022- Taxes with Mike
Taxes can be a major headache, but they dont have to be! Listen in as the founder of JETRO and Associates discusses simple steps you can take to make tax time a LOT easier.
Mike Jesowshek is a modern and innovative CPA, taking a new age approach to accounting, tax savings, and growing your business. He is the founder of JETRO, a digital accounting firm, and host of the Small Business Tax Savings Podcast. Mike has both a bachelors and masters in accounting.
Mike has spent the majority of his career as an entrepreneur. He was CFO and co-founded several companies and has experience in all business stages. He set out on a mission to help businesses that have seen and lived the same experiences he did in business. This is how JETRO was built. He has been in the shoes of many small business owners out there and his end goal is to help them in one area that most business owners are not familiar with, accounting and taxes.
- Whats the difference between a small business focused CPA vs a more general CPA?
- being business focused
- When should a small business go with a tax professional vs a do-it-yourself approach?
- very small, likely not necessary
- as you grow!
- problem? Missing deductions that you aren't aware of.
- not knowing how to bullet proof yourself from an audit
- if you're in-experienced
- It's January, so what would you recommend to someone who hasn't been thinking of taxes at all?
- behind the game
- make it a high priority!
- gather all of income and expenses
- A lot of dog walkers are considered independent contractors, what specifically do they need to be looking for when filing taxes?
- if you made over $600?? You'll get a 1099, it's also being sent to the IRS.
- By end of January, should arrive.
- won't have to schedule C on your personal return
- no separate business tax return
- How should an independent contractor file vs a small business?
- flow through, taxes paid
- Differences between business entity designations: sole proprietor, LLC, s-Corp, c-Corp. And the tax implications of each.
- not saving money as LLC, that's for lawsuits
- sole proprietor and sole LLC taxed as individual
- s-corp election makes sense at $40K
- How much should we be setting aside for taxes at the end of the year?
- 30-40% of NET income is a fairly safe bet
- tough for Independent contractors! Cause we don't think about it very often
- What are some tax related challenges facing small businesses with a couple of employees?
- do you have control over the worker? That's an employee
- if person sets hours and rates? That's an IC
- Tracking apps and programs are a black box for many, why should someone use them, and what kind of pitfalls can they fall into?
- not knowing how to use them!!
- You've mentioned bookkeeping a few times, What are some tips you have when it comes to bookkeeping?
- open a separate bank account!!!!!
- easier to track
- keep up to date
- keep receipts and annotate them!!
- ditch the cash! Hard to track and support your deductions
- What's the biggest mistake you see small business owners make with their taxes?
- failing to plan!
- We hear a lot of questions about deductions, and a common one is "can I deduct both mileage and gas expenses on my taxes?"
- actual method - HARD
- mileage method - simplified version, an approximation of the actual method
- What's one of the most overlooked/under-utilized deductions or tax advantages for small businesses?
Brought to you by Time to Pet. Go to timetopet.com/confessional for 50% off your first 3 months
Follow us on: Instagram, Twitter, Facebook
Subscribe on iTunes, Spotify, Google, Stitcher, & TuneIn
Email us at: feedback@petsitterconfessional.com
A VERY ROUGH TRANSCRIPT OF THE EPISODE
Provided by otter.ai
0:16
I'm Collin and I'm Megan.
0:18
And this is pet sitter confessional. An open and honest discussion about life as a pet sitter. Hey guys, welcome to another episode. Tax Day is fast approaching now that striking fear deep into your heart. Don't worry, you're not alone. As small business owners taxes are a necessary evil and can be quite daunting, especially if you've just started out or maybe you've grown or change your business extensively this past year, and that's why we've brought on the founder of Jetro and Associates. Mike is a modern and innovative CPA. He's taking a 21st century approach to accounting tax savings and growing your business. He's the founder of Jetro, a digital accounting firm and host of the Small Business tax saving podcast is a great resource by the way, and we'll have links to that and many other resources in our show notes, which you can see by going to pet sitter confessional.com. And clicking on this week's episode, Mike has spent the majority of his career as an entrepreneur. He was CFO and co founded several companies and has experienced in all business stages. As such, he set out on a mission to help other businesses that have seen and live the same experiences he did. He's been in the shoes of many small business owners out there. And his end goal in all that he does is to help them in one area that most business owners are not familiar with accounting and taxes. Now with that out of the way, let's dive right in to this week's interview.
1:40
Yeah, so basically, I'm a CPA, which is just a fancy word for a guy that works with numbers. But I really been a business owner all my life. So I started out in kind of the online marketing industry at a young age. I was 15 and went through a couple business there went through, you know, many different stages in the life so So we had a business sold it started a new business had a bunch of partners have businesses on my own. So, you know, I really had experiences in a lot of different stages in the business. And that's really where I've got made the idea to say, hey, let's, let's turn this into an accounting firm. And so, about seven years ago, I found in an accounting firm, taking those experiences that I had, whether it's working with partners, working alone, not having a partner, selling a business, and just using kind of knowledge that I've gained through my experience of being a business owner to share with other other business owners. So, you know, our firm is kind of a modern day innovative type accounting firm. We work virtually, you know, with clients all across the country. We have employees scattered around the country. So everything's done remotely. And we utilize a lot of technology to just really provide a new age experience to to accounting taxes, payroll, those types of things.
2:56
So why did you decide to kind of change up the way they Your accounting firm was structured and goobie, more of an online and digital account firm versus the more traditional approach.
3:06
Yeah. So when we, when I first started the firm, about seven years ago, the prior industry that I was in was very tech savvy. And there was clients, most of the clients in that industry, or most of the people in that industry, were working from home, and wanted a solution that was cloud based, and where they didn't have to walk into their accounts office or schedule a meeting or anything like that. And so I had that kind of, you know, I was in that area of working with clients, very similar type. And so when we started the phone, we said, well, let's, you know, we're, we're well versed in that industry, and they're going to be the majority of our initial clients. So let's try to provide a solution that was, you know, kind of fit what their expectations were. So, I would say seven years ago, that was a new kind of approach. You know, having a digital accounting firm, things have changed. There's a lot more of them now. But there's still a vast majority of accountants that are doing things the old school And that that'll probably continue for a while. But we kind of hit the ground running, and said, We have clients that want this, they don't want to have to walk down to their accountants office, they don't want to schedule a meeting, they just want to be able to say, hey, let's jump on a quick video call or something like that. So we kind of made that approach. And so you know, that's the kind of film that we want, as well as that's kind of from the client. And that's the type of clients that we want that want that similar experience. So we started a digital accounting firm from the beginning and just kind of tapped into that new market, that new way of doing accounting.
4:35
Sure, and it allows everybody to kind of be connected to, you know, 24 seven, and to not have to be within the constraints of that traditional business hours operations or one location to go to everybody's kind of more connected throughout the entire process, I'm sure.
4:52
Yeah, exactly. And you know, when clients want to make a meeting with us, typically we saw if you make a meeting with us, we meet for an hour You have to drive there, you have to drive back to your office. So an hour meeting could take two hours, two and a half hours. And now it's just you schedule a zoom call schedule a video call, whatever it might be, and we jump on knock it out quicker, faster, and they don't have to leave their office or anything like that. So it's really a, you know, the clients that want that type of experience, they, they kind of feed on that and just really enjoy having that easy access without having to plan everything ahead. And it also allows them to not be afraid to ask questions. So you know, they might be saying your traditional account, I don't want to have to make a meeting and go down there and explain the situation. So I might just not do it. When our scenario we don't want to see clients not doing things because of an inconvenience. We want to say let's take that inconvenience out. You ask the question so that you can tax plan you can have, you can grow your business and really kind of be at the fingertips of everything without having to worry about setting things up. Making it in.
6:01
Yeah, really stripping down those barriers that may be there in more traditional style of approaches? Yeah, yeah. So So when you're meeting with clients, what kind of services do you provide for them in their business?
6:13
Yeah, so really, we're traditional, you know, the full service accounting firm. So accounting, bookkeeping, taxes, payroll, but really what our focus is when we're talking about our services is really we just want to help business owners create stress, free financials, that's, that can be a concern, especially for someone that might not have a finance background. And it can be very stressful not knowing if your financials are accurate, not knowing if even half financials. Our services are writing stress free financial saying, Hey, we're the experts. We have this cover for you. You don't have to worry about it. And then we kind of take it approach and we're talking about taxes and we put a lot of attention on how can we make sure our clients have been the least amount in taxes as legally possible. So we do tax filings and things like that, but that's just filing in For me, that's just an information return at the end of the year. The real part when we look at tax is doing it throughout the year planning and how can we minimize that liability on a regular basis. And then you know it, when it comes to payroll, we just want to provide it really simple, easy to use, start to finish solution, that the clients can just hire people and and dismiss people as needed. That's not complicated. payroll back in the day used to be a beast, it was very tough to deal with most people avoid hiring employees because they didn't want to deal with it. software has changed that now. And really, payroll can be something that is if you're in the right solution can be a really simple, you know, start to finish solution in with all of our services, like we kind of mentioned with that digital kind of being digital, is we really want to be a partner on our clients team. So that we want them to look at us as a partner that they can lean on, ask questions, if they're going through a difficult time, give me a call. Let's talk through it. And so it's more so of not just A guy that's sending financials your way and then we're filing a tax return and senior next year, we want to be that partner on their team that's kind of helping them through those little stages.
8:09
I really like that idea of treating taxes as just the end result the getting that submitted in that there's this entire process throughout the rest of the year to get to that point. And that in treating it much more holistically than just a I've got I'm looking at for one day one submission, and making sure that you have all the support in all the things necessary to get to that point, to make that as easy as possible.
8:33
Yeah, and that's where that digital piece helps us or allows us to do that as well too. Because, you know, traditionally you see your accountant in March or April or February and you don't seem to get to the next year and being digital we can meet with our clients on a more regular basis and build plans and and you know, do most of that tax work and those tax savings before the year is over. Because when it comes time to filing your tax returns, there's not a whole lot You can do it that time to create tax savings. There's some strategies available, but most of the strategies have to be completed by your end. So that traditional approach of senior accountant in March or April and that's it is kind of broken in the fact that they're paying more taxes than they, and they really need to be. Sure.
9:17
So you described yourself as a small business focused CPA. How is that different in your mind from a more generalized CPA?
9:26
Yeah, it really comes down to being business focused, you know, we work on personal returns, obviously, for business owners, but let's say just a general CPA, they're going to focus a lot on personal, they'll have some business clients that they'll focus on too, but when it comes to taxes, most are allowed their focus might be personal related. And so we're doing personal taxes, but it's combined with having a business piece to it. So if someone comes to us and says, Hey, you know, I just work a normal job and you know, I don't have a business and you know, my income Just getting your normal middle American, we'd say you're going to be much better off in a solution with a general CPA that focuses on just personal where our growth is. And what we're looking to help clients is being able to run those tax savings, being able to help their business grow. And having that business knowledge entirely focused just on businesses really help us kind of develop those plans and structures and, and packages for clients.
10:30
Right, it's kind of looking at that whole puzzle together. And not just the the personal side, but including that business and all the experience that you bring to the table to make sure as you mentioned earlier that people are paying as little taxes as possible that legally possible at the end of the year.
10:46
Yeah, exactly.
10:48
So this is a probably will be an eternal debate forever as is to go with the tax professional versus a do it yourself approach. Where do you see that decision being made? And when should a small business go with a tax professional over trying to do it themselves?
11:05
Yeah, and that's a really good question. And you know, we're looking at clients, we oftentimes say, you don't need someone or you don't need someone like us, you don't need someone that's very in depth like this. So if you're very small, it's likely not necessary. If you have, you know, a couple hundred dollars or you know, a couple thousand dollars coming in, very easy to understand you have a couple expenses going out, very straightforward. You don't necessarily need that hands on day to day type approach and accounting can bring to you, but really, you know, when, when it's that time to say, hey, I need a professional, help me out with this, that's going to be as you grow, to be the problem with as you're growing, if you're not working with a professional, there could be deductions that you're missing. So there's a lot of tax deductions that that business owners can take, that they might not be aware of, and the things that can be missed and at a small scale. It's not gonna make much of a difference. It's gonna, you know, you're going to be relatively same either way. But as you grow those missing deductions can really add to your tax liability. Yeah. And also not knowing, you know, not knowing how to bulletproof yourself from an audit. So if you are in that growing phase, you are starting to grow your business, not being able to knowing how to build for yourself, and we're not it is big because it can add a lot of stress and weight on your shoulders. And with that fear of an audit, everyone's afraid of an audit. But audits are, you know, can be even if you do it on and as long as you have a bulletproof approach prior to that, you can avoid any kind of downfall or avoid at all completely you just provide your documentation and you kind of move on so I often say when is it time to go with a with a professionals when you start to really grow your business? And when you kind of don't have that initial experience if you're not financially aligned and you don't really have the experience of running a business. That's probably the time where saying, Okay, I need someone that kind of helped me through this walk me through the stages so that I make sure that I'm doing everything right is not only is that going to help release some of that stress, but that's going to allow you to grow your business even more, knowing that you're not you don't have to worry about financials, you know, it's all taken care of, you know, it's bulletproof, that really kind of helps people explode into different areas in their careers and into their kind of entrepreneurial journey. Yeah, I
13:26
like that idea of as you're growing, and most of us who are in pet sitting and pet care professionals, we didn't get in it to do the financials, we didn't actually get in it to grow a business and so, or to run a business. So bringing a team on and reaching out to people who have those expertise, so that the problem can be taken care of, and you can focus on what you need to focus on the care of the dogs focusing on hiring good employees, all that stuff. And knowing that a service like you guys provide is taking care of all the backend stuff and and making sure that they're bulletproof. From an audit and that stresses and there is such a huge peace of mind to have as you're growing your business.
14:08
Yeah, and I think that's a good indicator is what is your stress level? Like? Are you worried about taxes? Are you worried about that you're not doing things correctly? If you are, that might be a sign, hey, it's time to get some help or at least learn and dig some dig deeper, you know, if you're not quite ready to hire someone, bring someone on, who at least has that indication that hey, I do need to learn about this, I need to go through some training I need to read around so that I can feel comfortable with myself because otherwise you're just going to burn yourself out. If your stress levels so high, you just burn out and say it's not worth the money that I'm making to deal with the kind of stress that that is involved with making that money. And so that's usually a good indicator when it's right to make that
14:49
make that adjustment. Right. So it's it's a it's January and I'm sure some people's stress levels are starting to rise a little bit as they're looking at a few months. What would you recommend to some Somebody who hasn't been thinking of taxes at all up until this point,
15:04
well be in January, it's there behind the game. But I don't say that to be to be worried about it. It's not something that is, you know, you have plenty of time to get things done, I would just make it a high priority on your list. And the biggest concern when it comes to taxes is when you go to find that tax return, you need to know what your income level was, what your expenses were, and what that profit was from that business activity. So right now, here in January, now is the time to really get ahead of the game. Gather all of your income, gather all of your expenses related to your business for the prior year, and get that ready for tax prep. Once you have that. That's the hardest part in really getting everything ready once you have your income and expenses and you know, okay, here's how the business performed. Here's everything involved in this business. going now to the tax return is much easier because you have all that information ready. So first first recommendations make is collecting Your income, make sure you have your if it's if it's something that's not a whole ton of transactions, do it in an Excel document or something like that. Take all your income, make sure you categorize that out quickly all your expenses, and then come to kind of an end profit or loss on what you did with the business. And so gathering that will help make tax season much easier. I would just say you do have some time, you know, it's only January, it's not April, so. So you do have some time, don't be too concerned. But make it a very high priority to get it done so that you're not doing this in March or April.
16:32
Yeah, really taking the time to find all that information and get into one point and starting to do those calculations. So hopefully, you can get all that structure in place or get it reach out to people who have expertise so that next time you don't find yourself in that same same place.
16:50
Yeah, exactly.
16:52
A lot of our listeners and a lot of dog walkers in general are actually considered independent contractors. They They may be going through a service like rover or wag. And that's a pretty confusing place to be as far as filing taxes. What specifically do they need to be looking for when they go to file?
17:13
Yeah, so when you're an independent contractor, if you've made over $600, throughout the year in total, you'll get a 1099 at the end of the year, and basically that 1099 is reporting to you what you've received in income. So if you receive $2,000 a year, you'll get a 1099 per tax season that says you may $2,000. In what that 1099 does is it's informing you so you know, to include in your taxes, but it's also that same 1099 is being sent to the IRS. So if you go to file your taxes, and you report no income on that 1099 the IRS didn't say, Well, hold on a second. You know, weg reported that you made $2,000, and you're showing nothing on your tax return. And so that's going to raise right play with them. So for those independent contractors out there, Be on the lookout for that 1099 as you're waiting for that 1099 and a half to be come to you by the end of January, as you're waiting at 10, and nine, calculate your income yourself. So kind of what we talked about before, find out what that income level is. And it should match up directly when you get that 1099. If there is any differences, that's something you're going to want to talk to them about. Or maybe check your records, make sure you didn't miss anything. But while you're also waiting for that, and I, again, it's a great time to start collecting those expenses. So as an independent contractor, you're not going to have to file a separate business tax return, per se. It's going to be on a schedule C on your personal return, you'll file your normal personal return, and then there's going to be a Schedule C, that you report all your business income, you know your business expenses on that schedule C and it's also where you're going to report that 1099 so I always say make sure that your your the income that you're reporting the sales amount, pre expenses, matches that 1099 or Sometimes there's more if you don't receive a 1099, or you make under $600 from a company, you still want to report the full income that you make. So make sure that those match, you don't want to be reporting sales of $1,000. And then the IRS is getting a 1099 for 2000. Again, that can be a red flag. Gotcha.
19:18
So is that one of the major differences between filing as an independent contractor versus a small business is that when you're an independent contractor, you don't have to file a separate business tax return?
19:29
Yeah, that can definitely be a major point. Now, even if you have a business like a actual entity set up so let's say you started an LLC for this business, and you're the only owner just a single member, LLC, you would still file your return is on a schedule ski and schedule C. So whether you're a sole proprietor, which would be you know, independent contractor with no business, no business entity set up, or a single member LLC, you still file on that schedule, see on your personal return, but as you grow, you might be looking into converting to An S corp or you might have a partner. And as you look into S corporations or a partnership, then you're going to have a separate business tax return. So if you're a partnership, you're going to have 1065. That's a business tax return, all the income is still going to flow through to you, as the owner on your personal returns, you'll get a form from that business tax return, they'll be no taxes due on that business level, they'll get a form that says, here's the income you made from this business. And that form you will then use to input into your personal return. So most small business owners always pay taxes on the personal level, even if they are a separate entity structure, you still pay taxes personally because they call it a flow through which basically means that business income is flowing through to your personal so that's the case for about 90% of people that are in this situation is there in a flow through entity or a sole proprietorship. And either way that income taxes being paid on the personal level. It's just if you're set up as an S Corp. partnership, you may have that additional tax return.
21:05
So is there a general rule of thumb for deciding a business entity designations? You know, you mentioned sole proprietor LLC S Corp. Is there a advantages to those as being a small business? Is it or is it just dependent on how your setup and how you're structured?
21:24
Yeah, so a sole proprietor or a single member LLC are going to be taxed the same way. So whether you make $2,000 as a sole proprietor, or you make $2,000 as a single member LLC, it's going to be taxed the exact same way. Now the LLC and a lawyer could probably give more details on this, but the LLC does bring some protection and some liability, things like that. So at some point, it might make sense to start that LLC but by opening up an LLC, for tax purposes, you're not saving any money that way. Now, the S corp is a little bit different. An S corp is a strategy that we use a lot with Our clients. In order to have an S corp, you either have to have an LLC or a corporation already set up. And it's just a tax election. So let's say you have an LLC set up, you would elect to be taxed as an S corp by the federal government. And then you would create a separate business tax return. And you kind of mentioned about thresholds. And when does it make sense to do something like that? Typically, for the S corp, we say when you hit 40, to $50,000 in profit, and the S corp is going to make sense. It's not going to necessarily hurt you. If you're making under that. It's just not going to give you as much of a tax advantage as it would you know, once you start to hit those levels, so so pider single member LLC, again, tax the same but if you do that S corp election, you might want to think about doing that. Once you hit that 40 to $50,000 in profits that would be after your battery and all your expenses and everything else. Just Just to make sure that you're getting enough need as much tax advantages as you can when you're at that level of income? Yep, exactly. Okay.
23:09
Another, I know, my wife and I ran into this whenever we started out is we waited to the end of the year to pay all of our taxes on the income that we were bringing in and for the for our business. And that was quite a shock. At the end. Is that Is there a rule of thumb or how much should we be setting aside for taxes towards the end of the year? Yeah, that's a good question. It really varies
23:32
by state, you know, so if you're in a state like Texas, where there is no income tax that changes because you don't have any state income taxes, you're still paying federal, right? But I would say a general rule is 30 to 35% of your net income. So that's going to be after expenses. If you have $2,000 in sales, and then you have, you know, $1,000 in expenses related to that income that you made, it would be that 30 to 35. percent of that net. And now that's a fairly safe number, you can go higher, if you just want to make sure that you don't have any kind of tax burden, you could probably get away with going a little bit lower as well. But that's a good general rule of thumb, where you're going to be pretty safe, you're not going to own a whole ton more, you're not going to get a huge refund from that you're you're pretty safe in that 30 to 35% of your net.
24:23
Right in it. As you've said, it's not going to leave you staring at this massive tax bill at the end of the year and trying to figure out where all that money is going to come from, depending on you know, how you're operating.
24:33
Yeah, and that's especially tough for independent contractors is a lot of times they don't, they don't think about the tax consequences. And so it's good to be talking about this because it helps prepare them and saying yes, you are going to have to pay taxes on this income, and sometimes a higher rate than what you normally would. And so it's a good thing to definitely be putting money away but I always tell clients that I would rather see you get a Little bit of money back at the end of the year then have to pay a bunch in at the end of the year. So yeah, and that all depends on how much you're putting. So, you know, I generally say go on the safer side. And if you know what if you put too much in, now you get a little bit of money back in tax season that you can put into savings or do whatever you want with it's kind of your reward for being obedient. When it comes to x x payments.
25:22
It's a much better feeling of getting returned versus still owing quite a large chunk of money to
25:28
Yeah, yeah, exactly. I've seen clients in all stages. And so doing taxes, we have clients that don't pay any taxes, and we have clients that pay too much and and the ones that don't pay taxes, and they're definitely much, much more frustrates definitely a much harder time for them. And that's why we say just plan ahead, put some money away whether you're paying estimated taxes or not, at least put the money away. So it's there when the tax book comes and you don't have to deal with that stress or that anxiety of not knowing what's going to be or thinking that you might have a large tax bill. You're going to know, hey, you're pretty safe, you're getting a little bit back there, you're going to pay a little bit more in. But generally stating your presale in. And really, when you're looking at tax season, that helps make everything you know, that helps lower your stress level a lot altogether, we have a lot of clients that just avoid in taxes, they'll extend their tax return, they'll wait until the extension date to file. And that means that they're going from January to October, worried about taxes and what they're
26:30
going to be. And so that can be a lot of undue stress, where if you just plan ahead, you don't have to be worried about filing that tax return because you know, that you've planned for this, right? A little bit of preparation and foresight can really help out that stress level and get that you know, just bite the bullet and get it taken care of and then you can go back to doing what you enjoy as a small business owner.
26:53
Yeah, it's really kind of having that mindset that all this money is not mine. Now, again, I always It's on the net. Because as a business owner, there's a lot of expenses that you can take in that you might not be thinking of. But that's, that's key to think it's on the net. So if you make $2,000, doesn't mean you have to pay taxes on that book 2000, because you get to have, and this is an advantage of being a business owner, you get to cut that down with expenses and items like that. So just always take that into consideration some the net amount, but if you go in with that mindset ahead of time, that not all that money is going to be mine. And I'm just going to put some away, it makes that much easier. Whereas if you go get to say, October, and you're like, Oh, I didn't save anything now it's going to be tougher to try to back, save some of that money. So just always say, go into that mindset right away. And if you haven't done that for 2019, that's fine. You're going to get hit with a little bit of shock potentially this year. But we're in January now in January now any income you make here till December is all a new year. So now is it Great time to say, Okay, I might have some struggle with 2019. But I can do it right, starting right now in January.
28:07
Yeah, and as we're kind of talking about stresses and lessening that giving us some peace of mind, and, and yet here we are, you know, with a fresh start ahead of us, no matter, you know, kind of, we may have messed up or not done the best we could in 2019. You know, what are some tax related challenges that we need to think about overcoming a small businesses with possibly a few employees?
28:32
Yeah, so, you know, the first thing you have to think about is, when you're hiring or bringing on a worker, Are they an independent contractor or other end employee, because that's gonna, that's going to vary on the way that you treat them. If they're an independent contractor, you're just paying them you know, you're just sending them a check, you're not taking a taxes out and running any payroll or anything like that. If they're an employee, then you start to have to, you know, withhold taxes from them, file tax returns, make tax payments, and those are all coming The requirements when you have the employee and so it's it's not necessarily a decision where you say, I'm going to go the independent contractor route. It's not that the decision is not necessarily up to you what the IRS looks like looks at. And this is kind of generally speaking, but they look at control. So do you, as the employer, have control over the worker? Are you controlling when they come in what they get paid? When they work, how they do the work, if you have control over them, that's likely leaning towards an employee. But if the independent contractors or the worker is coming in saying, here's my rate, you know, they don't, the employer doesn't really determine the rate. There's they're giving their rates. They're saying, I can work these times. And they're using their own equipment. If it's dog, they're using their own leashes or whatever it might be, then it's leaning more towards that independent contractor. So the first thing you have to decide is, Are they an independent contractor, or are they an employee and that's going to determine Kind of what those steps are, if they are an employee payroll is required and, and payroll can be quite complex. But like I mentioned earlier, there is software out there that has really eased that tremendously. So payroll used to be a big pain and used to be a tough pill to climb. It's not necessarily like that anymore with software, it takes a little bit on the setup side, getting them getting the account set up. But once it's set up, the software really takes care of everything for you, which makes things a lot easier. So we work with all of our clients on a software called the gusto. And in that software, I recommend to anybody is just a really good solution for something that's going to make that payroll a lot easier for them.
30:43
So as far as tracking apps and programs, I know you recommend gusto. And this can be a pretty big black box for many of us. You know, what's one reason to go with a true tracking software and program and are there any pitfalls that you You can fall into and using one.
31:02
Yeah, yeah. When, when it comes to software, there's a lot of really good software out there. Most software comes with some type of cost, of course. And usually the free ones I would say, are going to be really easy and good for simplified items, it's going to be the paid ones that are going to give you a better make it much easier for you, there's going to be a little bit cost involved with them. And you know, for small businesses, that the software can make everything easy. So there's bookkeeping software, there's payroll software, this can make the whole process a lot easier. Now you still have to have some knowledge and understanding what the software is doing and how it's doing it. So that you can, you know, make sure that your financial reporting correctly, it's a very the software pieces are very easy and great way to organize everything very simple. And so you don't have to kind of create your Excel documents so you don't have to try to manually do payroll, which anyone that's manually doing payroll, I strongly urge you, the software is Gonna make your life 10 times easier. But last stuff can be, again, stressful if you're doing these things without any kind of tool in your back pocket. those tools definitely make them easy for you now when when we talk about pitfalls, and what can be some of the downside tools, tools, and it's not knowing how to use it. So if you're using a bookkeeping software, and you're just jumping in not looking at any videos, not doing a training programs, you might be using a software but just using it incorrectly, which is creating incorrect reports. So it's key to understand how the software works and how to be doing it properly, which can be done in a training session or something like that. And that is you're going to help avoid that pitfall of, of kind of having incorrect books simply because you don't understand the software.
32:49
You've mentioned bookkeeping a few times. What are some tips you have when it comes to bookkeeping?
32:55
Yeah, the biggest thing when you're when you're a new business owner or a business owner of any sorts, always Say, open a separate bank account. So have a bank account that's specifically for your business. And that's going to allow you to run all of your income through that account. And it's also gonna allow you to run all of your expenses through that account. And so it's an easy way to consolidate everything to one place. Whereas if you're looking for deductions when it comes to tax time, and you have stuff in your personal account and your card over here in this town here, you're going to miss expenses, because they're all over the place. You might also mistakenly take an expense that you shouldn't have, and maybe it was a personal expense, but you took it to the business because you weren't exactly sure what it was for. So open that separate bank account and consolidate everything to one area and make it much easier for you there. I always say, keep great records, whether you're doing bookkeeping, using a software or using an Excel, just keep good records, keep up to date with it, and keep your receipts. So it's a with receipts, whenever you run a business expense right on there. Who the what the where the when the why, just right on that directly on that receipt, who you are with or what you bought and why you bought it and how it's business related. It just put it on file, you can either save those in the cloud, or you can put them in a paper file, whatever is easier for you. But that will help support you. So if you get audited, say, a year and a half down the road, and you see this expense, you're like, know what that was for? Yeah, because you wrote down there what it was for, it's going to help bring that back to you and help support that deduction. So much so much better. And again, you know, keeping things current, so, you know, keeping up to date if you're doing Excel, keep up to date, do it monthly, set a task in your calendar, if you're doing accounting software, do it monthly. So that task on your calendar, utilize cloud technology when you can get that helps make things and brings everything together. In finally when it comes to bookkeeping, and this is you know could be an area of concern is you want to try to ditch the cash. So when you're doing cash expenses. And the problem with cash, it's just hard to track. So if you go to the bank and you withdraw $300, for dog foods for, for example, that's going to be hard, you can still support it, it just makes it more difficult than if you have a receipt and charge on your card where you can show the line item and show exactly what those funds are for. That's going to be much easier to support than if you're using cash. But if you do happen to use cash and understand there's a lot of people that use cash, just make sure you're documenting exactly what that is for. And if you are, you know, still ask for receipts, if you're using cash, if you if you can't, if you're paying somebody else that you know, just independent contractor, for example, might not be able to receive from them. So just make sure you have good documentation to back everything up.
35:47
I really like that idea of annotating on the receipt itself when you make that purchase or as close as you can. So that's several months from now you're not looking at this deduction. Are you looking at this charge for $43 going what on earth This week, we all think we'll remember this stuff, but we never do.
36:05
Yeah, exactly. When you're looking at the receipt you're thinking, Oh, I don't need to write anything on this I know exactly what I was doing but that happened a minute ago. That always say right right on I'm even if you don't think you need more is better than then every little thing you can put on there is better, but just do something.
36:24
What do you see is the biggest mistake that most small business owners make when with their taxes.
36:30
The biggest mistake is just simply failing to plan. So most, most business owners take that approach of I'm going to find my taxes and that's all it is involved with taxes as filing their tax return. But failing to plan is really that key. We kind of talked about this a little bit earlier. But planning allows you to minimize that tax liability when you file those taxes and you're just filing the information with with the IRS and state agencies, but that planning that you do throughout the year can really help reduce the income That you're showing on those taxes, which in turn reduces your tax liability. And, you know, there's nothing in the IRS code. There's nothing wrong with having a strategy to avoid taxes legally, the IRS code does not prevent using strategies to, to do things legally, you know, so that is the best, best way to to to help lower your tax liability is spending time throughout the year looking at your deductions, seeing what deductions you may be missing. But by doing that planning, you're able to help lower that tax liability. So it's not just about filing a tax return. It's more about that planning piece that comes ahead of that.
37:38
Right and prepping for that entire year for that one event. And making sure that you do have that plan and team in place. Yeah,
37:45
exactly. And you know, the biggest thing too is that the tax is going to be your best financial defense. So most for most small business owners taxes can be one of their largest largest expense in by doing planning and you're guaranteed results by implementing tax strategies, you're guaranteed less tax liability, less taxes that come out of your pocket. And so it's a great way to have a good financial defense by avoiding some of that income or some of that profit that can easily be avoided. And part
38:18
of that planning is thinking about deductions ahead of time. And in the pet care business, we hear a lot about possible deductions for us. And a very common question that gets asked multiple times a day is can I deduct both mileage and gas expenses at the same time on my taxes?
38:39
Unfortunately, can't. I wish I could say differently? Yeah, and but that brings up a good point because when you are doing your taxes, you have the decision on which one you want to do. So you can do when you finally taxes you can do actual expenses. And that's where you're calculating your depreciation from your car. Your gas, your repairs, your maintenance, all of that is being factored into it. And then you take your business mileage. So if 10% of the mileage on your car was business related, you get 10% of all of those expenses related to it. So that's the actual method. And sometimes that's a really good option for people. The problem with the actual method is that it takes some time and some effort to really track all of those expenses and the mileage methods kind of the alternative. So if you don't do actual then you do mileage. And when you do mileage, you don't get to deduct depreciation for your car, your gas, your repairs your maintenance. Instead, the mileage is more of a simplified version as the IRS saying, we're kind of predicting what that actual cost is for all that based on mileage. And so you're getting deduction. A lot of times these numbers come back really close to each other. Actual versus mileage are oftentimes very close, which means the iris did a good job at determining mileage rate. But a lot of times they're very lopsided. I always say run both scenarios, run your actual calculation, and then also run a mileage calculation to see, you know, what is going to give you the best tax benefit. And then go with that and use that going forward, whatever one is obviously going to save you the most in taxes.
40:16
Now, earlier on, you mentioned that, you know, reason, one of the reasons why you should go with a tax professional over trying to do it yourself is a lot of times you overlook many of the deductions that are available to you. What's one of the most overlooked for small businesses, either deductions or tax advantages? You see people missing consistently?
40:39
Yeah, it's really deductions that are business that can be considered business expenses that they're just not taking or not realizing. And so I always tell clients, as a business owner, you have a huge advantage over everybody else. When you're just a normal w two employee. You get taxed on all the income that you make, and then you get a take home. portion, when you're a business owner, you only get taxed on the net fees. So if you get to $2,000, you have all these expenses that come in, and you're only getting taxed on that bottom line number. So you get taxed, you know, on that bottom line number, which is a really huge advantage for you to incorporate items that you might not think are business related, or you might not think are 100% business related. You can incorporate them in a business, find a way for them to be business related, and get that deduction, pre tax, which in w two employee doesn't have the ability to write and so some examples of this might be your your cell phone bill. If your cell phone if you're a W two employee and you have a cell phone that you use for business stuff, checking emails, whatever it might be, you don't get to deduct any of that cell phone bill. But as a business owner, you can deduct a business portion of that cell phone bill. That's just an example. I always tell clients, be creative. Find ways to get a business purpose. your expenses, if you're going out to dinner with a friend, if that friend happens to be a client as well find a way talk about business find a way that that dinner meeting could be potentially considered a business expense. And there's and then deductible for you. So it's being creative, looking at everyday life expenses and saying, Hey, you know, this might have some business purpose
42:20
to it, let's get an introduction for that. And using that to your advantage, right, it's really taking that time to think through those kind of expenses. And, you know, to, to try and understand exactly, and that's hard is to try and understand exactly what can be deducted but that's why looking for professional help and, and reaching out to other people is so important.
42:44
Yeah, exactly. Because we can help outline some of those and, and there's a lot of information on the web that helps let you know hey, what might be deductible but it's, it's the thinking of those things. Think of meals, think of cell phone bills. Think of your home office, if you have a home office. use those to your advantage. And really, when you're talking about fessional, to a lot of times we get clients that think I'm too small to save on taxes, or there's no tax savings for me because I'm too small. And that that can be further from the truth. If you're a business owner, there's tax savings available no matter what your sizes. And so it's really kind of utilizing those items. And as your business is growing, it's also realizing when you maybe need to take that step up. So you might be doing cell phone bills and automobiles and things like that. But it's as you're growing, you might be hitting the income levels. We talked about this earlier, the S corp, you might be paying income levels where you can introduce a new tax strategy that's going to save you even more. And so that tax professional might be able to help you indicate when that time might be. And so for that S corp example, we normally say about 40 to $50,000. And we kind of mentioned that earlier, but if you're in that range for your property and 40 to $50,000. That's the time to say okay, You know, I've exploited all of my expense options, you know, I've kind of used used all those buckets for tax deductions right? Now let's look at higher end strategies. I'm still profiting. I'm still making good money. But I'm still paying taxes. And so where can we implement strategies for that? And that's kind of that S corp kind of brings you to that next step once you hit those profit levels.
44:21
Wow. Well, Mike, thank you so much for coming on today. I know this stuff always makes my head spin. And so I'm very thankful that there is help out there. I know that we've got some work to do for April this year, and we'll definitely getting a better plan in place for next time. And we've barely scratched the surface on small business taxes. If people have more questions or are interested in your services. How can people get in touch with their specific tax needs and get some help?
44:50
Yeah, absolutely. So you can find us all over social media company name is Jetro and Associates. If you're if you're on the web, you can find us a web W dot Jetro tax.com and Jetro is spelled je TRL. Now, over and above that we also have a podcast, the small business tax savings podcast, which may be a great option for you to kind of check into and see what kind of tax deductions are available. Look at past episodes, find one that are relevant to you and listen to them. As part of that we also have a Facebook group. So it's the Small Business tech secrets. And we share a lot of text tips in there as well. We also collaborate with other business owners on maybe strategies that they're trying out or vetting to see if they make sense. Upset might be a good option. And we also have a training program. So if clients are saying, Hey, I do need some of that training on the bookkeeping, I do need to take that next step. But I'm not quite there where I'm ready to hire someone to do it for me or hire someone to do my taxes. We do have a training program that kind of helps walk you through that sets up your entire accounting software shows you how to do it. And so that's something I can share with you for show notes and things like that as well.
45:58
Yeah, absolutely would Appreciate it. You know, there are a lot of resources out there, there's a lot of help to be gathered. It's just the hard part sometimes is knowing exactly where to look. So, again, thank you for coming on today and sharing and we've got, we've all have have work to do for tax season.
46:15
I appreciate Carla's been a pleasure. And I really appreciate you bringing me on.
46:19
Thank you very much. I'm not exaggerating when I say the taxes are one of my least favorite things in the entire world. But as Mike pointed out, they don't have to be so crazy and they don't have to be so stressful. Whether it's getting more organized for next time, or reaching out for help with a Facebook group or tax professional for more advice, and some more focused counseling. There's a lot of stuff that you can do to make sure that you're equipped. So that tax time isn't stress time and if you have more questions or would like to reach out, you can email us at feedback at pet sitter confessional.com. Reach out to us on Facebook or Instagram at pet sitter confessional We're even on twitter at PS confessional. We also have a Facebook group sitter confessionals. I mentioned this a couple times throughout the episode, but there are going to be a ton of links in the show notes for the resources that Mike talks about. So definitely go to pet sitter confessional calm and click on episode 22 taxes with Mike to see all of that and much more
Keywords: business, taxes, expenses, tax, clients, payroll, tax return, business owner, income, tax savings, independent contractor, file, LLC, software, cell phone bill, pay, deductions, s-corp, employee, work, pet sitter, pet sitting
