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If you lose sleep over payroll taxes, running things through the IRS, or ever getting audited, this is the podcast for you.
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I'm bringing on the general manager of my company, Home Service CPA.
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Her name is Chelsea.
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She's been with the company for a few months now.
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talk to dozens of different home service business owners about their books, their finances, their taxes.
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And we do all of those services at home service CPA.
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But today she's going to be sharing the tips and the tricks that she's learned that you can use in your business to make sure that if you got audited, you wouldn't be losing sleep over it.
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So without any further delay, let's talk to Chelsea and learn what you can do to make sure you reduce what you're paying the IRS.
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So over the past, I guess it's been two months now, you've been talking to a lot of the different business owners, thinking about joining home service CPA.
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I wanted to go over some of the kind of takeaways and practical things that people can use in their business.
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But what are some of the things that you see as like the obvious big red flags when you step into someone's P&L or their reports or their QuickBooks?
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What are some of the things people are doing completely wrong across the board?
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Well, I think that there are some acute things that I can touch on.
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But I think more so than anything, what I'm seeing is that a lot of these people who have large, I guess, medium businesses who are doing under $5 million a year, but over one, they usually already have some type of bookkeeper or a CPA in their lives that they're using.
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And they're getting these reports every month.
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And there's like a kind of this gap in financial literacy.
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Like they have the report in their hand.
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but they don't really know what it means or how to take action on what they're seeing or anything like that.
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And I think that it's our job in a role like mine really to be working on not just being accurate and tidy with the bookkeeping, but also making sure that the owners are actually understanding what they're reading and understanding why there would be difference in periods.
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Obviously,
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particularly in landscaping, there's a lot of seasonality.
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So comparing like year over year versus month over month, that kind of thing.
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I did just talk to somebody yesterday who, or maybe it was two days ago now, but his net income was $300,000.
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And he was like,
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I don't have $300,000.
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Where's the money?
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That's why everyone says that, right?
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Where's the money?
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I don't know.
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But he's not an S Corp and he wasn't on payroll.
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So he was actually, he was taking distributions.
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Those aren't on the profit and loss.
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They're on your balance sheet.
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So then when you actually go to the balance sheet, he had taken probably $180,000, $200,000 in distributions of the year.
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So if you kind of work that back in, there should be $100,000 left over, right?
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And just not even knowing where to find that or where to look and having those kind of mysteries, I think is a big thing.
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In terms of that specifically, the S-corp and paying yourself, a lot of the questions I get from owners is, how much should I be paying myself?
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What is a normal salary if I do have an S-corp?
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What do you see as kind of the happy medium or what do you recommend to someone based on the size of their business, the amount of profit?
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How much should I be having in distributions versus my actual payroll and my W-2?
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What should that be as an S-corp?
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Right.
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That's a great question.
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I would say that if you're going to become an S Corp, I usually just look at last year's distributions and what you need to live off of and try to shoot somewhere reasonable around there.
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If you're the owner of your business, you probably shouldn't be the person making the least amount of money.
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So I would say depending on where you live, normally somewhere between $60,000 to $80,000
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how much does your business make?
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So I would, if someone was making like gross revenue of $500,000 a year then, and they have $400,000 in expenses, and maybe that's too high.
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But yeah, I mean, I would say like, if you're the owner of a business, if you have multiple employees, you can't pay yourself $30,000 a year, right?
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The other thing that is important to consider is if you're in a partnership, then everything basically has to be equal between you and the partner.
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Oh, it turned to the W-2.
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Well, I think the payroll can be different, but the distributions all have to be the same.
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Got it.
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So you also do kind of have to find that balance of like, how are you paying yourselves or each other?
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And then kind of what's left over to share.
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If you're big enough and you have things like a 401k, you also need to consider like the safe harbor match.
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So it kind of varies based on your complexity, I suppose.
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But I think like the...
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The line we draw really, and I guess this isn't about wages, but if you have at least $50,000 of residual net income at the end of the year, we always recommend forming an S-Corp because you're going to save more money in tax liability than you will spend on the cash outlay to be an S-Corp.
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And so essentially you're comparing the cost of setting up the S Corp, filing another tax return, essentially, versus the savings that comes along with having distributions instead of W-2 income where there's way more taxes.
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Right.
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Yeah, certainly.
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And I think like until people actually work for themselves, I don't think that we have any concept how much your employer is splitting that the income.
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I think when you're self-employed, they call it self-employment tax, but it's all the same thing, right?
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It's Medicare and Social Security.
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But we only pay half of that as a W-2 employee.
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And so I've had clients in the past who've made $200,000 for the year, but they've spent a lot of it, and then they get a tax bill for $45,000.
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And they're like, what?
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But that adds up.
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It's 15% of what you bring in, right?
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Yeah.
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What are some other things that you see business owners doing wrong when you first get into their accounts?
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Yeah.
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Specifically around the bookkeeping.
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Because I think so many people, like, when we say, you know, know your numbers, a lot of times from my perspective, that's operations.
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So that's, like, close ratio and, you know, your time to lead.
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These more operational things.
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Right.
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And a lot of great operators know those numbers.
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But then they have a profit and loss statement they don't really understand.
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They don't understand how that correlates with the balance sheet.
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Right.
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First off, what is the balance sheet?
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What is the profit and loss?
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And then when you look at those two things, what are some of the immediate mistakes you're seeing people make?
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So that's, yeah, I guess starting there, like that's kind of the fundamentals, right?
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So the profit and loss covers a period of time.
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You know, we talk about net income a lot, but as an owner, I think that the bigger key metric really is the net operating income because the things that fall below the net operating income are things that you could hypothetically take away and the business could still operate.
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So, and that's also, that's important to know if you were like going to sell your business, right?
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That's kind of the number people are looking at.
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It's like depreciation.
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Depreciation is a non-cash expense.
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That's under the line.
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Interest paid is under the line, which I personally disagree with.
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Like I do it in bookkeeping.
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Don't worry.
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But I think that because what they're saying is that you've financed
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you finance the business being able to expand, right?
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And that's technically not an operating cost, but in my mind, it's still a cash expense.
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So yeah, I mean, I would say that my real number is net income, net operating income, plus the interest paid.
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But amortization and the difference between depreciation and amortization,
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is the depreciation are on your fixed assets, your plant, property, and equipment.
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And then amortization is capturing the value of intangible assets.
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So like if you spend $20,000 trademarking something, or, you know, you get your logo made, or you have massive startup costs, those kinds of things, you can amortize those over time.
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My experience is like mostly for home services, depreciation is the things where you say amortization is rare that you're doing sort of IP and things like that.
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Yeah.
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So, I mean, and then I guess that's one of the first things I would say that I'm seeing is these massive, on the balance sheet, there'll be like this massive record of assets, right?
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Like $500,000 worth of equipment and then $2,000 in depreciation for the year.
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And I'm like, what's going on?
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So I think making sure that your bookkeeper or you, if you're doing your own books, is trying to capture that depreciation every month because then it doesn't really hit all at the end of the year.
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And you can kind of get a better idea of like what kind of wiggle room you have if you needed to make another asset acquisition or if you can make another asset acquisition if that's if it's appropriate.
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But yeah, so that's a big one.
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Loan payments.
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So loan payments on equipment, assets, anything like that.
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The only part of that payment that is an expense is the interest.
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The principle of that payment is actually essentially increasing your value that you have in your assets and then offsetting your liability for the loan.
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So a lot, a majority of the books I go into are.
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the entire loan payments being expensed.
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And even though that's nice from a tax perspective, and that makes your net income appear lower, it's incorrect, A.
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And then B, it also makes your net income look lower.
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So like I have a client yesterday who's gonna put an offer on a home next door to his parents' house.
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And he had been booking all of his a couple of vehicle loans and he'd been booking the whole thing and as as an expense.
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And so we were able to split that up.
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And so it actually, you know, his net income is higher and he's going to get a better rate on his mortgage.
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And I mean, so it is I guess that's kind of a double edged sword, but it's incorrect to to take it as a whole expense.
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Yeah.
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So if I have a $300 a month payment coming out on equipment, let's say it is a 4% interest.
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I got a five-year term on something.
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You have good credit.
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Exactly right now.
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So assuming that, I see $300 come out in my QuickBooks, for example.
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What am I supposed to actually do to make sure I split some portion of that interest, some portion of that interest?
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I don't even know because I just saw this dollar amount from the dealer that said $300 a month.
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So first of all, you can always ask the loan originator for an amortization schedule, which will break down each payment every month, what's principal and then what's the liability payment or the principal payment.
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I have not had really anybody have luck doing that.
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Like you should be able to get it, but nobody seems to be able to.
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Um, so I, well, I have a, I have a debt schedule template that I use.
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Um, but the functions are pretty simple in QuickBooks or I'm sorry, in Excel, uh, just to actually, you put the, the, uh, percentage rate.
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I always say discount rate.
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It's not a discount.
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It's a charge, um, that you put the percentage rate in, put the loan payment, the origin value, the length of loan, and then it'll calculate it for you.
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Those are pretty easy to find online.
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So I'm like throw it in chat to be team like, hey, this is my initial amount.
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They said this is my rate.
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And then when the transaction comes in, instead of having or categorizing it immediately, you open it and then you click split.
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And then you're going to have two line items.
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The first line item would be the principal payment.
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And that's going to come out of that.
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It's going to reduce that liability account that the loan should have been created on.
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And then the second one would be the interest expense.
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That'd be the second line.
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So split is the right way to do it because I used to do it as a journal entry, which technically you can kind of make it work, but it's a pain in the butt.
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That's what I did yesterday.
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It's hard.
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Oh, really?
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Yeah.
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Oh, man.
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You're probably going to see that in some of my accounts.
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That's okay.
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It's the blueprint from getting from zero to $3 million in revenue for any home service business.
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Now, as part of the hundred thousand book challenge that we're trying to give away, we have two ways to be able to take advantage of this.
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Now, if you're like, I don't want to take a course.
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I just want the book shipped to me right away.
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You can go pay for the shipping at $6.50 for a $35 book.
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Just go to mikeandies.com slash 100K.
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So, okay, so now that I have split that out, should I be doing that on every single transaction?
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Should I do it at the end of the year?
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Because I do see sometimes people just, they'll put it as an expense the whole year.
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And at the end of the year when they're going to do their taxes, they're like, oh, I should figure this out.
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And I should split things up correctly.
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My problem with that is like profit and losses throughout the whole year now have been affected.
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It affects my profit sharing.
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What do you recommend in terms of that one specifically?
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Because that's probably the most common accounting error I see all the time.
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I see it everywhere.
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You just do them as they come in.
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Like the most loans I've seen, I've talked to a lot of people over the past two months and the most like quantity of loans I've seen is probably like...
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Seven.
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And that's only seven transactions a month.
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So what I do is I just have one Excel sheet.
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Then I just call it debt schedule and each tab is a different loan.
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And then as the transactions come in, I just highlight the one I'm splitting so that I kind of can just, it's easy on the eye, you know where to start off with next.
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And then I just post it, but it's, it's really not, once you set up the debt schedule, which like you're saying, chat GPT could very easily do for you.
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I've never thought about that.
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Yeah.
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Yeah.
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Then, I mean, you just you just keep a record of it yourself and just plug them in.
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I agree with you.
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I think you can certainly do it at the end of the year.
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You could do it at the end of the month.
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But again, it's it's less time and kind of less cognitively intensive, I guess, to like then try to match everything up.
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Right.
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Like if you're just recording it properly in the first place, then you're actually saving yourself some steps.
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Yeah.
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And so that's really like the profit and loss side of things.
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On the balance sheet, what's that actually happening?
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Obviously, we have assets and liabilities.
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It's more of a snapshot in time.
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But what exactly, when it comes to a loan, should I be looking at?
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Even just to verify what my accountant's doing, to verify that what my balance sheet...
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I see so many people, they look at their P&L.
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It makes more sense because it's a period of time.
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They look at their balance sheet and they're like...
210
00:13:53.337 --> 00:13:55.498
That's not really how much money is in my account.
211
00:13:55.598 --> 00:13:58.480
Like, why is assets – what's this owner's equity thing?
212
00:13:58.820 --> 00:14:00.281
Can you explain a little more about balance sheets?
213
00:14:00.301 --> 00:14:00.701
Totally.
214
00:14:00.741 --> 00:14:03.263
So the balance sheet is actually just one moment in time.
215
00:14:03.763 --> 00:14:04.303
It's one day.
216
00:14:04.804 --> 00:14:10.447
So if you go into your QuickBooks Online and you run the balance sheet, it gives you a period.
217
00:14:11.187 --> 00:14:13.709
And you can do this yourself to test me.
218
00:14:13.729 --> 00:14:14.349
But –
219
00:14:15.830 --> 00:14:18.693
So any time to end date is just the date of the balance sheet.
220
00:14:18.773 --> 00:14:21.975
So you can say 1-1-2026 through 12-31-2026 or 12-31-2026 through 12-31-2026.
221
00:14:21.995 --> 00:14:24.117
And it's still just going to be 12-31-2026.
222
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Got it.
223
00:14:24.898 --> 00:14:28.541
And part of the reason why your balance sheet doesn't match what you have in your bank or, you know, your...
224
00:14:36.948 --> 00:14:42.214
I should say your bank balance in your assets doesn't match is because you're probably not looking at it that same day.
225
00:14:42.294 --> 00:14:46.158
And then also there's usually like a one day lag between posting transactions.
226
00:14:46.919 --> 00:14:52.205
So the balance sheet is a synopsis of everything that you own, which are all of your assets.
227
00:14:52.285 --> 00:14:56.389
So that includes cash, plant property and equipment, land, buildings, all that stuff.
228
00:14:57.670 --> 00:15:01.332
And then if you think about, this is actually the accounting equation.
229
00:15:01.372 --> 00:15:12.737
So if you think about everything that, like all of your liabilities for the business, then everything between what you own and then what you owe is your equity in the business.
230
00:15:13.237 --> 00:15:25.063
So I think that the other thing that people don't really understand is that, or commonly understand, is that net income is actually flowing through into owner's equity.
231
00:15:25.303 --> 00:15:25.503
Right.
232
00:15:25.543 --> 00:15:29.184
So you're not going to see it in the assets, even though it's cash that comes into the bank.
233
00:15:29.584 --> 00:15:31.944
That's not technically how it's represented on there.
234
00:15:33.085 --> 00:15:38.206
And so your equity is a combination of really three things.
235
00:15:38.786 --> 00:15:49.068
It's how much cash you've put into the business, how much cash you've taken out of the business, and then in all forms, and then also how much your net income is currently.
236
00:15:49.709 --> 00:15:51.429
So that is kind of how they're related.
237
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think about it this way.
238
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So you go to the bank, they give you a $10,000 loan.
239
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You have $10,000 in cash.
240
00:16:01.352 --> 00:16:01.992
Assets went up.
241
00:16:02.192 --> 00:16:02.852
Assets went up.
242
00:16:02.952 --> 00:16:03.653
Your cash is up.
243
00:16:03.713 --> 00:16:03.873
Yeah.
244
00:16:03.893 --> 00:16:04.873
You got 10K.
245
00:16:04.893 --> 00:16:05.253
Let's go.
246
00:16:05.353 --> 00:16:06.394
But now you owe $10,000.
247
00:16:06.474 --> 00:16:07.454
So liabilities went up.
248
00:16:07.474 --> 00:16:08.714
So liabilities went up, right?
249
00:16:08.774 --> 00:16:09.035
Yeah.
250
00:16:09.055 --> 00:16:19.418
So that's the whole double entry accounting thing is that you can't have a transaction that doesn't have like an equal reaction on the other side of the accounting equation.
251
00:16:19.878 --> 00:16:21.039
So you would post that $10,000 cash
252
00:16:25.560 --> 00:16:42.685
So now every month, if you're making that $300 payment and you're using your little debt schedule that ChatGPT put together for you, every month as you pay down that loan, your interest is going to decrease on it and your interest will decrease and the amount towards principal increases.
253
00:16:43.285 --> 00:16:46.166
And so the cash is then, again, leaving it.
254
00:16:46.986 --> 00:16:52.231
from that top line asset, but you're also reducing the liability that's owed.
255
00:16:52.351 --> 00:16:57.215
And then that expense comes out in the owner's equity as an expense through net income.
256
00:16:57.556 --> 00:16:57.776
Got it.
257
00:16:58.116 --> 00:17:06.263
And when it comes to using a bookkeeper professionally, I think so many times when people think bookkeeper, they just do the transactions in QuickBooks.
258
00:17:06.444 --> 00:17:11.288
And realistically, I think most people could probably do that part of their job in 10 to 20 minutes a week.
259
00:17:11.528 --> 00:17:12.129
Right.
260
00:17:12.489 --> 00:17:19.855
I think the part that – so I got my first bookkeeper was after about three years in business, maybe four years, and I got my first sales tax audit.
261
00:17:20.096 --> 00:17:23.459
Didn't even know I was supposed to be filing sales tax.
262
00:17:23.759 --> 00:17:28.043
And I was doing everything wrong in terms of expensing the loan side of things.
263
00:17:28.303 --> 00:17:31.125
Because at the time we had like tractors and excavators.
264
00:17:31.325 --> 00:17:32.767
We had everything in terms of equipment.
265
00:17:32.807 --> 00:17:35.149
I had a lot of debt, and I was doing it all incorrectly.
266
00:17:35.169 --> 00:17:35.309
Okay.
267
00:17:35.509 --> 00:17:43.415
So when I got audited, I all of a sudden owed thousands of dollars in fees, not just the actual money I owed for the taxes.
268
00:17:43.555 --> 00:17:44.536
It's the penalties of interest.
269
00:17:44.956 --> 00:17:47.278
And so when does it start making sense?
270
00:17:47.318 --> 00:17:50.980
Because from my perspective, it's not the categorization that I'm paying a bookkeeper.
271
00:17:51.301 --> 00:17:59.547
It is the insurance or the peace of mind knowing that like when I file those taxes, they're correct and no one can come back to me because it's done correctly.
272
00:17:59.587 --> 00:17:59.807
Yes.
273
00:18:00.027 --> 00:18:09.654
And then that like having a professional bookkeeper, having yourself looking through even over my shoulder is a way for me to make sure that when I get audited, I can confidently do it without losing sleep.
274
00:18:09.914 --> 00:18:10.174
Right.
275
00:18:10.334 --> 00:18:14.657
From your perspective, as you get people probably finding their first bookkeeper for the first time.
276
00:18:14.677 --> 00:18:15.197
Yeah.
277
00:18:15.217 --> 00:18:18.139
Or switching bookkeepers and they're like, I think something's wrong here.
278
00:18:18.580 --> 00:18:20.321
What would you recommend someone?
279
00:18:20.381 --> 00:18:28.807
When would you recommend someone to go get a professional to really help them versus just kind of do it themselves or even like have TurboTax do their tax return thing?
280
00:18:29.447 --> 00:18:29.807
Right.
281
00:18:29.948 --> 00:18:30.188
Yeah.
282
00:18:30.268 --> 00:18:32.551
I mean, that's kind of a that.
283
00:18:33.332 --> 00:18:39.540
Unfortunately, I want to say that, you know, so many businesses start and fail and it's usually about the money.
284
00:18:40.100 --> 00:18:47.309
Like if you're the kind of person that is motivated, you love what you're doing, you have a great product or service.
285
00:18:48.090 --> 00:18:51.895
and you're passionate about it, there's no reason why you shouldn't be successful.
286
00:18:52.416 --> 00:18:53.738
But a lot of businesses fail.
287
00:18:53.778 --> 00:18:56.241
And it's because from the beginning, they're not doing it correctly.
288
00:18:56.301 --> 00:19:00.927
So like, hopefully you were able to access those thousands of dollars to pay the fine.
289
00:19:01.368 --> 00:19:03.190
But I mean, I think it should really be
290
00:19:03.811 --> 00:19:14.235
Me from the beginning, and even if it's not a professional, you should at least be taking the steps to educate yourself on some of this stuff versus just kind of flying blind.
291
00:19:14.275 --> 00:19:20.437
And I feel like we have products that help people go from like...
292
00:19:21.077 --> 00:19:24.360
just the impassioned entrepreneur to a business owner, right?
293
00:19:24.380 --> 00:19:26.903
Because that's, you have to cross that line at some point.
294
00:19:28.004 --> 00:19:38.333
I think anytime you have employees, it's good to have a bookkeeper accountant because then you know that the payroll taxes are getting filed appropriately, which that's another way that you can get burned very badly.
295
00:19:38.674 --> 00:19:41.396
Anytime you're going to do big cash outlays, you know...
296
00:19:42.137 --> 00:19:46.959
I think from the beginning, unfortunately, but it's like that's not necessarily feasible for everyone.
297
00:19:47.059 --> 00:19:47.239
Yeah.
298
00:19:47.619 --> 00:19:51.901
So there are some cool programs, though, even QuickBooks.
299
00:19:51.921 --> 00:19:58.604
So if you have QuickBooks Online and you can't afford to hire someone like Home Service CPA right now, hopefully you do in the future.
300
00:19:59.565 --> 00:20:03.667
But you can do the ProAdvisor course is free through QuickBooks Online.
301
00:20:04.067 --> 00:20:05.768
And it gives you a very rudimentary.
302
00:20:05.868 --> 00:20:06.128
But.
303
00:20:06.748 --> 00:20:10.390
correct walkthrough of how to expense things, categorize things.
304
00:20:10.630 --> 00:20:16.514
And I have actually done it myself after I'd been in accounting for many years just to see what it was like.
305
00:20:16.974 --> 00:20:21.857
And it was like a 40 hour program and I did it in like two hours.
306
00:20:22.298 --> 00:20:26.680
But they really cover a lot and it's free and you're already paying for it through QuickBooks.
307
00:20:26.900 --> 00:20:27.181
Got it.
308
00:20:27.401 --> 00:20:27.581
So.
309
00:20:27.821 --> 00:20:32.386
And for like end of year taxes, I know obviously right now when this is coming out, it's kind of like too late for end of year.
310
00:20:32.406 --> 00:20:32.707
Right.
311
00:20:32.947 --> 00:20:39.535
But what should someone be thinking about or asking their accountant to educate them on as it gets close to the end of the year?
312
00:20:39.555 --> 00:20:45.842
I think one of the most valuable things that Brad does for me when it comes to my taxes is sending me a video prior to the end of the year being like, hey.
313
00:20:45.882 --> 00:20:47.423
Here's your estimated taxes.
314
00:20:47.923 --> 00:20:51.686
And then based upon this, here's maybe like you're just above this bracket.
315
00:20:51.826 --> 00:20:57.689
So maybe we want to bring that down because, you know, 24% is, you know, let's try to get that underneath the 20% bracket.
316
00:20:57.969 --> 00:21:02.752
I think one thing people, a lot of times when they hear brackets in general, think they're paying 24% on the entire thing.
317
00:21:02.952 --> 00:21:04.693
It's like, no, this is a tiered system.
318
00:21:05.154 --> 00:21:07.175
Your first 20, 30,000 is zero.
319
00:21:07.235 --> 00:21:08.456
Then it goes up slowly.
320
00:21:08.956 --> 00:21:15.320
That being said, when it comes to end of year, I think a lot of times at home services, people just section 179, write everything off.
321
00:21:15.700 --> 00:21:28.292
One of the things Brad explained to me that was really, really kind of changed my mindset is if you expect to make more money next year and the year after that and in five years from now, maybe you actually don't want to take the section one in 79.
322
00:21:28.472 --> 00:21:28.752
Right.
323
00:21:28.772 --> 00:21:33.637
Because the tax bracket that you will be in in five years is likely going to be higher.
324
00:21:34.157 --> 00:21:47.265
And so instead of taking your $30,000 Section 179 when you're in a 10% bracket, maybe you take a five-year depreciation schedule so that in year five, you have something to write off when you're in a 24, 25, or 28% bracket.
325
00:21:47.645 --> 00:21:53.769
And so what kind of questions if someone's just starting their first, second year, they're starting to make profit for the first time?
326
00:21:53.789 --> 00:21:56.991
Because usually when I see people actually thinking about this, like, oh, I'm going to have a tax bill.
327
00:21:57.171 --> 00:21:57.491
Right.
328
00:21:57.751 --> 00:22:00.253
What kind of questions should I be asking my accountant?
329
00:22:00.493 --> 00:22:10.459
What sort of things can I be looking to do, tax strategies, to be able to minimize that in December, November, and actually thinking about reducing my tax liability?
330
00:22:10.699 --> 00:22:17.824
Well, I mean, Brad's example of kind of planning and strategizing around depreciation and asset acquisition is,
331
00:22:18.364 --> 00:22:19.745
is spot on.
332
00:22:19.805 --> 00:22:21.165
Like that's a, that's a huge thing.
333
00:22:21.225 --> 00:22:30.508
I think like what I've been seeing a lot of are these people that are now at that point where it's probably time to make an S corp election and start putting themselves on payroll and then learning how that works too.
334
00:22:30.528 --> 00:22:31.728
So that's another question.
335
00:22:32.929 --> 00:22:42.471
Weirdly, I've also talked to quite a few people whose current accountants and bookkeepers don't recommend that, who are way beyond the point where we would recommend that.
336
00:22:42.532 --> 00:22:43.552
And I, I don't,
337
00:22:44.272 --> 00:22:48.355
I don't know if it's because they don't want to do another return or what.
338
00:22:48.455 --> 00:22:50.817
But yeah, I mean, that's definitely something I would ask.
339
00:22:50.837 --> 00:22:58.883
Like, is my current structure supporting me being able to have this growth period next year and the year after that?
340
00:22:59.304 --> 00:23:04.848
Or how can you reorganize or what can you do to minimize your future tax liability?
341
00:23:05.228 --> 00:23:08.851
The other thing is that people need to pay their quarterly estimated taxes.
342
00:23:08.991 --> 00:23:09.312
Yeah.
343
00:23:10.012 --> 00:23:10.932
I actually, yeah, same thing.
344
00:23:11.392 --> 00:23:22.115
Brad originally was like, hey, by the way, like every year you've been doing tax in the past, you're paying these other fees because if you don't pay quarterly, you might pay all your taxes at the end of the year, but they're going to tack on a whole bunch of fees.
345
00:23:22.215 --> 00:23:22.655
It's crazy.
346
00:23:22.995 --> 00:23:28.476
So, and I will tell you, and I didn't know this until I started working in tax and I don't know how many people actually know this.
347
00:23:28.636 --> 00:23:35.598
If you pay either 90% or 110% of last year's liability, you do not get the penalties.
348
00:23:35.618 --> 00:23:36.418
Oh, really?
349
00:23:36.678 --> 00:23:37.398
Right, because-
350
00:23:38.579 --> 00:23:43.266
you did your best faith effort paying your quarterly taxes on your prior years.
351
00:23:44.452 --> 00:23:44.952
Liability.
352
00:23:44.972 --> 00:23:52.254
So if you do quarterlies and you pay more than, let's just call it 110% of last year's, even if you're a little short, there won't be any penalties.
353
00:23:52.274 --> 00:23:54.735
There's no penalties on it because you did your best faith effort.
354
00:23:54.755 --> 00:23:58.776
I always say it's the only thing I like about the IRS.
355
00:23:58.796 --> 00:24:01.836
Say, for example, you're supposed to get a return or you overpaid.
356
00:24:02.456 --> 00:24:03.937
What if you just leave that money in?
357
00:24:03.957 --> 00:24:06.838
Will it account for estimated taxes the year following?
358
00:24:06.858 --> 00:24:08.578
I don't think that they actually will do that.
359
00:24:08.618 --> 00:24:11.079
Okay, so they want quarterly, essentially.
360
00:24:11.119 --> 00:24:12.600
Yeah, yeah, yeah.
361
00:24:12.680 --> 00:24:14.800
You can't, they don't want to hold on to your money.
362
00:24:15.261 --> 00:24:19.002
If they hold on to your money for more than 90 days, then you're supposed to be making interest on it.
363
00:24:20.002 --> 00:24:20.443
Oh, okay.
364
00:24:20.483 --> 00:24:22.363
Yeah, like Prime Plus One or something.
365
00:24:22.403 --> 00:24:22.684
Really?
366
00:24:22.704 --> 00:24:25.865
I have actually received interest for a client before.
367
00:24:25.905 --> 00:24:26.205
That's...
368
00:24:26.685 --> 00:24:27.285
That's crazy.
369
00:24:27.365 --> 00:24:29.446
I get these random little IRS taxes.
370
00:24:29.546 --> 00:24:30.067
That's what it is.
371
00:24:30.107 --> 00:24:33.388
So usually what I'll do is I'm usually ahead one year on my taxes.
372
00:24:33.588 --> 00:24:35.569
And I just leave whatever it is in there.
373
00:24:36.269 --> 00:24:39.671
And then that way I just never have a surprise because I got surprised one year.
374
00:24:39.691 --> 00:24:41.131
I had to sell a piece of real estate.
375
00:24:41.151 --> 00:24:41.892
I'm like, never again.
376
00:24:42.472 --> 00:24:43.772
So it just keep the money in.
377
00:24:43.792 --> 00:24:46.073
And then what happens is I get a return and I say, okay, great.
378
00:24:46.234 --> 00:24:47.694
Just apply that to next year's.
379
00:24:47.894 --> 00:24:48.975
So that's what that is.
380
00:24:48.995 --> 00:24:49.895
I didn't even know that.
381
00:24:49.915 --> 00:24:50.515
It's interest.
382
00:24:50.755 --> 00:24:51.276
Interest.
383
00:24:51.396 --> 00:24:51.756
I know.
384
00:24:52.056 --> 00:24:54.879
It's these random little like, okay, where is this money coming from?
385
00:24:54.899 --> 00:24:57.122
It's from the IRS, but I have no record of like payroll.
386
00:24:57.142 --> 00:24:57.342
Okay.
387
00:24:57.543 --> 00:25:01.747
Anytime I would see stuff like that before though, I'd always be like, should I even deposit this?
388
00:25:01.868 --> 00:25:04.571
Yeah, no, it's like a hundred bucks or two.
389
00:25:04.611 --> 00:25:04.711
Yeah.
390
00:25:04.751 --> 00:25:06.693
And then sometimes, am I going to get in trouble if I for this?
391
00:25:06.713 --> 00:25:07.374
Yeah, my goodness.
392
00:25:07.414 --> 00:25:08.115
I know it's pretty bad.
393
00:25:08.615 --> 00:25:09.055
But yeah, no.
394
00:25:09.075 --> 00:25:18.918
So I would say like those kind of planning questions, also making sure that you're not to like harp on the payroll thing, but also just making sure that you've filed all of your payroll reporting.
395
00:25:18.958 --> 00:25:26.920
Like you really not just from like a legal standpoint, but also just like taking care of your employees.
396
00:25:27.420 --> 00:25:31.741
It's so crucial that those things are up to date because if somebody were to get injured on the job, they're.
397
00:25:31.981 --> 00:25:43.367
At least here in Washington, you know, they if you've been paying into L&I on their behalf and they I think they pay into it also, then they have coverage that will support them and take care of them in that period where they can't work.
398
00:25:43.888 --> 00:25:51.152
So I think that staying on top of the payroll compliance is a really big thing to not again, not just to stay out of trouble.
399
00:25:51.612 --> 00:25:54.153
but it's a way that you take care of your employees.
400
00:25:54.273 --> 00:26:03.154
I actually used to manage a medical practice and I had a guy from Columbia who worked for me and he got a job at a local restaurant here in town and they wanted to pay him under the table.
401
00:26:03.955 --> 00:26:06.735
And he was like letting them do that for a while.
402
00:26:06.755 --> 00:26:07.995
And I was like, you can't do that.
403
00:26:08.055 --> 00:26:10.016
Like, that's disrespectful to you.
404
00:26:10.476 --> 00:26:12.836
You should be getting the paperwork filed for you.
405
00:26:12.876 --> 00:26:16.457
He had, I mean, obviously he had like a proper ID number and everything.
406
00:26:16.477 --> 00:26:18.918
And I was like, if something were to happen to you, you're not covered there.
407
00:26:19.038 --> 00:26:20.138
You know, I mean, so it's like,
408
00:26:20.758 --> 00:26:24.704
It kind of goes beyond the compliance side and it's about fully carried.
409
00:26:24.724 --> 00:26:29.671
Yeah, I remember the first time I actually ever really dug into what L&I does and covers, etc.
410
00:26:29.992 --> 00:26:32.656
And for those of you who don't have L&I in Washington, it's just workers' comp.
411
00:26:32.696 --> 00:26:33.457
Labor and industries, yeah.
412
00:26:33.477 --> 00:26:33.637
Yeah.
413
00:26:35.820 --> 00:26:38.462
It happened one of our team members was on a dump truck site.
414
00:26:38.522 --> 00:26:38.963
They dumped.
415
00:26:39.303 --> 00:26:43.066
He put his finger up inside and it took it off right down to the skin, broke the finger.
416
00:26:44.107 --> 00:26:45.368
He was out for about six months.
417
00:26:45.869 --> 00:26:50.733
But Ellen and I stepped in, did the surgeries, all his physical therapy, and then covered his wages.
418
00:26:50.753 --> 00:26:53.675
I think like 80% or something like that for that six months.
419
00:26:54.036 --> 00:26:57.478
But it was like $85,000 if I remember correctly.
420
00:26:57.498 --> 00:27:00.001
Because you can see the itemized cost.
421
00:27:00.161 --> 00:27:03.443
And I'm like, either A, I would have paid that out of...
422
00:27:04.509 --> 00:27:05.330
just guilt.
423
00:27:05.651 --> 00:27:05.851
Right.
424
00:27:05.871 --> 00:27:07.413
Cause he did it while working for me.
425
00:27:07.473 --> 00:27:07.674
Right.
426
00:27:07.734 --> 00:27:09.396
And I didn't have the safety protocol at the time.
427
00:27:09.456 --> 00:27:12.240
Cause we were not, we were flying by the seat of our pants.
428
00:27:12.520 --> 00:27:14.703
Or I would have been like, sorry, I don't have the money.
429
00:27:14.904 --> 00:27:15.124
Yeah.
430
00:27:15.384 --> 00:27:18.248
And he would have been in a really bad spot with him and his little family.
431
00:27:18.268 --> 00:27:20.792
And so I think it's very important to your point.
432
00:27:20.812 --> 00:27:20.952
Like,
433
00:27:21.693 --> 00:27:27.137
actually doing it just for the sake of your team, not just, oh, like I'm skating by, they're saving some taxes.
434
00:27:27.157 --> 00:27:29.439
Like I think people sometimes just try to make sense of it.
435
00:27:29.499 --> 00:27:29.819
I know.
436
00:27:30.239 --> 00:27:31.040
It's expensive.
437
00:27:31.500 --> 00:27:32.021
It's expensive.
438
00:27:32.161 --> 00:27:36.604
But it's also like if that guy didn't have health insurance, what would have even happened?
439
00:27:36.644 --> 00:27:37.425
I mean, you know what I mean?
440
00:27:37.445 --> 00:27:40.067
Like he might not have ever been able to even go back to work.
441
00:27:40.087 --> 00:27:40.207
Yeah.
442
00:27:40.567 --> 00:27:43.991
And I think just sleeping peacefully at night is the most important thing.
443
00:27:44.011 --> 00:27:44.572
A hundred percent.
444
00:27:44.692 --> 00:27:52.621
And so whether it be payroll taxes or workers comp or higher general liability insurance, for crying out loud, or making sure your taxes are done correctly.
445
00:27:52.661 --> 00:27:55.865
Like, well, I know I'm not really claiming all my income.
446
00:27:55.905 --> 00:27:56.105
It's like.
447
00:27:57.026 --> 00:27:57.987
Just sleep better at night.
448
00:27:58.067 --> 00:28:00.809
And I think that was a big bridge I crossed after my first audit.
449
00:28:00.969 --> 00:28:01.350
Okay.
450
00:28:01.370 --> 00:28:05.413
Was like, and this is like even with Brad, when I go to him, it was like, I just want everything done right.
451
00:28:05.433 --> 00:28:05.953
You don't want to have to.
452
00:28:05.973 --> 00:28:06.894
Because I don't even want to think it.
453
00:28:06.974 --> 00:28:08.735
I don't want, I don't even want to push the boundaries.
454
00:28:08.795 --> 00:28:09.016
Right.
455
00:28:09.036 --> 00:28:16.862
Because like that discretionary effort that is wasted on the energy of, of risk and concern could be deployed towards the business.
456
00:28:16.922 --> 00:28:17.042
Yeah.
457
00:28:17.062 --> 00:28:17.202
Yeah.
458
00:28:17.362 --> 00:28:24.590
And just like growth and like advertising or like finding another employee instead of just worried about someone finding out one day.
459
00:28:24.870 --> 00:28:26.612
And then it sinks businesses all the time.
460
00:28:26.832 --> 00:28:27.333
Oh, 100%.
461
00:28:27.453 --> 00:28:27.733
Yeah.
462
00:28:27.793 --> 00:28:33.019
No one writes a book about the fact that like L&I shows up and like, oh, yeah, you close down your doors or you give us $300,000.
463
00:28:33.039 --> 00:28:33.139
Yeah.
464
00:28:33.159 --> 00:28:33.319
Yeah.
465
00:28:34.200 --> 00:28:34.860
And that happens.
466
00:28:34.920 --> 00:28:36.741
That happens with the federal taxes.
467
00:28:36.801 --> 00:28:37.021
Yeah.
468
00:28:37.121 --> 00:28:50.827
And I, um, you know, I do think that there is something to say for the fact that depending on your age, I guess, cause hopefully we have social security, but a lot of this is also hopefully putting some money towards our future when we can't work as well.
469
00:28:51.467 --> 00:28:54.128
Um, that's a, that's a really big part of it too.
470
00:28:54.188 --> 00:29:00.391
Like, and it's a little bit of a pyramid scheme, but, um, but, and you should all still have a 401k, but, um.
471
00:29:00.711 --> 00:29:02.012
Oh, that's another thing, actually.
472
00:29:02.433 --> 00:29:04.214
That's another good question for your accountant.
473
00:29:04.234 --> 00:29:05.395
Sorry to flip around here.
474
00:29:05.435 --> 00:29:14.223
But the HSA, I just met with someone the other day who was like, I can't keep buying trucks to depreciate to not pay tax.
475
00:29:14.584 --> 00:29:15.064
Right.
476
00:29:15.404 --> 00:29:16.846
He was like, he had to sell some of his trucks.
477
00:29:17.066 --> 00:29:17.326
Yeah.
478
00:29:17.566 --> 00:29:19.587
And he didn't have anywhere to park him.
479
00:29:19.627 --> 00:29:21.287
He had too many years of the same advice.
480
00:29:21.387 --> 00:29:30.749
But looking into like the simple IRAs and 401ks and HSAs and like smart ways to tuck your money away that reduce tax liability is huge.
481
00:29:31.389 --> 00:29:33.370
A lot of people don't know this.
482
00:29:33.490 --> 00:29:38.891
But after you reach a certain threshold in your HSA, you can actually start investing the funds.
483
00:29:38.991 --> 00:29:41.692
And you can actually manage depending on where you think.
484
00:29:41.712 --> 00:29:42.512
Health savings account.
485
00:29:42.552 --> 00:29:43.472
Yeah, health savings account.
486
00:29:44.112 --> 00:29:47.876
And you can actually manage the investments and those investments also grow tax free.
487
00:29:48.657 --> 00:29:49.058
Yeah.
488
00:29:49.078 --> 00:29:49.778
And what is it?
489
00:29:49.798 --> 00:29:50.840
Three thousand five hundred.
490
00:29:50.860 --> 00:29:53.022
So the limit per year that you can put into an HSA.
491
00:29:53.202 --> 00:29:56.566
I think that that's the that's the limit.
492
00:29:56.686 --> 00:29:56.986
That's.
493
00:29:57.246 --> 00:29:57.647
Yeah.
494
00:29:58.968 --> 00:30:00.129
That's what's the right word.
495
00:30:00.209 --> 00:30:01.370
That's non-taxable.
496
00:30:01.430 --> 00:30:01.730
Got it.
497
00:30:01.810 --> 00:30:04.252
And then you can fund beyond that.
498
00:30:04.352 --> 00:30:04.632
Got it.
499
00:30:04.652 --> 00:30:05.993
But then it's still going to be after taxes.
500
00:30:06.033 --> 00:30:07.253
Yeah, I think that's the right number.
501
00:30:07.273 --> 00:30:07.754
I don't know.
502
00:30:07.874 --> 00:30:09.315
I need to read up on the big, beautiful bill stuff.
503
00:30:09.415 --> 00:30:12.497
And even like 401k, IRA, et cetera.
504
00:30:12.537 --> 00:30:23.744
Like just between like maxing out your 401k and doing an IRA, that could potentially shelter $30,000 plus from taxes.
505
00:30:23.824 --> 00:30:24.605
Right, right.
506
00:30:24.645 --> 00:30:25.465
Just that in and of itself.
507
00:30:25.665 --> 00:30:27.467
When it comes to 401k, like one of those things...
508
00:30:28.327 --> 00:30:41.800
I think of is sometimes, especially for early level technicians, they might already be covered by state health insurance and they might never do their 401k, but it's relatively cheap to offer it to employees.
509
00:30:41.820 --> 00:30:43.321
For example, 401k, it's usually like...
510
00:30:44.222 --> 00:30:47.703
nine, 10, 12 bucks a month to get them enrolled in a program.
511
00:30:47.783 --> 00:30:48.063
Right.
512
00:30:48.323 --> 00:30:53.965
And ideally, you set them up on a career path where they at least get in the habit of putting aside two or three percent.
513
00:30:54.005 --> 00:30:54.285
Yes.
514
00:30:54.365 --> 00:30:55.385
Going into an account.
515
00:30:55.425 --> 00:30:55.645
Yeah.
516
00:30:55.705 --> 00:31:00.086
And actually set them up for something down the road or they have a nest egg of five or 10 grand if something crazy was to happen.
517
00:31:00.107 --> 00:31:00.247
Yeah.
518
00:31:00.767 --> 00:31:05.988
And so I think it is a relatively cheap benefit to be able to offer two technicians.
519
00:31:06.668 --> 00:31:09.389
And even if you don't contribute or match or anything at the beginning.
520
00:31:09.409 --> 00:31:09.769
Right.
521
00:31:09.809 --> 00:31:11.230
It's something to get started.
522
00:31:11.270 --> 00:31:11.470
Yeah.
523
00:31:11.630 --> 00:31:12.650
And it doesn't cost a whole bunch.
524
00:31:12.690 --> 00:31:14.691
And it totally increases employee retention.
525
00:31:15.152 --> 00:31:22.537
Any program like that that you can offer that helps support your employees, even in those kind of ways where maybe they don't see the benefit of it right away.
526
00:31:22.557 --> 00:31:25.019
I think like it's so expensive to train someone.
527
00:31:25.499 --> 00:31:27.921
It's such a time suck and a money suck to train someone.
528
00:31:27.941 --> 00:31:34.685
So the longer we can keep our good people and, you know, part of that's by offering programs like that that are beneficial to them, I think.
529
00:31:34.966 --> 00:31:37.547
And and you can have some tax savings with it as well.
530
00:31:37.687 --> 00:31:41.050
If you're putting some away for yourself, I think it's a win, win, win.
531
00:31:41.370 --> 00:31:42.151
Yeah, absolutely.
532
00:31:42.631 --> 00:31:43.051
Fantastic.
533
00:31:43.071 --> 00:31:45.753
Well, thanks for coming in and answering some of the questions.
534
00:31:46.374 --> 00:31:48.756
How can people get ahold of you, book a call, et cetera?
535
00:31:48.816 --> 00:31:51.398
Yeah, homeservicecpa.com.
536
00:31:51.458 --> 00:31:58.023
And then there's a little link at the top on the top right where you can just schedule right on my calendar.
537
00:31:58.283 --> 00:32:02.786
If for some reason my days or times are not available for you, please email me.
538
00:32:03.327 --> 00:32:04.868
I am meeting with someone on the Saturday.
539
00:32:05.008 --> 00:32:07.370
I don't usually open the weekends, but I am pretty free on the weekends.
540
00:32:07.830 --> 00:32:08.670
So I'll make it work.
541
00:32:08.690 --> 00:32:10.191
I know everyone out there is really busy.
542
00:32:10.591 --> 00:32:18.053
And yeah, I've met I just want to say I've met so many amazing, really hardworking people in the past couple months.
543
00:32:18.453 --> 00:32:23.274
And it's been really I think that that a lot of this stuff can feel really overwhelming.
544
00:32:23.294 --> 00:32:27.735
And I know I've I've spoken to quite a few people who are already overwhelmed for one reason or another.
545
00:32:28.275 --> 00:32:32.596
But you kind of just have to take the step to start getting it straightened out now.
546
00:32:32.736 --> 00:32:34.897
And then, like you said, you'll sleep better at night.
547
00:32:35.117 --> 00:32:35.277
Yeah.
548
00:32:35.637 --> 00:32:40.241
And I think if it comes to we wanting to sell the business one day, you need your numbers in line.
549
00:32:40.401 --> 00:32:40.581
Yeah.
550
00:32:40.601 --> 00:32:41.862
If you want to get a mortgage one day.
551
00:32:41.922 --> 00:32:42.102
Yeah.
552
00:32:42.363 --> 00:32:45.005
No one's going to take your P&L and trust anything.
553
00:32:45.045 --> 00:32:49.008
If they immediately as a banker underwriting is like, yeah, this doll does not make sense.
554
00:32:49.168 --> 00:32:50.189
And this is not true.
555
00:32:50.249 --> 00:32:51.170
They know what they're seeing.
556
00:32:51.190 --> 00:32:51.430
Yeah.
557
00:32:51.930 --> 00:33:02.536
And so I think it's also just like thinking a few years down the road, even for people that like I was 21, 22, you're growing, the business just focused on that and not having this can potentially put you back a few years.
558
00:33:02.636 --> 00:33:02.856
Yeah.
559
00:33:02.916 --> 00:33:07.679
When you do get married, you want to get a house or you do need to have an investment and have a good credit score.
560
00:33:07.699 --> 00:33:12.342
Like, yes, these are little things that put in place now are good habits to set you up in the future.
561
00:33:12.522 --> 00:33:12.922
Absolutely.
562
00:33:13.062 --> 00:33:13.442
All right.
563
00:33:13.602 --> 00:33:14.583
Book call Chelsea.
564
00:33:14.883 --> 00:33:15.984
She'll be happy to talk to you.
565
00:33:16.344 --> 00:33:18.325
And I look forward to having you at Home Service CPA.
566
00:33:18.505 --> 00:33:22.868
Oh, can I give a quick shout out to Matt from Galaxy Landscaping?
567
00:33:22.928 --> 00:33:25.970
OK. Who I met with today and I told him this was going to be my first podcast.
568
00:33:26.030 --> 00:33:27.851
It totally hyped me up.
569
00:33:27.871 --> 00:33:28.951
Thanks, Matt.
570
00:33:29.232 --> 00:33:29.692
Let's go.
1
00:00:00.371 --> 00:00:07.975
If you lose sleep over payroll taxes, running things through the IRS, or ever getting audited, this is the podcast for you.
2
00:00:08.415 --> 00:00:12.016
I'm bringing on the general manager of my company, Home Service CPA.
3
00:00:12.036 --> 00:00:13.137
Her name is Chelsea.
4
00:00:13.457 --> 00:00:15.218
She's been with the company for a few months now.
5
00:00:15.518 --> 00:00:20.902
talk to dozens of different home service business owners about their books, their finances, their taxes.
6
00:00:21.202 --> 00:00:23.983
And we do all of those services at home service CPA.
7
00:00:24.224 --> 00:00:32.669
But today she's going to be sharing the tips and the tricks that she's learned that you can use in your business to make sure that if you got audited, you wouldn't be losing sleep over it.
8
00:00:32.889 --> 00:00:38.593
So without any further delay, let's talk to Chelsea and learn what you can do to make sure you reduce what you're paying the IRS.
9
00:00:38.853 --> 00:00:46.237
So over the past, I guess it's been two months now, you've been talking to a lot of the different business owners, thinking about joining home service CPA.
10
00:00:46.657 --> 00:00:51.660
I wanted to go over some of the kind of takeaways and practical things that people can use in their business.
11
00:00:52.080 --> 00:01:00.325
But what are some of the things that you see as like the obvious big red flags when you step into someone's P&L or their reports or their QuickBooks?
12
00:01:00.345 --> 00:01:03.487
What are some of the things people are doing completely wrong across the board?
13
00:01:03.774 --> 00:01:07.837
Well, I think that there are some acute things that I can touch on.
14
00:01:07.857 --> 00:01:24.931
But I think more so than anything, what I'm seeing is that a lot of these people who have large, I guess, medium businesses who are doing under $5 million a year, but over one, they usually already have some type of bookkeeper or a CPA in their lives that they're using.
15
00:01:25.071 --> 00:01:26.492
And they're getting these reports every month.
16
00:01:27.032 --> 00:01:30.055
And there's like a kind of this gap in financial literacy.
17
00:01:30.095 --> 00:01:31.396
Like they have the report in their hand.
18
00:01:31.896 --> 00:01:36.601
but they don't really know what it means or how to take action on what they're seeing or anything like that.
19
00:01:36.681 --> 00:01:52.798
And I think that it's our job in a role like mine really to be working on not just being accurate and tidy with the bookkeeping, but also making sure that the owners are actually understanding what they're reading and understanding why there would be difference in periods.
20
00:01:53.178 --> 00:01:53.879
Obviously,
21
00:01:55.280 --> 00:01:57.463
particularly in landscaping, there's a lot of seasonality.
22
00:01:57.543 --> 00:02:00.468
So comparing like year over year versus month over month, that kind of thing.
23
00:02:01.089 --> 00:02:07.859
I did just talk to somebody yesterday who, or maybe it was two days ago now, but his net income was $300,000.
24
00:02:07.899 --> 00:02:08.399
And he was like,
25
00:02:10.282 --> 00:02:11.383
I don't have $300,000.
26
00:02:11.423 --> 00:02:11.863
Where's the money?
27
00:02:11.883 --> 00:02:12.884
That's why everyone says that, right?
28
00:02:12.904 --> 00:02:13.384
Where's the money?
29
00:02:13.404 --> 00:02:13.745
I don't know.
30
00:02:14.825 --> 00:02:16.847
But he's not an S Corp and he wasn't on payroll.
31
00:02:16.867 --> 00:02:19.469
So he was actually, he was taking distributions.
32
00:02:19.929 --> 00:02:21.170
Those aren't on the profit and loss.
33
00:02:21.370 --> 00:02:22.291
They're on your balance sheet.
34
00:02:22.831 --> 00:02:28.595
So then when you actually go to the balance sheet, he had taken probably $180,000, $200,000 in distributions of the year.
35
00:02:28.996 --> 00:02:32.638
So if you kind of work that back in, there should be $100,000 left over, right?
36
00:02:32.778 --> 00:02:38.803
And just not even knowing where to find that or where to look and having those kind of mysteries, I think is a big thing.
37
00:02:39.063 --> 00:02:46.689
In terms of that specifically, the S-corp and paying yourself, a lot of the questions I get from owners is, how much should I be paying myself?
38
00:02:46.969 --> 00:02:49.371
What is a normal salary if I do have an S-corp?
39
00:02:49.951 --> 00:02:55.195
What do you see as kind of the happy medium or what do you recommend to someone based on the size of their business, the amount of profit?
40
00:02:55.215 --> 00:02:59.298
How much should I be having in distributions versus my actual payroll and my W-2?
41
00:02:59.358 --> 00:03:01.280
What should that be as an S-corp?
42
00:03:01.500 --> 00:03:01.660
Right.
43
00:03:01.680 --> 00:03:02.481
That's a great question.
44
00:03:02.581 --> 00:03:14.188
I would say that if you're going to become an S Corp, I usually just look at last year's distributions and what you need to live off of and try to shoot somewhere reasonable around there.
45
00:03:14.468 --> 00:03:18.531
If you're the owner of your business, you probably shouldn't be the person making the least amount of money.
46
00:03:19.231 --> 00:03:25.956
So I would say depending on where you live, normally somewhere between $60,000 to $80,000
47
00:03:31.099 --> 00:03:32.660
how much does your business make?
48
00:03:32.740 --> 00:03:41.563
So I would, if someone was making like gross revenue of $500,000 a year then, and they have $400,000 in expenses, and maybe that's too high.
49
00:03:43.223 --> 00:03:49.725
But yeah, I mean, I would say like, if you're the owner of a business, if you have multiple employees, you can't pay yourself $30,000 a year, right?
50
00:03:50.566 --> 00:03:59.629
The other thing that is important to consider is if you're in a partnership, then everything basically has to be equal between you and the partner.
51
00:04:00.303 --> 00:04:01.364
Oh, it turned to the W-2.
52
00:04:01.644 --> 00:04:05.608
Well, I think the payroll can be different, but the distributions all have to be the same.
53
00:04:05.728 --> 00:04:06.008
Got it.
54
00:04:06.028 --> 00:04:11.513
So you also do kind of have to find that balance of like, how are you paying yourselves or each other?
55
00:04:11.954 --> 00:04:14.056
And then kind of what's left over to share.
56
00:04:14.957 --> 00:04:20.322
If you're big enough and you have things like a 401k, you also need to consider like the safe harbor match.
57
00:04:20.342 --> 00:04:23.785
So it kind of varies based on your complexity, I suppose.
58
00:04:23.905 --> 00:04:25.606
But I think like the...
59
00:04:26.307 --> 00:04:43.280
The line we draw really, and I guess this isn't about wages, but if you have at least $50,000 of residual net income at the end of the year, we always recommend forming an S-Corp because you're going to save more money in tax liability than you will spend on the cash outlay to be an S-Corp.
60
00:04:43.540 --> 00:04:57.026
And so essentially you're comparing the cost of setting up the S Corp, filing another tax return, essentially, versus the savings that comes along with having distributions instead of W-2 income where there's way more taxes.
61
00:04:57.086 --> 00:04:57.526
Right.
62
00:04:57.646 --> 00:04:58.186
Yeah, certainly.
63
00:04:58.206 --> 00:05:07.710
And I think like until people actually work for themselves, I don't think that we have any concept how much your employer is splitting that the income.
64
00:05:08.130 --> 00:05:11.292
I think when you're self-employed, they call it self-employment tax, but it's all the same thing, right?
65
00:05:11.312 --> 00:05:12.393
It's Medicare and Social Security.
66
00:05:12.813 --> 00:05:15.275
But we only pay half of that as a W-2 employee.
67
00:05:15.395 --> 00:05:21.819
And so I've had clients in the past who've made $200,000 for the year, but they've spent a lot of it, and then they get a tax bill for $45,000.
68
00:05:21.859 --> 00:05:23.760
And they're like, what?
69
00:05:24.240 --> 00:05:25.861
But that adds up.
70
00:05:25.941 --> 00:05:27.983
It's 15% of what you bring in, right?
71
00:05:28.003 --> 00:05:28.183
Yeah.
72
00:05:28.563 --> 00:05:34.266
What are some other things that you see business owners doing wrong when you first get into their accounts?
73
00:05:34.447 --> 00:05:34.687
Yeah.
74
00:05:34.707 --> 00:05:35.547
Specifically around the bookkeeping.
75
00:05:35.567 --> 00:05:41.451
Because I think so many people, like, when we say, you know, know your numbers, a lot of times from my perspective, that's operations.
76
00:05:41.491 --> 00:05:44.453
So that's, like, close ratio and, you know, your time to lead.
77
00:05:45.013 --> 00:05:46.314
These more operational things.
78
00:05:46.354 --> 00:05:46.774
Right.
79
00:05:46.874 --> 00:05:49.595
And a lot of great operators know those numbers.
80
00:05:49.855 --> 00:05:52.597
But then they have a profit and loss statement they don't really understand.
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They don't understand how that correlates with the balance sheet.
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Right.
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First off, what is the balance sheet?
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What is the profit and loss?
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And then when you look at those two things, what are some of the immediate mistakes you're seeing people make?
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So that's, yeah, I guess starting there, like that's kind of the fundamentals, right?
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So the profit and loss covers a period of time.
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You know, we talk about net income a lot, but as an owner, I think that the bigger key metric really is the net operating income because the things that fall below the net operating income are things that you could hypothetically take away and the business could still operate.
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So, and that's also, that's important to know if you were like going to sell your business, right?
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That's kind of the number people are looking at.
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It's like depreciation.
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Depreciation is a non-cash expense.
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That's under the line.
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Interest paid is under the line, which I personally disagree with.
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Like I do it in bookkeeping.
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Don't worry.
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But I think that because what they're saying is that you've financed
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you finance the business being able to expand, right?
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And that's technically not an operating cost, but in my mind, it's still a cash expense.
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So yeah, I mean, I would say that my real number is net income, net operating income, plus the interest paid.
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But amortization and the difference between depreciation and amortization,
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is the depreciation are on your fixed assets, your plant, property, and equipment.
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And then amortization is capturing the value of intangible assets.
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So like if you spend $20,000 trademarking something, or, you know, you get your logo made, or you have massive startup costs, those kinds of things, you can amortize those over time.
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My experience is like mostly for home services, depreciation is the things where you say amortization is rare that you're doing sort of IP and things like that.
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Yeah.
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So, I mean, and then I guess that's one of the first things I would say that I'm seeing is these massive, on the balance sheet, there'll be like this massive record of assets, right?
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Like $500,000 worth of equipment and then $2,000 in depreciation for the year.
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And I'm like, what's going on?
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So I think making sure that your bookkeeper or you, if you're doing your own books, is trying to capture that depreciation every month because then it doesn't really hit all at the end of the year.
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And you can kind of get a better idea of like what kind of wiggle room you have if you needed to make another asset acquisition or if you can make another asset acquisition if that's if it's appropriate.
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But yeah, so that's a big one.
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Loan payments.
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So loan payments on equipment, assets, anything like that.
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The only part of that payment that is an expense is the interest.
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The principle of that payment is actually essentially increasing your value that you have in your assets and then offsetting your liability for the loan.
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So a lot, a majority of the books I go into are.
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the entire loan payments being expensed.
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And even though that's nice from a tax perspective, and that makes your net income appear lower, it's incorrect, A.
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And then B, it also makes your net income look lower.
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So like I have a client yesterday who's gonna put an offer on a home next door to his parents' house.
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And he had been booking all of his a couple of vehicle loans and he'd been booking the whole thing and as as an expense.
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And so we were able to split that up.
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And so it actually, you know, his net income is higher and he's going to get a better rate on his mortgage.
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And I mean, so it is I guess that's kind of a double edged sword, but it's incorrect to to take it as a whole expense.
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Yeah.
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So if I have a $300 a month payment coming out on equipment, let's say it is a 4% interest.
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I got a five-year term on something.
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You have good credit.
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Exactly right now.
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So assuming that, I see $300 come out in my QuickBooks, for example.
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What am I supposed to actually do to make sure I split some portion of that interest, some portion of that interest?
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I don't even know because I just saw this dollar amount from the dealer that said $300 a month.
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So first of all, you can always ask the loan originator for an amortization schedule, which will break down each payment every month, what's principal and then what's the liability payment or the principal payment.
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I have not had really anybody have luck doing that.
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Like you should be able to get it, but nobody seems to be able to.
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Um, so I, well, I have a, I have a debt schedule template that I use.
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Um, but the functions are pretty simple in QuickBooks or I'm sorry, in Excel, uh, just to actually, you put the, the, uh, percentage rate.
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I always say discount rate.
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It's not a discount.
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It's a charge, um, that you put the percentage rate in, put the loan payment, the origin value, the length of loan, and then it'll calculate it for you.
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Those are pretty easy to find online.
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So I'm like throw it in chat to be team like, hey, this is my initial amount.
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They said this is my rate.
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And then when the transaction comes in, instead of having or categorizing it immediately, you open it and then you click split.
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And then you're going to have two line items.
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The first line item would be the principal payment.
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And that's going to come out of that.
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It's going to reduce that liability account that the loan should have been created on.
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And then the second one would be the interest expense.
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That'd be the second line.
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So split is the right way to do it because I used to do it as a journal entry, which technically you can kind of make it work, but it's a pain in the butt.
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That's what I did yesterday.
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It's hard.
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Oh, really?
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Yeah.
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Oh, man.
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You're probably going to see that in some of my accounts.
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That's okay.
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So, okay, so now that I have split that out, should I be doing that on every single transaction?
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Should I do it at the end of the year?
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Because I do see sometimes people just, they'll put it as an expense the whole year.
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And at the end of the year when they're going to do their taxes, they're like, oh, I should figure this out.
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And I should split things up correctly.
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My problem with that is like profit and losses throughout the whole year now have been affected.
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It affects my profit sharing.
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What do you recommend in terms of that one specifically?
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Because that's probably the most common accounting error I see all the time.
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I see it everywhere.
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You just do them as they come in.
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Like the most loans I've seen, I've talked to a lot of people over the past two months and the most like quantity of loans I've seen is probably like...
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Seven.
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And that's only seven transactions a month.
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So what I do is I just have one Excel sheet.
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Then I just call it debt schedule and each tab is a different loan.
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And then as the transactions come in, I just highlight the one I'm splitting so that I kind of can just, it's easy on the eye, you know where to start off with next.
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And then I just post it, but it's, it's really not, once you set up the debt schedule, which like you're saying, chat GPT could very easily do for you.
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I've never thought about that.
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Yeah.
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Yeah.
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Then, I mean, you just you just keep a record of it yourself and just plug them in.
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I agree with you.
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I think you can certainly do it at the end of the year.
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You could do it at the end of the month.
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But again, it's it's less time and kind of less cognitively intensive, I guess, to like then try to match everything up.
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Right.
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Like if you're just recording it properly in the first place, then you're actually saving yourself some steps.
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Yeah.
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And so that's really like the profit and loss side of things.
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On the balance sheet, what's that actually happening?
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Obviously, we have assets and liabilities.
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It's more of a snapshot in time.
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But what exactly, when it comes to a loan, should I be looking at?
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Even just to verify what my accountant's doing, to verify that what my balance sheet...
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I see so many people, they look at their P&L.
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It makes more sense because it's a period of time.
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They look at their balance sheet and they're like...
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That's not really how much money is in my account.
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Like, why is assets – what's this owner's equity thing?
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Can you explain a little more about balance sheets?
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Totally.
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So the balance sheet is actually just one moment in time.
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It's one day.
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So if you go into your QuickBooks Online and you run the balance sheet, it gives you a period.
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And you can do this yourself to test me.
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But –
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So any time to end date is just the date of the balance sheet.
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So you can say 1-1-2026 through 12-31-2026 or 12-31-2026 through 12-31-2026.
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And it's still just going to be 12-31-2026.
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Got it.
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And part of the reason why your balance sheet doesn't match what you have in your bank or, you know, your...
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I should say your bank balance in your assets doesn't match is because you're probably not looking at it that same day.
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And then also there's usually like a one day lag between posting transactions.
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So the balance sheet is a synopsis of everything that you own, which are all of your assets.
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So that includes cash, plant property and equipment, land, buildings, all that stuff.
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And then if you think about, this is actually the accounting equation.
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So if you think about everything that, like all of your liabilities for the business, then everything between what you own and then what you owe is your equity in the business.
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So I think that the other thing that people don't really understand is that, or commonly understand, is that net income is actually flowing through into owner's equity.
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Right.
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So you're not going to see it in the assets, even though it's cash that comes into the bank.
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That's not technically how it's represented on there.
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And so your equity is a combination of really three things.
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It's how much cash you've put into the business, how much cash you've taken out of the business, and then in all forms, and then also how much your net income is currently.
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So that is kind of how they're related.
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think about it this way.
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So you go to the bank, they give you a $10,000 loan.
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You have $10,000 in cash.
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Assets went up.
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Assets went up.
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Your cash is up.
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Yeah.
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You got 10K.
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Let's go.
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But now you owe $10,000.
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So liabilities went up.
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So liabilities went up, right?
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Yeah.
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So that's the whole double entry accounting thing is that you can't have a transaction that doesn't have like an equal reaction on the other side of the accounting equation.
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So you would post that $10,000 cash
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So now every month, if you're making that $300 payment and you're using your little debt schedule that ChatGPT put together for you, every month as you pay down that loan, your interest is going to decrease on it and your interest will decrease and the amount towards principal increases.
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And so the cash is then, again, leaving it.
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from that top line asset, but you're also reducing the liability that's owed.
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And then that expense comes out in the owner's equity as an expense through net income.
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Got it.
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And when it comes to using a bookkeeper professionally, I think so many times when people think bookkeeper, they just do the transactions in QuickBooks.
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And realistically, I think most people could probably do that part of their job in 10 to 20 minutes a week.
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Right.
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I think the part that – so I got my first bookkeeper was after about three years in business, maybe four years, and I got my first sales tax audit.
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Didn't even know I was supposed to be filing sales tax.
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And I was doing everything wrong in terms of expensing the loan side of things.
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Because at the time we had like tractors and excavators.
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We had everything in terms of equipment.
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I had a lot of debt, and I was doing it all incorrectly.
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Okay.
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So when I got audited, I all of a sudden owed thousands of dollars in fees, not just the actual money I owed for the taxes.
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It's the penalties of interest.
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And so when does it start making sense?
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Because from my perspective, it's not the categorization that I'm paying a bookkeeper.
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It is the insurance or the peace of mind knowing that like when I file those taxes, they're correct and no one can come back to me because it's done correctly.
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Yes.
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And then that like having a professional bookkeeper, having yourself looking through even over my shoulder is a way for me to make sure that when I get audited, I can confidently do it without losing sleep.
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Right.
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From your perspective, as you get people probably finding their first bookkeeper for the first time.
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Yeah.
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Or switching bookkeepers and they're like, I think something's wrong here.
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What would you recommend someone?
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When would you recommend someone to go get a professional to really help them versus just kind of do it themselves or even like have TurboTax do their tax return thing?
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Right.
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Yeah.
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I mean, that's kind of a that.
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Unfortunately, I want to say that, you know, so many businesses start and fail and it's usually about the money.
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Like if you're the kind of person that is motivated, you love what you're doing, you have a great product or service.
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and you're passionate about it, there's no reason why you shouldn't be successful.
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But a lot of businesses fail.
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And it's because from the beginning, they're not doing it correctly.
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So like, hopefully you were able to access those thousands of dollars to pay the fine.
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But I mean, I think it should really be
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Me from the beginning, and even if it's not a professional, you should at least be taking the steps to educate yourself on some of this stuff versus just kind of flying blind.
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And I feel like we have products that help people go from like...
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just the impassioned entrepreneur to a business owner, right?
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Because that's, you have to cross that line at some point.
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00:19:28.004 --> 00:19:38.333
I think anytime you have employees, it's good to have a bookkeeper accountant because then you know that the payroll taxes are getting filed appropriately, which that's another way that you can get burned very badly.
295
00:19:38.674 --> 00:19:41.396
Anytime you're going to do big cash outlays, you know...
296
00:19:42.137 --> 00:19:46.959
I think from the beginning, unfortunately, but it's like that's not necessarily feasible for everyone.
297
00:19:47.059 --> 00:19:47.239
Yeah.
298
00:19:47.619 --> 00:19:51.901
So there are some cool programs, though, even QuickBooks.
299
00:19:51.921 --> 00:19:58.604
So if you have QuickBooks Online and you can't afford to hire someone like Home Service CPA right now, hopefully you do in the future.
300
00:19:59.565 --> 00:20:03.667
But you can do the ProAdvisor course is free through QuickBooks Online.
301
00:20:04.067 --> 00:20:05.768
And it gives you a very rudimentary.
302
00:20:05.868 --> 00:20:06.128
But.
303
00:20:06.748 --> 00:20:10.390
correct walkthrough of how to expense things, categorize things.
304
00:20:10.630 --> 00:20:16.514
And I have actually done it myself after I'd been in accounting for many years just to see what it was like.
305
00:20:16.974 --> 00:20:21.857
And it was like a 40 hour program and I did it in like two hours.
306
00:20:22.298 --> 00:20:26.680
But they really cover a lot and it's free and you're already paying for it through QuickBooks.
307
00:20:26.900 --> 00:20:27.181
Got it.
308
00:20:27.401 --> 00:20:27.581
So.
309
00:20:27.821 --> 00:20:32.386
And for like end of year taxes, I know obviously right now when this is coming out, it's kind of like too late for end of year.
310
00:20:32.406 --> 00:20:32.707
Right.
311
00:20:32.947 --> 00:20:39.535
But what should someone be thinking about or asking their accountant to educate them on as it gets close to the end of the year?
312
00:20:39.555 --> 00:20:45.842
I think one of the most valuable things that Brad does for me when it comes to my taxes is sending me a video prior to the end of the year being like, hey.
313
00:20:45.882 --> 00:20:47.423
Here's your estimated taxes.
314
00:20:47.923 --> 00:20:51.686
And then based upon this, here's maybe like you're just above this bracket.
315
00:20:51.826 --> 00:20:57.689
So maybe we want to bring that down because, you know, 24% is, you know, let's try to get that underneath the 20% bracket.
316
00:20:57.969 --> 00:21:02.752
I think one thing people, a lot of times when they hear brackets in general, think they're paying 24% on the entire thing.
317
00:21:02.952 --> 00:21:04.693
It's like, no, this is a tiered system.
318
00:21:05.154 --> 00:21:07.175
Your first 20, 30,000 is zero.
319
00:21:07.235 --> 00:21:08.456
Then it goes up slowly.
320
00:21:08.956 --> 00:21:15.320
That being said, when it comes to end of year, I think a lot of times at home services, people just section 179, write everything off.
321
00:21:15.700 --> 00:21:28.292
One of the things Brad explained to me that was really, really kind of changed my mindset is if you expect to make more money next year and the year after that and in five years from now, maybe you actually don't want to take the section one in 79.
322
00:21:28.472 --> 00:21:28.752
Right.
323
00:21:28.772 --> 00:21:33.637
Because the tax bracket that you will be in in five years is likely going to be higher.
324
00:21:34.157 --> 00:21:47.265
And so instead of taking your $30,000 Section 179 when you're in a 10% bracket, maybe you take a five-year depreciation schedule so that in year five, you have something to write off when you're in a 24, 25, or 28% bracket.
325
00:21:47.645 --> 00:21:53.769
And so what kind of questions if someone's just starting their first, second year, they're starting to make profit for the first time?
326
00:21:53.789 --> 00:21:56.991
Because usually when I see people actually thinking about this, like, oh, I'm going to have a tax bill.
327
00:21:57.171 --> 00:21:57.491
Right.
328
00:21:57.751 --> 00:22:00.253
What kind of questions should I be asking my accountant?
329
00:22:00.493 --> 00:22:10.459
What sort of things can I be looking to do, tax strategies, to be able to minimize that in December, November, and actually thinking about reducing my tax liability?
330
00:22:10.699 --> 00:22:17.824
Well, I mean, Brad's example of kind of planning and strategizing around depreciation and asset acquisition is,
331
00:22:18.364 --> 00:22:19.745
is spot on.
332
00:22:19.805 --> 00:22:21.165
Like that's a, that's a huge thing.
333
00:22:21.225 --> 00:22:30.508
I think like what I've been seeing a lot of are these people that are now at that point where it's probably time to make an S corp election and start putting themselves on payroll and then learning how that works too.
334
00:22:30.528 --> 00:22:31.728
So that's another question.
335
00:22:32.929 --> 00:22:42.471
Weirdly, I've also talked to quite a few people whose current accountants and bookkeepers don't recommend that, who are way beyond the point where we would recommend that.
336
00:22:42.532 --> 00:22:43.552
And I, I don't,
337
00:22:44.272 --> 00:22:48.355
I don't know if it's because they don't want to do another return or what.
338
00:22:48.455 --> 00:22:50.817
But yeah, I mean, that's definitely something I would ask.
339
00:22:50.837 --> 00:22:58.883
Like, is my current structure supporting me being able to have this growth period next year and the year after that?
340
00:22:59.304 --> 00:23:04.848
Or how can you reorganize or what can you do to minimize your future tax liability?
341
00:23:05.228 --> 00:23:08.851
The other thing is that people need to pay their quarterly estimated taxes.
342
00:23:08.991 --> 00:23:09.312
Yeah.
343
00:23:10.012 --> 00:23:10.932
I actually, yeah, same thing.
344
00:23:11.392 --> 00:23:22.115
Brad originally was like, hey, by the way, like every year you've been doing tax in the past, you're paying these other fees because if you don't pay quarterly, you might pay all your taxes at the end of the year, but they're going to tack on a whole bunch of fees.
345
00:23:22.215 --> 00:23:22.655
It's crazy.
346
00:23:22.995 --> 00:23:28.476
So, and I will tell you, and I didn't know this until I started working in tax and I don't know how many people actually know this.
347
00:23:28.636 --> 00:23:35.598
If you pay either 90% or 110% of last year's liability, you do not get the penalties.
348
00:23:35.618 --> 00:23:36.418
Oh, really?
349
00:23:36.678 --> 00:23:37.398
Right, because-
350
00:23:38.579 --> 00:23:43.266
you did your best faith effort paying your quarterly taxes on your prior years.
351
00:23:44.452 --> 00:23:44.952
Liability.
352
00:23:44.972 --> 00:23:52.254
So if you do quarterlies and you pay more than, let's just call it 110% of last year's, even if you're a little short, there won't be any penalties.
353
00:23:52.274 --> 00:23:54.735
There's no penalties on it because you did your best faith effort.
354
00:23:54.755 --> 00:23:58.776
I always say it's the only thing I like about the IRS.
355
00:23:58.796 --> 00:24:01.836
Say, for example, you're supposed to get a return or you overpaid.
356
00:24:02.456 --> 00:24:03.937
What if you just leave that money in?
357
00:24:03.957 --> 00:24:06.838
Will it account for estimated taxes the year following?
358
00:24:06.858 --> 00:24:08.578
I don't think that they actually will do that.
359
00:24:08.618 --> 00:24:11.079
Okay, so they want quarterly, essentially.
360
00:24:11.119 --> 00:24:12.600
Yeah, yeah, yeah.
361
00:24:12.680 --> 00:24:14.800
You can't, they don't want to hold on to your money.
362
00:24:15.261 --> 00:24:19.002
If they hold on to your money for more than 90 days, then you're supposed to be making interest on it.
363
00:24:20.002 --> 00:24:20.443
Oh, okay.
364
00:24:20.483 --> 00:24:22.363
Yeah, like Prime Plus One or something.
365
00:24:22.403 --> 00:24:22.684
Really?
366
00:24:22.704 --> 00:24:25.865
I have actually received interest for a client before.
367
00:24:25.905 --> 00:24:26.205
That's...
368
00:24:26.685 --> 00:24:27.285
That's crazy.
369
00:24:27.365 --> 00:24:29.446
I get these random little IRS taxes.
370
00:24:29.546 --> 00:24:30.067
That's what it is.
371
00:24:30.107 --> 00:24:33.388
So usually what I'll do is I'm usually ahead one year on my taxes.
372
00:24:33.588 --> 00:24:35.569
And I just leave whatever it is in there.
373
00:24:36.269 --> 00:24:39.671
And then that way I just never have a surprise because I got surprised one year.
374
00:24:39.691 --> 00:24:41.131
I had to sell a piece of real estate.
375
00:24:41.151 --> 00:24:41.892
I'm like, never again.
376
00:24:42.472 --> 00:24:43.772
So it just keep the money in.
377
00:24:43.792 --> 00:24:46.073
And then what happens is I get a return and I say, okay, great.
378
00:24:46.234 --> 00:24:47.694
Just apply that to next year's.
379
00:24:47.894 --> 00:24:48.975
So that's what that is.
380
00:24:48.995 --> 00:24:49.895
I didn't even know that.
381
00:24:49.915 --> 00:24:50.515
It's interest.
382
00:24:50.755 --> 00:24:51.276
Interest.
383
00:24:51.396 --> 00:24:51.756
I know.
384
00:24:52.056 --> 00:24:54.879
It's these random little like, okay, where is this money coming from?
385
00:24:54.899 --> 00:24:57.122
It's from the IRS, but I have no record of like payroll.
386
00:24:57.142 --> 00:24:57.342
Okay.
387
00:24:57.543 --> 00:25:01.747
Anytime I would see stuff like that before though, I'd always be like, should I even deposit this?
388
00:25:01.868 --> 00:25:04.571
Yeah, no, it's like a hundred bucks or two.
389
00:25:04.611 --> 00:25:04.711
Yeah.
390
00:25:04.751 --> 00:25:06.693
And then sometimes, am I going to get in trouble if I for this?
391
00:25:06.713 --> 00:25:07.374
Yeah, my goodness.
392
00:25:07.414 --> 00:25:08.115
I know it's pretty bad.
393
00:25:08.615 --> 00:25:09.055
But yeah, no.
394
00:25:09.075 --> 00:25:18.918
So I would say like those kind of planning questions, also making sure that you're not to like harp on the payroll thing, but also just making sure that you've filed all of your payroll reporting.
395
00:25:18.958 --> 00:25:26.920
Like you really not just from like a legal standpoint, but also just like taking care of your employees.
396
00:25:27.420 --> 00:25:31.741
It's so crucial that those things are up to date because if somebody were to get injured on the job, they're.
397
00:25:31.981 --> 00:25:43.367
At least here in Washington, you know, they if you've been paying into L&I on their behalf and they I think they pay into it also, then they have coverage that will support them and take care of them in that period where they can't work.
398
00:25:43.888 --> 00:25:51.152
So I think that staying on top of the payroll compliance is a really big thing to not again, not just to stay out of trouble.
399
00:25:51.612 --> 00:25:54.153
but it's a way that you take care of your employees.
400
00:25:54.273 --> 00:26:03.154
I actually used to manage a medical practice and I had a guy from Columbia who worked for me and he got a job at a local restaurant here in town and they wanted to pay him under the table.
401
00:26:03.955 --> 00:26:06.735
And he was like letting them do that for a while.
402
00:26:06.755 --> 00:26:07.995
And I was like, you can't do that.
403
00:26:08.055 --> 00:26:10.016
Like, that's disrespectful to you.
404
00:26:10.476 --> 00:26:12.836
You should be getting the paperwork filed for you.
405
00:26:12.876 --> 00:26:16.457
He had, I mean, obviously he had like a proper ID number and everything.
406
00:26:16.477 --> 00:26:18.918
And I was like, if something were to happen to you, you're not covered there.
407
00:26:19.038 --> 00:26:20.138
You know, I mean, so it's like,
408
00:26:20.758 --> 00:26:24.704
It kind of goes beyond the compliance side and it's about fully carried.
409
00:26:24.724 --> 00:26:29.671
Yeah, I remember the first time I actually ever really dug into what L&I does and covers, etc.
410
00:26:29.992 --> 00:26:32.656
And for those of you who don't have L&I in Washington, it's just workers' comp.
411
00:26:32.696 --> 00:26:33.457
Labor and industries, yeah.
412
00:26:33.477 --> 00:26:33.637
Yeah.
413
00:26:35.820 --> 00:26:38.462
It happened one of our team members was on a dump truck site.
414
00:26:38.522 --> 00:26:38.963
They dumped.
415
00:26:39.303 --> 00:26:43.066
He put his finger up inside and it took it off right down to the skin, broke the finger.
416
00:26:44.107 --> 00:26:45.368
He was out for about six months.
417
00:26:45.869 --> 00:26:50.733
But Ellen and I stepped in, did the surgeries, all his physical therapy, and then covered his wages.
418
00:26:50.753 --> 00:26:53.675
I think like 80% or something like that for that six months.
419
00:26:54.036 --> 00:26:57.478
But it was like $85,000 if I remember correctly.
420
00:26:57.498 --> 00:27:00.001
Because you can see the itemized cost.
421
00:27:00.161 --> 00:27:03.443
And I'm like, either A, I would have paid that out of...
422
00:27:04.509 --> 00:27:05.330
just guilt.
423
00:27:05.651 --> 00:27:05.851
Right.
424
00:27:05.871 --> 00:27:07.413
Cause he did it while working for me.
425
00:27:07.473 --> 00:27:07.674
Right.
426
00:27:07.734 --> 00:27:09.396
And I didn't have the safety protocol at the time.
427
00:27:09.456 --> 00:27:12.240
Cause we were not, we were flying by the seat of our pants.
428
00:27:12.520 --> 00:27:14.703
Or I would have been like, sorry, I don't have the money.
429
00:27:14.904 --> 00:27:15.124
Yeah.
430
00:27:15.384 --> 00:27:18.248
And he would have been in a really bad spot with him and his little family.
431
00:27:18.268 --> 00:27:20.792
And so I think it's very important to your point.
432
00:27:20.812 --> 00:27:20.952
Like,
433
00:27:21.693 --> 00:27:27.137
actually doing it just for the sake of your team, not just, oh, like I'm skating by, they're saving some taxes.
434
00:27:27.157 --> 00:27:29.439
Like I think people sometimes just try to make sense of it.
435
00:27:29.499 --> 00:27:29.819
I know.
436
00:27:30.239 --> 00:27:31.040
It's expensive.
437
00:27:31.500 --> 00:27:32.021
It's expensive.
438
00:27:32.161 --> 00:27:36.604
But it's also like if that guy didn't have health insurance, what would have even happened?
439
00:27:36.644 --> 00:27:37.425
I mean, you know what I mean?
440
00:27:37.445 --> 00:27:40.067
Like he might not have ever been able to even go back to work.
441
00:27:40.087 --> 00:27:40.207
Yeah.
442
00:27:40.567 --> 00:27:43.991
And I think just sleeping peacefully at night is the most important thing.
443
00:27:44.011 --> 00:27:44.572
A hundred percent.
444
00:27:44.692 --> 00:27:52.621
And so whether it be payroll taxes or workers comp or higher general liability insurance, for crying out loud, or making sure your taxes are done correctly.
445
00:27:52.661 --> 00:27:55.865
Like, well, I know I'm not really claiming all my income.
446
00:27:55.905 --> 00:27:56.105
It's like.
447
00:27:57.026 --> 00:27:57.987
Just sleep better at night.
448
00:27:58.067 --> 00:28:00.809
And I think that was a big bridge I crossed after my first audit.
449
00:28:00.969 --> 00:28:01.350
Okay.
450
00:28:01.370 --> 00:28:05.413
Was like, and this is like even with Brad, when I go to him, it was like, I just want everything done right.
451
00:28:05.433 --> 00:28:05.953
You don't want to have to.
452
00:28:05.973 --> 00:28:06.894
Because I don't even want to think it.
453
00:28:06.974 --> 00:28:08.735
I don't want, I don't even want to push the boundaries.
454
00:28:08.795 --> 00:28:09.016
Right.
455
00:28:09.036 --> 00:28:16.862
Because like that discretionary effort that is wasted on the energy of, of risk and concern could be deployed towards the business.
456
00:28:16.922 --> 00:28:17.042
Yeah.
457
00:28:17.062 --> 00:28:17.202
Yeah.
458
00:28:17.362 --> 00:28:24.590
And just like growth and like advertising or like finding another employee instead of just worried about someone finding out one day.
459
00:28:24.870 --> 00:28:26.612
And then it sinks businesses all the time.
460
00:28:26.832 --> 00:28:27.333
Oh, 100%.
461
00:28:27.453 --> 00:28:27.733
Yeah.
462
00:28:27.793 --> 00:28:33.019
No one writes a book about the fact that like L&I shows up and like, oh, yeah, you close down your doors or you give us $300,000.
463
00:28:33.039 --> 00:28:33.139
Yeah.
464
00:28:33.159 --> 00:28:33.319
Yeah.
465
00:28:34.200 --> 00:28:34.860
And that happens.
466
00:28:34.920 --> 00:28:36.741
That happens with the federal taxes.
467
00:28:36.801 --> 00:28:37.021
Yeah.
468
00:28:37.121 --> 00:28:50.827
And I, um, you know, I do think that there is something to say for the fact that depending on your age, I guess, cause hopefully we have social security, but a lot of this is also hopefully putting some money towards our future when we can't work as well.
469
00:28:51.467 --> 00:28:54.128
Um, that's a, that's a really big part of it too.
470
00:28:54.188 --> 00:29:00.391
Like, and it's a little bit of a pyramid scheme, but, um, but, and you should all still have a 401k, but, um.
471
00:29:00.711 --> 00:29:02.012
Oh, that's another thing, actually.
472
00:29:02.433 --> 00:29:04.214
That's another good question for your accountant.
473
00:29:04.234 --> 00:29:05.395
Sorry to flip around here.
474
00:29:05.435 --> 00:29:14.223
But the HSA, I just met with someone the other day who was like, I can't keep buying trucks to depreciate to not pay tax.
475
00:29:14.584 --> 00:29:15.064
Right.
476
00:29:15.404 --> 00:29:16.846
He was like, he had to sell some of his trucks.
477
00:29:17.066 --> 00:29:17.326
Yeah.
478
00:29:17.566 --> 00:29:19.587
And he didn't have anywhere to park him.
479
00:29:19.627 --> 00:29:21.287
He had too many years of the same advice.
480
00:29:21.387 --> 00:29:30.749
But looking into like the simple IRAs and 401ks and HSAs and like smart ways to tuck your money away that reduce tax liability is huge.
481
00:29:31.389 --> 00:29:33.370
A lot of people don't know this.
482
00:29:33.490 --> 00:29:38.891
But after you reach a certain threshold in your HSA, you can actually start investing the funds.
483
00:29:38.991 --> 00:29:41.692
And you can actually manage depending on where you think.
484
00:29:41.712 --> 00:29:42.512
Health savings account.
485
00:29:42.552 --> 00:29:43.472
Yeah, health savings account.
486
00:29:44.112 --> 00:29:47.876
And you can actually manage the investments and those investments also grow tax free.
487
00:29:48.657 --> 00:29:49.058
Yeah.
488
00:29:49.078 --> 00:29:49.778
And what is it?
489
00:29:49.798 --> 00:29:50.840
Three thousand five hundred.
490
00:29:50.860 --> 00:29:53.022
So the limit per year that you can put into an HSA.
491
00:29:53.202 --> 00:29:56.566
I think that that's the that's the limit.
492
00:29:56.686 --> 00:29:56.986
That's.
493
00:29:57.246 --> 00:29:57.647
Yeah.
494
00:29:58.968 --> 00:30:00.129
That's what's the right word.
495
00:30:00.209 --> 00:30:01.370
That's non-taxable.
496
00:30:01.430 --> 00:30:01.730
Got it.
497
00:30:01.810 --> 00:30:04.252
And then you can fund beyond that.
498
00:30:04.352 --> 00:30:04.632
Got it.
499
00:30:04.652 --> 00:30:05.993
But then it's still going to be after taxes.
500
00:30:06.033 --> 00:30:07.253
Yeah, I think that's the right number.
501
00:30:07.273 --> 00:30:07.754
I don't know.
502
00:30:07.874 --> 00:30:09.315
I need to read up on the big, beautiful bill stuff.
503
00:30:09.415 --> 00:30:12.497
And even like 401k, IRA, et cetera.
504
00:30:12.537 --> 00:30:23.744
Like just between like maxing out your 401k and doing an IRA, that could potentially shelter $30,000 plus from taxes.
505
00:30:23.824 --> 00:30:24.605
Right, right.
506
00:30:24.645 --> 00:30:25.465
Just that in and of itself.
507
00:30:25.665 --> 00:30:27.467
When it comes to 401k, like one of those things...
508
00:30:28.327 --> 00:30:41.800
I think of is sometimes, especially for early level technicians, they might already be covered by state health insurance and they might never do their 401k, but it's relatively cheap to offer it to employees.
509
00:30:41.820 --> 00:30:43.321
For example, 401k, it's usually like...
510
00:30:44.222 --> 00:30:47.703
nine, 10, 12 bucks a month to get them enrolled in a program.
511
00:30:47.783 --> 00:30:48.063
Right.
512
00:30:48.323 --> 00:30:53.965
And ideally, you set them up on a career path where they at least get in the habit of putting aside two or three percent.
513
00:30:54.005 --> 00:30:54.285
Yes.
514
00:30:54.365 --> 00:30:55.385
Going into an account.
515
00:30:55.425 --> 00:30:55.645
Yeah.
516
00:30:55.705 --> 00:31:00.086
And actually set them up for something down the road or they have a nest egg of five or 10 grand if something crazy was to happen.
517
00:31:00.107 --> 00:31:00.247
Yeah.
518
00:31:00.767 --> 00:31:05.988
And so I think it is a relatively cheap benefit to be able to offer two technicians.
519
00:31:06.668 --> 00:31:09.389
And even if you don't contribute or match or anything at the beginning.
520
00:31:09.409 --> 00:31:09.769
Right.
521
00:31:09.809 --> 00:31:11.230
It's something to get started.
522
00:31:11.270 --> 00:31:11.470
Yeah.
523
00:31:11.630 --> 00:31:12.650
And it doesn't cost a whole bunch.
524
00:31:12.690 --> 00:31:14.691
And it totally increases employee retention.
525
00:31:15.152 --> 00:31:22.537
Any program like that that you can offer that helps support your employees, even in those kind of ways where maybe they don't see the benefit of it right away.
526
00:31:22.557 --> 00:31:25.019
I think like it's so expensive to train someone.
527
00:31:25.499 --> 00:31:27.921
It's such a time suck and a money suck to train someone.
528
00:31:27.941 --> 00:31:34.685
So the longer we can keep our good people and, you know, part of that's by offering programs like that that are beneficial to them, I think.
529
00:31:34.966 --> 00:31:37.547
And and you can have some tax savings with it as well.
530
00:31:37.687 --> 00:31:41.050
If you're putting some away for yourself, I think it's a win, win, win.
531
00:31:41.370 --> 00:31:42.151
Yeah, absolutely.
532
00:31:42.631 --> 00:31:43.051
Fantastic.
533
00:31:43.071 --> 00:31:45.753
Well, thanks for coming in and answering some of the questions.
534
00:31:46.374 --> 00:31:48.756
How can people get ahold of you, book a call, et cetera?
535
00:31:48.816 --> 00:31:51.398
Yeah, homeservicecpa.com.
536
00:31:51.458 --> 00:31:58.023
And then there's a little link at the top on the top right where you can just schedule right on my calendar.
537
00:31:58.283 --> 00:32:02.786
If for some reason my days or times are not available for you, please email me.
538
00:32:03.327 --> 00:32:04.868
I am meeting with someone on the Saturday.
539
00:32:05.008 --> 00:32:07.370
I don't usually open the weekends, but I am pretty free on the weekends.
540
00:32:07.830 --> 00:32:08.670
So I'll make it work.
541
00:32:08.690 --> 00:32:10.191
I know everyone out there is really busy.
542
00:32:10.591 --> 00:32:18.053
And yeah, I've met I just want to say I've met so many amazing, really hardworking people in the past couple months.
543
00:32:18.453 --> 00:32:23.274
And it's been really I think that that a lot of this stuff can feel really overwhelming.
544
00:32:23.294 --> 00:32:27.735
And I know I've I've spoken to quite a few people who are already overwhelmed for one reason or another.
545
00:32:28.275 --> 00:32:32.596
But you kind of just have to take the step to start getting it straightened out now.
546
00:32:32.736 --> 00:32:34.897
And then, like you said, you'll sleep better at night.
547
00:32:35.117 --> 00:32:35.277
Yeah.
548
00:32:35.637 --> 00:32:40.241
And I think if it comes to we wanting to sell the business one day, you need your numbers in line.
549
00:32:40.401 --> 00:32:40.581
Yeah.
550
00:32:40.601 --> 00:32:41.862
If you want to get a mortgage one day.
551
00:32:41.922 --> 00:32:42.102
Yeah.
552
00:32:42.363 --> 00:32:45.005
No one's going to take your P&L and trust anything.
553
00:32:45.045 --> 00:32:49.008
If they immediately as a banker underwriting is like, yeah, this doll does not make sense.
554
00:32:49.168 --> 00:32:50.189
And this is not true.
555
00:32:50.249 --> 00:32:51.170
They know what they're seeing.
556
00:32:51.190 --> 00:32:51.430
Yeah.
557
00:32:51.930 --> 00:33:02.536
And so I think it's also just like thinking a few years down the road, even for people that like I was 21, 22, you're growing, the business just focused on that and not having this can potentially put you back a few years.
558
00:33:02.636 --> 00:33:02.856
Yeah.
559
00:33:02.916 --> 00:33:07.679
When you do get married, you want to get a house or you do need to have an investment and have a good credit score.
560
00:33:07.699 --> 00:33:12.342
Like, yes, these are little things that put in place now are good habits to set you up in the future.
561
00:33:12.522 --> 00:33:12.922
Absolutely.
562
00:33:13.062 --> 00:33:13.442
All right.
563
00:33:13.602 --> 00:33:14.583
Book call Chelsea.
564
00:33:14.883 --> 00:33:15.984
She'll be happy to talk to you.
565
00:33:16.344 --> 00:33:18.325
And I look forward to having you at Home Service CPA.
566
00:33:18.505 --> 00:33:22.868
Oh, can I give a quick shout out to Matt from Galaxy Landscaping?
567
00:33:22.928 --> 00:33:25.970
OK. Who I met with today and I told him this was going to be my first podcast.
568
00:33:26.030 --> 00:33:27.851
It totally hyped me up.
569
00:33:27.871 --> 00:33:28.951
Thanks, Matt.
570
00:33:29.232 --> 00:33:29.692
Let's go.
