Welcome And What We Build Here

SPEAKER_00 0:00

This is the Empowering Healthy Business Podcast, and I'm your host, Cal Wilder. Each episode we'll dive into topics important to folks who want to run businesses that are both nicely profitable, sustainable, and scalable, and who want to achieve balance in their lives and realize their potential inside and outside of work. The show is sponsored by SmartBooks, provider of bookkeeping and accounting for businesses. Let's get started.

Year Round Tax Strategy Mindset

SPEAKER_01 0:28

So with me, every client's uh their own, they they have their own issues, right? Um clients have some tax strategies will work for some clients and some tax strategies won't. So for me, it's all about getting to know my clients. Uh, really want to get to know you know what's important to them, um, get to know their families, their goals, their businesses. Um, and then we can kind of take a full 360 approach to uh the tax strategy.

SPEAKER_00 0:58

So, Greg, it sounds like your approach to servicing your clients is more of a year-round responsibility, not just um, you know, year-end tax preparation and filing.

SPEAKER_01 1:08

Yeah, we take more of like a 15-month approach, right? So we start in January and we'll start and and we uh go right up until we file the tax returns in March or April of the following year. Um if you come to me in March and April of the following year and ask me to save money on taxes, there's not much I can do. Uh at that point, I'm really just more of a historian. But if uh you know you start working with me on January 1st, and then we have a good solid 12 months to to tax plan and make sure we're paying estimated taxes and uh make sure we're taking advantage of all those opportunities, then that's where I can really be a true asset to my clients.

Clean Books And Entity Setup

SPEAKER_01 1:50

Yeah. So uh if you think about building a house, right, you have you have your foundation. Uh for me, that's like the the books and records. Um, you know, I always tell my clients, I can only do so much if your books and records are not in good in good shape. Um, I always advise you know, getting a really good accountant. Um, of course, using smart books um accounting is is a uh a great option. Um and so once you have that foundation, you have that solid book set of books and records that I can really trust, um then it then we get into the framing of the house, right? So then we get into um you know entity structure. Are we are you set up correctly? Are you an LLC? Are you taxed as an S-corp? Should you be a C Corp? Um, you know, should you have multiple entities maybe? Uh and then we get into kind of the essential items, right? So uh electric, plumbing, stuff like that. And and for me, that's kind of the the basic book to tax differences. So um a lot of people probably don't realize that their financial statements are are prepared on one set of rules, whereby I follow a completely different set of rules.

Nexus Basics And State Tax Risk

SPEAKER_01 3:17

Uh generally, you're gonna have um you have to develop what they call Nexus in a state um to have a tax requirement. So the first question I get is what is Nexus? Uh Nexus is your business's connection uh with a state or local taxing authority. Um it's created uh really one of three ways. Um it's it's created where you're it's based on where your customers are. Um so like where where you're selling to. Um it's based on uh where you own or lease property. Um so if you're if you hold inventory, that's a good example of people who sometimes get caught. They might say, Oh, I don't have any um I I don't have any connection to Connecticut. But then you find out that they have inventory sitting in that state, um, you know, waiting to be delivered to the New England area. And unfortunately that does bring them into um that does create nice. Yeah, sales tax.

Wayfair And The Sales Tax Wave

SPEAKER_01 4:29

Um, so a few years ago when the Wayfairer decision passed, uh basically to give you a quick recap on that, um your your grandfather's company in 1985 that would ship, or maybe that's a little early, but whatever. The company for um the Wayfarer decision that would potentially just ship goods to another state, the customer of another state. Um once it touched the uh UPS truck, it was no longer their uh their issue. Uh the states had no idea you know how to manage this process. Um and the Wayfarer decision changed that and basically said that if you have sales to a specific state, then you are potentially subject to um to sales tax. And uh that created a massive filing requirement for businesses across the board.

Beneficial Ownership Reporting Rules

SPEAKER_01 5:34

So beneficial ownership is defined in this case um as anyone who controls at least 25% of a company or has substantial control over a company. Um and so you know, you can kind of go down the line of um, you know, if you are an individual owner of a business that owns another business, you know, you may indirectly be a beneficial owner of a specific company. Uh so any any change to that basic information. Um, so if you uh get married and your last name changes, uh that would be something, if you move, that would be um something that you need to report. Um you know, your you if you um get a new license and the the license number changes, and um I'm not sure if that is something that ever happens. Um but anything from the original information that changes would need to be reported within 30 days of it changing. Um so I think the biggest thing is gonna be when you have a partnership or an S-corp or even a C Corp that changes ownership. Um if you bring on a new partner, then now you have to go in and make sure that you report that. Not really. I think 2024 is gonna be pretty quiet because I mean if you think about when when Trump's gonna get into office and when um you know the Republicans take over Congress, it's it's gonna be um the year the year the year's already gonna be closed. So some things that we might see, and this is just me speculating, and I I haven't seen this anywhere, is um potentially a um the the bonus depreciation reverting back to 100%, and then um that uh state and local tax cap that I referred to earlier, the the 10,000 um cap. I I wouldn't be surprised to see that um get raised, but that might be more of a 2025 thing. Like I said, we'll we'll see what January has to has to offer. I don't know if we'll see a lot of of changes in 2024, um, like retroactive changes. Not to say that it hasn't been done. I believe a few years ago they even changed things into like February, um, which you know creates a lot of turmoil, not just for um us as practitioners, but you know, now this the IRS has to update their system, um, tax software companies have to update their system. Uh people who are eager to file um maybe don't uh maybe don't get to take advantage of that right away. They have to file amended returns, which becomes another issue. You know, and then you have your proactive um tax preparers who will talk to you at year end, uh, maybe do some tax projecting, um, maybe come, you know, throw out a few pointers. Um, and you know, where the the certified tax coach designation really comes into um play is you know, where are the the people who can work with you to really reduce your your taxable income or your tax um you know year over year. So, you know, if you're working with a certified tax coach like myself, um you can certainly know we can try to save you $25,000, $30,000 a year. Um, in four years, you're probably looking at maybe having an extra hundred thousand dollars in your bank account. Um or you can also look at it as when you make that next quarterly payment, maybe you're reducing it by half or you know, 75%. You know, and I and I think some people get the um you know tax planning versus tax projecting. Um you know, I think they kind of gray the that line a little bit. Um and there's a pretty significant difference between the two. Um you know, 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. Um, I've done that for clients. Um but that's just tax projecting. Um they're not really providing a ton of um value to you if um if they're not helping you reduce that that tax liability.

BOI Filing Is Mandatory Again

SPEAKER_01 10:25

Yeah, so I think it's here to stay now. February 18th, the federal court lifted the injunction, so now they're saying that you do have to file. It is mandatory, and so it's mandatory for businesses that were formed prior to January 1, 2024. So last January 1st. If you started a business in 2024, you probably already filed because you had your 60-day mandatory filing period. They were nice enough to give us a few extra days to file. So your filing deadline is now March 21st, and it's same same issues or same deal as before, where it's some pretty basic information. It's more of a nuisance than anything else. But you know, again, most businesses are gonna have to do this. There's not too many exceptions to the rule. Yeah, just recently we elected a pass-through entity election for a client, and we ended up saving them $29,000 in tax just by changing where you or how you pay the the state tax. And the client didn't really have to do anything, it was just an election that we made on the tax return, and you know, he reached out to me and said, Hey, you know, why do I owe this money? And I said, Well, if you pay it at this level, if you have your business pay it, you're gonna save uh $29,000 in taxes. So he was like, Cool, I'm gonna do that.

After Tax Season Annual Checklist

SPEAKER_01 11:52

So I thought it'd be good to come on here and just have a quick discussion on what as a business owner, like what you should be doing throughout the year after tax season. Because let's be honest, no one wants to think about taxes at all. And most people only think about it maybe like once, twice a year. But unfortunately, that could get you into a little bit of trouble. So my first point is to know that tax planning is a year-round sport, and it's something that you should be having conversations with, especially if you're a profitable company. You should be having conversations with your tax accountant throughout the year, whether that's to just check in, see if there's anything new on their end, or talk to them about things that might be happening through the business, because there might be things that are happening that have a tax impact that you don't realize have a tax impact, right? It's one of those you don't know what you don't know, right? And we can be a little bit more proactive when we can when we have that information.

SPEAKER_00 12:45

So when should people be talking to their CPA?

SPEAKER_01 12:47

I would say a mid-year check-in at the very least, June is, in my opinion, probably the best schedule. And every CPA is a little different on how they bill, but I know for me, if I had a client reach out and just send me a quick email or want to have a quick five 10-minute conversation, I'm probably not gonna bill for that. It may be something that comes out of it where I do have to bill for, but I'd love it if more of my clients just gave me a quick job. Absolutely. The next one I tell this to clients all the time maximizing deductions. So home office deduction, business mileage, anything where like the business has to reimburse you for expenses. A lot of business owners will just wait until the end of the year to do that. Some even wait until after year end where that might actually be too late. I would love to see business owners reimburse themselves on a monthly basis. I know that that can be a little much. Everyone's busy and they might not want to go through that paperwork, but doing it more often catches more deduction. And so home office deduction, I have a spreadsheet I send to my clients. It's just a template that they can plug in, their mortgage interest, real estate taxes, homeowners insurance, stuff like that. And they just reimburse themselves on a monthly, quarterly basis, if maybe that works better for some people. But I definitely wouldn't wait until the end of the year to count up all your miles, go through your calendar, because you're definitely gonna miss stuff the more likely you are to have to catch all the deductions. So, you know, it's the end of tax season, and I kind of take this time to reflect back on things that happened, patterns I saw. And one of the things that popped up this year was W-2 withholding. Not something that maybe directly impacts all business owners, but you know, if you're an S-corp or a C Corp, it could definitely impact you. If you have business income or passive income that you're obviously not withholding on, then that could impact your tax situation and may warrant some extra withholding from your wages. Maybe your spouse needs to update their withholdings. I would say it's more of a maintenance item and not super, super fun to talk about. We're not talking about tax savings and stuff like that, but it's certainly it's like getting the oil change in your car. You can call me or you call your CPA and we can certainly walk you through it. The IRS actually has a pretty cool interactive tool that you can use to calculate that withholding. And it's definitely something you want to do. Like I said, it's like an oil change. You want to do it maybe annually in January. Just something to temperature check and make sure that you're still withholding enough. If you get married, have a kid, maybe you start a new business. The way that you earn income changes, like I said, if you start a business and your salary income goes down, but your business income goes up. So maybe you're like, oh, I earned $100,000 last year, but I'm earning $100,000 this year. Everything should be the same. Not necessarily, because the way that you're earning that income and how taxes are being withheld on that income are different. And that's what happened with one of my clients. The wife, her business started earning some income. His W-2 salary stayed the same, their withholding stayed the same, but her income was not being withheld on. So they got kind of killed at the end there. Absolutely.

SALT Cap And Bonus Depreciation Talk

SPEAKER_01 16:13

Yeah, so I mean, none of this is law yet. It could all change, it could all get scrapped, but things to like keep an eye out for if this does go through as it's written right now. I think there's a lot of benefits for business owners. Not sure how everyone feels about the other parts of it, but from a business owner standpoint, I think there is it could be beneficial. So the first one, which I'm a big proponent of being in a high-tax state, is the increased salt deduction. I think as it's written now, it's going from $10,000 to $40,000.

SPEAKER_00 16:48

So what does salt stand for or mean?

SPEAKER_01 16:51

State and local tax. So you probably, if you're a business owner or really any individual, you probably haven't itemized your deductions recently. Maybe you've been keeping track of all your medical expenses and you give them to your CPA every year, and they just don't do anything with them because you don't itemize anymore. This could change all that. And so when you itemize your deductions, you are allowed only $10,000 of your state and local taxes. And so that includes your real estate taxes, excise tax on your vehicles, and state income taxes. They want to increase that from $10,000 to $40,000. So you can see people who live in a high-tax state, this could be very beneficial. You heard me talk a lot about the pass-through entity tax in other episodes. That was a provision provided by the states to kind of alter this or to circumvent this rule. This is important for businesses that typically operate a loss, like if you're pre-revenue and this 179 does not apply to you, then historically in the last couple of years, bonus depreciation has been getting phased out.

SPEAKER_00 18:14

So remind us, what exactly does bonus depreciation mean?

SPEAKER_01 18:18

So bonus depreciation is the ability to depreciate your assets in the year that they're placed into service. The benefit here, or the idea here, is that the US wants to promote businesses buying assets and you know increasing infrastructure and stuff like that, spending money to stimulate the economy. It typically works. Obviously, it comes at a cost. And so it's been getting phased down. They want to increase that back up to 100%. You get it.

Meals Entertainment And Family Credits

SPEAKER_01 18:52

Yeah, so meals is probably the most popular one here, you know, because not every business owner is going to travel for work, but I think more often than not, you're going to have some form of like meals that's related to the business. So generally speaking, meals are 50% deductible. Now there's three criteria that make it deductible. It's a legitimate business discussion during the meeting, right? It's not lavish or extravagant, and you or your employee is present in the meeting. So this can apply to client lunches and dinners, meals while traveling, or during trainings. So for example, last year I was in San Diego, or in January I was in San Diego. All my meals were 50% deductible because that was for a certified tax coach training. Unfortunately, back in 2018, and for those of us who play golf, this was a big hit because you know, you used to say, oh well, it's a client meeting on the golf course. And you get to deduct your 18 whole round of golf. But in 2018, they did away with that, and now entertainment is not deductible at all. Sporting events tickets, golf. Trying to think what the other big entertainment pieces might be. But yeah, none of that is deductible anymore. Yeah, so there's two there's two kind of credits here. So you have the child tax credit, and then you have the the child independent care credits, right? And your uh the child tax credit is up to $2,000 per qualifying child. So typically, you know, your child under the age of 17 to help reduce your your tax bill. And then you have the child independent care credit, and this is for what I think most people think about um you know, like uh kindergarten or or not kindergarten, um preschool? Like preschool, um, daycare, stuff like that. Um and uh what people don't realize is that there's opportunities in that um child independent care credit that you know you don't always think of. Um so hopefully bring that to light. And um with the passage of the Big Beautiful Bill Act, um those have been adjusted slightly um for taxpayers, so there is some change there this year for as long as you're putting them in that um program so that you can go work. Um so if uh obviously if you're putting them in a program at uh well, I don't know, I I even if maybe you're working at night and you gotta put them in like uh you know nighttime basketball league or something. Um as long as it's for you and your spouse to go work, um I think the nighttime situation might be a little bit harder to to justify if one spouse is home. But um, you know, during the day you get summer camps. Um I know that for us, um, you know, my daughter does As chair, and so that costs us um, you know, it's not a huge expense, but like 300 bucks a year. Um she's at after school, you know, every every day for that. Um, so that is an expense that we can take. Now, a lot of people will try to sneak by um like private school. Um, so like if you pay for kindergarten, um I know I mentioned kindergarten earlier, but kindergarten is uh is where it stops. Um so you can have um like preschool, daycare, um, before and after school programs. I know a lot of schools will offer yes, so hopefully uh with the home office deduction, there is uh no no mailing in

Home Office Deduction Done Right

SPEAKER_01 22:48

checks. Maybe uh you'll have to make sure you get that direct deposit updated so that they can get that refund. But uh yeah, so like I said, uh client said, nope, can't take the home office because I have an office. That's incorrect. If you have a place of business, um you can still take the the home office deduction.

SPEAKER_00 23:11

So what uh Greg, just to clarify one thing, because people my age or older, we we still remember there being like this official home office deduction with the IRS like 20 plus years ago. But I think what you're talking about is not like a particular IRS program or election, it's it's just general business operating expenses that happen to go toward a home office, right?

SPEAKER_01 23:37

Correct. Yeah. So I think what you're referring to is the unreimbursed employee business expenses. Um that was an old rule prior to the Trump tax cuts. Um it was an itemized deduction. It was exactly what it would what it sounds like unreimbursed employee business expenses. Um people probably took advantage of it, but uh now this is really just for business owners. So now we get into the real estate. So what can we take? We can take mortgage interest, rent, real estate taxes, utilities, homeowners insurance. Um, if you have an alarm on your house, um home office repairs, you know, stuff like you know that you're doing to the the uh entire house or expenses for the entire house, you're gonna take a portion of those expenses, right? Um and the idea is that you're gonna take the square footage of your home office divided by the square footage of living space in your home, and that's gonna be the ratio that you use. So, you know, you have a thousand square foot home and you have a hundred square foot home office, ten percent of all those expenses that I just mentioned are now a home office deduction.

Closing And How To Reach Us

SPEAKER_00 25:10

Another episode in the books. Thank you so much for tuning in. For show notes and more, visit empoweringhealthy business.com. If you would like to have a one on one discussion with me, or possibly engage smart books to help with your business, you can reach me at cal C A L at Empowering Healthy Business dot com or message me on LinkedIn where I am easy to find. Until next time, this is Empowering Healthy Business, the podcast for business owners, signing off.