397: Demystifying Finances and Taxes as a Food Creator with Amy Northard

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This is Alexa and you are listening to the Food Blogger Pro podcast. And today we have a really good episode. And I know I say that all the time, but today, you know, it's a really good one because we're talking about finances and it's one of those things that is just it's a necessary thing for all food bloggers who have a business side of things, who are making money from their sites to worry about. It's, you know, taxes, it's bookkeeping, it's expenses, it's receipts, it's a bunch of different things. And today Amy Northard is going to talk all about that. So some of the biggest takeaways from this episode are things like the importance of separating personal and business transactions, tips for storing and organizing your business receipts, what an audit would look like for a food blogger, deductions that creatives might overlook, and so many More. It's a really good one. We're really excited for you to dive into this episode. So without any further ado. Bjork, take it away.

Amy, welcome to the podcast.

Thanks for having me.

Yeah, before we hit record, I said, this is a topic that I love, and you might not hear that often, but, like, taxes, finance, bookkeeping, like, that's a totally fascinating area to me. Part of it is because as a business grows, and even not within business, just like, if you have a W2 job, we don't think about this often, but, like, one of the biggest expenses in our life is usually taxes. It's like the money that we're paying on the money that we're making or in other areas, whether that be, you know, property or income or real estate, like, whatever it is, we're paying taxes on those things. So it's important that we understand it, but not a lot of people do, and especially people getting into this world, this world being creatives. And that's your focus. You focus on working with creatives and accountant for creatives. So how did you get into that as a niche and a focus?

Yeah, so it kind of all boils back to, like, my dad in high school was like, you have to take accounting classes. And I was like, dad, I really want to be taking the jewelry making classes.

Totally.

This is not what I want to do. But I did it. Then I went to college, had no idea what I wanted to do, so I was like, all right, let's just do accounting. So traveled the typical path, graduated, worked at a CPA firm, and I hated it a lot.

What did you not like about it? Just out of curiosity.

I didn't like sitting in the cubicle and feeling like I just had to put my time in with, like, my butt in my chair, you know, that I would get my work done pretty quickly, and so I would just feel.

Like you still had to be there.

Or if I asked for work, I'd get dumped on. Clients weren't super exciting to me. It was a lot of, like, doctors and that that was kind of their niche. And so during this time, I did my CPA exam, passed it, got my license, and I was having this, like, quarter life crisis of, like, I can't continue doing this for the rest of my life. But also, I can't just throw away the CPA license I worked my butt off for. So I started to look around, see if there were any other jobs that I might like, and nothing really stood out to me. I interviewed at a few places just didn't click. And then I saw that there was a girl doing taxes for bloggers. And I like in college I had a food blog that I started as like my creative outlet. I would post, it was terrible. I don't think it's even anywhere anymore. But it was my creative outlet for having to take accounting classes and that kind of thing. So I was. That opened my eyes to I could do whatever I wanted, focus on any group that I wanted to. So I wasn't ready to niche down like specifically just to bloggers, but creatives in general. I've always loved to knit and just do little crafty things on the side. So being able to see the back end of how these businesses are making money in some cases quite a bit of money with their craft, I think it was just really eye opening to me and really awesome to see that the starving artist situation is just. It can be some people's cases, but it's definitely not. Doesn't have to be the norm for everybody.

Yeah, you have a really interesting role in that you're able to see inside these businesses in a way that to some extent maybe the creatives themselves don't even realize like the numbers and the specifics around it. But when you get into it and you kind of line everything up, it's like, wow, these businesses are making a significant amount of money. Do you see any like commonalities with the clients that you work with that are at a certain level of success? Like do you see any patterns or. It's one of the questions that I'm always interested in for somebody who gets an inside look is like, are you able to understand reasoning behind it? Or like any thoughts around that.

So I don't want to take credit for success of any of our clients. However, I did notice with a few that come to mind specifically who are creative and like they came to me and they had personal mixed with business. They were the type of person. And this is, I mean I'm this way with certain things. Like I don't want to look at it. It stresses me out. I just don't want to deal with it. And so they came to me in that kind of a situation. We got everything separated out, cleaned up and they're able to get financial reports every month. And I think having that like basis seems to be what allows people to say, okay, I've got this under control. I'm. If I make a bunch of money, I'm not going to be taken to jail by the IRS for some unknown tax thing that I didn't fill out, they've got it under control. And now I can run with the fun part and typically the money making part of the business. But I mean, other than that, they're just very driven people. They really enjoy what they're doing and that's the biggest common thing. I mean, I, I think it's fun for me to look at some of our clients, like social media accounts and I'm like, okay, this person has maybe 2,000 follow, but they're making, you know, six figures and then this person has 30,000 followers and they might have a loss. So it's like social media definitely isn't an indicator, but it's interesting to look.

At those numbers as well in those cases. Is it somebody's like marketing and product that's driving their success or is it like the traffic to their blog? Like what is. I think it's somebody. Yeah, sure.

So like the one that comes into mind specifically happens to be a food blogger. And social media isn't her focus, it's traffic to her blog, SEO and that type of stuff. And she's been at it for a long time. Like I, she has like a Pinterest manager. I mean, she's focusing on that end. Whereas like, unless you have a large following on social media, you're not going to get a ton of clicks. Like the same volume for the amount of work that you put into that.

Yeah, that makes sense. It's one thing that's interesting is I've gotten into different worlds. Communities is maybe a better way to say it is. And this is just a good reminder for anybody listening, like, you don't have to build a huge social following in some ways. You don't even have to like go about it in the way that you see other people going about it. Because I've seen people who are really good at the business side or maybe marketing side of things and their creativity comes from thinking about how to work with people in a certain way, to bring on writers, to bring somebody on who manages Pinterest really well. And part of what's exciting for me to hear you talk about is the opportunity to, to remind people around this idea of who, not how, which is the name of a business book, but essentially like the, what you'd get out of it is the title. There's, there's a lot more than that. But like the main concept is you don't have to necessarily figure out how to do everything. You just have to figure out who's going to be able to work with you and do it really well. And the example that you gave of somebody coming to you and being like, I want to do this. Well, I want to figure it out. I want to kind of tighten up my system here, but I don't want to be the one that does it. Can you, can I work with you to figure that out? And one of the things that you talked about was, you know, you separated things out and you cleaned things up. What is, what does that mean when you talk about separating things out and cleaning things up?

Yeah, so separating things out. A lot of times when people start things and it feels like a hobby as they're starting it, they will just have like affiliate payments deposited to their personal checking account, or they'll go to the grocery store and buy supplies and pay for it with their personal credit card and potentially combine it with personal groceries. So it's, it's things like that where it's business combined with personal. So that's kind of our first step is looking at what is coming into your personal account and then systematically going through line by line and saying, okay, update your payment information to your business account for this deposit. And then same thing with any recurring expenses and then just making it really important to the client that they need to use their business card for any random transactions that aren't auto paid. So that's how we separate. And then as far as like cleaning things up, it's more of like a bookkeeping terminology. So when we get into the bookkeeping, we do a process called reconciliation, which basically means we're matching up what shows up in the bookkeeping system to what is showing up on their bank statement. And we want to make sure they match exactly down to the penny. So that's kind of like our cleanup process is to make sure all of that's matching because that tells us we can rely on what the reports are going to be telling us.

So the thing that I love about that is it creates, it solves a problem forever by solving it once it's not a problem that needs to be resolved. And the way that you solve it initially is like you set up a business bank account and then you have two cards, you have a personal card, and you have a business card. And anytime you do a business purchase, you use your business card. Anytime you do a personal purchase, you use your personal card. That has solved the system of separating it out. So all the business transactions happen in the business account, all your personal transactions happen in the personal account. How about in the scenarios where you come up against something and you're like is this business. And you had mentioned groceries and for people in this space, that would be a big question mark. Like, like it's a business expense because it's a recipe that I'm testing. But also then my family is going to be eating the meal tonight and we probably would have it anyways. So how do you know in those situations if something is a business expense or a personal expense?

Yeah, I mean, it's obviously tough. If you could write off everything that you posted online, everyone would become a food blogger. We'd all be taking photos of our recipes and putting the, you know, the information there. And obviously it's a lot more complicated than that. But that kind of boils it down to like the basics. The IRS says no way do we want everyone writing off all of your food and that kind of thing. So they have said that it needs to obviously be for a business purpose. And it's still very much a gray area because, you know, if you're recipe testing and your family eats it afterwards, it could be seen as, you know, that same situation where you were just cooking something and you said it was for business. So our kind of philosophy as a firm is that anything that is done for like a partnership. So like if you are sponsored by a certain pasta brand and they say they come to you and they want to you to develop a recipe and they make a blog post and you know, anything that goes along with it, then you have to buy those supplies, you have to, you have to purchase those items in order to fulfill that brand agreement. That one a no brainer, but just content for the content sake. That one we typically don't deduct for our clients. And that goes, I mean, we work with like fashion bloggers who are in the same situation, home design bloggers. That's just been kind of our overall standpoint to make it really clear, like this is black and white, how you absolutely know that it can be. And then the rest of it is kind of situation by situation.

Sure, it's interesting. In our case we have an office and so similar to like a business card and personal card, we have like a business location and a personal location. So it helps to know like, okay, anytime that we're buying food that we're bringing to the office to like develop a recipe, it provides a pretty clear kind of separation between the two. But what is, what are, what is even the reason why you'd be nervous about making the wrong decision? Like, so let's say you don't. In the last three years, everything that you've bought, you've expensed. In a really extreme scenario, probably not the right way to do it, but you've done it. What is the risk there? And. Yeah, what's the risk?

So the risk is the IRS could send you a letter. They typically will not come to you in person. It's just too expensive for them. But they'll typically send a letter saying, we want to know the details. We want to see a line by line item itemization and receipts for this category of expenses. And that kind of kicks off what they call a paper audit. From there, they may have like a video call or a phone call with you. Typically, they do try to keep it to paper. So it's documented, but they're basically going to examine those expenses. And so if you had $30,000 of food listed as a line item on your return, certain things like that can kick up a red flag, which is what would initiate a paper audit. And then from there they may ask you, like, what was the business purpose? And you may have to go through each one and say, okay, this was for this brand partnership, or this was recipe testing. So it kind of depends on whoever is auditing you. If they determine that there are expenses that should not have been expensed, they will basically remove those from your tax return. The tax that they offset will be added back to your return, and then you'll have to pay interest and penalties, essentially. So if it was several years back, typically it's like a three year audit period. If they find that you have, like massively been trying to evade taxes, that opens it up to a longer time period. But that's basically the end result. Like the worst case scenario is they say these can't be deducted. Now you owe all this tax and penalties.

Yep. And in one category, it's like play by the rules. Like, that's right. Table stakes. It's like what you want to do. You don't want to try and like cheat the system. But like, if you are in a situation where you look back and you're like, oh, shoot, I did this, but I didn't know that I was doing it wrong. Maybe food as an example, or other categories that we might talk about, I think it's helpful to have some of that context. The risk, then what I hear you saying is that, number one, there'd be an audit which just would be a pain to go through. Number two in that audit, if there were expenses that you claimed that the IRS deemed to be not actual expenses, business expenses, they would add those back in. So you'd have to pay the tax that was due on that. So you couldn't have written it off plus interest. Because the IRS is saying like, hey, we should have had this money. It was owed to us if we would have had it. It's kind of like a loan almost in that way. So one of the things that seems like is important as you talked about it is documentation. Like, not only to save your receipts, which I'd be interested if you have advice or recommendations on that, but also in situations where it's not clear maybe what the recipe was or like what the purpose was, to also have some notes around what that is. Because I would imagine, let's say it's two years down the line, three years down the line, you look back and you're like, I have no idea what this was for. So do you have systems that you'd recommend that creators can use to make sure they're documenting things?

Well, yeah. So the thing with receipts is that I think there's like an old misconception that they have to be in pa, they have to be in paper form. You have to print all your email receipts, keep them them in shoeboxes. And the nice thing is the IRS says we can accept digital copies because realistically, like if you have a receipt, it gets. Sits in your car for a month, all that information on there just gets washed out. So they'd rather have you scan it and organize. And I always tell our clients, don't go through any extra work than you need to at this point. Save that extra work if you get called up for an audit. So, but make it, save it in a manageable way. So we have like, I recommend having like a Dropbox folder and you have that app on your phone. So if you ever have a paper receipt, like I have one on my desk that I need to scan in. I'll take a picture of it, I'll label it with the date and like the company name or the restaurant name or whatever it is and save it to that folder. So then if I do ever need to go back and get those receipts, I can just search by the date and just pull them all and deal with it. That way you can point being like.

Don'T be super meticulous in organization because it's probably the risk reward of that. There's the risk that you spend a lot of time doing something you don't need to do, but you do want to make sure that they're all in one place where you can easily find them and access them.

Yeah. Because I mean, I don't know the stats for like audit rates, but they're very low. So the chance of getting audited is already low. Then if you're doing things well and by the book, then it's even lower. So just make sure you have a system for that. And then the other thing I was going to mention is bank statements. I think a lot of people think they can just rely on like bank statements and don't have to deal with receipts at all. And you want to keep copies of those, but that can't be your only documentation.

Got it. As a real quick note, one of the services we use is actually, you mentioned Shoebox. It's a service called Shoeboxed.

Oh, yeah? Yep.

And so we send it to them. And one of the things that's nice is I don't know how they do it. It's probably some version of AI machine learning kind of thing where they scan it in and then we'll populate it with like the date and the price. And so then we also give our accountant access to that. So if they ever need to look anything up, they can just go in and find what that is. So. But I also, I've also heard of people using, like you said, Dropbox or even like a creating an email account and they email the receipts to that email account. So those are there. And then using Gmail, just kind of search through it. So that's great. This is maybe a quick one, but one that I'm curious about. Do you have a recommendation for a software tool for people to use from a bookkeeping perspective?

So our Firm mainly uses QuickBooks, so that would probably be at the top of my list. Xero is another very popular bookkeeping software. And then a lot of people, especially if they're just starting out, aren't ready to invest in something that's going to have a monthly fee. So Wave is another one. And all of those, I believe all of those have like mileage tracking apps within them. I think they also all have some form of like receipt tracking. So you can send an email to a certain email address and it will pull it into the program when you log in and you can match it with expenses. So that's. They all have a lot of neat features.

Cool. One of the things you mentioned was mileage. We also talked about groceries, other deductions that would be worth mentioning that maybe creatives don't think about that they can use as a business expense.

I think home office is one. I think everyone probably knows about it. But like the how it works seems to be kind of up in the air for a lot of people. So if you, you don't have to have a room with four walls, that is your home office in order to take it. You can have a space in your basement. But the, the key is it has to be regularly and exclusively used for business. So you would have to like measure out the square footage of what your office is taking up if it doesn't have the four walls. And then on the, on the other side of that, like, you can't. Since you're like kitchen in your home is not exclusively used for business and probably used to make meals for yourself or family. That square footage can be written off if you have like you said, cannot. Yeah, if you have like a studio kitchen or like you said, like an office space, obviously that would be able to. But like some people bring their laptop to the kitchen table. Those shared spaces can't be included in that home office space. Sure. But one of the fun things that you can write off with that is like if you have a housekeeper or you have those types of expenses that benefit the whole home, you don't have to just stick to like rent and utilities. You can kind of think outside of that as to like what expenses are benefiting the whole home.

Yep. As long as you have a space that's exclusively used as an office, like a well defined area. So your basement example, I could almost imagine if you have a spot in your basement, like you could take a rug, like roll that rug out. And that's kind of. Even though there's not walls, you use that as the defined area of like, hey, this is my office and we're not going to use it as also like a play area or like a workout, you know, corner of the room. But it's just going to be where I office. What you're saying then is you can use the home office deduction. We don't have to dive deep on what that is, but and then calculate is the basic calculation like a square footage percentage. And that for the other things like utilities, rent or mortgage, home cleaning, all of those things, you can take a per. It's almost like you get a percentage off quote, unquote, because you're able to deduct that through your. As a business expense.

Is that exactly. Yep.

Cool, that's great. So let's talk about some of the kind of mechanics from a tax perspective of, of different business entities. And the three that you hear a lot are Sole proprietor LLC and then S Corp. Can you talk about Each one of those as it relates to taxes and how people should make a decision around what type of kind of tax election they have.

Yeah. So we'll kind of go from like the, the one most people start with which would be sole proprietor. So as soon as you decide that you're a business that is created, every state is a little bit different in terms of like if you need to register for anything with the state. But for most cases, as soon as you decide that you want to be a sole proprietor, you are one.

Yeah, like I could, it's snowing today in Minnesota. I could say I kind of want to start a snow removal business and if my neighbor hires me tomorrow, I'm in business. Like I don't set up, I don't, I don't have a name. Yeah, okay. And they pay me and now I have a business.

Exactly. Yep. So very easy. No barrier to entry. You yourself are the business. So there's no separation. And obviously disclaimer. I'm not a lawyer, but the big difference between a sole proprietor and an LLC is that legal separation. They're actually, if you are a sole proprietor versus a single member llc, so just a one person llc, you're taxed exactly the same. A lot of people ask me is it time to be an llc? And I defer to the lawyer counterparts out there who work with creatives for them to touch base with them because there is no tax difference. In some states like Texas, the only tax difference is now you have to pay franchise tax or you have to file a franchise tax return. So that's going to be kind of the difference there. You can have your own name as an llc. So you could be snow removal LLC instead of your name. And then the next level up is S Corp. So that we typically recommend for clients who are making at least $50,000 in profit. So whatever's left after your expenses, we want to see at least 50,000. And then that's kind of the starting point for having a discuss with your accountant about whether or not it makes sense to them become an S Corp. We could have like a whole hour long conversation about S Corps themselves. But the big difference is when you're a sole proprietor or a single member llc you pay income tax and self employment tax on your profit. When you are an S corporation, you pay income tax on your profit. You don't pay the self employment tax on your profit. So sounds too good to be true. Why wouldn't everyone just do that? And the reason is as an S corporation you also have to Pay yourself a reasonable salary. So that salary is deducted from your income. So you're going to probably. You're going to have a lower profit when you're comparing the two. And there are no tax discounts on what you pay yourself through your salary. So it's fully taxed. So you'll hear people say, oh, become an escort. Pay yourself $5,000 a year, and the rest you get your tax discount on. But the IRS is like, no, hang on a minute. You have to be paid what we deem to be reasonable. So there's tools out there that help you determine that. But basically it's what could you hire someone to come in and do everything that you do that would be deemed reasonable? So you have to make at least enough above that that the tax savings outweighs the extra expenses of things. Like now you have an extra tax return. Now you have to have payroll, service, things like that, which can add up. So that's one of the things we do, is we help clients compare what is your potential tax savings to the expenses, just to make sure it is a good idea before moving forward.

That's great. So I'm going to reflect that back. Let me know if this feels accurate. So sole proprietorship and llc. The difference, the main difference with that is in the name. Limited liability company, llc, because you're limiting your liability. So in the snow removal example, let's say that I did indeed go start a business tomorrow doing snow removal. And I go and I shovel my neighbor's driveway, but I do a terrible job and it's all icy. They go out, they slip, and they fall. I don't have any protection. So then they say, we're going to sue our neighbor. Not very nice neighbors. They sue me. They can go after my house, they can go after my car. They can go after essentially anything that would be an asset because I have no protection. There's no like, like nothing, nothing separating me. Let's say I decided I want to start a business and I first went through the process of setting up an LLC and then I operate that business within the llc. Same thing happens. Then what they would do is they'd say, okay, you're getting sued, but we can't, like, go after your stuff because it's all within the company. And so they could go after anything within the company. In this case, it wouldn't be really worth much because they'd have a couple shovels and, you know, limited income. So at some point, though, let's say I was really successful within that LLC. And I was making 50,000 a year. Then it might be worth looking at going through the process of adding an S election to that llc. You don't have to create a new business. Right. You could do like, you can say, I want this LLC to be taxed with an S election. And then what you're able to do is pay yourself a salary like you're an actual employee that's going to be taxed at the maximum amount that a salary would be. But then any of the income above and beyond that reasonable salary, which that's kind of a gray zone and probably a longer conversation that you'd have to have with your cpa. Anything above that salary you can take as a distribution. And sometimes people be like, how do I do a distribution? It kind of would. I mean, you could just say it's like a transfer from your business checking to your personal checking. That would be a distribution. But the nice thing is that that wouldn't be taxed with the additional taxes that come with a salary. It would be. It would be taxed as a distribution from your business, which is not going to have the fica. Is that what it would be?

Okay, Social Security and Medicare.

Okay, Social Security and Medicare taxes. So the thing that's worth pointing out here, now, this. People don't have to completely understand it, but the thing that's really important is by making a couple small changes that don't actually require a ton of work, you can potentially save thousands of dollars without making more money or having more expenses. It's just changing some of the ways that you're reporting your income. Is that right?

Yeah. So I.

It's.

It's. Some people come to this situation and they're like, really overwhelmed. They don't know if it's worth going through the hassle. And I remind them I am going through most of the hassle for you in getting it set up and helping with that payroll set up and everything. It's just kind of like hard to grasp. How do we get the money out of the business? And like you said, payroll and distributions are how you take the money out. It's not trapped in the business. You will pay tax on the profit no matter whether you take $1 or all of your profit out of the business. So there's no special calculation for figuring out how much extra you can take out. But it's not as difficult as I think people build it up in their mind to be, especially if you work with an accountant at. At least for like that setup process. And then definitely for the tax return.

That makes sense. So one of the things you mentioned was payroll. Can you just really quickly explain that? We use a PEO called justworks. We did an episode with somebody from justworks a while back, just talking about that. But how do you go about setting up a payroll for yourself? And is that something that a CPA could handle for you as well?

Yeah. So companies like justworks, there's other ones out there, like Gusto, they have great, like onboarding. So if they don't have someone to do it for you, gusso has like step by step instructions. We also, I think the hardest part of the whole process is figuring out how to answer the questions from your state to get your withholding and unemployment account set up. Even if you're in a state like Texas or Florida that doesn't have withholding, you still have to go through the hoops to get your unemployment account set up. And then in some states, states, well, most states, you can't set up your unemployment account until you've actually ran payroll. So there, those are the main things that you have to complete to get payroll set up. And then most of those programs can kind of just run on autopilot, especially if it's just one person. You can figure out what does the payroll need to be, how often do you want it paid and you can turn it on autopilot and it will just run for you.

And there's something that's really nice for me, there was something that was really nice about when we then actually had a salary. And it's like it establishes some credibility almost for myself, for the business, like, hey, I'm getting a paycheck. It's getting deposited twice a month. And it's not like you then can't also do the transfer from your business account to your personal account. But there's something really nice about that as a system like, okay, we're getting these deposits and we know. And.

And the mortgage companies agree with you as well.

Yeah. Can you talk about that? Why that's important?

Yeah. So they love to see W2 Income. Like you said, it shows some consistency, some reliability. It's a document that's been filed with the IRS and it's hard to dispute. So they love W2 Income. So even if maybe you're not going to get a ton of tax savings, we've had clients make that jump to S Corp status because they knew in personal side of their life they wanted to start house hunting or buy a new house and so that would be helpful. And then the other Piece when working with mortgage companies is they love to see bookkeeping records for self employed people. So a spreadsheet that is kind of jumbled up, they're not going to be able to rely on that. So having something from a bookkeeping software that can be printed out, I don't know how much weight it holds, I don't know the back end of how those calculations are done, but I know that is a really commonly requested thing along with the wt.

Yeah, that's great. When, at what point should somebody start to get serious about doing their bookkeeping? Like let's say, you know, in the example of me doing the snow removal company, that's one thing, but in our space it's a little bit different where you might for a while kind of be in this startup stage where it's not really services based. So you might not be making money right away, but you would have expenses that you'd be having even if it's, you know, a hundred dollars here or there. So at what point should you start to do bookkeeping for your business or kind of side hustle?

So the nice thing if you already have separate business bank accounts set up and having everything flow through there is it kind of gives you a little bit of wiggle room. Like you can kind of delay it a little bit if you want because you can pretty quickly hook it up to something like QuickBooks, have all those prior transactions flow in, start to like mass categorize based on like if you are constantly buying things from a grocery store, you can highlight all those and apply a category. So I think it's a lot easier to learn a bookkeeping software when you only have maybe 10 to 20 transactions a month. So as far as when it is a good time, I if it's never too late, but I would always recommend starting as soon as you can before things are crazy, before you, you have tons going on. Getting the basics of how to do it is awesome when you don't have a lot of transactions that are overwhelming you. But if you are to this point in the year, it kind of just depends. Like do you have time to do it yourself or does it make sense to hire someone to maybe get it caught up for you and then you take it back over. There's just a lot of different ways that you can get caught up. But don't wait until April 14th or April 13th to try to figure out how to learn something like QuickBooks and get a year done.

Yeah, when let's say somebody goes to that, let's say they start early on in the year. So this, when this episode comes out, it'll be March, let's say they're like, oh my gosh, I'm gonna, I need to do this this year. I need to get better about it. So I'm gonna. As a first step, separate out personal and business. You have your business expenses and income going into one bucket and then a few months later on going to hook up the QuickBooks, categorize things, and then let's say it's. You get to the end of the year and it's a loss. Can you talk about how? At any point, but especially in the early stages, it's still advantageous to keep track of your expenses and do bookkeeping because you'll have a loss and how that loss impacts your. Or whether it impacts your personal income, like W2 income or other areas of income.

Yeah. So if you have other areas of income during that year, like W2 income, that loss can offset that other, what they call like ordinary income. So your W2, you get taxes withheld. If you have a loss to offset that, then the amount you're going to get back as a refund is going to be even higher because of that loss. Let's say you don't have anything to offset, so you just have this loss for the year. It will carry forward to the next year. And Maybe you have $10,000 of profit for the next year, so that loss will carry forward and help you offset in that year. So I hear a lot of people say, oh, I have a loss. I'm not even going to bother claiming it. It's a lot, but it's definitely worth. If you don't make any money, let's say you don't get paid a single dollar your first year. All of those expenses. Maybe you paid a web developer to design your website and have tons of expenses. You still want to track those because those can be considered startup expenses in the first year that you do actually start to make money. And having those all compiled will be. Will make that tax process really nice. You'll just, just hand over a pretty package to your accountant, they'll plug it in and they will be considered startup expenses. You can deduct $5,000 flat. I mean, assuming you have more than 5,000, let's say you have $10,000 of startup expenses in your first year that you actually make receive money. You get to deduct $5,000 as a startup expense and the rest gets deducted over time. So you'll. Don't be alarmed. If you don't see that full amount, it'll still be deducted just over time.

And so the quick tip with that, let me know if this is accurate, would be, let's say you have a significant amount of expenses. You haven't had any revenue. In order to avoid those being considered startup costs, you want to figure out some way to make like a dollar. Does it have to be a certain amount?

Like, yeah, you don't have to be profitable. Yeah, you just have to receive a.

Dollar, receive some money. And what that means is it's kind of like when you go into a store and they have like our first dollar. Like with you, when you have your first dollar, the IRS then says, like, okay, you're no longer in startup mode, you're officially a business. And then if you have those losses, then you can count those against ordinary income. And so in the scenario that you talked about, like, let's say somebody's invested into their business, whatever that might be, right? It might be, be a blog, a website, maybe it's, you know, brick and mortar. You're building something. Like, you want to make sure that you're tracking those expenses, but then also, if possible, creating revenue, because then those expenses will be considered a loss within that year. And let's say you made 50,000 in a W2 job, then that $10,000 loss, if I'm understanding you correctly, would be used against that $50,000. So it would be in the eyes of the IRS, you would have $40,000 of like, ordinary income. And so you might see a nice end of the year refund or return because you're reporting like, hey, actually I paid taxes on 50,000, but technically should only have paid taxes on 40,000 because I had this loss. So even for people who are in the early stages, and it wouldn't have to be 10,000, it could be a thousand or 2,000. Like, to make sure you're keeping track of those things. That's great. So that's kind of early stage. People who are in the early stages, it's getting started, being smart and diligent about keeping track of your expenses, separating that out, categorizing those within QuickBooks. How about for people who are in the more mature stages of the business? Let's say they're making profit of 10, 20, maybe 30,000. You know, they have this really healthy business. What are the tax considerations that we should be making at that level? And any advice around, like being smart about your taxes or bookkeeping or whatever it might be for people who are more established.

So I think bookkeeping is the first step in any, like whether you're new or you're more advanced, making sure that either you know you're doing a great job with your bookkeeping or you have someone that you've outsourced it to. And then the second part is like, if you're in that mode where you're like, like I need to know where to put my money. I have this money and it's not a factor of I don't have enough, I have enough money now, where do I put it so that it's not being taxed at the maximum rate. And we typically start out with things like, okay, let's look at retirement. When you're self employed, you don't have anybody, you know, setting you up with automatic retirement contributions or anything like that. So looking at like if you're in the position to max out retirement contributions, looking at that, some states have tax credits or deductions for contributing to college savings accounts. There's also like, if you have a high deductible health insurance plan, contributing to your HSA is another way that you can put money, I mean you can't touch it essentially once you put it there. So you have to have enough of it. But it keeps the tax money out of the hands of the government because you've put it into one of these tax advantaged places. So that for more advanced businesses is our next focus of like where can you put your money that you don't need to live off of?

Yeah. And it's one of the great things about business is you like that first step, it's understanding the mechanics, the business itself, getting things going, getting things running. Eventually it's replacing your salary. Once you've done that, you've created something that has given you this benefit of potentially surplus. And then it's like, okay, great, how's this business then going to fund other things that will like it's making money work, right. So like, and even better if it's working in a tax deferred way and like you said HSAs or IRA investments or you could set up, you know, you talked about maxing out a 401k, all of those kind of not necessarily advanced strategies but like ones that you'd want to have a conversation about with somebody like yourself who's going to be able to talk through how to do that and strategies for that and things along those lines. So that's awesome. So when this comes out, out it's gonna, we're gonna be close to tax Season. I remember distinctly probably for the first five years that we were doing our business, probably some years before that, but we had W2 jobs, so it wasn't as complicated. But just coming to the end of the year and always being like, ah, I'm so frustrated that I didn't do a better job of like tightening this up. I'm gonna do better this year. And it was like three, four, five years. Every year got a little bit better. At this point, I feel like our system is pretty tight. But it's been 12 years of us doing some version of like a business. And what I've learned is like, it's better to do it on a month by month basis. So when it comes time to submit your taxes, you're not like in scramble mode. But can you talk about what that actually looks like to do that well and what goes into. What goes into doing it? Well, like, how much work is that actually with bookkeeping?

Yeah, monthly is ideal. The more you put it off, the more it builds up. And then it's like you keep wanting to put it off and it just kind of snowballs. The general process that I would recommend is go through and give everything a category. If you aren't sure of things, you can put them into like an uncategorized expense bucket and ask your accountant. You know, build up your list of questions, send them over, and they can help you decide how to categorize those things. Once you have everything in for the month, month, then you'll go through that reconciliation process I mentioned. Most accounting programs will have some type of tool. So I recommend if you're brand new to doing your own bookkeeping, like if you're using Wave for your bookkeeping, Google Wave reconciliation tutorial. And it'll walk you through exactly how to use it. You'll have to have your bank statement for the month, and then you'll have your bookkeeping software pulled up and you're basically going to be like check marking transactions as you mark them off on your bank statement so that you can make sure there aren't any extras left over for the month. Once you've gone through that process on either end and when it tells you there's zero differences, you know you're good to go. And that really helps with peace of mind knowing you don't have a bunch of extra stuff flowing in there. There's not duplicates, you're not missing stuff. And so once it's reconciled and there isn't a bunch of extra leftover transactions or missing things, you're Done that account. But if you have things like PayPal and Stripe and a credit card, you have to go through each one and reconcile them individually every month. And once you get through the first couple of months, it can be super easy. Like QuickBooks has kind of learns. Okay, I. If I select all of these transactions, it zeros out. So you just have to look through and see were any unselected, are there any duplicates? And if not, it might take you literally two seconds to reconcile once you have gotten through like the first one.

And so to set that up as kind of a monthly process, a monthly system that you're doing, it's made even easier if you are using that business card where you're not having to track stuff separately from your personal account and whatnot. How about for people that are like, that sounds great, but I don't want to do that. That's where you'd come in with your firm. Can you talk a little bit about the services that you have, Amy, and how people work with you?

Yeah. So we always recommend, like if you know yourself and you know you're never going to do it and you have the budget to outsource it. Bookkeeping is a great first thing to start outsourcing because when you get to the tax side of things, it's definitely very much like a garbage in, garbage out situation. If we get, if we receive garbage for bookkeeping, then the tax returns are not going to be very reliable. So we pair up, pair you up with the bookkeeper from the team. They will go through and give everything a category if they're unsure of things. Like Amazon's probably our most typical asked transaction question of like, what is this? Because it could fall into a lot of different categories. Then the client gets sent a list every month of those transaction questions. They give us a 1 to 2 or description of what they are. We update it. The software. There's a. We like to have a second set of eyes on everything we do because you kind of like get in the groove of things and you can miss things. So we have a reviewer for our bookkeeping look it over and then they send off those financial reports each month. The tax side of thing is probably, if you've ever worked with a tax accountant, probably very similar process that we have. Our clients go through a questionnaire in January, we collect the documents, we prepare a return, we have a second set of eyes, review it, and then we send it off to the client to look over and answer any questions that they have. And during that process, if we See opportunities like retirement contributions that are missing or things like that that they can take advantage of. We let them know about it and see if they have the cash available and want to do that before we finish things up.

That's great. Can you talk about, just kind of as a last consideration, the. When you talk about creatives, working with creatives, and you've talked about working with publishers, bloggers, so we know that, but like, broadly speaking, what does that look like? Who are the people that would be candidates to potentially work with you?

Yeah. So I mean, small businesses that feel creative, we, we have such a broad variety. I mean, we have photographers, web design developers. We even. We do have like an H VAC company.

Sure.

We will let people know, like if there's like a trucking company that comes to us, we'll kindly let them know like, we're probably not the best fit for you or something like that. But really, like, we love to work with small, like one to two owner businesses and they feel creative. I love to watch their business grow, see them on social media, see all their projects that they're doing and that kind of thing. But we've created our website in a way that if you resonate with that and you reach out to us, you've already gone through that first kind of like funnel of like who's going to be a good fit and who's not. Because it's not the typical accounting website.

Yeah, that makes sense. And if people do want to reach out and connect, what's the best way for them to do that?

Amy, Just through our website, which is Amy Northard, CPA.com Cool.

Amy, thanks so much for coming on the podcast.

Thanks for having me.

Hey there, Alexa here. Thanks for tuning in to this episode of, of the Food Blogger Pro podcast. We hope you enjoyed it. And if you are sitting there thinking, man, someday I'm going to start my own food blog. Or maybe you're sitting there thinking, I just started my food blog and I have no idea what to do next. Don't worry, we've all been there and we actually have a free ebook just for you. And it's called the Food Blogger Starter Kit. And it's full of different resources just to help you along the journey as you're getting up and running with your very own food blog. So you'll get access to our free course all about setting up your food blog. Some of our favorite podcast episode recommendations, some tips about plugins and photography, and then just some other ways to continuously learn and get a tiny bit better every day. If you're interested in downloading that ebook for free, just go to foodbloggerpro.com podcast start and you can download it right there for free. We'll have a link to it in the show Notes notes as well, so you can easily click on that there. Otherwise you can just go to that URL foodbloggerpro.com podcast start to download that food blogger starter kit PDF for free. So we'll see you next time. Thanks for tuning in again, and until then, make it a great week.

Sam.