazen Armstrong with us. He is the owner of a Robbins and Armstrong based out of Eagle, Idaho. And I got a quick little bio for you. So we have brought us in to talk to us about 2019 tax season tips for small business owners. And he’s an as a graduate of BSU. degree in 2011. And while he was in school, he founded All Turf LLC. And you ran that for seven years. So this is one of the particular things that I think makes you a very relatable CPA. Not that sure. Most aren’t. Yeah, yeah. But that you come from the entrepreneurial side of things. So tell us a little bit about that before I dive in drill you for all of you. Yeah, Ck question. Sure.
Sure. Sure. Of course. Um, so my original degree He was in marketing. And that was my world live in Seattle for a lot of years. And when we moved to Boise oh seven, market was not what it was the prior two years, so there just weren’t many jobs to be had. So I started up All Turf. And that was we did sprinkler and chemical work was really purely it was trying to keep it really simple. There was just a couple of us and built that up and sold it and used those experiences, those frustrations, dealing with CPAs lawyers and all that, through that process to parlay that into I think I can maybe do this a little bit better, maybe speak a little bit more plainly and understandable and relatable to, to business owner so that they don’t have to make the same mistakes that I made and really got frustrated with. So that’s what landed me to dive out of the marketing world and into accounting. So we went back to BSU.
Fantastic. Well, it’s a switch from working with your hands, right?
It is it is. Yeah, yeah, there was actually two years where I was probably the only guy maybe in the country that could blow your sprinklers and take care of your tax return and say here.
Thank you for so knowing that we were speaking today, I reached out to a couple of my clients and asked them to send in some questions. And then I have common questions that I always get. So I’m just gonna toss these at you. So I think the biggest question that I have for today is what are the biggest mistakes that small business owners make when it comes to just accounting in general?
Yeah, yeah, great question. And I could spend probably more time than we have addressing that one. But first and foremost, that our biggest frustration is trying to engage with business owners that are first busy and they aren’t willing to or haven’t ever felt enough pain to carve out time to spend on their business to think about the tax ramifications or have conversations, but the people that that just say my CPAs got it They throw their hands in the air and say, I don’t know anything about taxes. Those are the people that pay more in taxes every time and, and that’s not a very fun position to be in when you’re trying, you’re working really hard to engage business owners get information so you can help them make decisions. So just, I think carving out time on a monthly basis to spend on your accounting to spend on your bookkeeping to free up time to ask questions to your CPA I think is You will be shocked at how much money you’ll save. And quite honestly how much time you’ll save when it comes to instead of doing the triage model and tax season trying to pull all the bits and pieces together for your CPA at the last minute. You know, all that’s been done, we know what you’re going to owe in April by the end of the year. So it makes that process less stressful, and so much more efficient, both from a CPAs perspective and from a business owners perspective.
So it’s interesting that you bring that up is that I find that we spend as a business owner and working with business owners, so we spend a lot of time worrying about what we’re supposed to do and a lot of shuffling things around to try to be prepared as opposed to just asking the experts.
Absolutely. And it’s really a pet peeve of mine that we’ve been kind of conditioned by CPAs. And I throw my own industry under the bus here. But I really feel like the model that they’ve pushed us all into is we don’t talk to my CPA until it’s tax season, I don’t reach out because I’m afraid I’m gonna get a bow, I’m afraid while they’re probably out golfing anyway. So you know, whatever, I can’t, I can’t reach out to them in June. But that is the opposite of what should happen. I really try hard to encourage clients to reach out in June, July, August, whatever it is, so that we can get those topics addressed when they’re on your mind. So you don’t lose any sleep over the next six months waiting to hear from your CPA, and that’s really inefficient. I would love to address those things as they come up. That makes any sense.
So when working with clients, and it’s about usually the third quarter of every year that I say, okay, where are you this year or last year and have you booked your meeting with your CPA, so Just for kind of high level things, that’s a conversation that we’ve recently had. So maybe we could touch on some of the highlight things that you are giving guidance to your typical business.
What can I do between now and the end of the year? Sure, that are logical things that we should automatically be thinking,
Yeah, every single year, they’re the same things don’t change. Obviously, there are a few nuances with whether or not you’re an S corp or not, and whether we need to establish that wage and how much withholding should be associated with that. But taking it going one step simpler. We really have to focus on those tax saving strategies first and foremost, and we always start with the things that don’t require the cash being shipped off. So if you can take cash from one pocket, put it in a different pocket and get a tax savings. So things like 401 K’s HSA s IRAs, MSA s 529. Plans, they’re the list is pretty large on those things that we focus on first, because he gets Keep your own money and you get a tax savings. The next layer is what are our projected 2020 expenses that we can think of? And should we buy them now? What is 2020 budgets look like? So, you know, we try to project that we’re always working on to tax years at the same time. We’re thinking about the current year and we’re thinking about the next year as well do we want to accelerate those expenses and, and as a result, accelerate about a year’s worth of tax savings? So that’s really the kind of the beginning strategy and then we dive into the really the minutiae of everybody’s wages and any wholesale changes we want to make to the company. Okay,
Great tips. The next question is, what are the two most important things for an entrepreneur to be doing accounting wise to ensure success long term? Yeah, so not the spend at all so that you don’t have any profits? Yep. Yep. Can you speak to that for two things?
What was the question two things that we can do to ensure long term success. I’m going to hammer it again because it Just doesn’t get enough attention in my opinion, spend time, figure out a routine and stay up on that routine that has ramifications all the way down through your business. So if it’s monthly basis, if it’s a weekly basis, it doesn’t really matter as long as it’s routine. You will save more in taxes and you will set yourself up for success in the business from just a financial perspective. Because you’ll be focusing on those, you know, those small little you’ll identify those costs that are maybe an overrun that if he glossed over it, you didn’t address it for six months, then it’s already long and that money’s just gone at that point. So that was one thing two things in entrepreneur can do. To ensure success, I think it would be putting together a team that interfaces with each other. So in in large corporations, the apples and the microns of the world, we have coos, we have CFOs we get CEOs right in our small businesses. doesn’t exist. So we need to kind of fill in those positions in those roles. Find people with the strengths that you’re looking for, find people that you trust, and allow them to talk behind your back. Because that’s, that’s a good thing. Because you know, if we have a financial advisor, and you meet with your financial advisor in the third quarter, and I’m about to meet with you in the fourth quarter to talk to the tax, talk about taxes, the first thing I’m going to do is reach out and find out how that third quarter meeting with your financial advisor, see if there are any updates there. And that way, we’ve got a game plan already set up so it’s less work. If you allow the professionals in your life to kind of communicate without you and get the ball rolling on your behalf.
Do you find that that’s a common strategy or an uncommon underway underutilized is everybody has those players in their world? I think they just haven’t quite put it together that that all is related, and that all needs to happen in one kind of cohesive strategy. And if it’s if every financial advisor, an estate planning attorney or a CPA or all executing different strategies without communicating it’s not gonna result in a positive outcome.
Good point. So, new tax loss. Yeah. 95% of us businesses are small businesses. So they’re either s corp, LLC or sole proprietors. Right? Yep. And what’s our the impacts for the new tax cuts? If there are any?
Sure. There’s all kinds of impacts. The easiest one to talk about is the new 20% qualified business income deduction. We every business owner got that and it’s really a response to the what brought on the tax change in the first place, the apples and the microns of the world, those c corporations, their top tax bracket went from 35% down to 21% as part of this tax legislation, and that was the first kind of negotiating part when we when this when Congress started debating this tax bill. And then the inevitable came these other 95% of the business world said wait, wait, wait, wait, wait. So we’re given c corpse 14% tax deduction tax savings. what’s in it for the rest of us in that 20% qualified business income deduction is, is just really, really impactful. And it changes the paradigm on so many potential opportunities in my mind, there’s no better time to be self employed it. There used to be a time in America where I think it was you were in the right spot, the right place, if you found that career, and you found that corporation that valued you and you were an employee for 30 years and you got to retire with that company and that, you know, defined benefit plans and all that fun, beautiful stuff, health insurance was paid for. As we all know, there’s been an erosion of all of those things. And I this is just one more of those knocks. Through the tax legislation we also lost for W two employees, what would be called unreimbursed employee expenses, meaning that there was another w two another kind of knock in the con of being a con column of being a W two employee. So I just really feel like that 20% deduction is enough. If you’ve had that dream of starting up a small business or that idea, that’s enough of an incentive, just really revisit that. And think about that.
I like that’s cool. For so basically the tax year is kind of set in stone for this year. Are you? Is there anything that we should be aware of that, you know, is coming down the pike?
Yeah. Well, Congress is preoccupied at the moment. So and that’s actually a really big problem. And within tax legislation, there is these once a year deductions that every single year Congress will re up they’re called extenders. And there’s somewhere between 10 and 20, that on for the last 15 years or so Congress every year routinely has extended these while they didn’t do that last year. So for example, things like the residential energy improvement deduction when you buy new windows or new doors at your house or new AC system was always a deduction. There was Congress decided not to extend that they keep saying that they’re going to get to it. The reality is the technical corrections that need to happen to the tax law, these extended bills, they’re just not getting addressed. And it’s regardless of anybody’s political preference. That’s the reality of the situation that we’re in right now. Is there isn’t these everyday type routine things that Congress normally would address just aren’t getting done.
With that said, Is there any new best opportunity to save money?
Yeah, one recommend one fun exciting one that is super nerdy way that I really like is a it’s not getting much press and I think there’s the ramifications or are kind of endless here. But we’ve got this 20% deduction that applies to trades or businesses that encompasses the partnerships the S corps, the LLC, the sole proprietors, everybody. Outside of that, this tax law carved out rental real estate income, as also called buy qualify for that 20% deduction. It’s a massive departure from anything else at the IRS or the federal government has given us guidance. This is passive income. This is investment income and always has historically been treated that way in the tax code. Outside of this one little instance, where rental income, passive income, it gets treated as it qualifying for this 20% business income deduction, which I find fascinating, just from a theory level, but also it’s a great opportunity, I think, you know, we’re advocating for maybe thinking about being a small business owner or starting up that business, but also, I think it’s just another taking the column of rental real estate is a great way to diversify your portfolio and even more so now with that 20% deduction is just not talked about enough.
Right? Yeah. 20% Yep. So let’s talk about preparation of taxes. And one of my clients is asking that there’s a huge number of freelance workers in the US and this person happens to also be a freelancer. So That’s a shift often freelancers moving from an employment or coming new into the marketplace. So have you helped them prepare their taxes? And what kind of businesses are they running?
Yep. These are traditionally service based businesses that and we Yes, our firm helps. Well, these would be called, you know, the tax code to become independent contractors, freelancers, it’s the same, same exact, there’s a synonyms and there’s a lot of synonyms in the tax code that get thrown out and then it kind of confuses everybody and that’s okay. But additionally, once you receive that 1099, which is the departure from being a W two employee, the shift all of a sudden becomes a focus on every possible expense that you can use to offset against that income. Because that income as every Freelancer knows that first year you file that tax return, that self employment tax comes up and bites you. So we got our federal income tax or state income tax. Everybody knows about All those are easy. We all understand that. But then once you become self employed, you’re paying your portion of social security and medicare and your employer’s portion of social security and medicare 15.3%, that adds three and then what do we have to take into account on the state side. On the state side is a net, it’s just 7.4. So there’s no additional state taxes for being self employed. So if you have $40,000 in freelance income, the it’s a big departure is you didn’t really care about expenses as an employee, you didn’t really keep track of those. But those back to that record keeping routine. And I always encourage people that in their first year, of going down this path to becoming self employed, becoming a freelancer, the first year is all about just gathering as much information as we can. And I tell people do put a maybe an Excel file on your desktop that is your What about this list of things so as you’re going throughout the year, and as something’s on your plate, Just put it on that list and we’ll address it. And so, because there’s so many things, and you don’t realize, Hey, I bought this computer two years ago, for personal use, not a deduction, but now I’m using it in my business. What about this? can we can we capture that? And the answer is Yeah, and often those times those things get forgotten. It’s only the things that we directly correlate with owning a business that we directly spent money on. So we got to broaden our brain just a little bit and try to pick up everything that’s related to that business. Anything that you’re using to produce this income needs to be an expense, and we need to figure out a way to get there.
The question I get is I say, you know, bring your financials. Let’s pull your p&l bringing your balance sheet, let’s look at your month to date and they go cash or accrual. Yeah. And my question always is, Well, which one do you operate? Sure, sure. And they go, I don’t know. Yeah. So. So it makes it hard and then I have to look at both.
Why? And when? Yes. Okay. So the short answer is you make that decision on your first tax free Turn once you’re self employed you are given the option to select Am I going to be an accrual basis taxpayer cash basis taxpayer. For financials, when I look at any financial, I will always, always, always ask for the accrual basis financial statements. And the reason being is there are so many opportunities to make an error unknowingly making an error within your QuickBooks file, and that is much easier to throw off your cash basis financials. So QuickBooks doesn’t handle it very well, because when you are running a cash basis financial out of QuickBooks, and you maybe your invoice one particular client wasn’t set up quite right, and it just won’t account for it properly. So if we look at accrual basis, we know that that’ll capture everything. And for example, if we’re doing a cash basis taxpayer, I’ll start with the accrual financials start there always and then I’ll make an accrual to cash conversion so that I can come up with the numbers on the tax return. I’ll never just pull a cash basis financial and use that information for the time tax return. I think now when does a person want to be cash or accrual on their tax return? I think if there is any Well, it’s more of when you want to recognize that income. So it’s December 30, you’re about ready to finish the job and you’re about ready to invoice this client. It’s your first year, and it’s a $40,000. invoice, do you want to pay the tax on that $40,000 this year or next year. And sometimes it’s as simple as that we want to we want to record that income in the year we receive it. So we get to defer that income to the next tax year by saying we want to be a cash basis. If if the opposite is true, and you’ve got a bunch of expenses, you know, oftentimes you want to be an accrual basis taxpayer and recognize those expenses in the current year even though you haven’t forked out the cash. So it’s a there’s no right answer for everybody. It’s really Hey, as we wrap up this first year, what is the next three years look like for you and you know, the timing of everything. So it’s an issue.
Great question. Yep. And it led to me a tip because I run a cash basis and I couldn’t understand why I wasn’t seeing an invoice it was because it was just dated wrong. Yep. All right. Gotcha. So appeared in America. Where is it? Yeah, I it was paid. Like I don’t know where it went.
Yeah, real calm helped me. Yes, for sure.
Unknown Speaker 19:19
Moving the crease of the profit first book, yeah. has really educated people to talk about finances and in a way that I think most people just kind of glaze over. But what it’s also done is it’s really giving people somewhat of a structure to be able to start to save for taxes as well. And but it’s complicated. So how can you uncomplicate How do you say for taxes? Specifically, because we’re talking about taxes? Yes. Keep it on that.
Yeah, no, it’s not profitable. Very big. One of those I absolutely love about that philosophy. And that theory is first and foremost, we have two year mark money for the known expenses. Taxes are a known expensing factor that biggest known expense of all of our lifetimes. So, so that warrants savings and that warrants a lot of attention as you earn money, it can’t ever be an afterthought. So every dollar that comes in the business, I think it’s a it’s a little bit of a different percentage for everybody and it’s there’s a little learning curve just like withholding on a W two. There’s a you know, gas you get to the end of the year anything, I am getting a $7,000 refund that was not in my best interest I had way too much withheld. same can be said for the profit first model and, and, and coming up with a fixed percentage put into that tax savings bucket every single month. That is great, but it may result it it’s going to be an iterative process every year, you’re going to get a little bit more refined with what that process looks like. In some years. I’m going to come in and we’re going to come up with six or seven tax strategies to implement and we’re going to blow that entirely up that tax savings bucket is now not needed. Now we’ve got your net income down to zero and your business and that tax savings bucket for that year can either just carry forward or we can deploy it in other ways. Right? Yeah. Yeah.
So kind of a slight diversion. So let’s talk about profit.
Um, when we think about, I think, when I think about how to guide people when they’re trying to grow, they may be looking for lines of credit, or they need to show profitability inside of their business. Absolutely. But there’s a fine line. I mean, I believe everyone should pay taxes if you’re doing well. Yeah, that’s a good thing. That’s a sign of a super healthy business.
What’s, what’s the ratio? Yeah. Is your guidance? Sure.
Yeah. When to recognize income and Exactly, yeah, yeah. So we have to keep always we’re always thinking three or four years down the road and financing is a huge play. We have to Wow, you may be able to take every single possible deduction we have coming to you and we may accelerate depreciate. On a big piece of equipment and we drive drive your income all the way to zero, that may completely mess up another picture of your financial picture, your your ability to get a line of credit, your ability to buy a house, all of those things can be impacted by getting too aggressive. Not that it was you did anything wrong on your tax picture your your tax deductions, we just overplayed our hand a little bit. So first and foremost, the prevailing thought is never pay more in the year that we’re in than we can possibly get you down to so never pay more than that dollar. Now we have to keep in mind this is where that full team environment goes. a banker is a great person to loop into those conversations because who you know, what are your long term financing needs? And if you have that person established, I need to have a conversation with them. Your CPA needs to have a conversation. What are your retirement plans. As a business owner, that’s your financial advisor. I need to know what those are because it may fly completely in the face of what I’m trying to do which is if nobody says anything to me, I’m going to save you every dollar I possibly can. That’s always going to be my default until somebody tells me differently. So, so that’s information that has to get relayed to a CPA. And it has to happen three years in advance. Really, I mean, most of the time, we’re talking about legitimate business lines of lines of credit. that’s a that’s a three year tax return scenario. Yeah. So yeah, we got to make sure that we’ve planned for that. Okay.
So let’s talk about deductions. Yep. And opportunities for them. And I think my kids are too old, but you can hire your kids and shelter some money.
I have clients who have children. Yeah, that are below the age. So what are what are the parameters? Yes, why and how can you do that?
I can nerd out on this one forever. This is a really favorite topic of mine. And I just had an article that was validated that in that this is the most underutilized taxing strategy in the IRS code, hiring your children so I have to be a little bit careful. You know, there’s, you know, the whole child labor laws and all that fun stuff. But the root of everything, here’s first and foremost, we got to make sure that your child is legitimately working for your business. There have to be, there has to be time cards. Obviously, this is something that we can abuse or gets abused quite frequently and for good reason, because it’s a great tax savings. But we have to make sure if the kids working in the business, they have a timecard we document what they did. They get a formal w two, just like any other employee so that when we’re sitting across from an IRS agent, we can say here was their job duties. Here’s was their job description, on and on and on. It just bolsters that case. So now what can we do? So we’ve got Intel, they’re age 18. If you are an LLC, you’re not an S corp, but an LLC, you are allowed to pay your child up until age 18. And no Social Security or Medicare is withheld from their paycheck. So if you pay him $10,000 they get it exact paycheck for $10,000. They’re not going to only tax there and because there were below that $12,000 standard deduction, which is part of the new tax law. So if you pay him $10,000, they pay zero tax, absolutely zero. And in the business, that’s a $10,000 deduction, using round numbers about a 30% savings you saved $3,000. They put $10,000 in their pocket can be used for school clothes, shopping, tuition, you know, all the way down the pipe. Now, I can even take it one step further, if you want to get super nerdy, we can take that money, and we can fund now that child has earned income, and that makes them eligible to be funding a Roth IRA. And I ran the numbers recently for a person, if you paid a kid $5,000 from eight to 18 $50,000 outlay, that’s about a $15,000 tax savings for the business owner over that time period. And the kid doesn’t touch the money. It goes right into a Roth IRA. If we wait until 59 and a half to start pulling that money out. Assuming a 7% rate of return is pretty conservative, that’s tax free money to the tune of $1.8 million for that child. That’s powerful. That is, I love Roth IRAs. I love Roth IRAs for young people. If you don’t want to go that route, if you don’t want to wait until 59 and a half that Roth IRA money can be used for college, Roth IRA can money can be used for the first home purchase some medical expenses, there’s a few carve outs. So there’s incredible opportunities while I love 529 plans. And we can talk about that a little bit later. But I think this is a great opportunity for business owners, and it’s just missed, just missed too much.
And missed the boat on that.
And I just want to say they’re actually working in the business, they’re keeping a timecard what are some of the roles and responsibilities you’ve seen? Your children have?
Yep, yep. I think office cleaning is the most common one. Okay, um, my son helped me a little data entry on Excel spreadsheets. He’s 10. So That was a big help over the summer, he helped me roll forward a bunch of pieces of software that we had. I think it’s I think real estate agents a lot use children in their businesses, whether it’s helping set up for an open house getting signs put up, checking on rental properties within the family. That that kind of leads me down another tangent, if you don’t mind. Oftentimes, we see this scenario where a family has a number of assets within their household, whether it’s a couple rental properties and maybe a large brokerage account, it’s managed. It could be any number of things, it could be some inheritance, that’s, that needs to be managed. And really, that in that case, I think it warrants if there’s one particular parent that is managing all of that may warrant having an LLC and you can treat it in as what’s kind of known as a family management LLC. And through that mechanism, maybe We can pay that spouse that is not been receiving any social security benefits. In other words, they haven’t had a history of income. So when it comes time to retire, they might not be eligible for Social Security. This is one way of getting that on the books. It’s another way to, let’s say one spouse is working and already maxing out their 401k. This is another way to get more tax deferred retirement money. And if we have we can have maybe a simple IRA within that family management LLC. And then we can hire kids and we can have the Roth for them and on and on and on. So yeah, whole structure whole structure. Yeah, absolutely.
And one of the things that when I started my business, I worked from home. So what’s the requirements around utilizing a home office? Sure. How’s that work?
Yeah, Home Office. It’s classic. Everybody loves to talk about it. But the reality is, this is not a massive tax deduction. We don’t focus too much on it, but it is something that you always want to capture. The Home Office deduction is the space in your home that is used to exclusively for business coats hanging in the closet, there’s no spare bed in the room. This isn’t a space that if an IRS agent walked in, they see nothing else outside of business documents, desk chairs, all of that. Have you ever seen an IRS agent walk through somebody’s house and look for that? No, and I’m not sure if that really is even really feasible anymore. We’ve got two agents here locally, not that that should be abused, but but at the same time that it’s tough to kind of really follow that guideline is such a challenging guideline. But if you’re committed to it, the rule is this. There’s two options, two paths as those with most things in tax, it’s a little bit complicated. There is the hard way. Right and just the hard way, the hard path, right. So the hard path is we add up all of our utilities for the year. Yeah, you know, home or home insurance, homeowners insurance, mortgage interest, property taxes, repairs, maintenance, painting the office yada yada yada, and we prorate all those expenses based on square footage. So if we Got 1000 square foot house and 100 square foot home office, we get 10% of all of those expenses, or we take $5 a square foot. And in my mind, that’s really easy. Yeah, we they do we just find out what that square footage of that home office is five bucks a square foot. We all move on the IRS brought that out about four years ago, just because nobody wants to look at utility bills and do all that fun stuff. So that’s fine. Yeah.
All right. So most underutilized deduction is the $12,000 child worker. component. Yep. What’s the next most underused utilized deduction?
I would probably say one hour hit on which is maximizing first and foremost all of those opportunities to save your own money. I think there’s a lot of fear, sometimes justified about equities in the stock market and oh my goodness, yes, I’m saving money in a 401k but can all be gone tomorrow. While I understand that as There’s a reason that we have financial advisors in our lives because you want to not look at that from an emotional perspective, you want to look at it from purely a math perspective. And it’s really challenging to do that for our own money. It was really hard earned. So I’ve encouraged people to put maybe a barricade between themselves and the decisions of that, that that retirement plan. But far too often, I feel like that fear drives people to not take advantage of the tax savings that are the most logical, we get to keep our own money. And we get tax savings. I mean, how can we not start there? And oftentimes we focus on that next level where we’re shipping off our money and not and getting a tax savings but the whole all the money’s gone. So first and foremost, was keep our money in our pocket and get some tax savings.
Slightly different shifts. So from a tax saving standpoint for small business, what are some of the employee fringe benefits? That we can give them that are basically reduce our taxability. But our benefit and can be considered part of our compensation.
Yeah, yeah. mileage route mileage reimbursement, health insurance, retirement packages. Health insurance is a very broad term that can be chopped up into a lot of different things. You can reimburse for the premiums. You could and then you couldn’t now you can again as part of the Affordable Care Act so that now we’re back to where you can just purely reimburse an employee for their health insurance premiums. That’s really helpful. It makes it a lot easier. Rather than setting up a formal group plan to sometimes not even an option for business owners. It’s just too expensive. What I would encourage I think there’s a I oftentimes hear business owners want to go straight like zero to 60 on employee benefits right off the bat. Yes, I this is the type of business that I want to have. It’s my vision when I started it up, and that might be great. And I love that philosophy. But at the same time, we have to, I feel like this is a bit of a trickle campaign, we, you know, we have to be really strategic about how to deploy cash because this one, in and of itself sneaks up on us employee cost total employee cost really can’t because there’s six or seven different places that really all lead into the total employee costs. It can be kind of daunting when you show a business owner, this is really what you paid this employee. It’s not just their hourly rate. It’s everything that goes into it. So I would encourage before making Employee Benefit Plan decisions, really have a very clear understanding of what you’re committing yourself to, and how that will impact your business. Again, in that three to five year window, how many employees we’re going to add one of those ages is going to be theoretically and all the way down the road. We have to make sure that when we start that process, it’s really hard to turn that faucet back off on your employees. Once they get that benefit. It’s really tough to make it go away.
Several Going to Bali for our partners need. Yeah, that’s where we should have it right. Yes, absolutely. All right. So how does that qualify as a business expense? or How can I ensure that it does? What doesn’t get included? Sure, because we’re going to Bali?
Yes. Do it absolutely endless capture every dollar that you have coming to you and in deductions and the way the IRS gives us that deduction, because we just like the kids, there is a great opportunity to abuse this deduction, and it gets abused all the time. People go on cruises, they call it their board meeting, what have you. So really, the reality is, if you’re in Bali for 10 days, and four of those days or at the partner retreat, and six of those days are either travel or vacation or sitting on the beach, what have you, you just prorate everything. So if you have lodging, airline costs, all of those costs get put in one big pool and we take that travel deduction for when I say four tenths of four tenths of that that trip so I think If you wanted to be bulletproof and I would encourage you to be bulletproof in the event of an audit in this case, I would have a journal of very day while you’re on the trip.
Absolutely, absolutely. That’s how you can say here were the 10 days in Bali beach day, non beach day. And yeah, we’re down the road. So you’d be much better position than just say whole thing. It was just a quarterly retreat, the whole thing was all business related and that that doesn’t fly.
Okay. That’s really good to know. Yeah.
Alright, so let’s talk about what working with an accountant should be like, you know, what information does a small business owner need to bring to you to help you do your job best and when should we know when we really need one? Ah, okay.
It’s a little bit predicate. I’m gonna start with a second question. Sure. It’s the when you should have a CPA. It’s a little bit predicated on what that CPA charges. So you want to make sure that you’re getting value. So if you are in the situation where you don’t feel like you’re getting answers to your questions or those questions, those answers aren’t understandable. And I think that’s a really important piece, you may ask the question, and you may get an answer. But did you walk away with clarity? And if you didn’t walk away with clarity, what’s the point? So first and foremost, whether you should hire a CPA? Are you getting that value? Do you feel like the information you’re getting is going to be valuable to you? So, but in our firm, we kind of have the adage that if you have a business, if you have a rental property, our our pricing structure would mean that we’re likely going to save you more than we’re going to charge you. And I that’s a really, that’s a goal of ours is to always do that. Always take if somebody’s self repairing. Great, I saved you three grand. Here’s your $400 bill. Hopefully that Here’s what you were looking for. Now, I’m gonna need to dive back into what was the first question here.
So what information do we need to bring together to help you do your job?
Yeah, absolutely. So the first and foremost, Miss makes you relax. Yeah, we get to box occasionally. But we have to all remember that. This is a service based industry. It’s predicated, our billing is predicated on time. So if you bring in the shoe box, you’re going to pay more to get your tax return prepared. We’re going to have somebody in the back office going through your receipts one by one and adding them up. That’s not what you want us to do. There are a lot of people that are great adding up your expenses, if that’s not for you, awesome, but it’s also not for your CPA. That’s, that’s not the appropriate place. And sometimes we’re in that position because it’s triage mode, and it’s April 14, and we just need to get it done. And that just results in a really big bill for that client. So I would say having well right now I’m sending out this week I’m sending out emails to all business owners. Please send me your up to date financials through the end of October, I want to take a look at those, make sure you’re trending where we thought you were going to be trending and make sure we’re deploying all possible tax strategies before the end of the year closes. And most people like to know what they’re going to own April, about Christmas time, it helps a little bit for that, that spending and all that. So I would say having accessible information is successful year round. We get asked questions all the time, hey, should I spend money on this particular strategy? Should I buy this new vehicle? Should I buy this piece of equipment? Great, send me over your financials and let’s figure it out. The financials aren’t there, then it makes it really challenging for us to do our job. Right.
In tax prep, I’m sure one of the challenges the commingling or non separation of funds versus personal offense. Yes. Do you have any recommendations? Don’t do it.
Yes. So first is one of the Sorry, sorry, sorry. A little too simple. But the very first thing if somebody comes to me and says I want to start up A new business. Great. Number one, let’s get an LLC established. And then we’ve got, hopefully a corporate veil in between our business assets and our personal assets. So if you commingle if you for example, make $10,000 on your first job as a freelance graphic designer, and you take that money to go buy groceries, that LLC has just now been essentially deemed worthless. You’ve pierce the corporate veil. Now, all of your business assets and all of your personal assets, it’s all in one lump. So if that contract goes awry, and you get sued, it doesn’t matter, that you have an LLC in place, they may come out to your personal 401k it may come after your home, that that type of litigation is what we’re trying to avoid. Secondly, from and more importantly, because it affects me more, that’s more of the legal side, but from a CPAs perspective, the people that commingle and they spend money out of the personal they have a couple different credit cards, they have the business account, a couple savings. accounts, when they try to figure out what are their expenses and you know, what are all you know how to essentially do their accounting for the year, they pay too much in taxes, they miss things, they just it’s inherently I guarantee that deductions are going to get missed. If you go that route, the more simplified we can go, if we can print out a business bank statement every single month, and know that that’s everything. That’s it. That’s so much more, putting your mind at ease and trying to go through your personal account and try to find out what that business was that you know, it just seemed possible.
Transcribed by https://otter.ai
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