127: Tax Talk with Mike Jesowshek
Summary:
This year has had a lot of things to distract us and keep us busy. However, tax time is right around the corner and there are many things we should be doing before the end of the year. Mike Jesowshek, owner of JETRO and Associates, discusses the three things every business should be doing right now and how EIDL and PPP loans impact our taxes.
Topics on this episode:
Tax savings moves to make right now
Things to consider if you started your business this year
CARES Act and Taxes
State of EIDL and PPP
Paperwork for tax season
Main take away? Right now is the best time to move after-tax dollars to pre-tax dollars and save on what you owe.
About our guest:
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.
Links:
Mike was also on episode 22 and episode 44
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A VERY ROUGH TRANSCRIPT OF THE EPISODE
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SUMMARY KEYWORDS
business, expenses, tax, deduction, people, clients, taxes, business owner, tax savings, irs, profit, year, buying, spending, moves, itemize, money, run, forgiveness, taxable
SPEAKERS
Collin, Mike
00:18
Hi, I'm Collin. And I'm Meghan. And this is Pet Sitter Confessional an open and honest discussion about life as a pet sitter.
00:28
Hello, and
Collin 00:28
welcome to a bonus episode this week, we're brought to you by our patrons, and we're so thankful for the support that they give to us, which is less than a cup of coffee a month, you can head on over to petsitter confessional.com, forward slash support. And check out what being a Patreon means. And all that comes with it, we couldn't really be making this show. Without them. The end of the year is upon us. And so many of us are already starting to think about tax time. Dun dun da 2020 has certainly been an interesting year. And with all of the financial moves, and different programs and different things that we have done this year for our businesses, it is imperative that we take the time to get organized, think through the processes and start making some smart money moves right now, to set ourselves up for success not just this year, but also in the year to come. Mike, owner of Jetro and Associates, joins us to break down things we should be doing right now and how to take into account the federal programs that came down this year in support of our businesses. Let's get started.
Mike 01:31
Thanks Collin for having me on. Again, I really appreciate it and really enjoy kind of hearing from your listeners as well on these topics. So just a little bit about me. I'm founder of Jetro, as you mentioned, which is a digital accounting firm. We service exclusively small business owners across the country, basically helping them with accounting taxes, tax planning, payroll, and things like that. So our goal is how can we make and create very clean and accurate financials and save the most in taxes as legally possible? And so that's really kind of what we're gonna be talking about today is how is that possible? What are things that we can do it you're in here, as well as kind of talking about the intricacies of 2020, and some of the things that got thrown at us that we probably didn't quite expect coming into January?
Collin 02:16
That is, that is for sure. We've had a lot of curveballs thrown at us. So you know, let's let's start. Let's start with that first topic there of just tax savings. I know that's a big thing that many of us are considering. And we always try and do as much as legally possible in and especially within the framework of 2020. What are some things that we should be doing right now?
Mike 02:37
Yeah, so you know, you made one good point, right. Now, a lot of times when when we think of tax planning, a lot of clients and business owners come to us in March and April and say, Hey, we need you to file a return for us. And we, of course, prepare and file that return. But at that point, there's very little we can do in tax savings. Sure, there's some strategies that you can implement to be in during tax season, but they're very minimal. And so that's why we put a heavy emphasis and encourage business owners to do tax planning and tax planning means that throughout the year, what are we doing to minimize our taxes throughout the year, because once December 31 hits, much of that planning goes away. And a bucket full of strategies turns into a couple. And so that that's the key thing is is doing that tax planning right now. So as kind of, you know, knowing where this audience is, and where they're at, and kind of their business stages, oftentimes, there's a few things that we always say recommend doing before your end. And so one of the biggest ones is accelerate expenses. So if there is expenses, or things that you plan to purchase in 2021, if you can accelerate that, and create those deductions here in 2020, you can reduce your income in 2020, versus pushing it off in 2021, if you're gonna spend anyways. So we always touch on that point. And I always say, don't just buy stuff to buy stuff, that doesn't make sense, you're losing money that way. So you might be saving taxes. But if you're just buying something, you don't actually need just to save taxes. That's defeating the point. But we say that if you're going to be spending something, if you're going to be purchasing, you know, a new type of product that you're utilizing in the petsitting area, and you plan to do that in January or February. It might make sense if you have income, if you have profit on your books to speed up that expense, get it in December, do it early so that you can get it on the books, get the tax deduction today, and lower your tax burden here in in tax year 2020. So one major kind of thing that we encourage people to do is get expenses on the books. If you have items that you're going to spend anyways, you're gonna buy anyways. So again, that's one of those things that wants to summer 31st hits that that's the cutoff if you do spending in January and that's going to go to towards 2021 not 2020 anymore. And so kind of with that same mindset or same idea, another thing we encourage clients is to slow down receivables. If you have someone that owes you money, maybe hold off, maybe send them an invoice near the end of December, knowing that you'll probably get paid or they'll pay actually pay you in January or hold off till January to send that invoice or get paid for something specifically. So this is one area where he says speeding up expenses. Now we're going to slow down incoming money, wait till the year passes to show that income in the next year so that we're not paying taxes on it. But as we kind of talked about the expenses, this is when we got to be careful about too, because if there's some way that we know is just not really good at paying us, we probably don't want to push that off in other 30 days. So be careful with this one. If you have clients that just are really good at paying you consistently, you might say, Hey, can we hold off and can you make those payments in 20 at the beginning of 2021. So that's going to show up as income and eventually paying taxes on it next year, which will reduce your income here in 2020. So those are two kind of very unique areas of of things that you can do as we get to year end. And just to kind of touch point or go dig a little slightly deeper on the expense side is encourage clients to get creative. And think of ways that you can find a business purpose for the spending that you're doing. So if you're if you're going out to lunch, maybe you're going out to lunch with a friend that happens to also be a client of yours. And can you find a way to make that lunch discussion business related? Now get a business deduction for it. Other things might be if you're if you're doing administrative work and things like that at your home, can we claim a home office deduction? If we're claiming a home office deduction? Can we claim some mileage too, because now if you're leaving your house to go do a pet sitting or walk the dog or something like that, and you have to drive there, now that mileage from your house to where you're going is deductible mileage, because you're going from an office to a client. So those are other things, we're talking about expenses, but we want you to be creative and and think of ways that you can find a business purpose. If you can find a business purpose, where that expense is ordinary in your business and necessary to your business. That's a business item. And if it's a business item, you can get a tax deduction for it.
Collin 07:14
I did want to touch on the the home office because that comes up and it can be kind of a tricky topic. So what are some of the specifics or that would qualify as having a home office that we could use for tax purposes?
Mike 07:27
Yeah, so basically, you just need to have an area in your home that's exclusive to your business. So if you say, Well, I do I do paperwork and things like that on my in my dining room. But I also eat dinner, that's not an area that's exclusive to your business. If you have a room that's exclusive to what you're doing in your business, that would be your home office. And so there's two different ways that you can take a deduction for a home office, you can take an easy method, which is where you just get $1 amount per square footage. So if it's 100 square foot office or area, you get the dollar amount times that hundred square feet. The other way is to take your business to use percentage c would take your home office of the office square footage, divided by your total square footage. And then you take all of your expenses, your mortgage interest, your rent, your utilities, repairs, and maintenance everything there. And you multiply that by whatever your business use percentage is. So those are two different methods that you can use, the biggest thing is having a place that's exclusive to your business, and where you do majority administrative work there. So that could be sending invoices that could be paying bills that could be doing your scheduling, whatever it might be assuming that you have an area dedicated your business that you're doing that administrative type work in, then it could qualify as a home office.
Collin 08:46
And one of the things that you start off talking about was accelerating those expenses to get more deductions this year, many pet sitters through 2020 pivoted to purchasing items and kept more things in stock so that they could provide those to their clients. Are there any tax moves that we can make? If somebody's sitting there with a lot of inventory? Maybe that they haven't sold yet? What What is something that someone could do in that situation?
Mike 09:16
Yeah, so it really depends on what the value of that inventory is. So if you're sitting on, you know, multiple thousands of dollars of inventory, that's a different story. If you just have, you know, some what we call a non material type inventory, where it's just, you have some supplies set aside and ready for when you're needing it, but it's not necessarily something that you're going to be selling, it's not a massive amount of inventory. You can just take that expense in the year that it occurs. So you know, if you if you're buying let's say you're buying food or treats or something like that, and you're buying 10 boxes of treats, that would be something I would say just go ahead and take that expense in 2020 unless it's super material, something that's Gonna be, let's say your your income is $20,000, and you're buying $10,000 worth of inventory, that's going to be a little bit more material, because now you're talking about 50% of your income, that you're buying an inventory. But if that number is much lower, you can take the expense for it, instead of running it through inventory, run it through an expense accounts instead.
Collin 10:19
So it sounds like there's quite a few options there. Just having to make sure, again, working with somebody and figure out what's gonna be the best move for you to set you up not just for this year, but for next year, too.
Mike 10:30
Yep, exactly. And that's, that's one thing to think about, too, is that when you talk about accelerating expenses are slowing down income. What does that do to the insurance CD taxes in 2019, but those are also items that kind of affect your 2020. Because now you're having expenses that you would have had in 2020, that you're now moving, or shifting to 2020, or you would have had in 2021, that year, instead accelerating and moving into tax year 2020. So I always tell clients that a lot of these things, just kind of shifting things from one year to another. Now, that's going to come back to hurt you when you do 2021. But then you're going to be able to implement a very similar strategy, then. And so, you know, it comes down to one accelerating expenses, but also knowing what expenses you can actually take. And so when I talk about this, I always say our goal as a business owner, is to move after tax dollars into pre tax dollars. And so what does that mean? And let's think of if you're a W two employee, you're working for a company, you have your your gross salary, gross wages, hourly rate, whatever that might be. And then you have all these taxes taken out. And then whatever's left over, that's the amount that you receive in your bank account. So we call that take home pay, all the money you spend after that is after tax dollars, that money's already been taxed. Anything you do spending as after tax. As a business owner, we get to flip the switch, though, because we have our sales or our revenue from our business. And then we have all these expenses that we put into the business, and then we get taxed on whatever is leftover. And so we want to think as business owners, how can we turn that typical after tax spending that money that we do after it's been taxed? How can we get that inside the business prior to it being tax? So how can we turn after tax dollars into pre tax dollars? In one good example, this is let's say, you know, COVID hits, and you're a W two employee, and now you're forced to work from home, you have to go out and buy a desk, you have to have a home office that you have at home. And because you're a W two employee, you get no benefit to that you don't get to deduct that because your W two employee, all that that dust that you bought unless your employer's reimbursing you but that desk that you bought, you use money that was already taxed. But as a business owner, that desk you buy that that intern internet that you use for your business, you can move all that as a business expense. Now, sometimes it's partial business, partial personal, so you're getting a partial deduction. But those are all items that you can run into your business, such as an example of how do we turn after tax dollars into pre tax dollars? And that's where I want clients to get to really strategize and say, is, I'm spending money right now or look back at your spending and say, can I find a business purpose or business purpose to this purchase? If so, let's make that a business deduction,
Collin 13:28
you know, unfortunately, this does need to be said sometimes is that these expenses need to be coming out of that dedicated business account that you have set up, and you're not mixing this personal with this business. Because when it comes to these kind of purchases, and these kind of moves that we're making, the waters get muddied really, really fast.
Mike 13:47
And that's one thing to note is that if you are commingling, let's say you have all your business and personal mixed into one account. It's very hard to defend your business expenses. Let's say you have you run everything through one account, and you go out to lunch with a client, or you take a client to lunch, that's a business deduction. But it's going to be very hard to prove to the IRS why that's a business deduction, or why a why that's a business deduction when you have all this other meals spending on your account as well. And so that's what we always say, definitely, as you mentioned, make sure you're separating those out, you know, have a separate business bank account that you're running all your business transactions for one, because it's just it's so much cleaner, you're not missing deductions at that point. But it also helps defend in the IRS audit. Because if you're running on lunch expense on the business account, you can show to the IRS Well, here's my personal account, and here's some meals and entertainment and things that I'm doing on my personal side that is not business related. So it helps with that substantiation proving to the IRS that this is business related. Of course, simply running something through your business account does not prove it's business related, but it's a lot easier to prove that when it's not intermingled with a bunch of personal items as well.
Collin 15:04
Well, and it just helps you remember, remember to because if we're sitting here at the end of the year going, gosh, I had lunch back in, in February. Where was that? Who was there? If you've got it separated, it helps you to remember when it comes time to run your tech? Oh, absolutely. And so
Mike 15:20
I would say, you know, putting, you know, having a business and personal account separate, it's not a tax strategy. But we see so many people pay less in taxes, because there's so many deductions that they forgot that were business related, didn't know if they're business related, so it could improve it, and things like that. But when you do separate them, it just becomes more clear to them. You know, they'll remember Oh, yeah, I took so and so client out to lunch that day. So yeah, we say that's not a tax strategy. But we find clients are able to take so many more deductions when they're not commingled.
Collin 15:53
Many of our listeners are are solopreneurs, they run an operate all by themselves. So I did want to ask, are there any specific tax savings or tax moves that they can be making right now?
Mike 16:08
Yeah, I mean, that that runs very similar to any other kind of business owner out there. So you know, whether you are a big operation or just a solopreneur, which, which is great to, again, I think it's that idea of thinking of what can be considered a business deduction, how can I turn after tax dollars into pre tax dollars? Again, that's just being creative, knowing what type of expenses you can take. And so that's why we always say, look back at your statements, look back at the spending, you've done and say, you know, I met with my friend who was also a client, was this a business meeting, you know, people oftentimes are scared of the IRS. And that's where we encourage clients, the IRS code was written the way it was for a reason. It allows business owners to take advantage of it, it allows business owners to take valid deductions. So if you can provide a reason and a business purpose, do not be afraid to take deductions. We always say, whether you're buying office expenses, whether you're going out for meals with somebody, whatever it might be, take the receipt, write directly on the receipt, the major items, the who, what, where, when, why. So you go to lunch with a friend, who's also a client, write down why you're meeting with them. And we want to discuss your schedule and see when we're going to do petsitting. Why did you meet with them? You know, to solidify, maybe it's not a client yet, but you're trying to get a client. So you talked about how your process works. But just write directly on the receipt, the business purpose, why you were there, who you met with? And that's going to provide supporting documentation? Should the IRS ever need it, but also help you remember it? When that time comes? You mean like, what was that charge that you know, whenever restaurant is What was that for? Well, you have it written down. You have substantiation, you have proof right there. So, you know, as far as solopreneurs, just going to go back to your question. I think all it's all these times we talked about today are valid for them. But also getting in that mindset that you are a business owner. You know, just because you're a solopreneur does not mean that you are not a business owner. So you're a full fledged business owner, take advantage of the tax code, in the ability that you have to deduct business expenses to your advantage.
Collin 18:23
And you mentioned it a couple times. And so I'd like for you to explain it a little bit more here is is why is this move from from after tax to pre tax dollars. So important?
Mike 18:35
Yeah, because the you know, in here's a lot of people say, well, Mike, how much how much money am I actually saving by running something through the business. And let's imagine that you're in the 25% tax bracket. And you're able to find $1,000 worth of items that are business related that you typically run in your personal account. But you can find a business purpose for them and run them through the business, you're now getting an additional thousand dollar deduction on the business side, which equates to $250 if you're in the 25% tax bracket. So we always tell clients, if you're trying to figure out how much money how much tax, you're going to save by running this to the business versus not take the dollar amount and multiply it by your tax rate, whatever that might be. That's going to be your tax savings. So it's just, that's that's the importance of it. Because remember, as a business owner, we get taxed on the profit of our business, not the revenue, its revenue minus expenses equals our profit. That's what we're taxed upon. So if we get a 1099 for pet sitting and it's $15,000 for the year, and we have no expenses or nothing that we ran through the business to to cut against that 15,000 we're paying taxes on $15,000. But if we're able to find all of these items and things that we purchased that are business related and everything else, including the home office, including potential automobile clients, things like that. Well, now that $15,000 is getting reduced by all those items, and now we're just paying taxes on, you know, whatever might be leftover 10,000 5000, sometimes close to zero that you're paying taxes on, because you're able to find deductions that can reduce that revenue or those sales of the business that you're receiving.
Collin 20:20
Yeah, and as you started off with, it's not buying things that you don't need to for the sole purpose of bringing it down, because then you're actually not running a very effective business. But you're documenting the expenses, that you already have legitimate things, and just making that more apparent and using that for the business and going, Okay, these are the expenses that I had, I was spending this money anyway. And by documenting it this way, I'm able to bring down the taxes that I owe on on the whole thing.
Mike 20:49
Exactly. And I say let's look at the home office, for example, whether you take the home office deduction or not, you're still spending that money if your rents $1,000 a month, whether you take that as a partial business deduction or not, you're still spending $1,000 a month. So a lot of times I have clients that say, well, Mike, I'm a business owner, don't I want my profit to be as much as possible? And I said, Well, yeah, in theory you do. And when we're looking at how are you doing? How is the business performing, we want that profit to be as high as possible. But when it comes to taxes, we also want it to be as low as possible, because we pay taxes on whatever that profit is, in. So that's what we encourage clients to to also look at things we call add backs. So you take that home office deduction, the business, let's say it's $1,000 deduction for the year, well, your profits going to go down $1,000. But in your mind, you can say, Well, I would have had that expense either way. So if I want to know what my true profit, how is my business performing, I'm just going to add that thousand dollars back. Now, that's not gonna be what we reported to the IRS, but that's just for my internal purposes. So a lot of times when we look at, how is the business doing, you might have all your normal business expenses. And then you have these items that categorizes more personal related items that had a business purpose for them, or had a business mix up can be a cell phone, that could be the home office, that could be automobile, those are expenses you're gonna have, what do you have the business or not, but now you're able to get a deduction for and if you want, if you want to see your true profit, you can always add those back into your profit to really see, okay, lm making money from this venture or not?
Collin 22:24
Which is, which is the eternal question that we're always always asking ourselves. Um, many people had a lot of, they had a fire lit under them this year. And they actually went out and they started their own business, they got into business this year, and have been just absolutely killing, it was wondering what kind of tax advice you would give to somebody who started their business this year?
Mike 22:49
Yeah, so you know, the biggest thing is, making sure that as we kind of mentioned, making sure that we're separating, we have a business account specific to the business. So making sure that we're separating our business activity, that's gonna make it easy for reporting for you. Also, if you had any of those startup costs, so let's say you went and bought a bunch of different items, before you even started your business, make sure you keep track of those items. So you might have started buying all these things, and like, oh, maybe I should start a business now. So you bought $10,000, or thousand dollars worth of items, you start your business A month later, make sure you keep record of those items that you bought, for most people that are just starting their business, they're gonna have some business related items on their personal account. That's just natural. Because no one wants to put the money to open a bank account to start a LLC, whatever it might be. They don't want to do all of that until they know they've got a viable business brought a business idea here. And so they'll get expenses before any of that type of stuff happens. So make sure that you're also including that, so it's okay to have items on your personal account, especially if it's in your first year, because you don't even have a business account set up yet. But with that being said, make sure you get that business account open.
Collin 24:01
Right away. Right, right. Yeah. And it's, it's kind of tricky, because a lot of times, like you said, we find ourselves having created a business and so many of these first purchases that started very early back, those can just kind of fade into the distance. So taking the time right now before year end, to comb back through, jog your memory and document those things so that they don't get lost. And so again, you're bringing down
Mike 24:27
the taxes that you owe. Absolutely. And your accountant is going to ask for they're going to ask me for, you know, give me your income, give me a list of your income and give me a list of your expenses. And so a lot of times you might just send them what you have in your bank account and you might do a profit and loss and a balance sheet based on the bank current activity. If you're just starting this year, just remember that there was probably some expenses paid personally before you get that business bank account open. So don't forget about those.
Collin 24:53
And the last time we had you on was back on episode 44. Which is crazy to think that was all the way already way back in it. Apr. And so much has happened in the world since then. And so wanted to get your perspective on how the world of taxes and finances have changed.
Mike 25:10
Yeah, I mean, I think with with Kobo, we call COVID. Here, I think it changed everything. It changed the way people run their business, it changed the way we take deductions, it changed the way, you know, a lot of things run on the business side. And so sure, there was some some, you know, minor tax changes related to, to the cares act and things around COVID. But I think it just changed businesses as a whole. And I always look back and tell people, I'm just amazed at how people adapted to this change, whether they were a company or a business that went that did didn't do anything virtual, and they had to are required to shift to do that. Or whether it was someone that had a job got laid off, and now started up their own business, which might be because so many listens here, I was just amazed by the amount of business owners we've talked to this past year, and how quickly they have adapted and changed things in life done things that they never thought they could do. Now, a lot of people think I can never start a business, we've seen so many people start businesses this year. And it's really been great. Just a few things to mention, though, as far as when it comes to taxes and kind of you know, what has happened to this year, the cares act brought in some some minor tax changes, a lot of it's kind of bigger business stuff, that wouldn't be extremely relevant. But one thing that, you know, that we find that people didn't realize is that with the text Trump, the Trump tax cuts that happened a couple years ago, it moved the standard deduction to be double what it was. So most people were no longer itemizing deductions, which itemized deductions are when you have mortgage interest, real estate taxes, charitable contributions, things like that. So most people would say, you can donate to charity, you can get a tax deduction. With that double of the standard deduction, most people weren't itemized. So sure, you could donate to charity and get us to get a tax deduction. But your tax is gonna be the same way. For most people, most Americans, your taxes are gonna be very similar, the same whether you make that deduction or not. And so one cool thing that they that they did change in the cares act was they allowed on above the line deduction. So even if you're taking a standard deduction, and you donate to a charity, you're able to take $300 of that, here in 2020, this was a rule that they changed or may change for 2020, that we're hoping they continue to extend because that was one thing that hurt, charities got hurt, and I'm in this space, I'm sure it happens, a lot of where people are donating to charity, and shelters and things like that. And, you know, this was one area I thought was really great by the government to encourage people to give to charity. And this, this affects whether you're a business owner or not, but it's an added deduction there. Many people in the pet care space, have relationships with
Collin 27:54
local pet charities or local nonprofits and things like that. So that may be a good move for you, as we approach the end of the year to look around local charities and local things to be involved in to make some some make some donations at the end of the year.
Mike 28:12
Yeah, in again, you know, if it's, it's the $300. And this is whether you itemize deductions or not. So typically, if you itemize, you're going to get charitable deductions, but with that doubling on the standard deduction, most people don't itemize anymore. And so this is where this feature has has really made open that up where you can get a $300 charitable donation deduction, even if you're not itemizing,
Collin 28:37
well, and then the other really big elephant in the room this year was the Ei dl and the PPP program and some of the the nuances that are surrounded that many people took those or tried to get those and are now sitting there going okay, but what does this mean for me Come come tax time, so maybe talk about those programs and some of the obligations coming up?
Mike 29:01
Yeah, you know, and this is things that this is this is fluid, this is constantly changing, and I expect future changes to come out. But what I will talk about is, where are things right now when it comes to tax ability, and the biggest one, which is probably going to encompass most people is the PPP loan. So when they when they advertise this PPP loan and it first came out, they they made a big statement about how it was not going to be taxable if forgiven. So if the PPP loan got forgiven, that was not going to be taxable. And so that's how it passed in the Congress. And then the IRS got it and said, Okay, now we're gonna take we're gonna write some tax law based on this law that got passed, and they said, Sure, the forgiveness of the PPP loan is not going to be taxable. However, any expenses that you used that money for are also not going to be tax deductible, which essentially makes the PvP loan taxable. And so that's where there's been a lot of confusion, a lot of frustration with the IRS saying this is not in your contract. versus coming out Congress members have come out and say this was not the intention of what we built this for this was supposed to be completely non taxable. And so giving an example, let's say you got a $30,000 PPP loan, you took that $30,000 spent on payroll, got a $30,000 deduction, get the PPP loan fully forgiven. The actual physical forgiveness of that PPP loan that $30,000 is not taxable. However, that $30,000 that you spent on payroll is also not tax deductible. Again, creating also, you know, kind of creating that essentially to be a taxable event. So, this is how the law states right now, forgiveness, not not taxable, but any kind of expenses used with those that money is also not deductible, we assume in our expecting changes to come through whether that's guidance given by Congress to another stimulus package that addresses this specifically, so that the IRS knows that wasn't the intention. Basically, what the IRS, the IRS takes this law that was written by Congress and then deciphers it the way they understand it, and then put tax law into place, or at least a tech statement into place. And that's where we're sitting right now, this is how the IRS understands it. Now, what we need from Congress is for them to come back and say, that wasn't our intentions, and then create some type of law or adjustment, so that the IRS can make that adjustment down there. And who knows if it's gonna happen. They've been talking about a stimulus package for months now, an additional stimulus package for months now, I don't know if it's going to happen. But I know that this is one area where there is a lot of fighting going on a lot of people upset because this was not intended. We have Congress members upset we have the AI CPA, which is a group of accountants that that kind of tried to change some laws out there. They're upset because we everybody knows this was not intentions, this hurts business owners. But that's the way it's standing right now. So we're telling clients assume this is how it's going to be. If something changes in those expenses are now allowed deductions, great. If not, at least you're prepared for them that way.
Collin 32:04
That's the big key thing is you have to prepare for things as they are right now. Because that change could or could not come and you don't want to be found on your backfoot going okay, well, now I really have to have to do something. So are those should all of those have been declared forgiven or not by now? Or are there still things in a little Limbo for for people who
Mike 32:27
took that? No, yeah, there's still definitely plenty of time for the forgiveness piece to come out there. So a lot of people have not even submitted applications yet. There's even some banks that I've heard of that aren't even accepting the forgiveness applications. The SBA is accepting applications for forgiveness, that, that that part we do now. Now, so but but some banks are saying, Hey, we're just waiting for more clarification, we think there's gonna be changes coming down the line, so we don't want to force anything through because then we might have to change it down the road anyways, so definitely, you can start applying for forgiveness now. You know, some people are, they're like, I just want this off my books, I wanted to forget about it and never see PPP again, those people are submitting applications. Other people are like, I just think something's gonna change here. I think they're gonna change something, I think they're gonna make this fully forgivable, I think they might make this process a lot easier. Those people might be waiting a little bit to do some of that forgiveness, I will say that they created an application form, if your loan was $50,000 or less, they created a very simplified application form, which should make getting that forgiveness very easy, a very easy process for you. If it's over $50,000, it can potentially be a little bit more complicated, of course, still doable, but it just changes things a little bit.
Collin 33:43
So if somebody has that forgiveness letter, and that's, that's on the books for them. Is there any other kind of paperwork they need to be bringing to their tax accountant or CPA, whenever they start working through their taxes?
Mike 33:56
No, I mean, I think the biggest thing is, is making sure you have a record of your income and expenses and activity of your business. So you know, that's, that's the biggest thing. We we talk to clients, and they're coming to us. And let's say we didn't do the bookkeeping, or they're a new client that's coming to us. It's having that documentation of what's going on in the business. I always encourage using some type of accounting software, whether it's software like zero or QuickBooks Online, or WAV or something like that. But doing some type of accounting software so that you can create financial statements, an income statement, which is a profit and loss, a balance sheet, which shows you Okay, what type of assets Do you have, if any, I would imagine this business a lot of times the balance sheet doesn't really tell you much, but it's going to tell you a couple different things. It's going to tell you how much money you have in the bank account you render at any specific date. It's also going to tell you how much the owner took out in distributions or draws. Because we if we remember, if you take money out of the business as an owner, not through a salary or a W two payroll or anything like that, it's considered an owner's draw and does not reduce your income does not reduce your profit. So let's say you have $10,000 in sales, you have $5,000 in expenses, and then you take the remaining $5,000 to yourself, your profit in that scenario is $5,000, you do not get your profit is not zero, even though you got rid of all the money, your profit you, you're not able to take an expense for the owners draw or distribution piece. So when you're looking to what should you be preparing for tax season, have those financials, a good listing of them, it's going to be you're going to be paying more and it might frustrate your accountant, if you just give him a pile of stuff and say, here's our receipts, go ahead and pilot tax return, you're going to miss things things are going to be done incorrectly might be sloppy in accountants are busy during tax time. And so they sometimes will rush through things if they're not given exactly what they need to. So I always say be prepared on your end to make things easier for the accountant to make the process goes simple for both you and the accountant. And also make sure you're just maximizing your deductions. So if you don't have financial statements, at least create an income statement. What are your sales? What's your revenue? What money did you come for coming in, break out all your expenses into categories, and do a summary of those and say, Okay, here's what the advertising was, here's what my supplies were, and everything else. And then at the end, you'll have a profit. And below that always say, just record the money that's that you took out personally. So if you have a business bank account, add up all those funds that you took, personally, whatever that amount is, and just separate that underneath the profit line, because that helps the accounting know to what your owners draw are distributions were what you were taking out of the business.
Collin 36:38
Yes, we absolutely want our tax accountants and CPAs happy and and well, and well equipped with a well organized file so that they can do all the amazing work that they're doing. Because as you said, like, that helps optimize it for the catching certain things and making that process just go so much smoother. So yeah, it's, it's a little bit of headache on your end, as the business owner to get things in line. But you want that like that is so necessary to make sure that process goes smoothly.
Mike 37:06
Yeah, and now's the time to do it. We have you know, a month left until the end of the year, and likely you're not sending your stuff into your accountant right away in January. So you have plenty of time. Now you might have some downtime now to start collecting that information, getting it recorded so that when January hits, you can reach out to your accountant, you can be ahead of the game and say, Mr. County, here's all the documentation, supporting documents, here's my profit and loss. Here's my information and they can go to work. The sooner that you can probably get the information in the better to make sure that you can just get a tax return completed before the deadline, right?
Collin 37:42
Yeah, all good moves to be making right now organizing, looking at digging a fine tooth comb to those expenses. And then taking this this last couple weeks that we have here. And as you said at the very beginning, looking at accelerating those expenses that you're already thinking about doing slowing down those receivable and then getting creative. I love all that advice. Mike, this has been a real pleasure. And I know that there's always so much more to dive into. So if people want to reach out, get connected and pick your brain on this kind of stuff. How best can they do that?
Mike 38:16
Yes, a couple different ways you can reach out to us if you go to our website, it's Jetro, tax, it's je tr o tax tx.com. You'll find a blog on there a lot of good information. We also have a small business tax savings podcast. So search that on any pad on any podcasting platform. If you want to hear we do weekly episodes with tax tips, tax saving tips, accounting tips, things like that, you can dive into that, check out some of the prior episodes we've done. Otherwise, you can find us on all social media search Jetro or Jetro and Associates, accounting, something like that on any social media platform, you'll be able to find us and reach out to us that way.
Collin 38:53
Yeah, and you've got a really cool a group on Facebook for small business tax secrets that people can check out to.
Mike 38:59
Yeah, absolutely. If you search on Facebook, small business tax secrets will be a private group in there, that also has links to our websites, our blogs, our podcast episodes and various other materials that we have. So you can always just go in there request to join, tell him you heard of us from Collins podcast here and we can get you into that group right away. And that's a great place to look at what other business owners are asking as well as well as go ahead and ask questions within there. That's access to us where we can answer the questions that you have regarding whether it's accounting, taxes, whatever it might be related to, we can answer your questions directly in that Facebook group as well, which oftentimes end up being episodes to a podcast of ours too, if we get enough attention on them.
Collin 39:39
Cool. Awesome. And I'll have links to all of those in some of the resources we've talked about in the show notes so people can click right to there and in get connected and get in touch with you, Mike, again, thank you so much for sharing all this great information.
Mike 39:53
Collins Always a pleasure. Thanks for having me again.
Collin 39:56
tax time is never fun, and especially in years like 2008 It's sometimes the last thing that we're thinking about. Unfortunately, there is still work to be done in that and we don't want to miss out on the opportunity to make as many moves possible right now, to lower the taxes that we owe next year. How do you prepare for tax time, send us an email at feedback at pet sitter confessional.com. Or send us a DM on any of the social media platforms. We would love to hear from you. This is always an interesting topic as everybody has something slightly different that they're working through. Again, we want to thank our monthly Patreon supporters who allow us to do this kind of work to do these kind of interviews to bring the information that we all need and help us all grow in our understanding and grow in community. Again, you can head on over to pet sitter confessional.com forward slash support to find out more. We hope you have a wonderful rest of the week and we'll be back again next week.
