How To Save on Taxes as a Small Business Owner with John Briggs

You're listening to the PT Profit podcast, episode number 86. Today I'm sitting down with John Briggs and we're discussing all things taxes. Are you ready? Let's get started. Hi, I'm Beverly Simpson, former fitness manager turned online personal training business owner. And this podcast is where smart fitness professionals, including trainers and clinicians, discover how to increase client performance in movement, package and position their products and services, and get out of their own way so that they can increase their revenue to live a life that they love without sleazy sales. Welcome to the PT Profit Podcast. What's up, coach? Thank you so much for pushing play on another episode of the PT Profit Podcast. I'm your host, Beverly Simpson, and we have another awesome, awesome episode in store for you. So I'm sitting down with John Briggs, who is the founder of Insight Tax and Accounting and the author of Profit first for Micro Gyms. Now we talk a lot about what his accounting firm does. He gives us some insight in, into some ways that we could potentially be missing the mark when it comes to setting up our businesses for financial health and so some things that we can do for tax purposes. Now, it would be remiss for me not to mention that it's important when you're listening to this podcast episode that it is for educational purposes only and that of course everything is going to vary. And I'm going to go ahead and encourage you that if you have any specific questions to either reach out to your cpa, reach out to your lawyer, depending on the state, and if you don't have that set up, then definitely, and you resonate with this podcast, then definitely connect with John himself. We just want to make sure we do mention this disclaimer inside of the podcast, but I'm just going to go ahead and say it again and lead with the disclaimer and just remind you to always consult with your own CPA that's in your corner. So now, just for some more context, his accounting firm has more gym clients than any other firm in the country, as well as thousands of other client driven businesses. And he is also an owner of a gym, GSL Fitness. And through all of this, he has learned that achieving a highly profitable business can be overwhelming, particularly with all the barriers and unknowns that new owners are forced to deal with. Entrepreneurs can quickly become stressed and burnt out and often sadly give up on a mission that they set out for. In much the same way that the body needs blood to survive, a business needs cash, the lifeblood of the business, to stay healthy and to grow More resilient. So to this end, John is a man on a mission to give entrepreneurs an actual work life balance so they don't get burned out. And he helps them increase their cash immediately so they can have confidence in their choices and become financially resilient. And he talks the walk by battling against the traditional CPA culture of overwork, underpaid, pay your dues and suffer while you're at it mentally. But by providing his team a healthy work life balance, even during busy tax seasons. This is such a great episode that I cannot wait for you to dive into. So without further ado, let's go ahead and roll that interview. What's up, John? Thank you so much for hanging out with me today. How are you?

I'm good. Thanks for having me.

Oh, it's my pleasure. I'm really excited to dive in today's conversation. So for those of you never heard of you, I'd love for you to just share a little bit about who you are, who you serve and how you got there.

So, John Briggs. I'm the owner of a accounting firm, Insights Tax and Accounting. A unique spelling because it's too. It's the same word used to incite a riot, which really means cause to action. Most accountants aren't proactive enough and they just kind of sit back and don't do any good. And we feel like, yeah, let's be proactive. So cause to action is really big for us. I have a team of about 30 team members. We're in a few states. We have some team in North Carolina, one in Florida, one in Texas. We just added California. Most are in Utah. And our primary focus, we believe that the world's economy is actually on the back of small business owners and they don't get enough attention. The media wants to talk about the sexy Fortune 100 companies who are selling for billions of dollars and putting people on the moon. And, you know, these household brand names and great, they employ a lot of people, but collectively, small business, they help a lot more people.

Say. It is so true. And I think that one of the things that people forget is that those big companies have paid for those spots for those PR highlights and people miss that. So I'm sorry.

Yeah. And so we, we think the world is going to be a better place. The more successful small business owners are. We serve all sorts of clients. I did write a book on cash flow called Profit first for Micro Gyms and that is geared towards fitness professionals. It doesn't matter whether they're. The book is called For Micro gyms. But the truth is it can apply to a boot camp studio or physical therapy or training. It's kind of the same model because it's service based and you're helping people improve their health, which improves humanity. So we do a lot of work with them, but I mean, again, ultimately, anything that we can do to help them grow their wealth. And I say that in a way, I don't want people to confuse it. We're not financial planners per se. We're not helping you select which investments your 401k plan should have. But wealth is an important component of being a business owner. And I think we have a responsibility to grow that so that we can further help people because we've identified ourselves as someone capable of raising people up. And the way to raise more people up is through creating wealth so that you can then use it to then help other people. And so tax savings and cash flow management are two of the main ways we help people grow their wealth. But that's kind of us in a nutshell.

Oh, I love it. There's so many amazing things that we're going to dive into. I'm really excited for this episode so, because I feel like one of the things that is really taboo, especially, especially for a business owner starting out is having conversations around money and their money as a business. And the idea of, you know, we see so many marketers out there, well, meaning, you know, throwing smoke and mirrors about how much revenue their company is generating but not really articulating their profit margin, which is different. So I love for you to talk a little bit about your experience and, you know, you know, I want you to pretend that you're sitting down with someone that is brand new. What are some of the first things that we should be?

Well, boy, do I have a story for you. So what you said, oh, my gosh, it really gets me going. There's a very popular list called the Inc. 500 and people are now familiar with it, but I would say 15 years ago they were, I mean, they were nothing, right? And they've now grown to be this household thing where businesses are pushing, oh, I want to be on the Inc. 500 list or the Inc 100. And what that means is you're one of the fastest growing companies and the metric that they use to get on the list is revenue. They look at your revenue and they look at what percentage did you grow? I worked for a company that was, it was like 115th on the Inc 500 list and then got, I think it was like 76. The year it was 76 on the Inc. 500 list. So 76th fastest growing company according to their list in the US declared bankruptcy. 76th fastest growing company declared bankruptcy. Out of business, no longer able to serve people. The most important thing that we have to realize as business owners is it isn't about the top line. And I get that it's so sexy and it's easy to focus on that. But what are you taking? Home free cash flow. Like what do you have after all your expenses are done? That is what allows you to stay in business. That is what allows you to grow. That is what allows you to serve more people. And we have to get away from this sole focus of top line revenue. It's gotta be about the health of the company, not just, you know, basically the calories coming in. Like are we burning enough or burning too much type of thing.

Yeah. So can you share with us a little bit about how you determine the health of a, of a business? Like what is it? You know, what are some of the metrics that we want to be measuring and on figuring out when we are building?

So with the profit first system, which is what we're following here now again, I wrote the book Profit first for microgems, those who are interested. Mike Michalowicz wrote the original Profit first book and it is written to all business owners. And these other books that someone like I have written are definitely specific to the niche that's listed on the book title. But so that's the system we follow. And what we're interested in is what too many business owners don't pay themselves for one. And they fall on the sword and they hope there's money left over after all their expenses that there's something to pay themselves with out of that money they pay themselves with. They also need to save money for taxes. That's usually how things work. With the profit for system. We're saying, look, let's take care of ourselves first because we are the most important person in our business. So some of the things that we look at as far as making sure how healthy is the business, what is the percentage of revenue going towards owner's pay? What is the percentage the business, the business, not the person. What's the business saving or the income tax burden that the owner will have? So if I make 50 grand, am I taking money out of the 50 grand to pay my income tax? Or since the business is generating the tax burden, let me use my full 50 grand for my life? Let's have the business save the tax Burden, and they can give that to me when I'm ready to pay my taxes. So that's kind of what we're saying there. And then profit distributions. So if I work in the business, that's my owner's pay. But you're also taking risk as an owner, which your other team members aren't. That risk deserves a reward, which is profit distributions. And so once a quarter, the amount of money, like how much is the owner distributing to themselves as a celebration because there's profit to actually be distributed. Those are the three main ones that we look at when it comes to how healthy is the business. And usually when we do this, we call it a cash flow analysis. And we'll just go through the last 12 months of the businesses scenario. So this is what all the everyone listening to us can do. Go through your last 12 months of statements or your last calendar year, whatever you want to work. Usually the last 12 months gives you a better accurate picture, especially with the coronavirus time period being in last year. And just figure out, okay, how much did I pay myself? So that's going to be in the form if you have a W2, yes. If you took distributions, yes. But don't overlook some of the expenses that you might have taken that we can write off, but really are for our benefit. Like my cell phone if I take the kids to Disneyland. You better believe I'm figuring out a way to write that off as a business trip. But it's really personal, right? So don't forget to add those back in to see how much did I actually pay myself for owner's pay? Did I take any profit distributions? Don't feel bad. Most business owners who aren't familiar with this methodology or following it have not done that. So the answer could be zero, but you still want to write it down. And then how much did the business cover for your income tax? And again, most people, the first year, they're going to put zero because they had to take out of their owners pay the amount. So now we have those amounts. The rest is operating expense. Everything that's left is basically what you spend to operate your business. And then what you do is you take those numbers and divide it by your income number. So now you have a percentage. So now I can see, okay, If I made $300,000 last year, looks like I paid 15% of that in owner's pay, 0% in profit, 0% of tax, and I have, you know, 85% in operating expenses. Now I have a clear picture of where I was. Right? So before after pictures used to be popular until Facebook said they're too deceiving. And now people get around it by taking story pictures of it. It's just so ridiculous. Anyways, so that was the before picture. And then on the after picture there's a chart. You can look it up, profit first, or you can go to our website and find the one for fitness professionals. It's a slightly different chart that gives us the after picture of what things can look like. So that first step is cash flow analysis. We look at what's the health with those different things. Owners pay profit, tax, operating expenses compared to where financially fit companies are. And then we say, great, now let's create our plan in every case. We've been doing this for a long time. We've worked with a lot of companies. No one ever jumps straight to the numbers that are suggested on the chart because you're at 85% or 90% operating expenses, which is too high. But that's fine. Let's just create a step that you know you can handle. It's pretty easy in the beginning if you haven't done this before, to find 10% of expenses you can cut. So that's usually what we recommend to clients. Find 10% and cut it immediately. And then from there maybe you're looking at 2 to 3% a quarter. Like, how can we keep cutting back expenses? Because as you cut back expenses now I can increase how much I pay myself as an owner now I can increase taking a profit distribution. I'm going to be more profitable. So now I have cash to set aside for taxes. But that's ultimately the way the really the nuts and bolts of how we analyze that.

So what are some of the expenses that people that you know, Immediate expenses. You see people that they need to cut in order to mitigate their expenses.

You'd be surprised. There's not a specific one that ever stands out. It's so unique to each person. All I know. Look, this is the way to find out though we do this with our profit first clients. One of the meetings we have is always dedicated to analyzing expenses. And so you don't feel like you're eating an elephant. Just look at the last 30 days. And if you have an accounting system like a QuickBooks, it's really easy to pull up. You're going to be looking for a profit and loss detailed statement where it lists out all the transactions. Or you can just open up your bank account that also works every time we've done it. Both things are usually said for sure. One of these comments are made by the owner. What the hell is that? Like, they don't even know what it is. And two, I thought I canceled that. Yeah, always they say that because as owners, we just don't take the time, right? We're so focused on the sexy part of business. And this is like I tell people, especially since we're in the fitness world, it works. The actual part, the activity of working out itself is not sexy. Like, we look disgusting when we work out. We're sweating. We make weird faces, we make weird sounds. Depending on the movement, you might let out a fart or something. Like, there's nothing sexy about it, right? But you do it. You put in the work because you know you will look sexy afterwards. This accounting part, that's like, you're putting in the work so that your business is sexy and you can do the sexy things. Take the time to sit down and do this. I promise you're gonna find something that you're like, yeah, I can cut that out. Because we just. Once we commit to the expense and we move on to the next thing and the next revenue thing or whatever the biggest fire is, we forget we took on that expense. Then 12 months or five years pass, it's like, why am I paying this $12 a month? What is this even doing? I don't even know. And usually that means that expense is not contributing to you generating revenue or you serving your clients. So we recommend doing the work, and usually then they find those expenses. But ultimately, if I could give a general thing of what stands out, there's often duplication. People will have a couple services that effectively do the same thing, and by analyzing expenses, you realize, oh, I'm not actually using that service anymore. This service is doing the same thing for me.

That's good. That's good. I know. I'm going through mine, and I'm like, yeah, I literally just did this as we go into Q3. So I'm like, yeah, that's exactly what happened to me. I had. I had. I thought I canceled this. I had duplication. So that's definitely something that happened to me. But, you know, just for some baseline metrics for us, and I'm such a what gets measured, gets managed type of person. So, you know, I'm curious if, you know, you said 85% of operations expensive is too high, what are some of the percentage ranges that you're really going for in terms of your operations and profit?

And, yeah, it definitely does relate to the size of your business. And usually that's because unlike the 0 to 250 or $300,000 range, usually the owner's doing a decent amount of work themselves. They haven't really developed a team yet. And then from like 300 to maybe 650, maybe have a few team members and then past that, you know, past a million, five million, whatever you have team that are helping generate. So I definitely want to give that. As you want to take into consideration the size of your business and how much work you're actually doing, the less amount of involvement you have with the business, the higher your operating expenses are going to be. But on like a 250 round, if someone's a solopreneur and they're kind of generating their own revenue, you know, your owner's pay probably is going to be between 35 and 50%. Which means from a tax standpoint probably most of our clients are about 7% of their revenue they need to set aside for tax profit distributions. We let, I mean we definitely customize this or pick a number based on where the client's at in their lifestyle and things like that. But you know, 3 to 5%. So then the difference would be operating expenses. So is that 50? So about 40% in that case would be operating expenses. On. If you're a solopreneur, as you're growing and developing team again, it's going to fluctuate, it's just going to go higher. You're going to take your owner percent, your owner's pay percentage is going to go down. But it's a percentage. So usually the take home pay increases, the actual dollar amount increases. We're just lowering the amount because you have other team now that's helping you and they're going to be under operating expenses. So I mean, so I personally pay 22% in owner's pay and my operating expenses is like 42% I think.

And the other thing too to remember as you're growing because I know like a lot of people, you know, especially when we get to that six figure and two, you know that 100 to 256 figure entrepreneur.

Right.

Is that there becomes tipping point of like wait, I need, I know that in order to get to the next level I need to invest more into my operations and like building of building team. Which can be scary.

Yeah.

Because they're just seeing the investment. However, remember that that team member is going to bring back a 25% ROI. That they're going to grow it so that your profit margins and your operations will of course, sure. They're going to get higher, but so is your profit.

Right. And I have a great solution for that too. Because how often do I see business owners say like, oh, I think I need someone because I'm burnt out. How do I know if I can even afford somebody? That comes up all the time. So here's how you do it. You create another bank account. And I guess I totally overlooked that whole part of the system. Owner's pay, profit tax. Those are all separate bank accounts. And we're literally saying separate the money and put them into those accounts so that they're not in your operating expense account. So now we're saying have a future employee bank account and start paying that account as if you hired the person. So if you're like, oh, this person's gonna cost me two grand a month, start putting $2,000 a month into that account. If you're able to cover your operating expenses and you're still putting $2,000 into that account after three months. Even after two months, you know you can afford to pay that person. And guess what? When you pay, when you hire them, you already have two to three months saved up in case like something goes crazy in your business. Like, you already have a couple months set aside to pay them.

Yeah, that's good. It's really good. Okay, so one of the things too that I want to talk about, since you are a tax professional and for my business owners here, and you did mention it. So I am going to get back to this question of like, right, right offs. Okay, that's one. But before we get there, I want to talk a little bit about like the different types of businesses that are available to us and when we should be upgrading. Right. And what I mean by that is like, we're not. Upgrading is the wrong word. But you know, you're, you're a sole proprietor, you have the llc, you have the S Corp. Like, where should and when should we be thinking about that?

Great. For service based businesses, I will just straight up tell you, you likely are going to end up needing an S corporation. Now, obviously you want to talk with a tax professional about your specific scenario, but I would say 95% of the time, our clients who are service based have an S corporation in their tax structure. Here's why. If you're a solopreneur, I have, If I'm an LLC and I own it 100%, both of those scenarios are taxed the exact same way by the irs. And the way they tax it is they take your taxable income, they charge you income tax, but they also charge you self employment tax, which currently is 15.3%. And honestly with the current administration, I will not be surprised if that increases over the next four years. Yeah, it's killer. That's 15.3% on top of your income tax rate. We've had clients who only made $30,000 basically pay 40% in tax because they had the wrong structure before they met us. It's like, it's sickening. So we don't like either of those structures ever. Ever. For your service based business, the single member LLC is super cool when it comes to a couple advanced tax strategies like paying your kids and medical reimbursement stuff. But anyways that it's a little bit advanced. So let's say you have a business partner. So you have an LLC owned by two people. If you're actively working in the business, you're getting taxed the same way I just described. 15.3% self employment tax on top of your income tax. It's no bueno. That's why the S Corp is so great, is because you can limit how much of your income that's subject to this 15.3% income tax. So as an S corporation, like on $100,000, if I run, if that's taxable income and that's not, in an s Corporation, that's $15,300 in self employment tax paid. If I run it through an S Corp, theoretically I have paid no income tax on that taxable income. But here's the kicker. The IRS knows this and so they're like, hold on, you can't get out of it completely. So the S corporation does require that if you're an owner that you put yourself on a W2 salary. It's required if you own an S Corp and you work in it. Now for that reason, many people automatically hear that and they say, sounds too complicated. I'm out. I don't, I don't want to do that. I don't know what that means. Look, a competent CPA is going to be able to handle all of that for you and save you. Even after you pay them to do it, you're still going to save way more in taxes than what you pay someone to just take care of it for you.

But what about now? If you do that though, aren't you also then looking at payroll taxes?

You are, which is. That's where that. Yes. But you're not paying yourself 100% of your net income in payroll. In payroll. So you're not paying payroll tax on all of it. So on $100,000, we would say you probably need a $25,000 wage. Take the other $75,000 as a distribution. So you've just saved that self employment tax on $75,000. Like on 100 grand. It's about $11,000 in tax savings just by having the S corporation. Not to mention the fact that you've lowered your risk of audit because the S corporation goes to a separate department than your personal return. But if I'm a sole proprietor or single member llc, that business activity gets filed on my personal tax return. So it all goes to the same place. So if they audit my personal return, they're automatically going to look at all my business expenses. Yeah. So we like S corporations and I get that they're a little more complicated, but the tax savings are well worth it.

Okay, 11,000 does sound well worth it to me. Go ahead and say that. Okay, so now let's. Can we talk a little bit about the infamous, you know, tax write offs? Right? Yeah. Is considered a write off. What is not considered a write off and how do you run that fine line between what is personal use and what is business use?

Yeah, I, I have to start with this. If you ask once, if you ask 10 CPAs the same question, you'll get 15 different answers.

Yes, of course.

So here's my philosophy and keep in mind, if I say anything that's wrong or whatever, like theoretically educational purposes only. Well, no, the government can actually come in and take my license. So I'm not going to say anything that we wouldn't be able to defend for our own clients. I just want everyone to know that because you do have a level. CPAs have a level of like, oh, this guy seems to work for the government. And other ones was like, is this guy just a crook? Right. So there's a scale in all things. You got to find the happy median. People are going to consider us more aggressive. But the truth is we are comfortable with the tax law and the way we interpret it. So I want to say that first, here's the way it works. The tax code itself says a write off has to be ordinary and necessary. And so everyone's like, what the heck does that mean? Oh, don't worry, the government will clarify it for you. So they came out with some clarification language and said, well, it needs to be helpful and appropriate. Okay, great. Also not super clear. Thanks. Again to clarify, your clarification actually makes it more confusing. So here's the easiest way to think about it. If you're spending a dollar and it's related to your business, it's a write off. If it's related in any form, shape or fashion, it's a write off. That's what the tax code means. So if I have to drive to the store to pick up office supplies, those miles are business miles. That costs even though maybe it's toilet paper and I buy toilet paper for my house, but if I have a physical location, I have toilet paper there too. Like that's a business write off. So again, that's the general philosophy. If I'm spending a dollar, is it related to my business? If the answer is yes, pay for it out of the business account. A couple things though, that I know people usually ask about, so let's go over those. Your personal groceries, you cannot write those off. That being said, it doesn't mean you can't write off purchases at a grocery store. If you have a company meeting where you decided to buy food yourself and cater it yourself, that's a viable business expense. But if you're audited and they look at your statements, which they do, that's their go to. They always look at your statements and they see that every single one of your grocery purchases was put under your business. They're definitely going to reverse all those. Like they're not. Yeah, that's not going to be good news. So, yeah, you can't write off your personal groceries, but you can write off groceries. It can never be 100%. Same with apparel. Right. If I'm giving presentations or there's a certain. If I'm a fitness professional, I mean, there are probably clothes I need to buy in order to perform my work in a type of uniform. Those are business write offs. So, yeah, it is a little subjective, but the tax code itself is subjective, Beverly. Like it's 77,000 pages. So I think it's in our best interest to make it as subjectively beneficial for us. And then we just have the conversation with the IRS if we need to. And sometimes that results in them just saying, hey, you know, we're not going to let you take this expense. Okay.

Yeah, that's a fun conversation. I've been audited by the state, so I've had conversations with them before. It's really fun. And by fun, I mean not at all. Okay, cool. So what are some of the other, what would you say are some of the expenses that people miss?

Travel. You'd be surprised how much of your personal travel you can relate to business. Now, in order to write off a travel trip, it does have to be like, you have to have set it up for the purpose of business. So if you're audited, that's the type of documentation you would need to show. So if I'm taking my kids to the Bahamas, I would need to be able to say first, who is in the Bahamas that I could meet with or what would my purpose be? They could be related to business. And if I can find that purpose now, I can write off a portion of the personal travel expenses that I'm going to have. I won't. Like, I have four kids, so I can't write off my entire travel cost. But the hotel stay, you know, I would have to stay at a hotel anyways. Certainly my plane ticket. I mean, again, advanced strategies. If you get your kids on payroll, there are ways to write it off. All of it. But yeah, I'm blown away at how often travel isn't taken as much as it should be. Mileage is another one. If you're a solopreneur type of person, even if you have an S Corp, your business address should be your home. That way, anywhere you drive from there is away from your primary business location. Therefore, the majority of your miles you drive should be a business deduction. Now, if you don't have a spouse or someone you live with who like buys groceries or things like that, you can't write off 100%. It's just never going to work. But if there's someone else in your household, you can argue that all day with the irs and they will just say, like, really? You've never gone to buy personal groceries? Really, I never have. They can't argue against that. Like, yep, that's what the other person in the household does. That's why all my miles are business miles and all their miles are personal miles. So that gets overlooked. Cell phone. Look, in today's day and age, you just have to be reachable to your clients, accessible at all times. We do a lot of business on our phones, so like, that should be written off. Home Internet. I mean, we would be dead in the water without Internet connectivity to learn more and all that stuff. So those are kind of the big ones that we make sure everyone's taking.

Can you write off 100% of your home Internet?

I do. Because the argument would be like, yeah, if, if I didn't have a business, I wouldn't have Internet.

I mean, it's true.

They can't argue with you. Right? Like, they don't know if you're truly a hermit inside.

Well, okay, so then I Want to ask, you know, when you have your, you know, if you're running, operating your business primarily from your home, is it worth it then to write off portion of your house? Like, how would you even measure that?

I'm glad you asked because we have a great strategy that's going to save anyone who's listening, they're going to save three to six thousand dollars in taxes with this next part. As far as writing off part of your home, we don't love doing it the way the IRS really wants you to, which is using this form called Business Use of Home. The truth is they created that as an audit trigger. So if you fill out that form, you've increased your chance of being audited because they argue, well, if you answered a personal email in your business space, it's no longer business. One email, really? Okay, well, forget that. So we say, let's not worry about that. Here's a better way. We call it corporate rent, or some people call it the Augusta Rule. So if you're not familiar, Augusta, Georgia is where they have the Masters golf tournament every year. And it's a decently small city, but it's very affluent. And during the Masters, I mean, the size of the town, like triples or quadruples. And so these wealthy homeowners are saying, huh, wow, I can rent my house out for a crapload of money during this two week, week and a half time period. But man, I wonder if there's a way for me to get out of paying taxes on that. So lobbyists were paid and they got this really fun rule implemented, and it's going to benefit us as owners, not just these affluent golf course homeowners. The rule says if you have a property and you rent it for less than 14 days during the year, you are not required to claim it as rental income. So a property less than 14 days, not rental income. So that these Augusta, Georgia people, you know, if they're selling their home for $10,000 a night and they rent it out for 12 days, they just made 120 grand less than 14 days. They do not claim that $120,000 as rental income. It's completely tax free. So how does this benefit us as owners? Businesses have conferences and they have meetings and they have planning meetings. And a lot of these big companies will rent convention centers or hotels. Well, I'm a small business owner and that seems a bit expensive. How about I rent my living space to my business? Ah, I can do that. So the business contracts with you as an individual to rent your living Space one day per month. Because it's a very good habit to have a planning meeting or board meeting once a month. So I'm under 14 days. That's the key. I'm under 14 days. Market rate, on average, we say $1,250 for the day use. Because you have to look at everything that you're renting. You're not just renting a space, you're also renting full catering services because hotels charge you. I know, it's hilarious, right? Hotels charge you to use utensils, to rent their utensils, to have catering, multi. Oh, you want multimedia, you want a television, you want a projector, you want a computer. That's more money. So 1250 is kind of the average. So what I'm saying is, if you do that once a month over the course of the year, you've just created a $15,000 rent expense on your business that you don't claim as income on your tax return. All it's done is reduced your business's taxable income by 15 grand. You multiply that by your tax rate, and that's where you get the three to six thousand dollars in tax savings. And all you have to do is have a monthly meeting at your house, which is usually a piece of paper saying, I had a monthly meeting and we talked about business growth.

But what if. This is hysterical. I love this, but what if you're a solopreneur? How would you like I sat down with myself and I had this meeting?

Or.

Or if you're working with a coach, like you sat down with your coach and your. That was your business meeting?

Yep. Either one. I can be in the business by myself. There are studies that show if I take myself out of my normal business environment and have a planning like studies show that my business will be more successful. They can't do anything about it. You can be the only one present. It's fine.

Amazing.

Yeah. And I mean, I have been through an audit for this specific thing, and it passed.

Interesting.

So it is. It's a very viable tax strategy.

That is amazing. Honestly, that just saved me so much money. I've. I have now watched my profit margin in the span of 40 minutes increase double in size. Okay, so here's a question that came from someone in my audience. I'm curious. You know, what percentage do you. Per month do you typically ask your clients to reserve for taxes? And I know that that's going to. But just, you know, some baseline metrics. And then also when is it a good idea to Start sending in taxes quarterly.

Okay. I will say we are US Tax experts. Sometimes I give presentations to groups that have like international people. If you're international, you are going to want to sit down with probably a profit first professional and you're who's familiar with your country. Because international, man, it sucks. They're on the high end for sure. Our clients usually if their taxable income is less than a million dollars, they're probably somewhere from 3 to 10% at most of their income. So deposits into their business. If you're a million or more in taxable income, 15% of your income is, you're going to have to save that. I personally am around 7%. I have been for many years and that's always been great. Like, I usually have extra money saved. And so then when I pay my taxes, I give myself the rest of the money that I had saved. So yeah, 7% is definitely, I feel like safe for most people. But it never hurts to just have someone look at your tax outcome and say, you know, your percentage probably could be this. It's a pretty quick calculation. As far as quarterly goes. The IRS wants you to believe that you have to pay your pay these taxes quarterly because they scare the crap out of you. Because people don't deal with the IRS on a daily basis like we do. The truth is, what they're penalizing you on is called an underpayment penalty. And that amount is calculated based on how much you owed in taxes from the previous year. As long as you've paid something in by January 15th the following year, basically you can avoid the underpayment penalty. So I, under the profit first model, I prefer to just set aside my tax money into a separate account and then I'll make a payment in December. Now that basically the whole year is finished and I can kind of estimate what it might be, I then make a payment in December. I pay enough to avoid them not being able to penalize me because I didn't make quarterly payments. And the reason I do that is if something were to happen, like say, I don't know, a global pandemic where I'm worried about cash flow, I would rather have the money available for myself instead of sending it to the government, who is not going to give it back to you until you file your return and say, yeah, I overpaid you, I need my money back. I'm willing to pay even if there is a penalty. I'm willing to pay that by giving me comfort and less stress, knowing that if something were to happen I could use that money if I needed to. And I know I can make payment plans with the irs.

That is so. And do you know. I mean, is it. Is this a baseline metric? Does the penalty that they charge like a percentage based on what they were.

Percentage of the tax that you owe.

Okay, got it. That. Super insightful. I did not know that. Thank you. Okay, what else do I want to. What? I had another thought, but it'll come to me. I just want to make sure that we close the loop on the expenses. Like, are there other expenses that we should. That we should be thinking about?

Travel, cell phone, home, Internet mileage. Those are the big ones. We talked about corporate rent. Super awesome strategy.

Yeah.

You can never write off your payment for your primary residence, whether you rent it or a mortgage payment. Don't ever try to get away with that. And that's why we like the corporate rent strategy. You don't have the need to do that with the strategy because you are being able to write off a portion of it anyways, but not a. Yeah, like, if you.

You mean, like, if you don't. If you do, like, your full mortgage there, that's gonna flag. Yeah, got it. But corporate rent of your mortgage is different that 1250.

Right. So what I'm. Well, and what I'm saying is, say my mortgage is $3,000 a month, and I make that payment to Chase Bank. I don't want my business accounting to show a $3,000 payment to Chase as interest, expense, or rent. I can't write it off that way. I have clients from New York, for example, and like their corporate rent rate, because we tell people, look, 1250 is the average, but if you live in a more expensive area, take the bigger dollar amount. And so they just go on to like, VRBO any of these vacation rental places. What is a place similar to my size of location in the same geography? What are they charging for a day use? And if that amount's higher than 1250, use that amount. So I have some clients in New York who are doing $4,000 for their month. So they're writing off $48,000 a year under the strategy because they're just in a more expensive place. I'm just saying don't pay for your actual payment to either your bank or the landlord in a rent payment out of your business.

Got it. So how would you show that?

Well, you just pay it out of your personal account. You would pay it out of your personal.

But then yourself.

Yeah. I mean, so, like, if you take the money from your Business into your personal account. That's just a distribution. So you'd just like any other distribution. It just so happens that you're going to use it to cover your mortgage payment. Like so I guess that was maybe an unspoken thing. Please have a separate business account outside of like business account for business expenses. Personal account for personal. You need the two accounts. Don't, don't commingle those.

Okay, great. So I'm glad you said that. So those of you who are listening, you know, halfway through the year and they're like, oh, no, John, I messed up. What would you say? Like, would you say, ow, you better.

Look good in orange, you're going to jail. I'm just kidding. No, it's not a huge deal. You're not going to go to jail. If you're audited, it's just going to be a lot uglier and longer and a more complicated process. So just get a business account set up immediately so that going forward you're paying for all your business expenses out of your business account.

Yeah. Okay, great. So I want to be really mindful and respectful of your time. So this will be my last question. Okay, so. And I always say that. And then I have like three more, but it's okay. My question is for, you know, you mentioned some tools that you like to use and let your clients to use. One of them, one of them you use you said was QuickBooks. So I'm just curious, are there certain, are there additional resources that you think business owners need to have for financial or tax planning?

I mean, definitely from an accounting standpoint, QuickBooks dominates the market. They really do have the best user friendly product. I'm not in love with the model they went to because they make more money, which means we have to pay more money for it. But QuickBooks Online is a very great product at this point.

The versions of it, right? You've got like quickbook essentials.

Quickbook, like, yeah, don't, if you're a business owner, the lowest end product, they keep changing the freaking name of it. So I don't know if it's self start or what, but don't do the lowest, don't do the lowest price point. It's not, it's not functional for business owners. I don't even know why they offer it. Honestly. It's like we get clients who have that and we try to get into their books and they're just, they can't do anything that's worthwhile inside of it. But so at least the middle package or the Higher end. But usually the middle package is sufficient for most people. Um, and again, online is great.

What I said Quicken. Like, what's Quick?

No, Gosh, no. Stay away from Quicken.

Okay.

I don't. Oh, it's terrible. It is not designed to be a business product. It was like created to be a personal budgeting tool. And that's what it does. And you can do that all inside QuickBooks or Excel file. It's actually usually more functional than Quicken. Don't do Quicken. Yeah, QuickBooks is just fine. Like, it really is going to give you the best options when it comes to accounting. Other than that, like, as far as tax planning goes, the resource would be a human being. I know. Especially during tax season. These companies that have tax software, they spend massive amounts of money to get in front of everybody. And if you're a W2 employee, like you get a W2 from an employer who's not you and you have a mortgage statement, those tax softwares are great. They're gonna get the same result as any other competent cpa. But as soon as you get into the world of business, the software can say, what was your travel expense? But the software's not telling you, oh, that trip you took to Maui, that's actually probably a write off. That's where the human being is important. So from a tax strategy standpoint, you really just need a competent accountant to help you walk through. Oh, here's your situation. Here are the strategies that relate to you.

Okay, this is now the real last question.

Okay.

But you know, in, in that vein when you said that, because I think it's a really important thing, like that human being component is in place important. Right. But I feel like, do you need to work with a CPA that is small business minded or business entrepreneur in the online space minded? Because I feel like if they're not, they tend to be historians and reactive and they're like, well, last year you did blah, blah, blah. But in the online space and small business base, it can change on a dime.

Yeah. So I mean, oh, I could go for another hour talking about this one. There is such, like, not all accountants are created equal. Just like not all physical therapists are created equal. Right. Like, just because you have a certification doesn't mean you're as good as someone else. It's. Yeah, valid point. There are accountants out there who literally are giving bad tax advice just because they're not comfortable filing an S Corp tax return. I've had clients come in like, yeah, I suggested this to my past Accountant, he said, well, I don't do those. So really, you're fine with this strategy? I'm like, well, you've overpaid $100,000 in taxes, so you tell me. You definitely want to find someone who fits who you are as well. Like, for example, this is who I am, right? I have this T shirt that says, irs sucks. We have another one that says, I'll give tax advice for tacos. Like, we're just laid back. This is my attire. I don't wear a suit and tie. Had a really great client come in the other day. He's like, I want to refer you to some people, but they're a little old school, and I think they might look at your shirt and be offended. I'm like, that's not a problem. We all have different flavors of ice cream that we enjoy. And I don't like. Right. Like, people can find who they need to work with. But, yeah, there's a lot of accounts out there where you feel like they are working for the government and, like you said, historians. But I want to emphasize this, too. You can find the right person, but there are levels of service. And I say this because we try our hardest to manage expectations with clients. Like, this is the service you signed up for. This is what we do for you. But still, sometimes they hear, oh, and I still want you to do planning with me. It's like, well, okay, you signed up for bookkeeping services, so we'll get you a monthly report that's accurate. And we do send a fun little letter. We go above and beyond every month. And, like, here's a couple things for you to look at, but it's diy. Like, we're giving you some ideas if you want planning, if you want to sit down and let's forecast what your goals are and then back into metrics that are going to work for you. That's a level of consulting, and so it is a different service. So just make sure when you are talking to the accountant that you understand what you're getting for what you're paying, just to make sure that you're both on the same page. Because bookkeeping services is one thing. Providing consulting to help someone forecast and understand their numbers and figure out why there's discrepancies. That is a different service for accountants.

John, this has been so helpful. Thank you so much for all of your insight. I just have. I personally have learned a ton from this podcast, so I really, really appreciate you coming on the show today.

Yeah, I appreciate you letting me be here. I love sharing this message and I just want people to make more money and stay in business for as long as possible.

So good. So for those of you who want to learn more about what it is that you do and connect with you, where's the best place that I can send them?

Insighttax.com is great. And that I N C I T E tax we have some. If you go to insighttax.com wealth we do have some free resources. One of those is a list. We didn't get into it too heavy, but a little bit like business owners overspend on operating expenses. So we have nine questions that we recommend an owner ask about each expense so that they can confirm is it really adding revenue to the business or supporting our clients. And if you go through those nine questions, you'll probably identify some stuff that you're just wasting money on that isn't adding to the bottom line. So insidetax.com wealth you can get that free resource there or just check out our website. We have great material on our blog. I hate Fluff. We always try to be practical and just get to the point and so a lot of good stuff there. The corporate rent strategy, we definitely have some blog posts on that. If you were intrigued by like some of the advanced strategies about paying your kids, we have some specific blog posts to talk about that as well.

Okay, cool. Well, I'll make sure to add all of that into the show notes.

Great. Thank you.

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