Tax Time For Business and Pleasure – DBA Small Business Show 10

Greetings, folks, and welcome to the DBA Podcast. Episode number 10 for. Yeah, double digits for Wednesday, April 15th. Happy Tax Day 2015 here today in Las Vegas, Nevada. I'm Dave Hamilton.

And I'm Shannon Jean in Northern California, San Francisco. Welcome to the Small Business Podcast.

Yeah, I'm glad. So I've been here at. I'm in Las Vegas, Shannon, for nmx, which has been through a series of names over the years. It started as Blog World Expo years and years ago, and then they acquired the Podcast Expo, which first started 10 years ago and merged it together. And for a while it was Blog World and New Media Expo.

That's right, I remember that.

And now it's just nmx. And I have to say, it just in a general sense, it really has shed its Blog World roots in that podcasting is very much an equal citizen here to blogging. In some ways, you might actually argue that podcasting has overshadowed the blogging portion of the show.

That's interesting.

It is, yeah. And it's good, I think. Yeah, certainly for us.

And you're there, you're mainly at your, you mentioned before at conferences and that type of thing. Not a lot. It's not like a CES show where you're walking the floor for 50 miles.

Yeah, well, the floor exists because for the first time, NMX has partnered and is happening simultaneously with nab, which is the national association of Broadcasters trade show. And that is a full on conference as well as expo and takes up every bit of the Las Vegas Convention Center, North, Central and south halls. Both floors.

That's right.

Yeah. So it, it's massive and it, it does feel like ces, some cool stuff. You know, it's interesting. Some of the NAB people certainly have products and, and services that would work for podcasters, but a lot of them don't think of it that way. And I've had some interesting experiences at booths, talking to people and, you know, trying to asking them about things. And actually had one person actually had two booths where people sort of blew me off. And then as I was walking away, came and got me and said, wait a minute, we should be talking to you. Yeah.

I could imagine them thinking, well, it's kind of, that's maybe not the market, you know, and they're ignoring it or they think it's too small or something like that.

I think they just haven't thought about it. So.

Yeah, yeah, they need to listen to our Pivot, you know, podcast.

It's, it's true. Why? To their credit, the president of Focusright that makes audio interfaces and other things did that. I watched him do the pivot in his head, you know, and he's like, wait a minute, are we working with you on stuff? I said, no, that's great. Why aren't we? So wait a minute. That's not your question to answer. That's mine. I said, right, yeah, perfect.

That's great. Well, that's good. You know, it is good. Very cool.

In addition. So. But, but most of. I've spent quite a bit of time on the show floor, but I've also spent a lot of time in. In conference sessions. And I think we're going to have a future episode where we talk about the value and of professional development. Right. And networking and.

That's right.

And that sort of thing. But some of the result of. There's been a real trend in some of the sessions that I wanted to talk to you about, Shannon, and for our listeners, we have not had this conversation in advance, so I don't know where this is going to go. Shannon, you don't know what I'm about to say, but there's been a trend. Not that the word podcast is a bad word that should be changed, but that there is less and less of a good reason to differentiate what we do by. By going out of our way to say, oh, no, it's a podcast, not some other type of just audio show.

Okay.

And it's true, you know, there's not much of a difference between, for, for you, our listeners, there's not much of a difference between the actions you go through to listen to this show as there are, say, to watch something on Netflix, Right. You. You either launch your web browser or you launch an app and you press a couple of buttons and suddenly, you know, here we are, or here Netflix is. Right, right.

Yeah, that's true.

There's just not a lot of a differentiator. There is again, from the technical side and what we have to do to create the feeds and all that. But that's not your concern. You don't. As a listener. Who cares?

Yeah, you just want the show.

You just want the show. You don't know what Netflix goes through to get the show up. And frankly, again, you don't care unless you're going to create a show for netf. And if you are, man, you know you can get one. That's awesome. So, you know, we call this show the, the, the DBA Podcast, but I started thinking, should we really be calling it the DBA show? And, and, and, and that's where I was earlier this evening when I, When I kind of sent you a note and said, there's something I want to bring up. And then I had dinner with a guy from the uk.

Okay.

And he had no idea what DBA meant to.

Yeah, I, you know, there's a few people I've mentioned it to where I, I pointed them, pointed out what it meant, and then they looked at me like, what do you think I'm an idiot? And then I've had a few other people that the same thing was like, well, what is, what does that mean? You know, what does that stand for?

So we may be in. I don't think we're going to solve this or answer this question definitively right now. But. But I feel like we. We should at least question the. The entire branding of our. Our show, you know, because does DBA Podcast or DBA show really send the message of the podcast for the small business owner that just wants to. That actually just runs a small business?

So, yeah, I think that's a great thing to do. And I, you know, I'd love some, you know, our listeners out there if you have comments.

Absolutely.

You know, about the whole thing, about whether you, you know, refer to it as a podcast and, and what do you think about the, the name dba, whether it resonates with you or you think we ought to come up with something, even just, you know, in a simpler form that, that just describes what we're doing each week.

Yeah.

And even, you know, I think we're kind of doing it ourselves, you know, where we liked that catchy, you know, giving you the business. I thought that was, you know, we thought that was a good play on words. But then you mentioned one time the Small Business podcast, and I said, hey, that's really a better. A better tagline because that describes what we do. And I think that's important going forward to look at all those things. I think.

Yes. So I just wanted to throw that out there. You know, it's. It's been. And as. As it should be, attending a conference like this. It's. It's been enlightening in. In a lot of different ways. And that's, that's why you get on an airplane and deal with hotels and get sick and all of that stuff.

Yeah. Yeah, exactly.

Yeah.

Yeah, I think it's great. And, And I'm, you know, we'll talk about it and maybe, you know, send your comments to feedbackbapodcast.com and we'll roll them around and see what we come up with.

Yeah, we'll see what happens.

I think that's cool. I think that's great. You mentioned colds. You know, folks, if you hear me cough a little bit out there, I brought a few things back with me from Washington D.C. where I was last week with my kids and it was.

You sound sexy tonight, man.

Hey, that's my radio. It's my, it's my radio voice.

Yeah. Deep and sultry. That's right.

Deep and sultry.

That's dulcet tones of Shannon Jean, ladies and gentlemen.

That's right. Well, and it's nighttime. So I'm sitting here and I figure, well, you know, I can have a beer while we do the show. I usually do, by the way, soothe my voice.

That's right.

So, you know, even when we record at 9am you have a beer out at the studio.

Yeah, I don't think we've recorded that early.

No, not yet. Not yet.

Not yet. That's right.

That's nice.

Usually it's about four in the afternoon for me, so it's okay, you know, that's perfect.

Well, tonight will be good because it's dark. When we're done, I can walk out. I'm going to go in the hot tub and relax. It'll be great.

Nice.

Yes. That's a good thing about being out here. So I like the evening. So it's good. So as you said earlier, it's tax day, one of our here in the US Anyway.

Yeah.

Yeah. Would you, would you call it the least, one of the least favored days of the year for, for people? Maybe. I guess it depends on if you're getting a refund.

Yeah, I, I, Yeah. My guess is for the majority of the pot, you know, everybody complains about tax day, but I think the majority of the population actually receives refunds on.

Taxes and, and certainly those folks probably already got that money back.

Yeah. That's it. Right. Yeah. Maybe that's why April 15th is hated because if you are just a, if you don't run your own business and simply file a very simple tax return. You did that probably end of January, beginning of February, and your money came by certainly by the end of February and you're done.

Right, Right. And I could remember where you'd have to drive. We drive to the mailbox at midnight down at the post office and drop it. I think now you can e. File up until midnight. Right.

Midnight local time. That's right.

Midnight local. Get it done that way. So like we talked about earlier, we thought we'd spend some time this evening Talk. Talking about taxes and some of our tactics and things that we've had to deal with over the years and a little back and forth on that.

I've often said, Shannon, that taxes are where the taxes and specifically just the tax law is, where a lot of the margins for a small business exist. Because you can screw up.

Yeah.

And not take advantage of all the things, you know, we're not. We're not. I'm certainly not here. And I don't think you are either here advocating to. To cheat on your taxes or do anything not wrong. Right. However, you know, the way I look at it is it's not my rules. You know, somebody else wrote these rules, and I'm going to find the best path through them for me.

Correct.

And, you know, there can be a difference of, of, you know, several percentage points or more, depending on how you navigate through the tax code. And as we've mentioned, you know, in a small business, sometimes that's your margin right there.

Yeah. And the thing is, like you said, navigating the tax code and a lot of that code is open to interpretation. And, you know, even it's so complicated that different people look at it in different ways, and you'll get, excuse me, different advice from different folks. And so what you need is someone that can be, you know, a very strong guide. And that's usually your accountant and, you know, sometimes your attorney, you know, if you have a tax attorney, but, you know, your accountant is the person you want to lean on and go to for advice. And, you know, it's a good point, or a good point to show to mention that Dave and I are not accountants. And of course, you know, anything we talk about here, you certainly want to talk to your accountant about and make sure that, hey, I heard this thing on the show. Will it work for us? Because everybody's business is different, and what may work for one of our companies may not work for yours.

Well, and everybody's tolerance for how, How. How to navigate the tax code is different because as you said, things can be interpreted differently. And not only do you have to figure out your tolerance, you need to find an accountant that is well matched to you. Now, if you're someone who is extremely cavalier about stuff, it might actually be good to have an accountant that's a little more conservative in terms of what they're willing to do. And that way you've got a bit of a yin and yang going on. Right.

And a good balance.

Yeah. And conversely, if you're extremely conservative, it's probably good to have an accountant that's going to stretch you a little bit and say, hey, well, you know, why aren't you taking advantage of this? Sure, you know, you want, but you need to find that match. And my accountant might not be right for, for you, and vice versa. Right? Yeah.

And I look at it actually conversely than that because I've had accountants where I felt they were so conservative that I was the one constantly asking them, can we do this, can we do that, can we do this? And sometimes to the point where they start looking at me like, well, we could do that. And I said, well, I'm asking you, you tell me. You're the expert. I've heard that we might be able to do this. If the answer is no, that's fine. The answer is no. But, you know, at some point you also want someone that maybe thinks a little bit like you so they can go give you the options.

It's true. You need to be in sync at some level. Yeah, that's. That's certainly true.

Personality is critical because, like, I want to be able to talk to my accountant. And the thing is, with your accountant, it's very important to just. It's like with your attorney, you want to. You absolutely want to have an open book with them so they know everything that's going on with your business so they can, you know, hopefully look at things. And when you meet with them and, you know, you need to be meeting with them on a regular basis, you don't want to wait until, you know, February and March after the year's up and start talking with them. Number one, not only would they be busy as heck and you won't get a lot of attention, but there's so many things you need to be planning for in October, November, you know, that towards the end of the year that will impact your taxes for that year. You need time to plan. And so you need to meet with them really, like on a quarterly basis.

I totally agree.

You know.

Yeah.

And tell them what's going on. Tell them what your problems are. And not only, you know, can they advise you on the tax stuff, but they also can help you with other parts of your business and provide you with tips or even. Or contacts. Most of these guys and, you know, people are very well connected and can recommend other people to, you know, consultants or bankers, that kind of thing. And so for me, it's, you know, a lot of its personality. You know, I think I've only had three accountants in my, you know, career over the last 20 some odd years. But each of them has had a different personality. Each of them has been very good, but some of them, you know, good at certain things and, you know, not as good at others, I would say, or just do things differently. For me, a lot of it. Are they tech savvy? Do they get my business? Are they willing to communicate, you know, in a, in a quick and, you know, efficient manner? I mean, believe it or not, there's a lot of, you know, old school accountants that don't want to do anything via email and want to schedule appointments and go over everything and you know that I have a, I have a harder time with that, just, just sheer time. And you know, I may just have a quick question and you know, it's everything, it's so efficient.

I, I picked my, my current accountant 15 years ago because A, he was local and B, he had a web presence. And so I emailed and I thought, if this guy isn't going to reply to my email, he's the wrong guy. You know, if he only checks his email once a month, well, then this isn't going to work for me. You know, it doesn't mean he's a bad accountant. It just.

Oh, no, no, no.

It has nothing to do with that. It's just a bad fit. And he did, he emailed me right away and he wasn't the most tech savvy guy in the world, but, you know, it, he didn't. I'm pretty tech savvy. I can deal with that part. Right. You know, and I did, I helped him get his computer set up a couple of times and that sort of thing. But, you know, he wanted to be tech savvy and he understood. So. Yeah, yeah, it worked out.

That was good. Yeah, that's awesome. And you know, so, you know, you get this account, you meet somebody that, you know, you explain your business, what you're doing, they should have lots of questions for you and to really get a hold of what's going on because, you know, your business, if you're, you know, whatever, if your business is sending goats around, eating the weeds off the hillsides like I see all over, you know, kickstarting in our area now, that's very different business than somebody who's.

Silicon Valley's changing, huh?

Yes. Yeah, that's right. We're all green now, you know, so, you know, it's very different needs than somebody who's running a, you know, computer company or whatever, a consultant, anything like that. So, so they, you know, you want to feel that, you know, inquisitive nature from them. And you really want to understand how they bill, you know, their billable time and what your expectations are, because there's nothing worse than getting a bill after, you know, tax season is over, and you can kind of breathe a sigh of relief, and then you get this big invoice, and you're like, whoa, you know, I had no idea. And as I was looking at this stuff tonight, I found a very, very old letter to a previous account that we had years and years ago, and they were acquired by another firm during the middle of the year. And when our bill came, same guy just working under a different company name, it was triple what it had been the year before. And we had never really discussed anything. There wasn't a different fee agreement put in place. And the letter was from my. My business partner at the time writing to our accountant saying, hey, you know, what's up? Why were the, you know, last year it was $2900 to complete everything, and this year it was, you know, over 7,000. Tell me what the difference was. And as I recall, there really wasn't any difference. It was just a different billing structure. So you want to have that conversation with your accountant so you really understand what it's really going to cost you? You know, you need to ask them, what, what am I going to pay for this?

On that one, I would say it was that. That was the fault of your accountant.

I think so, yeah.

I mean, you already had a relationship there, so, Yeah. I wouldn't, I wouldn't fault you for assuming it was going to be the same. Although we all know that you should never assume anything. Well, especially when you. When, you know, there's been a change on the other side.

That's right. We just thought it would be. It would be good and everything would be fine. He was a good guy. We liked him. And, you know, not long after that, we. We got another accountant. It was one of the switches and, you know, that kind of thing. So you want to know what's going to be billed, how they're going to bill, you know, they're billing for answering emails, billing on the phone, you know, all these kinds of things. If they have associates that are going to do your things or they billed at a lesser rate, and it just needs to be part of your budget so, you know, what you're. What to expect and what you're going to get in return for that. Normally, my, you know, corporate accountants have always done our personal taxes as well. Sometimes they would, you know, keep the billing as one thing where you Just kind of get a package thing. And other times, you know, we'd have what they. They would bill us separate for. For your personal taxes. So you want to ask those questions as well?

Yeah, it's, it's. I've always had my business accountant as my personal accountant, but I have some friends who run businesses and they intentionally keep the two separate.

That's interesting. Yeah.

You know, just to keep a balance there, to have two brains in the pot, you're going to pay both ways anyway. Although, obviously, if you've got one accountant that's doing everything, you might be able to negotiate kind of a package deal. There's little benefit to trying to hide your personal accounting fees in your business because you can typically write your personal accounting fees off anyway.

Sure. Yeah.

You know, so, you know, it's an interesting thing to consider. I had never considered it, and I still haven't done that. But it, you know, it, it's like having a. Which probably another good conversation. It's like your banker, you know, you don't just want to have a relationship with one bank, that's for sure. And, but. And perhaps less so, you know, it might be important to have two different accountants. It depends on how maybe how complex things are that you do, you know.

Yeah. And so, you know, we'd love to hear from any accountants that are listening here and how you feel about, you know, matching up with the client when you know their expectations and that kind of thing. It would be a great to hear the flip side of it. You know, Let us know in your comments.

One, one thing on that before we move on to some of the specifics. You mentioned this earlier, and I think it's. It bears repeating. You know, the tax code can be interpreted different ways, and it is certainly some things are clear as a bell. I mean, there's things that are perfectly legal to do, things that are perfectly illegal to do, but then there's some things that, that really, you have to decide along with your accountant how you feel about how you're choosing to interpret the tax code. And I have one funny story. We didn't do this, but after we had kids, my wife was home, you know, and she was taking care of the kids. And I said to my accountant, I said, now what. What happens if I set my wife up as a small daycare business? And.

Right.

And I said, and then, you know, that way I know I can't pay her because there's actually a law that says you can't write off paying your spouse for childcare. You can Write off paying someone else for childcare, but you can't write off paying your spouse. I said, that's fine. I get that. But, you know, we're buying things like toys and diapers and all this other stuff. I said, I could make a really good case that all this stuff is used because we aren't paying someone else to take care of our kid during the day. Right. We wouldn't need all these same toys at home if they were going somewhere else where those toys were. And my accountant said, you know what? You're right about this, and you could do it. He said, here's the thing. You have to. I guarantee you you will be audited. Yeah. I guarantee you you will pass the audit, and I guarantee you there will be tax code written to prevent you and everyone else from ever doing this again, but you will get away with it. He said, but you have to be willing to go through, you know, a moderate amount of, you know, discomfort and time to defend your decision here. He's like, but you'll definitely win. He's like, the.

Like you said, you have to make your case.

You got to make your case. He said, but you just made your case to me. He's like, this is. This will. This will fly. He said, but know that it's going to be a painful process. So I did the math, and I realized it's not really actually worth it, you know, yeah, it would have been fun, but. But you. You know, there have been times in the business where a similar situation has been worth it to just push up against the rules and again, not cross them, but just say, okay, this is how I'm going to interpret them. And if you want to call me out on this, great. Let's have a conversation.

Yeah, that's right. And that's where you want that guide to somebody that can go, oh, no, no. Hey, you know, that's a real nightmare. Probably not worth it. But this other thing, yes, we can. You know, and. Or they could say, well, you did it this way, so we can't do it now. But going forward, if you did it this way, we could present it as that, you know, you need somebody to tell you, because you're just not an expert.

I'm not an expert. That's right.

I mean, we're not. There's just no way. And, you know, I don't like writing those, you know, checks to the irs, and I know they serve a purpose, but it. And actually, there's some. And I've been racking my brain since we've been sitting here, but there's some famous patriot that actually made a comment that said, you know, it's really your patriotic duty to pay as little tax as possible.

That's how the rules are written.

It's not your duty to pay a ton of taxes. You know, you're creating, you know, revenue. You're give, you're giving your portion, whatever it is, to the government so they can provide services to us. You know, you should not feel bad for trying to lessen the amount of taxes that you can in a legal fashion.

Right, Right.

Not at all.

Yeah. And you will screw up, of course. I guarantee. You know, I mean, there have been times where I've looked back on something, you know, especially as I'm doing my taxes, you know, this year and comparing to last year, and you realize, oh, wait a minute, I probably shouldn't have done that, you know, and it'll happen even unintentionally. And sometimes you just say, let's hope they don't ask about that. And other times, you can file an amended return if you realize I screwed up. I don't. I'd rather be the one to tell them, yes, I did this. You know, here's my.

Well, that's a good point. You bring up, you know, amended returns, which, you know, I've done as well. It goes both ways. If you do find an error and you feel like, hey, you know, this is, you know, depending on the severity, and you talk to your accountant, there's things you can do. But as well, if things go a certain way, if you have something come up that was missed, I mean, you, you can find, you can file a, an amended return that could be in your favor. You know, if something got coded wrong or you find, you know, things happen and, and your software did something weird, you can always, you know, it's not end of the story when you file that, you know, that, that tax thing in, in an hour and 15 minutes, which is when.

That's right when it's due on the West Coast. Mine. Mine is already due on the east coast. I'm. I'm late. Actually, I'm not late. I filed an extension. So. Yeah.

Yeah, we do. To so extent. Let's talk about extensions.

Yeah.

So, you know, you and I were always kind of waiting for paperwork to come in from various, you know, accountants and tax this, that and the other, you know, rarely do we have all the paperwork by the time it's needed to, to prepare it. So the extensions are great. You know, you can file. Is it two of the six months and then, I mean, till the end. October 15th would be the latest.

Yeah, that's the automatic extension for personal taxes. That's the automatic extension is.

Yeah, that's. Yeah, yeah, yeah. So corporate taxes have to be filed by March 15, personals by, you know, by April.

Well, corporate. So corporate for a C or an S. Corporation needs to be filed by March 15th. If you have an LLC that is April 15th, when you're with your personal at the same time as your personal. Now, I know currently, and this is not totally new, but relatively new, if you have an llc, you can elect to be treated like an S Corp. Now, and if you do that, I'm not sure you got to. Again, this is where you got to ask your accountant. But yeah, a. That can be a very valuable thing. But it might change your filing date. I'm not, I'm not entirely sure about that.

Sure.

But that's why you have an accountant.

Yeah, yeah, that's right. And you know, the most important thing to understand about those extensions is it does extend the time for you to file, but it does not extend the time if you owe, if there's a payment due, you need to write the check by the time that you know by today, if it's for an LLC or personal. So by April 15, otherwise you're going to have penalties and interest that will kick in.

Yeah. And the. I didn't finish my return yet, so how would I know how much to pay argument does not hold water here.

No, no.

Yeah.

You want to get an estimate of where you think you're going to be. And, you know, if you're generating revenue throughout the year, you know, you're, you're probably paying quarterly taxes.

You should be.

And yes, and your, your accountant's another thing that typically after you file, they'll give you based on your, maybe your previous year's earnings or what your expectations are or, you know, for the next year, they're going to give you some numbers and say, okay, every quarter, you know, here, first quarter, you want to pay this amount, pay this, pay that, and you're going to be in touch with them throughout the year. And so if you need to advise those numbers up or down, if you have a windfall, they're going to tell you to send more in. Or if you're having a rough year and you think it's going to be a year, you're going to operate at a loss or something, then maybe you won't make that payment. So they're trying to mitigate this Huge check that you may have to write.

I've had to write the huge check. Have you had to write the huge check?

I have had to write the huge check, and it's not good. And for me, what I've always found is the taxes are challenging from a cash flow basis. You earned the money. But for, especially for a business that has inventory, that you're buying product all the time. And often some of the best deals on the type of product that I typically, that we typically buy come along at the end of the year because so many people want to unload things, and that's always been one of our strategic advantages. But what happens then is if you haven't quite set aside enough or, and you. Or you push and say, wow, I really, you know, I really want to get this deal and use this capital, it can kind of put you in a bind, you know. So the thing is what you have to do with the irs, and I can tell you this from experience, if the bill comes due and you just know you don't have enough, the key is to communicate. The IRS can actually, you know, they can be your friend. If you communicate, you know, often and loudly about what's going on with your business, yes, they're going to charge you a penalty. Yes, you're going to pay fees. If you're timely, it can be not unreasonable, especially if you've made some of those quarterlies. But you just need to reach out and talk to them and let them know what's going on and get an agent that will listen to you. And in my experience, it was a very positive one. And you just worked it out and figured it out. Now, I think you've been through an audit once before, right, Dave?

I have, yeah.

How did that go?

Well, so this was. I think it was. I know this was before I started any companies that had a separate corporate structure. So it was when I was filing everything with my personal taxes. I had a computer consulting business that was one Schedule C. And then as I still do today, I'm a musician and I make money while I play. And that also means that. That means I have to file, but it also means I have deductions that I can take against that, that revenue.

And you have an LLC for your music business, or is that like a sole proprietor type?

The music is a sole proprietor. I file it as a Schedule C. So this one particular year I had two schedule Cs that I was filing. And. And I did that for a number of years before we kind of started up, you know, different businesses. And, and I, so I got a letter from the IRS saying there were three lines on my. Of the entirety of my tax return. They were asking about three lines of expenses. One of them was. Let's see, I'm trying to think. Two were on my, my computer, my consulting schedule C and one was on my, my music schedule seat. So, okay, it was travel and, and entertainment expenses on my, on my computers and then on both of them it was my section 179 deductions or elections, I should say. Section 179 lets you take full depreciation in the first year for big ticket items that you might buy for your business. And that that year I'd done some travel and that was legitimate and I'd written off, but I think it was a little more than the previous year. And then I had bought several computers and a brand new drum set. So there were numbers that were higher than normal. And I'm sure that's what triggered this audit. But I knew and I didn't have an accountant for this. I did this audit by myself, which I don't necessarily recommend, but you'll hear it worked out just fine. I, I knew that. When the IRS asks you about something and you go in and meet with them, the only things that they can ask you about there are things that they have previously that they wrote you in the letter. So those three lines or anything you choose to tell or show them while you're there.

Maybe you should say that again.

Yeah. So. Because this is important, right?

Very important.

Yep. So the. They can ask. They can audit you for anything. But you'll get a letter in the mail that details the exact things they are auditing you for. And when you go to meet with them to show them the documentation, the only things they can ask you about are the things that were on the original audit letter or anything you choose or unintentionally show them or tell them while you're there. So I got. I figured I could take this two ways. I could either show up with a shoebox full of receipts and dump it on the desk and say let's sort it out together. Or I could come in really organized. And I chose Plan 2. Plan B. I figured I'd go really organized. I called him up and told him the only time in the week that I had to do this was late on Friday afternoons.

That's brilliant.

I thought so. Yep. So I got a 4:30 appointment on a Friday afternoon. And I figured if I show up as a nice guy, really organized on A Friday afternoon. I'm golden. And yeah, and this was, yeah, this was 1996 that. Oh, no, it was 1998 that this happened. So we certainly, we were using computers, but it wasn't quite as commonplace as now. And certainly what was less commonplace than now is people that have skills with like, scanners and, and all that sort of stuff. So, you know, I could put together a package that was unlike what most people would bring in.

Yep.

I didn't have receipts for everything, but I had credit card statements. So I scan my credit card statements in. But the problem with the credit card statements is they include everything.

Oh, other.

Yeah, so I scanned them in and I blurred out all but the relevant lines to match. And I went through for each of the three lines and I printed a report that showed all the, you know, kind of a summary of, of what the expenses were. And then I printed out details for each of those things, either receipts or credit card statements or both, whatever I had. And I made sure that the reports, of course, matched what I had on my tax return and that all the backup data matched the reports, with one exception. I could not find the receipt for a plane ticket that I bought. Now, I know I bought it, I spent the money, but I couldn't find it was a 300 and whatever dollar plane ticket. So I made my report match my receipts, but my report did not match the number that was on my tax return. It was short by $340. But I knew this going in, and I figured I, you know, I dug around, I couldn't find the receipt. I figured I find they're gonna nail me for this front. Yep, sure. It's. They're gonna tell me you're, there's a mismatch and you owe, you know, 120 bucks in taxes and penalties and I'd say fine. So I went in, I showed him my three reports. I spent about 45 minutes with the woman. She never once compared my reports to my tax return. So she didn't catch the 300 and whatever dollar difference she went through. She made sure each line item on my reports was matched by receipts, which of course it was because I brought them all with me that very day. And. And then she said, okay, well, I. It's not my decision to make, but I make a recommendation my superior, and I'm going to recommend that, you know, this just sails through, no problem. And of course it did. So that's great. Yeah, I expected to pay a penalty just because I couldn't find the receipt, but.

Well, and I think that's the key is being up front and when you find something you don't have or whatever, not trying to hide it because, you know, you want to be straightforward, organized, communicate well, and, you know, you'll fly through that stuff. They're not coming out, you know, I mean, unless you've done something really wrong, which, you know, rewind the tape here. And we've talked, you know, over and over about how you want to listen to your accountant and do everything with legally that you can. You want to go in there and just say, well, okay, show, let's see the mistake or, and let's figure it out together. And you know, it is.

Yeah, it's a conversation with one other person, you know, yes, it is. The weight of this gigantic government organization versus you. But when you're in there, it's you and another person.

And do it. Do it at 4:30 on Friday and.

Do it at 4:30 on Friday AND be a nice guy. That's right. Yeah. Yeah. If you can. Yeah. I just made it clear. I'm like, the only time I have a miss schedule is this. And they're like, well, okay, yeah, yeah.

But buying cars too.

It totally. That's right. Yeah. But, yeah, I mean, you know, you just. It's like any. I had a friend, thankfully, I've never had to take this advice directly, but it applied here. He said, you know, if I ever get arrested for something or whatever, as long as it's something relatively minor and it's not like a murder trial or something where I have to deal with a jury. He says, I know, it's just, in the end, it's just me and a judge and he's like, I can deal with any one person. That's no big deal. I thought, well, that's an interesting way to look at it. Hopefully we're never in the position where it's you versus a judge, but it might be someday. And it's just. They are just one other person just like you. They just happen to have a little more power over you.

Yeah, that's right. That's good. Yeah, that's cool. Yeah, very, very cool. And you know, I know we're running a little late on time, but, you know, one thing I want to mention too is, and I think you touched on it, is especially when you're getting started either with a business you're starting up or your first business is, you know, record keeping is, you know, your friend, you know, keeping detailed receipts, tracking all that stuff, you know, time and time again, I Always see people that kind of pay with, for things out of their pocket. You know, I'll write it down later, I'll do this, I'll do that. What? You're missing a huge benefit to your business because all those, you know, things and expenses are going to write off and lower your taxable income. So it's really critically important to do that. You know, one of the easiest ways to do is like you mentioned, you know, use your credit card, keep your records. You'll have, you know, electronic records, email receipts, now you know a lot more. But, you know, keep the records and get them entered into your accounting software. You know, you can go back, I mean, the credit card as well. You go like, listen to, you know, episode five and see all the added benefits of using the credit card for your business. I think you'll be sold. Get that stuff into your accounting software so you can track it and you can lower. Otherwise you're, you're paying, you know, 30, 40% more for everything you're buying.

It's true. Yeah. And you know, unlike me back then where I was just doing everything on a schedule C and at that point in time I was billing business expenses to my personal card. You really do want to keep things separate. Even if you are doing just a Schedule C where technically you're not running a separate business entity. Get a separate credit card. And even though it's a personal card, only use it for business expenses. It just makes record keeping way easier.

Yeah, yeah. And you know, because things can grow quickly, you know, you start doing some, you know, business and buying what are you buying and selling or consulting or doing whatever, and you're going to be so busy with the growth of your business that thinking about the accounting part of it or where those records are, it's very easy, especially for me, to let that stuff fall by the wayside. And then when you have to go dig it back up at the end of the year, it's very difficult if you don't keep on top of it. Use your credit card, get a good piece of accounting software. An E commerce website or most E commerce software is not accounting software. You really need to get something like a QuickBooks or you know, we use accountage. There's a lot of other ones out there that you can use.

Fresh books.

Freshbooks? Yeah, you can use software as a service, anything like that. Just a place to, you know, dump all the data so that you know it's there and you can go back at a later date and analyze it and, you know, help guide you to where, you know where, where you want to go.

Yep. Yeah, yeah, that's a good point. If, if you don't at least set up a, a decent foundation, you will get too busy when, when you need. It is the wrong time to think about it. Yeah. Because.

Yeah, yeah, yeah. The only person you're hurting is yourself because you, you're just not getting those write offs and I'm, you know, I'm total perpetrator of that. I do the same thing too.

Yeah.

I'm moving a mile a minute and, you know, not stopping and oh, I got to do this. I go to that.

And then at the end of the year, you have to have a really good memory about stuff.

Oh, it's miserable. Yeah. What is this for? What was this charge for?

You know, and mileage too.

Yeah, mileage, everything. Yep. Especially if you drive, you know, and talk to your accountant. If you're driving around a lot for your business, you know, who should own that car? Should you own the car or should the company own the car? You know, and that's a big decision that you need to talk about because it's a, it's a big expense. You know, what's better? Taking a higher salary or having a higher expense account that your business is paying for? You know, have that discussion with your accountant. I have certain strong opinions on that that you can probably guess which is better. But your, your accountant can advise you and, you know, it's a real good conversation to have, especially if you're driving around, you know, picking up stuff, doing stuff, visiting people, you know, and what kind of car do you have to buy? Do you have to drive the cheapest car you have to drive, you know, whatever, an echo or some little car like that? I don't think so. You know, you're, you're an automobile write off is one of the last great small business write offs that is very easy to justify.

It is. It's not justifiable for everyone, but that's correct. You're right. That it is. What did my accountant say? Not only is it easy to justify, it's. It's one of those things that at leave currently the IRS doesn't really pay a lot of attention to or, or intentionally does not go after, I think is a. Is a better way to say it, but that may change, right?

Yeah, sure, of course. And be like, compared to trying to write off part of your mortgage on your house because you work out of your home, that's a big red flag. And you know, for. Even if you do that and, you know, again, talk to your accountant. Do they suggest that they're probably going to mention, hey, you know, that's kind of a, you know, red flag. And maybe we don't want to do that, but your automobile certainly is, I think, a different story. And it maybe even it's a percentage of it. I mean, we've never been. Yeah, we don't, we don't take 100% write off because we don't use it 100% for work. But certainly you could be in the, you know, 50, 60% depending upon what you do. Maybe it is 100%. So you want to get some advice on that.

But you got to keep relatively good records.

Yes, you do.

And there are apps out there for tracking mileage and all that. So you don't have to do like the old days and keep a logbook in your car. But, but if you get audited, that's one of the things the IRS will ask for is, okay, where's your logbook? On your, on your mileage and. Yeah, and you either, again, have to have a really good memory or have done it in advance.

Yeah, that's right. Yeah. Well, that's good. Well, hey, before I head out to the hot tub and you probably call it a night out there in Vegas, I wanted to do, you know, I'm a voracious reader. That's a great word, voracious. I don't get to use that that often. And I'm reading books all the time. So, you know, I would like to do a book recommendation.

Can we call this Shannon's Book Club?

Yeah, that's perfect.

All right.

That's right. That's it. And, you know, if there's books you think we ought to be, you ought to mention, you know, send in some, you know, feedbackbapodcast.com I'd like to hear it. I'm always looking for new books to read. I'm typically reading a fiction book and business book at the same time. But one of the first books I.

Ever read, sometimes it's the same book.

Well, it is. It depends with the author, you know.

Yeah.

You know, one of the first business books I ever read that somebody handed to me that really changed my life was the E. Myth. And now it's actually when I first one I read was called the E. Myth Revisited. And it is a phenomenal book. We'll talk about it during an episode in the future. But, you know, go up to Amazon or wherever you're at and buy it, download it, read it, and especially if you're getting started or, you know, your business is small, or if you're at a point where you're kind of pulling your hair out and you don't quite know where to go, this. This concept that this book will, you know, lay out for you. And it's a short read, but it's something that can have a big impact on you. So go get. Go get the E. Myth and let me know what you think.

Thanks for the recommend. I haven't read that, so I'm going to add that to my list, too. Yeah, man.

Yeah, absolutely. For sure. That's a good one.

All right, folks.

Far more successful.

That's right. Hey, that's the idea. Feedbackbapodcast.com is where we'd love to hear from you. We've also got comments on the website, and we've seen some of your comments there, too, so check it all out. But FeedbackBA Podcast is the easiest place to get in touch with us, and we would love to hear from you. Until next week.

That's right.

Yes. When we give you the business yet again.

Awesome. Have a great week, everybody.