Calvin: 0:00

Welcome to the Empowering Healthy Business podcast, THE podcast for small business owners. Your host, Cal Wilder, has built and sold businesses of his own and he has helped hundreds of other small businesses. Whether it is improving sales, profitability and cash flow; building a sustainable, scalable and saleable business; reducing your stress level, achieving work life balance, or improving physical and emotional fitness, Cal and his guests are here to help you run a healthier business, and in turn, have a healthier life. Welcome to the Empowering Healthy Business Podcast. You know, part of running a healthy business is managing tax obligations. We could all have different perspectives on, how aggressively to, try to reduce our tax liabilities and our political beliefs may play a part in that since we're fresh off an election season and a lot's going on in this country at the moment as we record this in early February 2025.

Greg Reed: 1:13

Thanks for having me back.

Calvin: 1:15

So this is timely, Greg, because you're just fresh off finishing a set of course of study with the American Institute of Certified Tax Planners, right?

Greg Reed: 1:24

Yeah. So I just, got over my jet lag from San Diego. It was good to be out there. It was a pretty intense couple of days. We went through some, pretty advanced stuff, in terms of tax planning. And, you know, at the end of all that, I got my Certified Tax Coach designation. So, super excited to share what we learned there with our clients and hopefully we can save our clients more money.

Calvin: 1:49

Great. So let's talk a little bit about, I guess, terms before we dig into tax planning and what that means. Because I guess ultimately with this episode, I want to talk about the difference between Tax Filing and tax, Real Tax Planning and help the audience understand what, you know, a more comprehensive tax planning approach looks like compared to, a CPA giving you a pointer or two when they notice something, when they file your return or answering a question when you ask them. But before we do that, let's clarify a little bit of terminology, which I think in the small business world, the word accountant tends to mean the CPA who files your taxes, right? And in our world at SmartBooks, we tend to call accounting, you know, kind of the monthly bookkeeping accounting you do to maintain your books so that you can produce financial reports to understand and manage your business. And then the tax planning and filing and advisory kind of falls in the category of a tax CPA or your tax advisor. And so in big companies, you know, CPAs may get into GAP and. Audit and everything in the small business space. They tend to file tax returns for a living, right? And so where do you tend to draw that line between you know tax cpa and a monthly accounting?

Greg Reed: 3:04

Yeah, so I mean, I think the average business owner, like you said, they hear accountant and they think that person is going to do their bookkeeping, their payroll, their, Tax Returns, and they just, it's kind of a one stop shop and it's definitely not the case, especially now with everything being so complex. I mean, not just bookkeeping and accounting like that itself is complex, but then, you have the tax laws, you have the new administration coming in now, tax laws are going to change. and then, payroll, forget about it. That's a whole another area, that can just be, you know, people make careers out of.And so, it's important to know for business owners to know kind of who they're putting on their team. And then, you know, when things do come up, you know, who they should be talking to. And you know, I think like you said, your accountant, slash bookkeeper, that's going to be your monthly, journal entries, debits and credits, making sure financial statements are clean. Making sure your bank's bank accounts are reconciled and, it's building the foundation for things that helps me do, my job. Obviously, like I said, payroll's a whole another, side of that, that we don't really have to get into. And then I think, you get your average what I refer to as CPA, but that's probably a bad designation because you can also be an enrolled agent and prepare tax returns. So you get into your average tax preparer. The tax preparers have always been, the guy with the green shield on his desk and, you kind of work the million hours, right through April 15th then you kind of put numbers in boxes, maybe talk to them once a year, and outside of that, you don't really want to see them, and sometimes it's hard to get ahold of them.

Calvin: 4:54

And they don't really talk to you that much. They're not that proactive in general

Greg Reed: 4:58

Spend the rest of the year recovering from The, April 15th deadline, you know, and then you have your proactive, tax preparers who will talk to you at year end, maybe do some tax projecting, maybe come, you know, throw out a few pointers, and you know, where the, the certified tax coach designation really comes into, play is you know, we're the, the people who can work with you to really reduce your, taxable income or your tax, you know, year over year. So, you know, if you're working with a Certified Tax Coach like myself, you can certainly, you know, we can try to save you 25,000 to 30,000 a year. You know, in four years, you're probably looking at maybe having an extra 100,000 in your bank or you can also look at it as when you make that next quarterly payment, maybe you're reducing it by half or, 75% and that's the true value that working with someone who digs into the, tax law to make sure that you as the business owner are paying the least amount of tax,

Calvin: 6:07

Right. And so, I think a lot of business owners I talk to Q4 rolls around and then they start to wonder what they can do to reduce their tax bill. But, you know, what's the right time for folks to really start doing tax planning?

Greg Reed: 6:23

You know, I think really it's any time. I always say that the earlier, the better, because there's a lot of times where, if we can implement stuff earlier in the year, you can take advantage of it sooner. Maybe it's entity structuring. You have to do an entity analysis and that means that you have to maybe work with an attorney to set up new businesses. December's a busy month. Everyone's got the holidays, you've just come off, Thanksgiving. You don't want to be running around trying to set up new entities, set up, maybe a defined benefit plan, stuff like that during that time of the year. So I'd say, the earlier the better and any time is good.

Calvin: 6:59

So, you know when we spoke one of the earliest episodes of the podcast, I think it's episode number three, we talked about top tactics for small business owners to pay less money in taxes. And, if I remember back to some of those tactics, those are things you really need, like, if you're doing the Augusta rule. That's something you really need to do over the course of the year. You can't cram it all into Q4, right? So there's certain things that you're not setting up a new entity or a new employee benefits plan, you've got to do it over the course of the year.

Greg Reed: 7:28

Absolutely. I think the easiest way to differentiate ourselves from a traditional tax preparer, because a tax preparer is still going to throw out ideas, like the Augusta rule or, cash basis versus accrual basis accounting. All those home office expenses, stuff like that. We kind of look at, the tax situation as, how can we get these deductions? How can we get the Augusta rule to apply? And that's where we look at, entity analysis to see, you know, can we set up a few more entities to take advantage of these laws? Is there a business reason to do this? Make sure that we're, audit proof, all that stuff. So I think it's, we're kind of looking at it from, the standpoint of these opportunities are out there. We just need to move the pieces around to make it so that the business owners are able to take advantage of them.

Calvin: 8:25

Right. And I think when we've talked about this, you kind of have differentiated to me, the difference between, you know, some one off tactics that you can do versus a more comprehensive strategy, right? Like you could decide to buy a vehicle at the end of the year to take advantage of section 179 accelerated depreciation. That's more of a tactic, right? What's your strategy? Is your strategy to, you know, defer income into next year because you have a strategy based around tax rates and your expectations of tax rates for the next few years, or your strategy to take advantage of entity structuring? Is your strategy to take advantage of employee benefits plan options? Is your, you know, or all these other strategies,

Greg Reed: 9:09

I mean, when we do a, tax plan for someone, we send a pretty extensive questionnaire, to them. And have them fill it out because we want to know, that person's whole, we're going to know all about that person, their business and themselves personally. Because,you might say, Oh, I have, some pretty big medical expenses coming down the pipeline. Well, we need to know that because now we can plan to try to do, you know, maybe a medical expense reimbursement plan to get them all covered and you don't have to worry about the seven and a half percent floor on, on your itemized deductions you know, and I think some people get the, Tax Planning versus Tax Projecting, I think they kind of gray that line a little bit, and there's a pretty significant difference between the two. if you have a CPA, who's just. telling you what you're gonna owe. Maybe they tell you in December what you're gonna owe in April. Great. You can plan for that. I've done that for clients. But that's just tax projecting. They're not really providing a ton of value to you If they're not helping you reduce that tax liability.

Calvin: 10:20

Right. Another thing is common is playing the cash basis tax game where, you know, we try to, you know, keep the books on an accrual basis for clients to provide a more accurate representation of their financial performance on a monthly basis and make the you know, financial performance metrics, meaningful and consistent, but, it's often advantageous to file taxes on the cash basis, right? So, you know, reducing taxable income at the end of the year by being a little bit slow to receive client payments or a little bit fast to pay vendor bills. You know, a lot of small business owners do that. But again, that's kind of in the tactic category potentially. But the overall strategy comes back to, you know, whether it makes sense to defer taxable income in the future years or taken, you know, or recognize it now, right? So can you talk a little bit about, deferral strategies versus, you know, other strategies where you may just eliminate your total tax bill that you would ever have to pay?

Greg Reed: 11:17

Yeah, that's what we love, right? I wish we could do all elimination strategies. But yeah, I mean some of these strategies so like an accrual to cash conversion at your end That's just a deferral strategy you know, you're deferring income into the following year and trying to accelerate expenses into the current year so that you can get that tax bill down You know and it's a great strategy, but it is just that it's a deferral and you kind of have to watch the tax rates a little bit because you know, they're going to go up and, or, we think that they're going to go up and, you know, you defer all this income and then the tax rates go up, you've actually done yourself a disservice. You know, you gotta be careful when you're playing that deferral game, a short term gain might be a long term loss in some of these situations.

Calvin: 12:07

Right? If you're a small growing business, you're making 100, 000 dollar of taxable income this year, but the business is growing rapidly, you know, that becomes 200,000, hopefully becomes 500,000 or more, right? You really want to be paying. Yeah.

Greg Reed: 12:21

Yeah, you wanna play the income averaging game. You know, if you can keep your income at, you know, say a steady, 150,00 to 200,000 a year. that's a lot better than going from say 100,000 to 500,000 to, 300 to 700. It makes it easier to plan. it makes it easier to plan for the taxes. there's a lot to it.

Calvin: 12:46

Yeah. So if I'm a business owner and I want to do some real tax planning to put together a comprehensive strategy for the next, you know, five or 10 years, I assume I'm going to have to do some significant work as part of that process. It's not going to be a silver bullet that my CPA hands me, right?So, like, how do I do that? How do I do my role most effectively?

Greg Reed: 13:06

So, you know, working With someone like myself, we would put together a pretty comprehensive tax plan for you given your current situation now and what your goals and objectives are over the next few years. We also work with our clients to maintain that, over the course of the year. And so, that goes on, year over year. So we're making sure that you're staying on top of the tax plan that we put together for you so you're getting all the advantages? You're doing all the things of dotting your I's and crossing your T's so that if the IRS were to audit you You know, you can make sure you have the documentation necessary to cover yourselves and then, keeping that open line of communication, so that as things change, because inevitably they will, we can alter that tax plan, maybe bring in some new tactics, depending on your situation, like I said, laws are going to change. We're going to be able to take advantage of a lot of that, and then, we can kind of work with you in a very fluid manner.

Calvin: 14:06

Now, you've done plans with some Smart Brooks clients over the past year. We've spoken about when you go through a real comprehensive planning process, how much money have you been able to save some of these clients?

Greg Reed: 14:16

I worked with a client in August, and we saved 200,000, in year one. they're a pretty big client, so, the numbers have to match up to the revenue and the income. But this particular client was doing pretty good. We were able to put together a good tax plan for them and, yeah, I think we got to, it was about 178,000 in taxable savings in year one, and then, going forward, it's probably close to 125,000 to 130,000 of tax savings, had they not worked with us, they would have been potentially on the hook for that tax.

Calvin: 14:56

Right. You would have filed your tax return at the end of the year but you wouldn't have been able to save them much money at that point because they didn't have a comprehensive plan to go execute over the course of the year.

Greg Reed: 15:05

Right Absolutely. Yeah. And so like, we did this in August, so we were able to implement all this stuff over the summer and take advantage of everything now. It was a pretty good situation, but, you know, I'd say on average, we're going to save clients anywhere between like 15,000 to 30,000 a year just by figuring out the, deferral or elimination strategies. and not only that, but like helping them, with other things like retirement savings or, putting money aside for kids college, things like that. and we work with other professionals. So like a financial advisor or attorneys to, make sure that we're staying within the letter of the law too, because obviously, you know, we can't be practicing law or giving, financial planning advice.

Calvin: 15:49

What else should the audience know around this topic, Greg?

Greg Reed: 15:51

I think just being aware of what you're getting from your existing tax preparer, CPA, EA, however you want to refer to them as, they might be a good friend, your parents use them, so now you use them, but just make sure that they're working for you and not for the IRS, make sure that they're giving you the proper tax plans, tax ideas and just know that, there are oftentimes, you know, if you have big expenses coming up in your life and you own a business, there might be a way to write that off as a business owner.

Calvin: 16:29

You know, I've seen clients write off things, but looking at it, I knew they shouldn't really take them as tax deductions because they were just expensioning through the business without a formal employee benefits plan or something like that in place. And so, they may be deductible given the proper structure and strategy and tactic, but just writing the check doesn't make them deductible.

Greg Reed: 16:50

Yeah. I mean, everything that we do is definitely above the line. You know, everything's cited, we've got court cases, to back up our strategies, we're not going to ever do anything that's going to put the client at risk. That doesn't help anyone, but you're right, documentation is key. How the money moves is key. It's just how you have to do it. Sometimes it can be annoying, especially if you have multiple entities, but, if you're saving 30,000 to 40,000 a year, it's worth it.

Calvin: 17:22

it's worth a few hours to save that much money.

Greg Reed: 17:26

Yep. Calvin: Well, Greg, thanks for sharing this information with us. I think it's important to really understand for small business owners. You know, there's a significant difference between a comprehensive tax plan, you know, considering not just this year, but the next few years and real strategies and a comprehensive plan versus getting your taxes filed and maybe getting a pointer. here and there. I guess that's the takeaway for me is, you know, it's a big difference between doing real tax planning and doing, you know, tax filing plus a couple of pointers, right? Yeah, yep. So, you know, we're just always trying to get better for our clients. This is a fairly new, designation. Obviously I just got back. and you know, we're excited to help more and more taxpayers out.

Calvin: 18:12

Yeah. I know you've always been really emphasizing the benefits of tax planning and doing it for as many clients as are interested in it, but I'm really excited now that you're pursuing the advanced certification and now we're going to be able to deliver even more value from on the planning side of things.

Greg Reed: 18:29

Yeah, no, it should be good. It's a good community. We have a lot of members and, you know, we can tap into those resources as well. so we've got a good team around us when it comes to tax planning.

Calvin: 18:43

All right, Greg, well I look forward to having you back on the show in the future.

Greg Reed: 18:46

All right. Sounds good. Thanks for having me.

Calvin: 18:48

Bye. Reference show notes and find other episodes on EmpoweringHealthyBusiness.com. If you would like to have a one-on-one discussion with me, or possibly engage SmartBooks to help with your business, you can reach me at Cal@EmpoweringHealthyBusiness.com or message me on LinkedIn where I am easy to find. Until next time, this is Empowering Healthy Business, the podcast for small business owners, signing off.