WEBINAR: Tax Minimization Techniques for Insurance Agents in the USA!

We have with us Club Capital. This is their fourth, maybe even fifth time on with us today. I love having them on. They are everything accounting and advisory when it comes to running an insurance agency. They're the largest in the country and they basically just provide a one-stop financial infrastructure that includes monthly accounting, integrated payroll, CFO services, and tax preparation. And that tax preparation piece is exactly why we brought them on today. We like to host them at the beginning of every year just to give you guys some insights on tax minimization techniques for insurance agents and special benefits that you guys have that maybe the average person doesn't have access to, like me. So we have Louisa Elsey. She's the general manager for Club Capital with us today. And then we have Devin Day, who is the director of business development. And they're going to be sharing with us some really useful tips for insurance agents. So I'm going to stop talking and I'm going to pass it over to them. I will be turning off my camera per usual just to minimize the amount of people on screen, but I will still be here to monitor the chat. Also, everyone will receive a recording of this webinar after the fact. So if you have to jump off, you technically can, but I highly recommend staying for the whole presentation. So with that, I'm going to pass it over and you guys can kick it off for us.

Awesome.

Yeah.

Thank you so much for having us again, Kelsey. It's always a pleasure and honor to jump on with you guys and provide some good value around tax season and tax minimization. This is directly up Louisa and her tax team here at Club Capital's alley. So brought on our best and brightest to kind of lead the charge through this webinar. And I'm just kind of here for riding shotgun, really.

Sounds great.

So yeah, like Evan and Kelsey mentioned, we're going to talk a lot about— we call it tax minimization, but just good tax items to keep in mind. They are tax savings, but they're also just good kind of general knowledge to have. So my name is Louisa Elsey. I am a CPA. I'm the general manager here at Club Capital. My background is all things tax and advisory. So I have, have a lot of experience in these items that we're talking about. I've been a CPA for about 10 years now, which is crazy, and really have been in every aspect from very traditional public tax to working in more boutique firm, kind of similar to Club Capital, to working inside tax departments. So I've really been able to see a little bit of everything, and I'm excited to bring that all here to Club Capital and kind of pull things together. And obviously Devin here is with me. I didn't get his his headshot up here on, on the presentation.

No worries. And to everybody, I'm the Director of Business Development. I've been with Club Capital for 4 years next month. It's been an honor and pleasure being able to work with so many different insurance agents to learn about the needs on the back end of their business and bring them all into our one-stop shop platform. As Kelsey had mentioned, we are the largest accounting and tax advisory firm in the country. And what we do is offer what most local bookkeepers or accountants typically shy away from, which is monthly financials, really the backbone of any business, the blueprint to allow a business owner to truly know what's going on at the bottom line. Because as we know, in the insurance industry, there's a lot of focus on the top line, getting our policies in force up, growing that book of business and our premiums. The reason why we do things a little bit differently is we're co-founded by an insurance agent that's got 3 office locations out of the Washington, DC area. And he realized that he was really just kind of chasing trophies and chasing awards. And he wanted to shift that focus to more so being a better CEO and CFO for his agency, starting to extract himself out of some of the day-to-day stuff, get rid of the QuickBooks account, find somebody that could be more of an advisor because as a small business owner, He has no partners and he has no board of directors. So we offer 3 core services. Uh, monthly accounting and financial reporting is what every 800+ Club Capital member does with us. You get a dedicated account manager that oversees the monthly bookkeeping and accounting process that we automate, and we publish monthly reports. So the reports are really the crucial part. Uh, an online dashboard that presents your monthly income statement, balance sheet, cash flow summary. KPI dashboards that allow you to trend your most important metrics against targets that you have for your business. And being that we're industry-focused, we've got one of the most unique tools going in our industry for insurance agents, which is our benchmarking platform. So think about wondering what other agents are investing to grow their business in their team or their marketing or their leads with different lead companies like Quote Wizard here, you're able to anonymously benchmark your financial trends monthly, quarterly, year to date with all the other agents we have on our platform. Luisa and her team do a phenomenal job bringing all of our insider knowledge on tax prep and filing to look to minimize those tax returns. But because we've got those financials available throughout the year, we do a lot of focus on end of year tax planning. One of the number one things we hear from agents is Yeah, I kind of feel like it's more reactive every year where any tax advice I get is more generalist and it's always kind of day late, dollar short. That's likely because they don't have accurate financials for a CPA like Luisa to base any guided advice on to say, here's a plan, this is what will offset that tax liability, and you got 2 or 3 months to go make these decisions for your business. And then probably our most valuable service, CFO services. Where we build out and model your budget as well as what you can expect on your bottom line, all based on the revenue targets you have for your business over the next 36 months. And we in fact become the advisor to your guys' agency CFO, which is you. We become sort of that ex facto board of directors that you don't have. And we look to model things out like hiring a $20 an hour producer, versus a $40 an hour producer? What would be the ROI point on the timeline for that decision? And when would you start to make money off of that hire? We can model out things like a new office acquisition or really anything that would impact the bottom line. And we do it, uh, as I mentioned, for over 800 agents, and we've been around for about 5 years. So we're really looking to continue to grow in the insurance space. And then also be able to analyze all that data that we take in and turn it back around to provide value in that data analysis to all of our Club Capital members.

Awesome. Thanks, Devin. And I would just echo quickly his point to that connection between monthly accounting and tax that is so critical for you as agents to understand and to be seeing how things are going throughout the year, to be locked into your financials. And trigger that, carry that into tax planning. There's only so many things you can do in April when your CPA says, here's what your tax bill is, maybe make a retirement contribution. You've got a lot more options if you're having those conversations throughout the year. And you can take our CFO tool, our forecasting tool, and play out some of those scenarios. Hey, I'm going to save taxes if I buy a vehicle, but what does that look like for my cash flow? So these 3 pieces really flow together critically. And so they come back so well and give you a lot of value and really help everything on all 3 stages work together and maximize. Awesome. So I'm going to go ahead and move forward and I'm going to go away from maximize and talk about minimizing because we're talking specifically about taxes. And certainly that is— that's the goal here. So these are a few things that as agents you have probably heard. I have certainly had many agents since I started coming to me with a lot of these buzzwords, these keywords. So I want to go into them in a little bit more detail and give you kind of the backbone to them, like what's actually going on from the tax side of things. So the first thing we wanted to touch on is the Employee Retention Tax Credit. I understand that hopefully a lot of the agents on here have already taken advantage of this. It has been around for a while, but we're still getting a lot of questions about it. We're still having a lot of agents reach out who haven't seen the benefit of this yet and still qualify. You're still able to do it. So we did want to bring it up here again. So if you have not done this yet, you can kind of take a look and be aware of it. So it's related to the initial COVID legislation way back in 2020, which either seems like yesterday or an entire lifetime ago, depending on, on what I'm looking at and how I'm feeling. And it's based on the qualified wages per your full-time employee in the quarter that you're looking at the credit. And that the maximum credit you got differed depending on the year. For a 2020 quarter, it's $5,000 for the whole year for each employee. Getting into 2021, that's where the numbers can really start to stack up because it's a maximum credit of $7,000 per quarter per employee that qualifies. I have seen these credits as small as $2,000, as large as— by the time you take all the credits you quarters you qualify for, $100,000. These are really impactful credits. So really encourage you, if you have not looked into this yet, to see if you qualify. Reach out afterwards. We want to help you get these credits if you qualify. There are two different types of eligibility depending on when your business started up. The way the legislation puts it is an established business and a startup recovery business. If you're a startup recovery business, it's because you opened doors after February 15th, 2020. You started during the pandemic. When that, when that is the case, if you started after that date and you had employees in 2021 in Q3 and Q4 and you did not gross over $1 million in 2021 in revenue, not in your net profit, in revenue, you qualify. So that is, that's pretty black and white. It's pretty straightforward. The established business gets a little bit trickier. And that's, of course, if you existed before that February 5th, 2020 date, you certainly might still qualify, but it all looks at really the impacts that COVID had on you. So you have to be able to show either a 50% decrease in the gross revenue quarter over quarter between 2019 and 2020, or a 20% decrease when you look at 2021 versus 2019. So those are the two. There's an additional potential requirement that is called a full or partial work stoppage and supply chain disruption. That likely does not apply to you as an agency. There's a very— the way the legislation is written, it just doesn't. It talks about government-required, government-mandated shutdowns, things like that. So we really don't see agents who are qualifying under that third point. But certainly the top two, which are our math that we do, we see a lot of agents qualifying there as well. We do have a more detailed blog post about this, so certainly please hop over there as well. If you want to look into it further, or like I said, please reach out directly to Devin or I. We've seen a lot of it, we've helped a lot of agents, and it's really impactful.

Yeah, I could just make a quick point on that. For all the established business owners that are here on the webinar with us, you know, that's who we field the most phone calls from, but it's the minority of the group that we're able to help, and we answer a lot of questions like, well, I know a couple of my friends that got this and they've been around forever and they're high-performing agents. Well, they probably were led astray with some bad advice from maybe their bookkeeper or their accountant or their CPA that didn't kind of triple-click into what the legislation was actually reading. Or maybe it's just completely, you know, uh, really, really liberal with the way in which they kind of interpret these things. But here at Club Capital, we want to make sure that we're putting our agents in a position where they're not going to have to back pay all of that $100,000, $200,000 credit with interest on top of it. Because the one thing I always love to remind our clients about is the IRS makes money on you guys when you make mistakes. And ultimately you are in business with your silent business partner, the IRS. And it's kind of interesting how it works where Every year they say, this is, you know, give us what you owe us. And you can ask them, well, how much is it? And they say, well, you gotta figure that out, right? So that's why it's good to have a good partner on the back end that can really guide you and make sure that this end of your business is more maybe risk averse than some of the others like investing in marketing or hiring because it can definitely catch up to you 2, 3, 4, 5 years down the road when the IRS is definitely gonna take a look at people that took a look at took advantage of this program, maybe whether it was done intentionally or not. Same goes for PPP loans, as we've already seen a lot of news articles and, you know, media about businesses that are being cracked down on having taken advantage of these COVID-related programs that the government put together.

Yeah, I think that's a great point because there are a lot of bright-line headlines trying to grab our attention, but it's important to think about the details And we've worked really hard to do that for our agents. And like those— like Devin said, those first 2 points, they're very black and white. If established businesses meet those, that's fantastic. If we get into gray area, we're going to have a conversation with you that says, you know, we really don't recommend this. We don't know what the next few years are going to look like. We don't want to put you in a hole. So that's the way we're approaching it. We're trying to be very intentional about looking out in your best interest, even if it doesn't sound like it's— even if it's not grabbing the flashy thing that's in front of us right now. Awesome. So the next thing I wanted to touch on a little bit is an S corp election, considering becoming an S corp if you are a sole prop right now. And I kind of want to start out with a quick overview of the reason people do it. What an S corp does is it's a tax election and it allows you to get the best of both worlds of being a sole prop, an LLC, and being a corporation. And the big, the big way that happens is that you go on payroll, you take what they call a reasonable wage, and you pay payroll taxes on that payroll like you would pay payroll taxes on anybody else paying you, whether it's your company or you went down the street and worked with somebody down there, they would give you a W-2, you'd pay your payroll taxes as appropriate. And then as the employer for your business side, you do the same thing. You pay the employer half of the things. What that allows you to do is opt out of the self-employment tax portion for the rest of your profits. And so when an S-corp becomes really valuable to you is when you are a profitable business and when you are profiting kind of as much or more as you'd pay yourself in payroll. That's usually the trigger I like to tell clients about because we're going to be able to say I'm going to pay myself $40,000 in wages and I'm now going to pay payroll taxes, self-employment taxes on $40,000. If I was still an LLC, a sole prop, I would be paying those same taxes on $100,000 if we're using the example in front of us. So it is very advantageous as you grow. It's also advantageous to just have that set up and ready to move forward. It's great to kind of have that. But really we look at tax savings. So you can kind of see how this example works out quickly. We have kind of the net profit of either $100,000 or $56,000, but really that $56,000 is your salary, the $100,000 less your salary and the associated payroll taxes. So your total income is very similar, but your total tax bill, even though your taxable income as a sole prop comes in lower technically because of the QBI deduction. And these are a lot of things that we don't have to go into detail here. I don't want to start talking about all the different acronyms, but the punchline at the end of the day is even though your taxable income is higher because you're only paying the self-employment tax on a much smaller portion, in this case, 40% of your total income, your tax bill is actually $6,000 lower on an S corp. So And we see this, the more you grow, the more profitable you are, the bigger that gap becomes. Because if you're profitable $150,000, then you're looking at $150,000 of self-employment taxes up the chain. So really, as you're profitable, this should be something you're thinking about talking to your tax advisor about coming, bringing to us. We do this for tons of clients and we want to make sure, again, we're looking at minimizing your tax savings or minimizing your tax, maximizing your tax savings. Saving. There are benefits that I've kind of already hit and some requirements to think about. One key thing I like to tell people is an S-corp is not a legal form of organization for your company. It is a tax election that you make. So you're not going to go to your lawyer and say, hey, I want to be an S-corp. Depending on the lawyer, the lawyer might come and say, yeah, I can help you do that. They're going to form you into an LLC or a corporation. and then they are going to file the tax form. It's a 2553, if you like numbers, that elects to be taxed as an S corp. So the S corp is, like I said, kind of the best of both worlds between an LLC and a C corporation, but it is only a tax, a tax status. So that's kind of a common misconception. That is interesting. Like I mentioned, you are required to go on payroll. The IRS requires that you pay yourself a reasonable wage. That is not a number they give a formula for, of course. So we tend to recommend roughly 30% of your overall profit, at least as a starting point. Other things I like to point to in kind of any industry at large is if you went and hired somebody to do your job, what were you going to pay them? So as you continue to grow, and maybe that 30% becomes a really big number, kind of take a step back and go, what's actually reasonable for me as the CEO of my agency? And the reason that matters is because the IRS doesn't want to see you pay yourself a dollar, pay your employment taxes on a dollar, and then have all the rest of your profit excluded from that. So there are definitely ways to take advantage of this. So it's kind of that balancing act of what's reasonable, but what's also minimizing my taxes. And then like—

Yeah, sorry, go ahead.

I was just gonna say, I've kind of We've talked about this already. As far as the biggest savings that come from this are those reducing the self-employment taxes.

Yeah, it could be an instant huge saver on tax liability for any highly profitable sole proprietors that might be on the call with us today. One of the things that we do is we advise the clients on our platform early enough in the year as we track their numbers with them and look at their profitability towards the end of Q3 and say, you know, it might be time to get those wheels rolling on incorporation. Operation. So by the start of the next year, say fast forward, hypothetically we're having this conversation at end of Q3 '23, they can make sure that everything is getting set up and operating on that S corp for kickoff for 2024. It's one thing to set up the legal entity with the IRS, and then there's all the logistical things as well, making sure that your parent company, whether you're Allstate, Farmer's, State Farm, otherwise, are paying that entity directly so you don't have a disregarded S corp entity, but then also moving payroll over, having bank accounts and credit cards switched over, employee benefits. Sounds like a lot. It can be a lot, but the juice will definitely be worth the squeeze if you're a highly profitable sole proprietor that's out there.

Absolutely. And that's exactly what my last point is getting at. It takes time. It takes there's an investment. It's investment of money to get that thing set up. It's investment of your time, and we're there to help you through it. But I'm not going to say it's like the fastest process in the world. It takes some time because of all the things Devin mentioned. That example on the last slide, $6,000 tax savings in year 1 right there, that shows you why it's worth it and why we really recommend this to our clients that it makes sense for. The next thing I wanted to touch on is having your children on your payroll. This is something that is very common with our agents. It makes a lot of sense, and the IRS has some nice tax advantages that go along with it. There are slightly different rules between an S corp and a sole prop, just be based on what additional taxes are exempt. Either way, it's a great idea. It's a great thing to do, just kind of keeping in mind. So if you are an S corp, you hire your kids, you still have to pay those payroll taxes, the FICA and the unemployment tax. If you are a sole prop, your kids are even exempt from that. So it's literally like they are completely 100% exempt from taxes. In either situation, the idea is to keep them below the threshold, the standard deduction for an individual, so they are not subject to federal income tax. And so the idea is you put your kids on payroll, you pay them for reasonable work that they do. There is not an age limit. I have seen, I have heard people bring up the age of 7. That is not in the IRS regulations. What I have seen is that the IRS has precedent where they have accepted the age of 7 in IRS cases, things like that. But they do not specify. Again, this is going to be a keyword you see. It's reasonable. You cannot pay your 2-year-old to vacuum your office because even if they're doing it, it's probably not very efficient. Things like that. Maybe you can pay your 8-year-old to vacuum your office. I don't know if my 8-year-old could or not, but I bet you I could train her up to be taking care of stuff. But one thing we see a lot is using your kids as part of your marketing campaign on your Facebook, on your social media, reaching out for the agency. And absolutely, your 2-year-old, your 6-month-old can be part of your marketing, your media, be models, quote unquote, and you can pay them for their time. So it has to be reasonable. It's a great strategy. And the way the tax comes in is you want to pay them less than whatever the current year standard deduction is. So we have the limitation of $12,000 here. That actually is going to go up a little bit. I believe 2023 is $12,600, but I didn't double-check myself before this, before this call. And what that does is makes— is allows them to be below their taxable income at the end of the year is going to be zero. So even though you paid them $12,600, standard deduction is the same, their taxable income for the year is zero. And so you've been able to set them up with an account, kind of invest in their future without them having to pay any taxes on it. Now the kicker to this, if you want to really work to have the tax minimization going through is take half of that $12,000 you paid them and funnel that into a Roth IRA for your child. A Roth IRA is the type of IRA that you pay the tax on that $6,000 this year now. And when you pull it out and when you're at retirement age, it's tax-free. They're not paying taxes this year. They're underneath the standard deduction. So you have essentially moved $6,000 that will never be taxed into that Roth IRA. So that's the second step of that if you set that up as well. To really start setting yourself, your kids up in a great way. Give them that savings account, give them that Roth IRA account, and really set that up. The overall takeaway I would give to this, and I'll say this probably with everything we talk about, is documentation. If you pay your kids $12,000 for modeling work, document what they did and when. Just like a timecard, like any other employee, you want to be able to document it. The IRS requirement is reasonable. So if the IRS were to, in the unlikely case, come do an audit and say, tell me what you paid your kid this money for, you could say, here you go. And they would review through it. So that's the idea. It's just always good to have a paper trail. And again, keeping that reasonable standard in mind. Another topic that we talk about with quite a bit with our clients, and understandably so, are vehicles and how we can take advantage of vehicles to have some really great tax deductions. So the tax law is you can deduct the whole cost of your vehicles if they are company vehicles or if they're vehicles used in the business that may be in your personal name. There are different rules around this, so it's important to know, especially as an S corp, not as much as a sole prop, but as an S corp, what entity owns your vehicle, whether it's you or your S corp. It's very common that our agents share personal and business use for the same vehicle. You can do that either way, whether your business owns it and you, you use it some for personal or vice versa. But it's very important, again, to document and have your mileage tracked because all of the deductions kind of depend on the percentage use. So if it's greater than 50% business use, you're going to get higher deductions. No matter what, we're going to look at the whole, whatever the percent is for the year to kind of apply those. There is always the mileage deduction for per mile. For 2023, it is $0.65 a mile. That changes every year. In my 20— in my 10 years, I think it's always gone up. So generally, it's increasing for inflation. But definitely want to check that each year as you're going forward. Generally, you're going to take either that standard mileage rate or actual expenses, so gas, maintenance, interest payments on your vehicle, whichever is better. So your tax advisor will be able to tell you that. That is an— that's something that we look at with every return we do. Okay, here's what our actuals are. Here's where the reimbursement comes in. Which one's better? Let's give it to them. So it's good to track both. If you know, like, my vehicle is brand new, it's got no maintenance, everything's in great shape, and that standard business, that standard deduction is pretty high at this point, that's 65.5, tracking your, you can go ahead and say, here's my mileage. But it's good to track both just to make sure that you're maximizing your deductions. The mileage log is key. I cannot stress that enough. The favorite anecdote I like to give for that is my husband drove for Uber for a few months before the pandemic. And he didn't realize his subscription ran out. So I went to do our taxes and wanted to, being me, wanted to minimize every dollar. I literally used Google Maps to track all of his, all of his trips for the second half of the year and then saved a grand total of, I think, $200 more on my taxes, which I was very proud of. So keep an eye on your mileage log in case that stops working. Our Club Capital app also has a free mileage log there. So there are a lot of different ones you can download, like MileIQ is one that have kind of a low monthly cost. Our app does also provide that for free. So whatever option you choose, just make sure to be consistent with it. The next piece that comes in with vehicles is depreciation. This is a very big hot topic, Section 179, which is an advantageous tax deduction you can take along that relates to this. You can deduct the entire cost of a business vehicle, but what the tax law requires for vehicles, along with any other assets that are longer-term assets of your building, so computers, furniture, things like that, if they're over a certain threshold, you have to deduct them, write them off on your taxes over the life of when they benefit you. The IRS has very specific rules for all of these. Vehicles are supposedly a benefit to you for 5 years. So if you don't qualify for any of the special rules that we're going to talk about, you get to write it off divided by the business portion of the vehicle divided by 5. Furniture is 5. So they all have kind of have different rules. And the idea is you bought a longer-term asset of your company. It's going to serve you for more than just this year. So the IRS doesn't want the rule that the IRS says that you can't take it all this year because you're still going to be using it in years 2 through 5. However, there is a special tax rule called Section 179 that circumvents that. Section 179 is a fantastic tax rule that allows you to write off a much larger percentage of your vehicle in that first year, up to $25,000. So you can see we kind of have an example here that breaks out the different savings based on what arrangement you have with the vehicle, what type of vehicle. So any vehicle that is over 6,000 pounds qualifies for the full Section 179 deduction up to the $25,000. A vehicle that is under $6,000 does not qualify. So that's one thing to keep in mind— or 6,000 pounds, I apologize. And so you can kind of see how these savings break down. That Section 179 is really, really useful. I hear agents talk about it all the time. I see agents take advantage of it all the time, which is fantastic. A couple of cautions I want to throw out there related to this that I actually didn't put on the slide, but we see quite a bit. The first piece to this is if you are an S corp, To take advantage of the Section 179 deduction, the vehicle has to be in your business name. If you're a sole prop, that doesn't apply. But if you are an S corp, the vehicle has to be in your business name to qualify for the accelerated write-off. If it is in your personal name, there are still deductions available. We can still get you some write-offs so that— don't think that you're completely out of luck if that's the case. But especially for this 179, the business name is really important for an S-Corp. The second piece that I want to point out, because I've seen this honestly in the last month multiple times come up, and I've seen it before as well, the Section 179 allows you to take this great write-off in the first year, writing off $25,000. It is intended to give you a benefit and is intended for vehicles that you're going to hold on to. If you trade in a vehicle, if you sell a vehicle because you're ready to upgrade, you have to look at what you've already deducted off that vehicle in previous years. And sometimes you'll get hit with a gain, a big actually income hit in future years if you trade in the vehicle. So one thing we run into sometimes with, with, with agents is they bought a great vehicle last year. They took the 179. That was awesome. I want to do it again this year. So they trade in the one they took— they got it on last year. They go buy a new one this year, and they're going to go ahead and keep doing it. Really, it's going to offset itself in the benefit because what's going to happen is you're going to trade in the first vehicle, and it's probably worth quite a bit yet. So let's say your trade-in value was still $40,000 on that vehicle. What the IRS is going to look at is going to say, okay, your vehicle you got $40,000 for, you already took $25,000 of expense on it last year. So now you have to pay income on that $25,000 again this year. So really, really encourage you before you make purchases or trade-ins to talk with your tax advisor so they can look at what the impact not only of the new vehicle you're going to buy is, but also anything that you're trading in that you've already taken this benefit for so that they can kind of advise you and let you know what things they're going to look at, project out the tax. Tax planning. Another plug for during-the-year tax planning. It is so important. And then just kind of a higher level. So those are the specifics I wanted to touch on, but kind of a higher level. I'm going to repeat a little bit what Devin had talked about before, what I talked about. It is so important for you as the owner, as the agent, to be thinking about your financials all year long. It brings more value to you in our experience because you feel confident in your numbers. You feel confident on where you're going to move things to. It brings more flexibility to your taxes because you're able to see in real time what the year is looking like. You're able to come to your tax planning meeting with up-to-date financials for your agency as long as— as well as other things that happened in your life. As either an S corp or a sole prop, your taxes are determined not only by what your agency does, they're determined by what your whole life is doing. If you sold a rental property, that matters. If you have kids who qualify for the child tax credit, that matters. If you paid childcare, all of that, either way your entity is structured, it all flows to your personal return and it all works together to give us your ultimate ultimate bottom line tax number. So being able to have all of the pieces in front of you during the year helps you make more informed decisions. It helps you talk to your advisors, whether it's your account manager at Club Capital or your CPA, um, down the block, um, with real accurate information during the year so that you can make decisions. Like I mentioned before, there are some tax planning things that are still available up until April 15th when you file, or up until October 15th if you extend. But there are a lot more that aren't, whether it's spending, timing of spending, whether it's charitable deductions. Now that the standard deduction has gone a lot higher, this applies to everyone, obviously not agents. But one of the big strategies for charitable deductions is to lump them now so we can try to max take the standard deduction one year, itemize the next year, and get over that threshold. All of those things have to happen by December 31st. You can't retroactively do them. So really just encouraging you on that end from the tax side, but also from the business side to have financials that are up to date for you throughout the whole year, because it's going to put a lot of power into your hands to make decisions.

And I think one thing to add to Luisa is if we think of financials as a business toolset, something where an owner of a business can gain knowledge about the performance of their agency and then base future decisions for the agency based on, you know, the growth that they want to see in top-line revenue or the generation of more profitability by keeping tighter to those budget margins that they put together in fall planning every year. The more detailed the financials that they have, the better. The more detailed to the agency, even better then. So the frequency is everything as well. You know, if we want to get ahead of things from a tax minimization standpoint, then we need up-to-date financials. And a lot of, you know, other— I guess you could call them competitors of ours, which are typically just, you know, the local bookkeeper in town or maybe the accountant in town. They typically do the books maybe throughout the year, but they're not reconciling those books to put together financials until the buck stops with tax season. And so the frequency coming monthly for all of our Club Capital members allows people to have a more in-tune, you know, insight into what is happening in my business, not just top-line metrics, but then also, you know, down to the bottom line. What are the decisions that I'm making that are showing good ROI? Where might I be able to add another team member in the future or invest a little bit more in my internet leads? And that is solely the purpose of why Club Capital was co-founded by an insurance agent, because he was lacking that financial clarity. And I think what he would like to say is he was making a lot of gut decisions, which I think in the accounting world means you're giving up thinking. We're doing back of napkin planning for the business, and this will change the game for the agency and provide the clarity that's not being had. If we just have books being done and the books being reconciled to put the numbers together for taxes on an annual basis, just to rearview mirror, looking back at the entire financial picture of 2022, for example.

And my goal as a CPA, both at Club Capital and every job I've had previously, is I don't want people to be surprised when their taxes come due because that means we haven't been talking about it all year. We haven't had that full year relationship. I am a huge proponent of spreading the tax cycle out over the whole year. It shouldn't be condensed into 2.5 months when all our stuff comes in in January. We throw in our financials by maybe mid-March and we get our returns in April. That, that doesn't allow us as humans, us as individuals to plan well. Yeah, maybe that refund's nice when it shows up, but wouldn't it have been nice to pay less estimated taxes and just have money during the year and vice versa? One of the biggest things we see is agents are really successful. They're really excited. They're making a lot of money. They're not thinking about taxes. And suddenly the tax bill comes due because they were profitable. They had a fantastic year. And they don't have the cash to pay it because they weren't thinking about it. They went and invested in their business or invested in themselves because it's their money and their life, and that's fantastic. But because they weren't locked in, that can make for some— they went from being in this fantastic position to being in a really hard position because they didn't save up for taxes. They weren't thinking about it. So my goal through all of this is no surprises in April.

Yeah. Or, or when that mystery tax bill is upon them, you know, we're using our annual bonuses to pay that off when we had plans for that otherwise. Um, yeah, and that, that financial clarity piece really helps with kind of the proactive planning. And I think one of the reasons that I've kind of gathered, having the opportunity of talking with thousands of agents over the past 4 years, a lot of the agents in, in the space were a lot of times some of the best producers at a different agent's office. And so this might have been their first venture into being a business owner, going from a paycheck on a W-2 where you more or less just set your withholdings when you get that job and then the system's paying your taxes for you and you work them things out in TurboTax or with your local accountant and maybe you owe a couple hundred dollars, you get a couple hundred dollars back. And for some, you know, folks going into business for the first time, this might be something that's a little bit overhead. The guidance isn't being provided. Maybe whoever they're working with, local bookkeeper or accountant, just assumes that they have that knowledge already, that, hey, you need to know what kind of profit you generate on a monthly basis and you should set aside a 20% margin of that profit so you can make a quarterly tax payment. Otherwise, when Uncle Sam sticks his hand out at the end of the year, we got to pay the entire bill for that income that we generated. And so, you know, more than just getting the numbers to our Club Capital members, it's, it's showing the value in those financial numbers and where we can just be, you know, more efficient and effective business owners to continue to grow, but do it efficiently and make sure that we're not getting into those holes, I think you called them earlier, where it's like, man, we got to dig out of this tax year now. Where are we coming up?

And that just becomes a recurring cycle. You know, I use this year's bonus to pay it off and now I got to recover from that. And I don't— I'm not able to set money aside this year. So next year the same thing is going to happen. Yeah, proactive is the word of the day.

And how many more slides do we have?

That's the last one. Oh, nope. There's, there's one more here. This is just a quick one that we wanted to mention. A lot of our agents own their own buildings. They have a separate LLC. They own their building. They rent it through their agency. Maybe they rent to other occupants. We really encourage you to do the same thing as far as financials. Have separate financials. That is a separate business from your agency. So that's the first thing that's really important. Your agency can absolutely pay that separate entity rents and should if you're in the building. So that's a great tax benefit. Write-off tool as well. But we really encourage you to have separate financials for those, making sure your bank account is separate, your credit cards are separate, all for that rental LLC. You can track those financials yourself. They're usually pretty straightforward. Or there are some accounting tools like the CESA that we have here to help you do that at the end of the year, because that's something you're also going to have to give your accountant. So just wanted to throw this in here because we know that applies to a lot of our agents. This is a great investment opportunity that they take advantage of. Yeah, and that is the end here. I talk faster than probably anybody else out there, so I'm always ahead on my, my presentations here.

Awesome, thanks guys. Um, the participants who are still with us, uh, if you have any questions that you didn't think to ask during the presentation, now is a great time. Feel free to put them into the chat or the Q&A. We did have a question come in that Chad is asking, what if you have never taken the deduction for your vehicle? Can you start this year, and how do you calculate the value?

That's a great question. You absolutely can, especially for the two-piece. So we have the depreciation portion, which is the vehicle itself, and then the vehicle expenses. It's really simple to come in and go ahead and take the— the write-off for the actual expenses or the mileage reimbursement. All you have to do is track your mileage or track your actual expenses. And the vehicle, we would do the same thing. You would let your tax preparer know, hey, I've got this vehicle. I haven't been tracking it historically. I started using it X date. Usually what happens is we can't take the accelerated depreciation, that Section 179, because the vehicle has to be new when you do that. But we can make sure that we're getting you the write-off starting in the current year. So definitely still available to you to— and definitely go ahead and do it. Don't say, oh shoot, I missed, I missed the boat on this one. Get it in there. Get every write-off you can related to it. Awesome.

Thank you for that. Anyone else have any other questions? Do we have to complete the mileage log all year, every year?

Yes. To the best of your ability. If you missed it last year, I always tell clients, I don't want you to miss out on the write-off because you weren't tracking it as closely as you should have. So if you need to make an estimate for the first year you're doing it, go ahead and do that. Make sure it's as good of an estimate as you can, as reasonable as an estimate. But then once you start going forward, yes, please make sure you're doing it every year, all year. Really recommend one of those apps for that reason. There's actually a box on the tax return that you check that says, I have a mileage log, I have a written mileage log. The IRS is very intentional about that. So it is important to, as soon as you're aware of it, start tracking that in real time as much as you're able to.

Perfect. Mileage traveling from home to office and back isn't credited, correct?

That's correct. Your commute does not count. Cool.

Any other questions, guys? If any questions come up after the fact, is there a place that the attendees can reach out?

Yeah, absolutely. So our contact info is here. They can reach out directly. That's going to go to Devin, and Devin will, will slide it over to me as needed. So please definitely reach out to us. I am happy to talk. I know Devin loves to connect with agents all over the place, so please please reach out to us.

Yeah, and I know it's not on the slide, but I'll just give my personal email as well. It's just first name, Devin, Devin@club.capital. So would love to be able to connect with everyone here today and answer questions, see how we can be a resource, knowledge base for your agency, as well as possibly a partnership. If it makes sense for you, we, we'd love to work with you and add you to our growing community.

Yeah, I love it.

Agents that I like to do the boring stuff. I'm really good at it.

I enjoy it.

And I want them to go out and do the stuff that they enjoy doing that I could never do. I can never do Devin's job. I'm not a salesperson. I am a numbers girl. Most people aren't, at least to this degree. Let me do that boring stuff for you. Let our team do that. Your time value of money is far exceeded going out and working for your business and handing the numbers off to someone. Yeah, for sure.

Another question came in about traveling expenses. What about traveling between offices, like home versus another location?

Yeah, so traveling between locations definitely applies. What I like to say is that first trip when you leave the house doesn't count, and that last trip when you come home doesn't count. Going out to lunch doesn't count either. But if you're traveling around during the day to different locations, that absolutely applies. It does also qualify, and the tax rules are a little bit, I would say, gray on this. So I've seen people come both directions, but it does also qualify if you have a true established home office and then you are traveling to like a MOA that's, you know, quite a few miles away. That also would count. It doesn't count if you have an office that you work from home, you know, once in a while. I've got it here. You know, I like to stay home and work from home a couple days a week, but then I drive to the office the other days. That, that is where that gray area becomes pretty black and white. But if you have a true established home office and you're traveling to a farther office away, that would qualify. And certainly any travel between offices, from office to client to do demos to a client lunch, anything like that would qualify. Awesome.

Perfect. Well, I'll just say, I mean, every year we have you guys on, I always learn something new. You guys just have so much information. If I was an insurance agent, which I'm not, but if I was, I would definitely want to work with a financial institution that specifically works with insurance agents because obviously there's a lot of information out there and it can be really hard to kind of uncover all that on your own. Donna has a question regarding the S corp. Essentially, we are registering a new business as an LLC or corporation, and then the tax preference is the 2533 form, correct?

Yes, absolutely. Oh, Devin's going to—

Yeah. One thing I'll point out here on this topic of how to form the S corp, if you are a State Farm agent out there, be cognizant of the fact that State Farm doesn't recognize or contract to LLCs, to our insider knowledge, which means that if you were to go from a sole proprietorship EIN with the IRS, setting up an LLC and electing that status by filing the Form 2553, State Farm's still going to pay you independently. And then essentially you're going to be funding your business independently to then, you know, manage all of your expenses from team to marketing, so on and so forth. As you go to then file your taxes, not like this is the number one thing on their big board to come ping people for, for audits, but you are creating a scenario in which that's a disregarded entity in the eyes of the IRS, and therefore you can be audited and have to backpay all that self-employment tax that roughly starts at $6,000 a year, as Louisa pointed out in her calculation. But let's say you're even more profitable than that. So now it could be 50, 60, 70. And because there's been a precedent set in the past now, because you've done something you should have looked into, there's penalties on top of that. And I think for our State Farm agents, you know, this is something we always advise them not to do. But there have been agents that have come to us already operating as LLCs because the, the local bookkeeper, accountant, or whoever that had advised them wasn't aware of these kind of State Farm-specific entity rules, and they're in a little bit of a jam now. Not that they're getting audited every year, but if we can provide that sort of advice and have that underlying knowledge of your business as an insurance agent, as a State Farm agent, we definitely want to be the people advise you that, hey, just go directly into the S corp. You'll get the same advantages, not to my knowledge, back me on that, Louisa. But yeah, you're going to be compliant with both the IRS as well as your parent company.

So yeah, so the punchline with that, and again, like Devin said, this is specific to State Farm from, from what I'm aware, from what we're aware of, um, is start off as an S corp even though maybe the profitability trigger is not there. So maybe, you know, in that first year we're not at that point where I'm going to see $6,000 in tax savings. It's kind of going to break even. My company, my agency isn't out there profiting $100,000 yet this year. It's still worth starting off as that S corp to have all those ducks in a row like Devin mentioned, and then continue to see increased tax savings every year as your company grows.

Yeah, certainly. And, you know, Luis, I know you're a little bit newer to the team, um, came on board after State Farm did away with their temporary contracts, but they're, they're probably a fair amount of State Farm agents that opened up as sole props because they were instructed by State Farm to operate as nothing else. So then becomes the time where, hey, I'm profitable now, what can I do to save more on my taxes? I think even then, still, the way in which they're putting people right on permanent contracts today without that temporary 13-month period, there's still a little bit of a clause in there that might say operate as a sole proprietor for 30 days. So my biggest advice piece is check in with your compliance officer at your parent company when looking to like form different entities for your business and just make sure that there's not going to be any issues for them paying the business for all the premium that you guys are generating that you'll see commissions in the form of revenue on.

Awesome.

And also, you know, if you need help kind of navigating those—

come ask us—

challenging waters of incorporation, we can certainly help. So just give us a holler.

For sure. I highly recommend. Any agent that I know who uses Club Capital is like, oh my God, this was like the best decision I've made for my business. So can't recommend it enough. Um, if there aren't any more questions today, we will wrap up 6 minutes early. Uh, thank you for everyone who stuck out till the end. Um, I will be sending out the recordings here later this afternoon, if not early tomorrow morning. Um, But I'll usually get it out by the afternoon.

Can I just do a last-minute shameless plug as well? Yeah, my Venmo— no, I'm kidding. Um, our website has a blog with tons of, tons of accounting and financial and tax-related advice geared towards insurance agents. Um, we've got a webinar resource page there for some of the stuff that we've done in the past. Obviously, we jump on webinars like this and repost them thanks to Kelsey. Kick them over to us afterwards. But just maybe some things in there that might catch your interest. We also have a leadership podcast that's hosted by an insurance agent that's got probably close to 250 episodes and some awesome guests on there. One of my favorites was— I forget the gentleman's name, but he's the vice president of performance of Chick-fil-A. If you've ever gone to Chick-fil-A, you know that they can perform probably better than any other fast food joint out there. So that was a really interesting one to be able to kind of take some of what that large corporation does and see what we can do to apply that to small businesses like insurance agents. So just some additional resources that Club Capital invests our blood, sweat, and tears in to make sure that the agents that we're working with specifically can go someplace to find that where a lot of times bookkeepers, accountants, they're just They're doing what they're doing. They're doing our numbers, but we want to make sure that we can really prop our agents up with a lot of resources to learn and grow and get better and ultimately get what they want from their businesses, which is probably more time on a beach and more money in their pocket.

Absolutely. That sounds nice. I'd like to do that.

Yeah, I could use some beach time. What?

So you want to open an agency?

Yeah, thinking about it. I'm going to open an agency, pop out some kids, put them straight to work.

There you go. I know someone that can get us leads too.

Oh, do you? Who? Oh, that'd be awesome.

I can take care of the books too.

I'll hit you up if that ever happens.

All right, we'll talk.

All right, well, thank you guys so much for being here. I'll include, um, the links to the blog and podcast and everything in the follow-up email as well, including Devin's contact information. And all that good stuff. So, uh, thank you guys for being here. Thank you, Louisa and Devin, for joining us. Always a pleasure having you on, and hopefully we'll have you on again in the future.

Likewise.

Awesome.

Everyone have a great rest of your day.

You too.

Bye-bye.