Episode #13 - Tax Pro Tips with N2 Tax & Bookkeeping (Part Two)

Episode Transcript

Meredith Matics: Welcome to Business Reflections with your host Meredith Matics, and we are here to reflect on the business topics that are affecting you today and how you can better run your business. 

This episode of Business Reflections is brought to you by Construction Specialties. For those working in healthcare and behavioral health, the space you work in, the building, the design, the structure is a vital component of what you were doing. Construction Specialties is here to help. Registered to attend one of Construction Specialties' C-S-live virtual learning sessions, designed to help educate you on how to integrate you architectural and interior design concepts into your healthcare facility that contribute to improving the comfort and safety and the built environment. 

During each of these sessions, you will get a chance to tour their 3-D products, walk-throughs, engage directly with the host with Q and A segments and more. If you miss one of their shows, you can go back and rewatch the saved recordings on their website. For more information on upcoming CS live events, and to register, please go to C-Sgroup.com. That's C-Sgroup.com. 

We talked a little bit about some business tax issues that may be coming up this tax season. And what to do if you took unemployment and you're now only, so let's pick up right there. When we left off, what are you telling your clients when they're being faced with showing them major loss this year, or have kind of funky things going on? 

Nancy: But, I could just keep telling my clients, anyone that has a business, let's keep your books updated to see where you're at. And then if we see losses or anything like that, then let's go ahead and plan. If you can't go ahead and continue. If you're a sole prop, that's kind of very easy to stop operating, that's it. 

But if you're like an S Corp or C Corp, you know a partnership, or an LLC being taxed as any of those entities and you had any type of assets, that now you'll have to potentially going to have to go ahead and dispose and sell that might create a taxable event. So before you go crazy you know, selling off things or anything like that, talk to your tax professional to make sure that you're not getting yourself in a, in a taxable event where you think you're, you know, saving money or you now have money. 

And the next thing you know, you have a gain and now you have to pay taxes on it, you know?  

Meredith: So what about the small business owner that thinks, well, you know, I keep good enough accounting software. Why can't I just do my taxes myself? What is worth the expense of having a tax professional? Do my taxes. What would you say to them? I know that's probably not your favorite question.  

Nancy: It is! And actually it is because what I tell people, it's like, you know what, then go do it. Go have fun. I really do. Cause I mean, at this point that that's not the type of relationship that I want to start with this particular client, because they already think they know more than me. 

So if you do then, okay then do you know what by all means, good luck. Go, go do your stuff. And then when, and then when you mess it all up and get IRS love letters, then you can come to me, I'll charge you twice as much because now I'm doing representation. I'm cleaning up a mess. I'm not doing your tax return. 

Meredith: Yeah.  

Nancy: And then you're going to pay twice as much. Um, for some people it might work.  

Meredith: Yeah. I was thinking more along the lines of somebody kind of, a newer business and it may seem daunting to be like, Oh, now I got to go find a tax professional. I heard it's expensive. Is it worth it? Can't I just do it myself? That's kind of the thought process I was going with more than like somebody who's just been convinced that the last time I've never gotten caught and they never will get caught. Cause I've seen them too. And trust me. Yeah. You're like, okay, well then peace out, homie.  

Nancy: Um, but I always tell clients is like, whatever that they're doing is like, you're good at X, right. Focus on that, you know, focus on that. I mean, do you really want, at the end of the month, trying to figure out how to learn a software? Cause there's a difference. A lot of people sometimes also think why no QuickBooks. Okay. But do you know accounting? You know, just because you know, a software and QuickBooks made it easy for you to add, you know, a line item and an account, is it correct? 

I always tell like my potential clients, it's just like, you're good at X. Do that. You know, there's something in your little heart that made you leave, you know, your full-time job and create this new adventure. And, you know, you're really good at coffee. You're really good at roasting coffee. Do that. Focus on roasting the coffee, doing that, leave the, leave the stuff to me, you know, even for example, me as an example, I... 

I'm good at accounting. I like it. I do my own books, but like my social media, my advertising, like that creative side, I'm not good at that. You know, I do talk so that part of the brain, I don't do it. And I try doing it on my own. You know, because it's like actually be able to do this on my own, but I wasn't getting the outcome that I wanted. 

So it's like, I finally just bit the bullet and I found someone to go ahead and take care of my advertising because you know what, I'm not good at it. So I left that for the professionals. To answer your question, I always tell my people like, just that are starting off, it's like, go do what you gotta do. 

If cost is, you know, is a, is a factor. You know, I can't really know that I can afford you. You know, how do I do this? Then at least I put them on the right path. Tell them then, okay then whatever you do, go open up a business account or go open up account that is going to be free because as a starting out business, you want to keep your fees low. 

So go look for someone that can open up a free business account, all the money that you earn from your business, deposit it there. Any expenses that you incur to make this business work, pay it out of there. And maybe get one credit card, business credit card, or even a personal credit card and only put the expenses on it. Because then at year end, you get that little year on statement that breaks down everything for you. 

And I'm like, and start there, you know, and then as you're getting bigger and maybe like you have more stuff going on, then we can revisit and we can figure something out. I personally, I always try working with my small business clients, especially if they're women owned business clients, it's like, let's do this together. Let me set you on the right path because we all have to start somewhere. And, you want to start off doing it correctly because the last thing you want to do is like, you know, it started and then next thing you know, you did it this way, thinking it was the correct way. And it's like, no, it was supposed to be this way. 

Meredith: Biggest saying is do it right from the beginning. It's so much harder to fix things later than to just. Do it right from the beginning.  

Nancy: Do it right. Yeah. And it, and it could be a big expense. You know, some people they might get just almost intimidated. Well, what you, why are you so expensive? And for me personally, I always tell people, it's like, well, you're paying for my knowledge. 

It's like, I've done this for a while. I am a business owner myself. So I can only tell you what I can provide for you and what I can do for you. So if we mesh, if you, if you like the way that I talk, my style, everything, you know, how I present things, how I explain things to you.  

Cause that's another thing I always tell my clients is like, do you want to know how to do this? Do you want the backstory or do you just want me to do it? And I have some people that do want the explanation and I'll explain and they'll ask questions. I'll have people that they want the explanation. I just see those glazed look over their eyes and I'm like, you don't want to hear this dude. They're like, Nope, you take care of it. 

I'm like, okay. So yeah, I think it's just get started on the right way. And like with any other business, you're just going to have certain costs, like your internet, try running a business about internet right now. It doesn't exist. So I'm almost, it's kind of like maybe like your internet and then maybe just have some type of good accounting, not a shoe box, but if that's where you want to start, it's a start.  

But just some type of system to start keeping track of how much you make, because I want it for one class. She had no clue that she was spending like $800 a year on Starbucks. It wasn't until I added everything up and I did the P and L that I'm going to come here and I'm like, do you realize that you spent $800 on Starbucks? 

And I'm like, and that's another thing too. And I'm like, and it's not like it was, you know, $10 where I knew you bought a drink for you and someone else cause you took them out to lunch. I'm like, they're all less than five bucks. So this is just you. Yeah. So one, you can't be deduct it because that's just, why should the business just be buying you your coffee drink and you just spent $800 a month on Starbucks. I got her a coffee machine cause she was actually going out and getting like, like just the drip coffee and like she would get like a pastry or something. So as a Christmas gift, like here's a coffee machine, you know,  

Meredith: Please don't let me see this again next year.  

Nancy: Yeah. And as a business owner, it's like, you want to be able to see, well, how much should I spend? How much should I make it? How much should I compare it to last year? Cause that's one great thing with also with QuickBooks is that you can run your P and L and then you can compare it to, you know, a prior period. So you can also see where you're at. And as a business owner seeing like, Oh my God, you know, last year I only had, you know, 10 grand in gross income. This year I have 30! Oh my God. I grew up. Yeah, versus just thinking, I think, I mean I made more money.  

So, so yeah, so that's another thing it's as a business owner, it's like you at least have to have an idea of where you're at. And either you're going to do it yourself by running your own numbers and everything, or hire someone to go ahead and do it for you, and be able to point those things out to you. 

I mean, I had one client that their merchant account, they weren't using it and they were paying like $85 every single month. Yeah. And I kept telling them, I'm like, you realize your merchant account. You're not using it. It's $85 every month. And then finally I had to call him because after like the second email and the second month, I'm like, you realize that this is what it's costing you. 

Right. And he's like, Oh my God, Nancy. He's like, thank you so much. I'm like, do you want me to call them? Is there a reason why you haven't closed this? Why are you giving your merchant $85 a month just to be there? I mean, there's other things that we can look at. So yeah. So just having someone else to go ahead and look out for you a second set of eyes. 

Because again, it's like you did your business to go ahead and do what you do and maybe doing your books and your numbers is not one of them, just because you have a good idea doesn't mean, and you have a good business doesn't mean you can run your business efficiently? You hire people to do it for you. 

Hopefully you get to that point that you can actually do it because trying to do everything all at once can be kind of overwhelming. And then, you get stuck. 

Meredith: Yeah, and I think a lot of small business owners try to do as much as they can on their own, but I think there's just certain things that at the end of the day. You don't wanna mess with the IRS.  

Nancy: Yeah, It's like trying to do a brake job. It's like, are you really gonna want to try and change your brakes right now to save money? It's like, no, go take it in and have someone else that knows how to do brakes and that studied how to do breaks. Let them do your brakes.  

Meredith: Because the risk is just too high. I've seen businesses being like, well, I was just trying to get it together. So I guessed on this and then here comes seven years later, knock, knock doc, here's the IRS. It's like, Hey, figure it out. That was wrong. And now you owe this in back taxes. So it's like, it's, it's not worth it.  

Nancy: And it's not, it's not, I mean, I had like some other client too, where it was just like, they, they thought I was too expensive. I'm like, okay, fair enough. And it goes in your morning, I'm not even getting more money back. And I'm like, well, first of all, I'm like, I don't base my price based on how much you're getting back or how much, you know, how much you owe it's, you know, I do my pricing based on how many forms are used for your tax return. 

And I'm like, based on my knowledge and the information that you provided to me, this is what I need to do for the tax return. They're like, no. So they went somewhere else and it was a family friend, which I later then found out, of course. And she went somewhere else. They charged her, I think, like $75. And she got like three grand back. 

She was even bragging about it. Well, this was back in the day when you were able to put all your unreimbursed employee expenses on the long form, and that's what the other person did. Like put, I think they put over like almost 12 grand of just, you know, unreimbursed work expenses. Well, that brought her income down. 

And then when she wanted to go ahead and get a loan for her home, she didn't qualify because it looked like she didn't make enough income. And then she got a letter from the IRS saying, Oh, Hey, by the way, this $12,000 in unreimbursed work expenses, can you please show us your receipt?  

Meredith: Yeah.  

Nancy: So she wasn't able to get her loan. She didn't have the receipts. She then had to pay the difference of what the tax that she would've owed plus interest. And it ended up costing her more. I mean, she's not a client, but I mean, she actually came back to me, Oh my God Nancy, you were right, and I didn't say, I told you so, because I would have just been too mean, but I was like, okay, all right. 

And yeah, and I charged her twice as much because now I had to call the IRS on her behalf, go ahead and clean everything up, figure out what was going on. And yeah, she even admitted, she goes, I thought I was saving more money and getting more money, but it just turned out wrong at the end. I'm like, yeah. 

I'm like, it almost cost you your home because you weren't able to get your home loan.  

Meredith: Yeah. Well, that was an interesting part that I was trying to think of how to like transition that in there. I feel like a lot of business owners want to write off as much as possible just to get that amount down, but it is negative. So I was going to ask you about that is how do you talk to business owners that want a write off as much as possible? Because they're a business owner and especially if they're a sole proprietor, then when they need to go show proof of income for a loan or a mortgage, there is that discrepancy. So how do you advise or suggest that business owners balance that load? I guess of like wanting to write off expenses and paying less than taxes, but also, you know, they need to show a profit or else you're not a viable business. 

Nancy: If it's a legitimate expense, then yes. You know, it's you had a bad year. Like, for example, like for this year, a lot of people are going to have bad years because they probably still still had to pay their rent, still had pay some employees, so they might show a loss on there. I mean, there's a whole thing within the tax code that it's kind of like the whole goal the tax blueprint is, this is what I tell my clients, is that you want to go ahead and get to the least amount of taxable income within the rules. There's strategies and everything that you can go ahead and do to get your taxable income really low so you pay less tax. To get back to the expenses, you know, of a business owner, if it's a legitimate expense then, yeah. I mean, I'm not going to go ahead and not take the expense because you don't want it to look like you had a loss, so you can get your loan. That's tax fraud, you know, because you really did have to pay your rent. You know, you really didn't have to have this expense. You really didn't have that much money coming in. 

So yes, you, you are going to have a loss, you know. With the other example I had with the, with the person that had the unreimbursed work expenses, I mean, she was an employee. You know, she was W2. She was an employee before if your employer didn't reimburse, you know, for your mileage or you had to go ahead and get special shoes or something like that or I know like, for example, like some nurses, their union dues. You know, you were able to go ahead and write those off on the long form.  

You can't do that anymore, but from just a regular business perspective. Yeah, if it was a legitimate expense and you're at a loss, you're at a loss.  

Meredith: Right.  

Nancy: But if you, and actually that kind of works the other way too, because some people a lot of the times too, with my sole prop people, I even tell them like, okay, is there anything else? You know?  

And then depending on what, you know, industry that they're in, I might ask them questions, you know, cause especially if I see that they owe a lot, I'm like, well, what about this? What about that? You know, did, did you have any education? Did you have to go anywhere? And then they'll be like, Oh yeah, I had to do this, I had to. Did you have to get any software? Do you know, did you have to buy anything to go ahead and do this and? They'll be like, Oh yeah, let me go, let me go ahead and check me, you know, my personal credit card because I forgot the business card, put it on the personal end. In that case, I'm like, okay and what we're able to, to work it out. 

But if it's a loss, it's a loss, you know, and if you had a profit, you had a profit, even like me with being like a sole prop. Sometimes, I've had clients be where I'm like, you know, it's like, I don't want to be a sole prop right now, because then if I want to get the loan for the house or something, they're going to see this. 

And a lot of times I ask people to be like, well, what does your bank want to see? Because if they want your Schedule C, that's going to show them all the income that came in, all the expenses and then depending if you have assets and depreciation, they can then back that number and, and truly see what money you have left over. 

They can go look at that. I mean, but if you have a spouse that's also on the tax return and I'm like, do they want to look then at the front of the 10-40, where they're kind of looking, you know, this is what both of them made. So yeah, I was asking like, what is, what is it that you're looking for because, or the worst thing too is divorces. 

You know, it's like, what, what is it that the person is looking for? Because there's a difference between your taxable income, which is determined to figure out what your taxes you're going to potentially owe, versus your gross income, how much you actually made. You know, what is it that they're looking for and what is it that you want to convey? 

Because it's just, it could be two totally different things. And yes, maybe if you do show them your Schedule C where you went ahead and took bonus depreciation. And it looks like you had a loss, but it's not truly a loss because it was depreciation that really wasn't money that was taken out then they should take that into account. Again, when in doubt, ask. 

Meredith: All right. So what is one piece of advice you would give any small business owner?  

Nancy: Oh God. Small piece of advice. You really truly have to like what you're doing and make sure that you have the support of your partner, family, because it's your baby. If you don't have a kid, you now have a kid. If you don't have pets, you now have a pet. 

If you have the kids and the pet and the business, you now have three because you have to take it seriously. Because with how much you put in, that's how much you're going to get out and go talk to your tax preparer. Talk to your tax prep, "but I do turbo tax", then go talk to someone else because the one is, make sure you're getting the support of your partner and family, because I mean, you're going to live, breathe it if you're doing it right and it's going to take up a lot of your time.  

Meredith: Yeah. 

Nancy: But then two, don't go to legal zoom and open up an entity, please don't. Especially not in California. Okay, because you're going to owe $800. Talk to a tax preparer. I think Score has a couple workshops. Try and get as much information as you can, as to what exactly what you want to do. 

And start small to start off as a sole prop, start a sole prop, get your EIN. So your social is not out there and open up a business account. Start simple. And then, and then go from there.  

Meredith: And Nancy, if anybody wants to get in touch with you or learn more about you, where can they find you on social media or getting in touch with you? 

Nancy: Ooh, they can either go on social media. I have my Instagram and that's N2TaxPro. Okay. You can find me there. Um, you can also go ahead and go to my website, which is also www, does people even say www anymore, um, N2taxpro.com. You can find stuff on there. You got to find stuff out about me. You can also find out about some of the other services that I provide. If you want to go ahead and give me a call, cause you're old school, you just want to have a conversation. I like those too. My phone number is (714) 883-7170. Or you can email me, nancy@n2taxpro.com, and I'd be more than happy to go ahead and talk you through it. 

I mean, anyone from the podcast that calls in and everything, I'll be willing to go ahead and give you like a free 15 minute. Just ask, if you're thinking about starting a business or anything like that if you just need advice. Just, just whatever you do, do not go to legal zoom and open up an LLC.  

Oh my God. Or I opened up in Nevada. I don't want to be a California corporation because I want to pay the $800. You still have to pay the $800 now. So yeah, just make sure you have the support of your partner, family, pets, everyone, because you're going to live and breathe this and do not go on legal zoom. Go talk to a tax professional or go to Score. 

Just start simple. And then just, and then just go for it.  

Meredith: That sounds great, Nancy, thank you so much for coming on. Thank you for educating our listeners on taxes. 

Nancy: Of course, thanks for having me.  

Meredith: I hope you have a peaceful tax season. I know you've got like a month left here before you're going to be...  

Nancy: Bring it on.  

Meredith: You know, getting ready.  

Nancy: Well, thank you for having me. This was really fun.  

Meredith: Thank you Nancy, for coming on. And again, if you want to learn more about business entities or how to better start your business. Please check out our past podcasts for Getting Started Part One and Getting Started Part Two. They will reference everything you need to know on picking your business entity. 

Business Reflections Closing: Please note that these are thoughts and opinions alone. For tax advice, please see your CPA or tax advisor, tax professional for business advice and legal entities. Please see your local business, lawyer, or attorney for advice. And if you'd like to reach out to us for any topics or questions about. Any subject, any episode you can reach us podcast@maticsbilling.com. That's podcast@maticsbilling.com.    

For show notes, visit Maticsbilling.com/podcast. If you liked this episode, we want to hear from you. Please hit subscribe. Leave a review and share this episode with your friends, family, and on your social media pages. See you next time!