Free Webinar: Making More Money and Saving on Taxes

Hey everyone, we're going to go ahead and get started here this morning. So for all you have joined, welcome. My name is Cody Hall. I'm the head of sales and marketing here at Bookkeepers for Painters, and I'm excited to kick off today's session, Knowing Your Numbers and Saving Big on Taxes. This training is built specifically for you, the painting business owners who are ready to scale profitably and stop overpaying in taxes without wasting time and money on things that do not move the needle. So let's introduce our experts this morning. With me, I have Daniel Honan, CPA and our founder here at Bookkeeper for Painters and the mind behind the Profitable Painter program. He's helped hundreds of business owners grow and grow and master their numbers with using simple, powerful metrics and ratios. I also have Richard Dutton, EA, our tax reduction strategist, who spends much of his time using aggressive strategies to legally reduce the amount of money you owe to the IRS. Here's some things that are coming up today. Uh, two very actionable presentations, the first of which will be by Daniel on how to make more money using one simple ratio without wasting a dime on marketing, and then by Richard, how to pay almost nothing in taxes while avoiding trouble with the IRS. Very important footnote there: avoiding trouble. As a bonus to all of you and to celebrate the rebranding to ProfitPater CPA, Both of the experts will have a limited free offer for a few of the guests here today that could add thousands in value and/or save thousands for your business. So stay tuned after every one of the presentations for more details from those folks. Now we are going to have an intermission between Daniel and Richard. We'll have a short little quiz during that time. And for those who participate and get things right, we'll be having some really cool free giveaways. Now, throughout some of the lessons, you may have a question. Using the Q&A icon in the menu bar, please throughout the presentations type your questions into there, and at the end of the presentation, when prompted by the expert, I'll read them out loud and the experts will answer those for us. Now, without further ado, I'm really excited to introduce Daniel Honan on the topic of how to make more money using one simple ratio. Daniel, take it away.

Awesome, appreciate it, Cody. So let's get this started. All right, so in 1983, an Air Canada flight was cruising at 41,000 feet when suddenly both engines suddenly shut down. The plane lost all power. The problem? It was a simple miscalculation. The ground crew filled the tank up with using pounds instead of kilograms. So the numbers looked right, but they were wrong. And no one caught the error. So the pilots were suddenly flying a 130-ton glider through the sky. No engine, no margin for mistake. And they ended up performing one of the most heroic landings in aviation history in an abandoned airfield in Gimli, Manitoba. But let's be honest, that never should have happened. Now, you're probably not flying a 767, but a lot of painting business owners are doing the exact same thing. They're running their business with the wrong numbers or no numbers at all. They're taking on jobs, they're hiring crews, spending money on marketing, but they don't really know their gross profit, their breakeven, or their customer acquisition cost. And they're flying high until suddenly the engines cut out. And when that happens, can't afford to figure this out midair. So this reminds me of a client that I had a couple years ago. We'll call him Mike. And Mike had a $1.5 million business, and every month felt like a scramble. He had no real financial dashboard. He was guessing at job pricing. He never planned for taxes. He just hoped. And when we started working together, the first thing we did was build him a real cockpit, a clean set of books, a monthly dashboard, and a strategy for tax. And turns out he had been leaving over $50,000 a year on the table in tax savings alone. Fast forward a year, Mike's net profit has nearly doubled and his cash flow stabilized. And for the first time, he told me that, you know, he finally feels like he is in control of the plane. So my goal today is to show you the one financial ratio to master your numbers, just like the top 20% of the most profitable painting companies in the industry. And really, your numbers can be boiled down to this one ratio. So if you get this one ratio right, which we'll go through, you can really open up the profitability. And I want to be clear that the numbers I share with you today have worked for hundreds of painting businesses. And I know that they work because I've worked with over 400 painting businesses from startup to $20 million over the last 9 years. So I know this from experience, not theory. So with that said, let's get into things here. Here's a quote from Peter Drucker, one of my favorite quotes: "A business without profit is just a hobby." A business without profit is just a hobby. And if you don't have profit, your business is broken and you can't scale broken. And don't take my word for how important this topic is. Let's take a look at how it's helped other folks. So staying profitable has helped Scott go from startup to $650,000 per year. It's helped Ryan go from $700,000 to $3 million per year. It's helped Chris go from $4 million to $8 million. And dozens of others who work with us to know their numbers and grow to the next level. In fact, over the last several years, the painting businesses we work with on average increase their bottom line net profit by $78,000 and reduce their tax burden by $44,000. Now, once you know the numbers you need to hit in your business, it doesn't take a ton of time to get results. You just got to do the right stuff the right way. But knowing the numbers and how to improve the numbers is the hardest part, which is why we've dedicated a huge amount of resources to this mission. And the mission is to guide painting business owners to financial prosperity. So with that said, let's dig into the numbers here. So these are the numbers from the top 20% in the industry categorized by typical painting business stages that we've pulled from our internal benchmarking. So all the painting businesses that we work with, we pull those numbers together and to try to understand what are the best people, what are they hitting in their numbers. And so if you look at the chart here on the left, you'll see the typical categories of a typical profit and loss, revenue, gross profit, salespeople, marketing spend, all that. And then on the right, you have the, the stages of a painting business from solopreneur all the way up to sellable machine. And then underneath each column are the percentages of each profit and loss category as a percentage of revenue. And these are the numbers from the top 20% in the industry. So these are like the ideal numbers that you'd want to hit in your own painting business. Now, notice that as you grow, it's a process of taking off hats and putting them on other people. So when you're in the solopreneur stage, you're wearing all the hats, as indicated by those little hat icons. So when you're a solopreneur, you're doing the painting, you're doing— you're the production manager, you're the salesperson, you're the office admin, and you're also the leader of the company. But as you grow, you'll need to hire folks on and put those hats on other folks. So the next stage is the off-the-brush category. This is where you have crews that are actually doing the painting for you. So you put that hat on other people, and now you're still wearing those other hats. Now, as you grow, your— what we call discretionary earnings will go down, because when you're first doing everything, most of the revenue should be going in your pocket because you're doing all the roles. But as you grow, you have to pay other people so that as a percentage of revenue it will go down, but hopefully as an absolute value of the dollar will go up. So let's run through an example and see how this works. So let's say Joe from Joe's Painting, he's in the off the brush stage. And so he is doing everything except for painting on the job site. So he's the salesperson, he's the production manager, he's the office person, he's the business owner. So to be in the top 20% in the industry, his take-home pay, or AKA his discretionary earnings, would need to be 31.5%. So, so for every dollar of revenue, he should be getting $0.31 essentially. Now let's say that Joe, okay, he wants to actually grow the business. He wants to grow it to the next level and he wants to bring on an office person so he can focus on growing the business. Revenue, he's going to bring an office person on so he can focus on the marketing and sales, let's say. So he's removing that hat and putting it on his new office person. And so his new target take-home is 27%, um, as you can see by that, that column there. So 27% is the new discretionary earnings target, and that's down from 31.5. So his target net pay is actually going down as he grows, but the idea is he's growing the pie bigger and he's just taking a smaller slice of a bigger pie. So he should be making more money. So this is a lot of numbers, right? Hopefully, you know, this is helpful. You can definitely take a screenshot of this growth model of the numbers you should be hitting in your business is really helpful for comparing these numbers to what you're hitting on your own profit and loss. However, it can be a lot. It's a lot of numbers thrown at you, I know. So to really boil this down, it'd be great if we could just boil it down into one simple ratio, right? So let's do that, and let's talk about that key ratio. And this is the whole purpose of this presentation, is to go through the gross profit to customer acquisition cost ratio. If you get this ratio right in your business, it's dialed in, the profits are gonna come. So let's break down what this ratio actually means. And it's made of a couple different components. The first component is gross profit. So gross profit, what is gross profit? Actually, let's take a look here at the numbers here. As you notice, gross profit for the most part is around 50% across the board. It's a little higher for solopreneurs 'cause solopreneurs, if you look at their, their profit and loss, they're working on every single job site, so their gross profit's gonna be a lot higher. But for everybody else, it's around 50%, and it usually gets better as you grow and as you dial things in. And so you'll notice that the Sellable Machines, they're hitting 56+ percent on gross profit. So just to make sure we're on the same page, let's define what gross profit is. It's basically the revenue, the money that customers pay you, minus the cost to produce the work. And so this is paying for the, the painter labor and the painter materials. What's left over after that is gross profit, and we usually state it as a percentage by taking what's left over, dividing it by the total revenue to get it stated as a percentage of revenue. And gross profit really is the most important profitability metric for your painting business, and a lot of painting businesses get this wrong. So it, it's the first place to start really for your business. You want to improve your profitability, you have to start with gross profit. And there's two main ways to improve your gross profit margin. And the first way is to increase your prices. Pretty straightforward. It can be scary to, to increase your prices, but it's essential if you, if you're really struggling with gross profit and you've eliminated the other issues, it could be, it's probably pricing. Now, oftentimes folks are saying that, oh yeah, I shoot for a 50% gross profit, but then when I follow up with some questions, it turns out they're actually not— the way they're pricing isn't allowing for a 50% gross profit margin. So it's important to know the numbers here and understand how are you actually arriving at your prices. So in order to hit a 50% gross profit margin, you need to charge your customer twice the amount it costs you to produce it. Pretty simple idea, right? Charge the customer twice of what it costs you, and that should allow you to hit that 50% gross profit. And most folks get this right with, with labor. Like, they understand, okay, uh, just to take an example, um, last week I was talking to a new painting business owner we're working with, and his— we're looking at his profit and loss. His gross profit was like 35%, so not ideal, right? We want them to at least be at 45% gross profit. He was at 35, 35% gross profit. And so I was like, okay, let's, let's walk through how are you pricing your jobs? Like, walk me through what you do to arrive at the price. And so he walks through the labor portion. He's like, my average painter makes about $25 an hour, and I add on some additional burden because of payroll taxes and workers' comp. So I add on about an extra 30% there to arrive at $32 an hour as my fully loaded rate. And I was like, that's perfect. Okay, what do you do from there? And so you're like, I take that fully loaded rate of $32 and I basically just double it and I have a charge rate. I charge the customer $64 an hour when I'm determining the price. I was like, that's excellent. That's perfect. You're, you're basically taking your, your labor rate, adding in some burden there and then basically doubling that for your charge rate. I was like, okay, now what about materials? How are you arriving what to charge the customer for materials? And turns out he wasn't marking up materials at all. He would just add, he would just figure out, okay, Sherwin-Williams is going to charge me $500, so I'll just add $500 to the quote. So that was the issue. It was simply that he was marking up labor, but he wasn't marking up materials. And with that one change, he was able to actually, you know, hit 50% gross profit on his jobs. So all that to say, pricing is a simple idea. Charge twice the amount it costs you to produce the work, but sometimes it can get screwed up in the implementation. So it's important to pay attention to this. Now, the second way to improve gross profit is to improve efficiency. So this is how fast your crews are producing the work, but also how you're compensating your crews. We're talking about your painters, right? And so what I've seen, the best way to improve efficiency is to generate budgeted hours with each estimate using production rates. And there's a lot of great tools out there nowadays to help you do production rate estimating to include PaintScout and DripJobs. But just to back up a second, let's define what a production rate is. It's all it is, is a measure of how long it takes a painter to paint a given surface. So when you're doing an estimate, there's a bunch of different types of surfaces. There's siding, windows, trim, doors, et cetera. You should have a production rate for each of those different surface types to generate how much time it's going to take your team to paint that project. And so when you do your estimate, You generate those budgeted hours, multiply it by your charge rate to get the labor portion of what to charge. And then that should also help you generate a work order to provide a work order to your team, the budgeted hours, so that the crew understands how much is budgeted for each surface type. So they should say, okay, we have 5 hours budgeted for doors, we have 10 hours budgeted for siding, et cetera. And then you give them the expectation to beat the budget. To meet or beat the budget. And so that the folks that are most profitable, they have this process dialed in, and they're, they're doing great at providing those budget hours to their team and holding them accountable. Now, if you're using subcontractors, it's more just about ensuring that you're not overcompensating your subcontractors and allowing for you to hit your targeted gross profit. Now, once you've dialed in gross profit, now you can shift focus to the other part of this ratio, which is customer acquisition cost. So, because remember, the key ratio that you'll need to be looking at each, at least monthly, is your, is gross profit to customer acquisition cost. So this is the other part of that, that ratio. And customer acquisition cost, you can find out on your profit and loss by looking at what you pay your salespeople. And what you pay for marketing. Because the customer acquisition cost is the cost to find, acquire, and close leads. So it's all the money you got to spend to close a deal. So this is going to be your Facebook ad spend, your door-to-door marketing, sending out flyers, and whatever you're paying your salespeople, whether it's your closers or your setters. So folks actually going to do the estimate and closing the job. Or, you know, how much does it cost you to pay like a setter to go out and do door knocking and canvassing? So all those costs is your customer acquisition cost, otherwise stated as CAC. And at a minimum, your CAC should be 1/3 or less of your gross profit. So if we're looking at your profit and loss, let's say your gross profit is at 45%. Of revenue, your CAC or your customer acquisition, customer acquisition cost should be 15% or less if you're at 45% gross profit. And that allows for that 3-to-1 GP to CAC ratio. That's the minimum, 3-to-1 GP to CAC ratio. So that's super important. Now let's go through, let's say you're looking at your customer acquisition costs on your profit and loss, you're like, man, my CAC is, is really high. What are some ways you can— what are some ways to approach this? Like, how can you reduce those costs? And there's really, there's 3 ways. So first is to evaluate the return on investment you're getting for each marketing source. So maybe you're doing Facebook ads, maybe you're doing door-to-door, uh, maybe you're doing direct mail. Those different marketing channels, track how much you're spending on each, one, and then two, track how much, how many jobs that you get and what the value of those jobs through each marketing source. And basically take how much you received in revenue divided by what you spent for that marketing source, and that will give you a ratio. And usually the number that we're looking for is somewhere around 10x or 10-to-1 ratio what you got in revenue versus what you spent. Now, that's not to say if you get 7x, you should immediately cut that channel, but it's just, it's just to look in deep, more deeply into that, that marketing channel to see, can we improve it? Are there some things that we can do to improve that, that marketing channel? And we're going to go through some of those things here in a second. So like I said, you're ideally looking for about a 10x return on investment, but or so for each marketing channel. So just to go through a quick example, if you're doing door-to-door canvassers and you spend $1,000 on the flyers and $1,000 on the canvassers to actually go door-to-door, if you're paying by the hour and a bonus for each lead they get or whatever your compensation package is for them, let's say all in you spent $1,000, but you got one $10,000 job, That's a 10x return, right? All right. So tracking it, tracking the return on investment by marketing channel is kind of gives you an idea of how each marketing channel is performing. Now, let's say you identify, oh man, my Facebook ads are only giving me like a 7x return. That's not that great. You know, I want to be at 10x. What can you do to improve that? So I would take a look at your set rate, show rate, and close rate. And these, we're going to go through each of these, but these are usually numbers that are in your CRM if you have one. And so a set rate, just to make sure we're on the same page what this is, is basically when a lead comes in, what percentage of those leads actually get booked on the calendar for an estimate. So for Facebook, This is usually a— Facebook leads are not as high quality as like website leads. If someone's coming to your website, they looked for you, they are high, they have a high intent, they're trying to find someone to paint their house, they go to your website and they fill out that contact form, you should be setting like 90% of those folks as estimates. Now if they're coming in from Facebook, they just saw a Facebook ad and they're like, oh, okay, that sounds interesting, they click it. But they might not be super, they don't, might not have that high of intent. So 50% set rate for Facebook leads is pretty good, whereas website leads 90%. So depending on the marketing channel we're looking at depends on what we should want to see for the set rate. But this is a good benchmark if you have Facebook ads and you're only setting 20% of the leads that are coming in, You probably should focus on improving your speed to lead. You know, as the lead comes in, getting to that lead within 2 minutes, that's the gold standard with a phone call, email, text message, and trying to get them set as quick as possible because the value of a lead decreases significantly after they show interest. The next rate is show rate. So If your set rate's good, move the show rate, see how that looks. Your show rate is the percentage of folks that actually schedule, what percentage actually show up or don't cancel beforehand. And so this should be a very high percentage, like 80, 90% or higher. If you have a lower set show rate than that, I would just take a look at your, your reminders. Do you have email and text reminders leading up to the estimate? If you, um, are you doing a qualifying call beforehand just to make sure that they remember and they're qualified and all that good stuff? Uh, you could look at adding that into your process. The other thing I'd look at is close rate. And so this is actually once you perform the estimate, do the estimate and provide the proposal to the prospect. What percentage of those folks actually sign up with you. And it turns into a closed deal. Your close rate should be somewhere between 33% and 50%, depending on the lead quality that you have. So if you're doing a lot of Facebook ads, usually they're a little bit lower quality. So you might have a little bit lower of a close rate. Whereas if you have all referral work, referral and repeat customers, you probably should be on the higher side, more like 50% close rate. So those are some benchmarks you can use to evaluate your close rate. So you're looking at those 3 different rates— set rate, show rate, close rate— and identifying how can I improve my sales process. And once you do that, once you make those improvements, it's actually going to reduce your marketing spend as a percentage of revenue on your profit and loss. So it's a way to reduce CAC. Without spending less on marketing. So you use same dollar spend, but no, um, same dollar spend, and you're just improving your sales rate. Your, your sales process will actually reduce the marketing spend as a percentage of revenue because your revenue should go up because you're closing more deals, right, by improving each of these rates. All right, third way to, to reduce customer acquisition costs is to evaluate your salesperson compensation structure. So typically a closer is paid somewhere around 8% of what they close. So if a salesperson closes $1 million in a year, their compensation should be around $80,000 to include burden. So, uh, that includes payroll taxes and workers' comp. So maybe they actually netted like $65,000. And then you add in the burden and they're on the profit and loss, it will look like $80,000. So, uh, ensure that you're not overcompensating your, your salesperson. And this happens relatively frequently where, um, we kind of go through the compensation package of a salesperson and because it looks super high on the profit and loss, it turns out, oh, okay, you're giving them a salary and you're also paying them 10% commission. That's a little high. So. If they're just doing closing, it should be around 8% of what they close. So the whole key here is to make sure that your GP to CAC ratio is 3 to 1 or higher, 3 to 1 or higher. And it's usually if, if you are growing aggressively, it should be 3 to 1 or higher, because that's usually where the GP to CAC ratio gets the smallest is when you're trying to aggressively spend a lot of money on marketing. It should be 3 to 1. Now, if you are heavily, if you do a lot of repeat and referral work, you're not doing a lot of outbound type marketing, marketing like Facebook ads or door-to-door, you're kind of, you know, well known, you do maybe some networking and do repeat and referral work, your GP to CAC ratio should be like 5, 6 to 1, or maybe even higher, because your marketing spend is probably pretty low. But if you're aggressively trying to grow, keep it to 3 to 1 or higher. And if you're doing this, your profitability will, will stay intact and, and, uh, and be great. So, um, and this GP to CAC ratio is one of Alex Formosi. He's an owner of acquisition.com, and he, uh, it's basically a family office. It's valued at around $1 billion. I had an opportunity to spend a couple days with him going through kind of like the key things that he looks at. And this is a key thing he looks at when evaluating businesses to purchase is the GP to CAC ratio. So going back to the, the growth model that we were looking at earlier, notice that for each stage of the painting business, there's that 3 to 1 ratio. When we look at gross profit compared to customer acquisition cost, it's a 3 to 1 ratio or higher. For each stage. So the top 20% are hitting this and actually hitting it oftentimes a lot higher than 3:1. Um, so it's a super important ratio to look at. And really, if you can only look at one thing each month on your financials, look at this ratio, and that will tell you 80% of what you need to know about your business. So the, the bottom line here is that you need to know your numbers. And, you know, you don't need to fly blind. You need to— you don't need to wait for a financial crisis to get clear on your numbers. Know your gross profit, track your customer acquisition cost, because when you fly with the right data, you don't just survive, you soar. So with that, we will move it to questions. Cody, do we have any questions? If you have questions, remember to use the Q&A box. You can Type in any questions and we'll definitely address them. Yes.

Thank you, Daniel. Great work. Our first question actually comes from Angela. What if the job sales closes have terrible GP?

What if the jobs have— that you closed already have terrible GP? Like, I'm thinking the question is like, if you've already closed the job historically and you weren't doing the pricing correctly, and you know that, oh, we have to produce this work, but it's not going to be profitable, I would try to go back to the— because what you don't want to happen is you do the work for free, basically, because that's what will happen if you have a really terrible GP and you're only like, oh, GP is only going to be 25%. I would go back and like say, hey, customer, you know, Mr. Smith, Mrs. Smith, we actually need to charge more for this job. And, uh, I apologize for the inconvenience, but it turns out I can't do it at this rate given the paint prices and what I need to pay my team.

She also asked some additional detail there, Daniel. She said, yeah, why would you get commission or percentage pay on that if it had the bad GP?

Um, I'm not sure if I understand that question. Um, why would you get commission or percentage pay on that? Okay, so I think maybe what we're talking about is if the salesperson closes— okay, I think I understand what the question is. If you have a salesperson and they close a job that has a terrible gross profit, um, should they still get a commission on that job because they basically, they, they sold a job that was just had terrible margins. And so yes, that's a great question. And I would, when you're compensating your salespeople, you can actually compensate them tied to gross profit. So maybe you have a, just to throw an example, compensation structure for a salesperson, maybe you start out with 4% of what they close, they don't get a, they don't get a, for residential repaint, usually the base salary is zero or very low, because you want your salespeople hungry to go out and close jobs. So let's say that the base salary is zero, let's say you're doing a commission of 4% for any job that they close. But then they can get an additional bonus, like an additional 1% on revenue if they hit 45% gross profit, or if you hit 50% gross profit, you get additional 2% on revenue, you know, up to that 6.5% is probably where you want to keep it. But you can, you can basically tie the bonus to hitting those gross profits. Now that's going to require you to do job costing to know what to pay the salesperson, but you can align, align the incentives there.

Great. Thank you for that, Daniel. The next question is going to be from Joshua Edwards. With what frequency should we as business owners be auditing and updating our numbers?

So I would be updating your numbers at least monthly, like so you can have financial statements at least monthly, but maybe even more frequently depending on the level of how, how big your business is and what you're trying to accomplish. So that would be the minimum I recommend because after, especially if you're looking at your GP to CAC ratio, you want to keep pretty close tabs on that ratio, especially if you're spending a lot on marketing to be able to see, am I overspending or am I in line at least monthly?

Great. Thank you, Daniel. Now I have a new question from the name iPad. So anonymous. What if I'm approaching semi-retirement as a sole proprietor and want to sell the business? What should a buyer need for financials? Yeah, there's an additional element. Should I— should estimates being— oh, that's a different question. I'll let you ask the same person, though. Okay.

So yeah, as a sole proprietor and want to sell the business, Usually to sell a business, you do need financials like a profit and loss, balance sheet at a minimum. And they usually want to have some historical, like over the last couple of years at a minimum. And you want the— also selling the business, there's a period of called due diligence where the buyer will dig into your books. They'll get access and they'll look through and make sure it's done right. So you got to make sure it's high-quality bookkeeping that's done to hold up. But that's a great question. Financials, having audit-ready financials when you're trying to sell is super important. And having it in ideally in some sort of like QuickBooks Online or in making sure they're all, everything's reconciled and it's done in a manner that will hold up.

Do you want to touch on any of the entity aspects of that? They asked specifically about financials in regards to selling a sole proprietorship versus an entity like an LLC or otherwise. Does that differ at all?

It does. Yeah, for sure. Selling a sole proprietorship is definitely different than selling if you have team, a team under you. So in this case, you're looking at probably a situation where the person is really buying your customer list and your branding, uh, and you're going to be probably put on as a consultant for a long period of time. They might do seller financing where you actually have this, uh, you know, they, they pay you a certain amount over a period of time, and it might be tied to, um, to certain revenue that needs to be hit or profit margins that need to be hit. Be hit. So yeah, it definitely looks a lot different at different levels for sure.

Great, thank you for that extra clarity. Next question, same person: Should estimates be included as a charge added to the services?

So that's up to you. It's like, I think the question is, should I charge for my estimates? And I mean, you could. There's some folks that do that and have success with it. I think the majority of folks have free estimates available. I think at a minimum, you would want to qualify who you're going out to meet. You know, for example, you wouldn't want to, in most cases, not all cases, but you wouldn't, maybe wouldn't want to go out and do an estimate for painting a mailbox. Especially if it's in a bad part of town. So maybe you would want to pay them, uh, if it was a really good part of town and it was like, I want to be in that neighborhood, I want to do a bunch of work in that neighborhood. Maybe you do paint the mailbox, you know, do the estimate there, and so you can upsell later on like, hey, your door and your, uh, exterior looks kind of rough, you want to get a coat, an extra coat on there. So, but yeah, I would definitely qualify your— at a minimum, regardless of whether you charge or not, is qualify who you're going to spend the time to, to do the sales consult with them.

Great answer and good question. Our next question is by Josh and it's, what is your goal on cost per lead on Facebook ads?

So usually cost for Facebook ads right now is a cost per lead is about $60 to $70 per lead. But what's really important is how much you're actually spending overall to, uh, to get the customer. So you might spend $60 per lead, but you know, you might, um, I was going to pull up a calculator here and actually do some math. So 60, let's say $60 per lead, but maybe you only set 1 out of 2, so 50% set rate. So you just spent $120 to get 1 estimate. Now, out of the estimates that you do, maybe you only book 1 out of 3. So that means you're spending 1— that $120 to get an estimate, then you got to spend that 3 times to close a job. So you're spending $360 per Facebook, uh, to Facebook to close the job. So that would be the number I'd pay attention to is how much you're spending to actually close the job because the amount per lead can kind of vary. But if you can spend about 10% or lower of your revenue that you're coming in, that's probably a good place to be. So in the example, I said $360 to spend to close the job. Hopefully your average job size through Facebook would be at least $3,600 or higher. Most folks are around $5,000 plus, so it should be. So those would be good numbers. So that would be the way I'd look at the Facebook ad spend. Great.

Now I have 3 more questions and Josh says thank you very clearly. So next question would be from, this would be from Angela. Super specific question, but interested in your expertise. Should we charge back the customer our credit card fees? As an example, do we exchange our customers to pay with their credit cards so they charge back the fees for the credit cards?

Yeah. Yeah, you could. A lot of folks do that. You could say, you know, here's the price is $5,000. If you want to pay by credit card, we do have a 3 or 4% convenience fee for credit cards. I think most, you know, homeowners are expecting that. And we have a lot of folks that charge that convenience fee for sure. So yeah, if you didn't feel comfortable charging the convenience fee, I would just include a 4% extra on all your, like maybe you always have people that are paying with credit cards all the time. It kind of depends on the market you're in, if people pay with credit cards or check. But if you always encounter people wanting to pay with credit cards, maybe just add 4% to all the estimates you give and then just say it's included so you don't have to go back and add the convenience fee later. But, um, yes, I would definitely— because that will definitely hurt your margins if, if you're always just eating those customer, those credit card fees.

Great, good point too. I have one more question. This is from Greg. Uh, when do you sell your painting business? If you want the most, uh, prospective buyers and highest valuation, is it better to be structured as a C-Corp or an S-Corp? Assuming sales price is in the area of $1.5 to $2.5 million value. So substantial capital gains specifically on the entity structure to max buyer valuation and the tax benefit for capital gains. 1202. That's a very specific question. I'm Greg. I'm going to say Greg's an accountant.

So yeah. Yeah. Richard, do you want to chime in? Yeah.

Yeah. No, I love this question because this is a very, very thoughtful question. So, Greg, I think what you're getting at here, the heart of this is the Section 1202 qualified small business stock exclusion on capital gains, which is an incredible provision that is only available to C corps. Right. And so for those of us who aren't familiar with it, if you have a small business that is structured as a C corp, and you hold it for at least 5 years and you meet a few other requirements, you can exclude most of, if not all of, the capital gains from when you go to sell that business. So that seems like a very enticing reason to set your company up as a C corp from the beginning. But I'm going to give you a big red flag on that because while yes, you do have this QSBS at the end of the road there, when you go to sell for $1.5 to $2.5 million, it's going to take you several years, if not a decade, to get there. And during that time, you are going to be paying taxes on your business profit every year. And as a C corp, you're going to have double taxation because you're going to be paying 21% corporate tax on the business profits And then if you want to take those profits out for yourself, you're looking at an additional 15 to 20%. So your tax rate is going to be somewhere in like the— sorry, my math is bad— like 36 to 41% range, whereas with an S corp, you're going to be dealing with more ordinary rates of around 22, 24%. So usually for painting businesses, which are businesses that generate a lot of cash, and your free cash flow is like the number one thing a buyer is going to be looking at when they go to buy. So you need to be generating a lot of cash if you want to sell for, for $2 million plus. It's going to cost you a fortune every year to get there. So Generally, what I recommend is stick with the tax structure that benefits you the most now, which is probably going to be S corp. Yes, you are sacrificing that QSBS exclusion, but it's usually not worth the cost of maintaining a C corp for a decade or longer to get there. Plus, we have other ways of reducing those capital gains tax. You know, if we're doing an asset sale, we're going to try and allocate most of your business towards things like goodwill. Versus hard assets that might be taxed at higher rates. So sorry, a little bit of a long answer, but generally I'd say stick with the structure that benefits you now and it's usually not worth chasing that Section 1202 QSBS.

Great. Thank you, Richard. And there's more to come there as well. Not to steal anyone's thunder, but there's going to be an opportunity for Daniel to talk about something after I do this one last question.

Let's, let's save that question. That's a good question. Uh, the one that I, the retirement question, let's save that one because that one actually, we're going to be talking about that in the next presentation.

Thumbs up.

And so, uh, before we get into the next presentation, uh, in, in celebration of our rebranding, we're actually rebranding from Bookkeeping for Painters to Profitable Painter CPA, just because we've been in business for 9+ years at this point. We started out just doing bookkeeping, but now we're a full-fledged CPA firm that does everything from bookkeeping to tax prep to tax strategy to advisory. So we're offering something special, but limited today. So we've opened up 13 free business valuation slots. There are a lot of questions about business valuation. So definitely take a look at— we're going to put some links here in a second, but we have 13 free business valuation slots exclusively for qualified painting businesses. So this is your chance to find out you know, what the true value of your business is, understand the key drivers to increase its worth and uncover any risk factors that may be holding it back. So we'll show you how much your painting business is worth today, and what a private equity firm would pay for in cash upfront to buy it from you. So if you're interested, click the Q&A icon in your, your Zoom window and type link. Just type the word "link" and hit submit, and we'll respond with a link to get you scheduled for a free evaluation. Again, this is only for qualified painting businesses, and we just have about 13 slots available. So just type "link," L-I-N-K, in the Q&A box there and let us know if you'd like to get in on that free business valuation.

Wonderful. And I've already started sending out some links there, so thank you for that detail as well, Daniel. So, all right, let's keep things moving. We are now in intermission. So for those folks who would like to use the restroom, get ready before the presentation, you can please do so now. But we're also going to have a fun quiz. So I want to welcome you to a 5-question quiz called Profit or Pass. Light quiz round that has some, some possibilities of winning some free stuff. So here's how it works. I'll be in here in a moment making available to everyone 5 questions. There are 4 options: A, B, C, or D. So if you don't know the answer, still pick an option because you get a 25% chance of being correct. And everyone will have about 3 minutes to answer before I display the actual questions. Now, during that time, I'm also going to ask Daniel, because Daniel would not let me copyright the Jeopardy music for this 3 minutes. And so for that reason, I'm going to have Daniel actually talk about a book that the company is launching that he wrote here recently. Has some really fun, jam-packed information there, as you as business for painting should know. So I'm going to go ahead and display this on the screen and then you can start answering your questions.

All right. As he's pushing out that, that survey, Know Your Numbers quiz, I'll tell you a little bit about the book that is getting released on Amazon and a couple other places. The book is called Profitable Painter. Basically been writing it for like the last 9 years. It's everything that I've learned about keeping your painting business profitable. It's written specifically for painting businesses who are doing like $300K to $3 million in revenue, who want to scale with without losing control of their finances, overpaying in taxes, and constantly guessing if they're making the right moves. So the big idea is this: most painting businesses don't fail because of bad painting, they fail because of bad numbers or not knowing their numbers. So in the book, I break it all down into 3 clear parts. First, we talk about a framework called GAPS, G-A-P-S, to help you identify the core constraints that's holding your business back, whether it's not enough leads, not enough labor, bad policies, or broken systems. And then we move to the next framework called SCALE, S-C-A-L-E, the SCALE framework, where I show you how to grow in a way that's sustainable. And this includes everything from job costing, pricing, managing cash flow, and even how to grow without debt. And then finally, we cover the third framework, which is cover your butt, B-U-T-T, and that means keeping more of what make through smart tax planning, protecting your assets, and even, you know, transferring wealth to your— the next generation. And this isn't theory. This is real strategies, real stories, practical tools that I've used to help over 400 painting businesses across the country. So if you're ready to stop guessing, fix the leaks, and actually grow with confidence, this book is for you. So the folks that I think win this quiz here will get a free copy sent to your door. Wonderful.

Thank you, Daniel. So we have about 1 minute left for everyone to take the quiz if you haven't done so. It doesn't hurt to get in there and even guess if you want to on a quick lightning round. There's one thing I proved during our Bookkeepers for Painters Summit during our trivia night, that guessing does pay off. Won this nice hat. About 30 seconds here. I see all the questions just rolling in. I am now closing polling. I'm going to share the results, and I'm also going to ask Daniel just to read over the question and then also go through the answer real quick. So if you would, Daniel, please.

All right, first question is, what is gross profit? So gross profit looks like most folks, 83%, got that right, which is the profit left over after paying for paint and painter labor. Second question is, what is customer acquisition cost made up of? And looks like everybody got that right, uh, sales and marketing costs. Excellent. What is the key ratio to track to ensure profitability? In your painting business? And most folks got that right with GP to CAC ratio. And then what is the minimum GP to CAC ratio? 3 to 1. Most of you got that as well. Awesome. And the last question is, what is the minimum a painting business should be making if they are completely passive in their business? And we had this a little bit split. I didn't emphasize it as much in my presentation, but we typically say 15% of revenue if you're completely passive. Sipping a Corona on the beach while your team makes you money, you should be hitting around 15% of revenue as that, as that target. Now, if you're active in the business, definitely higher, um, percentage. But that is it. Great work, everyone.

Thank you, Dave. And for everyone, after webinar, we'll go through and actually tally up who answered, who answered by speed, and see who's going to be the third, second, and first place. Uh, the third, second, and first place all will receive, um, Daniel's book that he just spoke about, packed with awesome things to help your business, you know, saving on taxes and make more money. And then of course, no shipping cost there. We'll email you for your address. And then likewise, the first place will get some really cool Bookkeeper for Painters swag. I'm not talking a little green visor and calculator, something that you can actually wear out in public. So thank you so much for your participation. There. Now, next, I'm very excited to introduce Richard Dunton, EA, on how to pay almost nothing in taxes while avoiding trouble with the IRS. Richard, take it away, sir.

Well, thank you for that nice introduction, Cody. Yeah, my name is Richard Dunton. I am an enrolled agent. That means I am a federally licensed tax practitioner. And my goal is to— or my specialty really is small businesses and helping with tax reduction strategies and also putting people more in control of their taxes. So my goal today, and I've got a nice little slide here with an icon, is to help you pay almost nothing in taxes while avoiding trouble with the IRS. And I know that sounds very lofty, very aggressive. Is it really possible to pay almost nothing in taxes? Well, the key here is that we want to put you in the driver's seat and give you control over the amount of income and tax that you recognize and tax that you pay. So, yeah, it is possible to pay almost nothing in taxes, but more importantly, to give you that ability to control your taxes and not have those forms control you at tax time. And we, of course, we do so legally with proven strategies. There's nothing shady going on here. I tell people, you don't need a professional's help if you want to commit tax fraud. You can do that on your own. A professional helps you do this and keeps you out of trouble with the IRS. All right. So here— so we do this with something called tax planning. And we might be wondering, why? Why bother with tax planning? You know, I look like this guy here in the picture every April. I don't want to have to think about this in the summer or in the fall, once a year is enough. Well, the reason we have to or we should concern ourselves with tax planning is because, as Robert Kiyosaki, the author of Rich Dad, Poor Dad, said, taxes are your largest single expense. It's not labor, it's not materials or advertising. It's actually taxes which are going to be the largest expense your business has. And it's a little bit deceptive because they're usually not listed on your financial statements. Maybe if you're a C corp they are, but for a lot of us, we're not staring at them. And so we might forget that our taxes can actually eat up 35%, 40%, even higher if we're not careful. So tax planning is different than tax preparation. All of us here are familiar with filing forms, and we might have a CPA or a tax preparer who does that for us. But tax planning goes beyond just filing what has already happened in the past. Uh, tax planning is something that is done throughout the year, not just at tax time. If we wait until after the year ends to tax plan, it's usually too late for most of these strategies. So now is the perfect time to be looking at how we want our 2025 to end and being proactive about it. The truth is, is the tax system is built for those who plan. Now, that might sound a little odd, especially if we think that taxes are supposed to be a fair system that helps fund the government. Truth is, is that it's not just about funding the government. It's also about pushing through policies and incentivizing behaviors that the government thinks are beneficial. So we're not here to be a slave to whatever the government tells us to do. But if the government is offering tax incentives to do things that already align with our values and our principles and our goals, we want to be able to reach out and take advantage of that. The fact that the system is built this way is a feature, not a bug. So there are hundreds of ways that we can reduce our tax, but these things don't happen automatically. You have to know about them, you have to plan for them, and you have to act ahead of time. So it does require action and effort on our part. The truth is, and, and I think this is probably the most important concept of my whole presentation, is that it's easier to keep your money than it is to earn new money. So every dollar you save in taxes is pure profit that goes right back into your pocket. In Daniel's presentation, he mentioned that even if we're at the point in our business where we're sipping Coronas on the beach and we've completely removed ourselves from operations, we still want to be getting a 15% profit margin. So in that case, if we are able to reduce our tax by $15,000, that is the exact same thing as booking $100,000 in new work, except we don't have to lift a brush or make a phone call or do anything to get that money. So it's easier for us to keep that money than it is to go out I have to sell an additional $100,000 of work. Now, just to kind of set expectations, unfortunately, there is no just one weird trick the IRS doesn't want you to know that's going to help you save on taxes. There's no, you know, tax fairy with a magic wand that makes these things go away. But if we do engage in tax planning and we do it well, We can expect to lower our lifetime tax burden, free up capital that we can reinvest into our business. We can reduce the risk of audit and penalties, and we can align our tax planning with our business growth strategy. So maybe we're in a position where we are just systematizing and getting our processes down. Maybe we're at a place where we're scaling or thinking about exiting our business. Our tax planning should align with our current goals and needs. So tax planning is really a holistic approach to our entire tax, legal, and personal life. And if you've ever heard me talk about the trifecta, this is what it is. Tax, legal, and personal. We are looking at everything. We're looking at our business and how it's structured. We're looking at our family members and how they might fit into our plan. We're looking at things like real estate, investment accounts, IRAs, personal property, and we're also tying it all back to our estate planning so that we are building a legacy for the future and we're able to have the control over that that we want. So your tax plan should look at everything, not just your business. So let's kind of dive into some actionable strategies here. We want to build a good foundation, and that means selecting the right tax structure for our business. And we might change structure as we progress and mature. But I mentioned the 4 main types of taxation, and you'll notice that LLC is not one of these types. And that's because an LLC is a legal entity, which is an awesome entity to run your business out of. But the taxation type that you choose can be different, even with an LLC. So to start with, let's look at sole proprietorship. This is the most common place that people start off on. That's because it's easy to set up. You can have an LLC or not. You can— either way is fine. They are simple. There's very little administrative work. You're going to file your tax return for your business right along with your personal return. And this is ideal for businesses that are just starting up. Now, the downsides of sole proprietorship and why a lot of businesses eventually outgrow this taxation type is that all of your profit is going to be subject to a 15.3% self-employment tax, and that is going to be on top of your regular income tax. So it can get a little bit expensive tax-wise. Additionally, the owner of the business is going to bear unlimited liability for debts and also legal judgments. So you and your business are one and the same. There is no real legal or tax separation between the two of you. Maybe a little bit of legal separation with an LLC, but generally you are going to be liable for any debts the business takes on. Another type of structure is the partnership, and this is going to be a lot like the sole proprietorship. Except with more than one person involved. So again, you can have an LLC or not. A group of people can come together and form a general partnership without an underlying entity. One of the biggest pros of a partnership is you have almost unlimited flexibility. So if you want to have unique compensation structures where one partner gets more than another, or one partner is required to bring more or less into the business than the others, you can do that with a partnership setup where it's a little bit more difficult to do those fancy structures with a corporation. The downsides of a partnership is, again, all profit is subject to self-employment tax. The partners bear unlimited liability for debts and you are required to file an additional tax form each year whether you have an LLC or not, if there's more than one person involved and you're not married to that person, you are going to have to file a 1065. The third type of structure, and this is probably the, by far the most common and popular structure for painting businesses, is the S corporation. Now, there are no legal or physical S corporations. S corp is a tax election that is made for an LLC or a legal corporation. So if you want to take advantage of this, you do have to have some kind of legal entity underneath. It is much more tax efficient for the owners because you go from being an owner to a shareholder/employee. And now instead of paying 15% self-employment tax on everything you earn, you're only paying those taxes on your salary. The rest of the business profit is coming to you payroll and self-employment tax-free. You are starting to create legal and tax separation between the company and the owners. And S-corps are 15 times less likely to be audited than sole proprietorships. This is very surprising for a lot of folks. But the more complicated corporate taxation structure is actually less likely to be audited. Downsides of S corps is you do increase complexity and so you increase the administrative burden. You're going to be putting yourself on payroll. You're going to have additional tax forms. Deducting certain personal expenses is going to become a little bit trickier, but it's still doable. You also have some limits on the amount and type of shareholders. So you're limited to no more than 100 shareholders and everyone has to be a legal resident of the United States. And you have less flexibility with distributions. Basically, you have to treat everybody fairly. If you have an 80/20 partnership, the guy with 80% has to get 80% of the profit. The guy with 20% has to get 20%. A lot of times folks will start off with a general partnership and then kind of level up to the S corporation when their self-employment tax becomes burdensome. And if you want to enjoy the flexibility of the partnership taxation but avoid the self-employment tax, we could look at doing a little bit more complicated, complicated structure involving an S corp holding company and still kind of get the best of both worlds. That's a little bit beyond the scope of this presentation. And then finally, we have the C corporation. And Greg, in your question, you really hit the, the nuance of this. So your C corporations are the default for legal corporations, but can be elected by an LLC. C corps can allow you to receive tax-free fringe benefits, usually not worth the extra taxation unless you have a lot of medical expenses and you need to set up some kind of like health reimbursement arrangement. You could also take advantage of that qualified small business stock to avoid capital gains tax. But again, the juice is usually not worth the squeeze for painting businesses. And they are ideal to attract angel investors, private equity, and they're required if you want to have foreign investors. But if those benefits are not high on your list of necessities, it's usually not worth the double taxation of the C corp where your corporate profits are going to be taxed at 21% each year. And then when you try and get the money out of your company, you're looking at another 15 to 20%. We were working with a painting business owner, very successful. His previous accountant set him up as a C corp, and he enjoyed that because he didn't take a lot of money out of his company. But now he's in a position where he has over $1 million of cash, and if he wants to access that, he's going to have to pay an additional 15 to 20%. So we're working on some creative ways to help him get that money out. And offset those dividends tax, but we also immediately switched them over to an S corp taxation so that his future profits are not going to be hit with that, that double rate. All right. So those are the different types of structure. That's kind of your foundation, making sure that things are flowing efficiently. Once you've done that, we can start looking at the 3 different types of tax savings. I've got gold, silver, and bronze here. All of these are valuable. Some are more valuable than others, but all of them are worth going after if it aligns with your goals. So number one, gold, we've got tax credits. These are going to be dollar-for-dollar reductions of the tax you owe. Some examples: the electric vehicle tax credit for $7,500 is going to immediately reduce your taxable liability by $7,500. Child Tax Credit is going to be $2,200 per child. That's going to reduce your tax. If you take your tax down to zero, some of these credits are refundable. So the IRS will actually write you a check. The EV Tax Credit is not refundable. The Child Tax Credit is partially refundable. So just if you're expecting to get a check back, make sure that you understand which ones will, will allow for that. In the silver position, we've got tax deductions. This is where we subtract an expense from our income to immediately reduce the amount of tax you owe. So as business owners, you're used to writing off things like materials, labor, advertising, and we'll talk about some other examples of this shortly. And then in third place, we've got tax deferrals. Now, a deferral does not allow you to avoid paying the tax completely, but it does let you kick the can down the road and so that you pay the tax at a time that is more convenient to you. An IRA is a great example of this. You are putting money away tax-free and then choosing to pay the taxes when you withdraw it in retirement, when you are probably in a lower tax bracket and maybe living in a state like Texas or Florida that doesn't have an income tax. So it's giving you control over the amount of tax you pay. All right, tax strategies in action. Let's get into some of the nitty-gritty. The good news here is if you're at this webinar, you probably either own a business or you're seriously thinking of starting one, and that means you are already in a position to enjoy the best tax strategy there is, which is IRC Section 168, that allows you to deduct ordinary and necessary business expenses. This seems kind of elementary, but I can't understate how valuable it is to be able to write off business expenses. We're going to talk about some specific ones. Uh, let's start with home office expense. So if you have a space in your house that is used exclusively and regularly for business, you can deduct the cost of that space even if you have a rented area that you work out of. So let's say you have a shop where you keep your vehicles and your materials. If your home office is your principal place of business, So that's where you do all of your admin work. That's where you contact your customers, you do your paperwork. You can still write off that portion of your home as a home office deduction. And there's two ways you can do that. If you're a sole proprietorship, you can use the simplified method, which is $5 per square foot for a maximum of $1,500, or you can use a percentage of actual home expenses where you're going to figure out, okay, if I'm using 200 square feet of my 2,000-square-foot home, that's 10%, and I'm going to write off 10% of my mortgage interest, my property taxes, my utilities and whatnot. And this can work whether you're a sole prop or an S corp. There's different ways of doing it, but the, the basic framework is the same. All right. Vehicles are probably going to be your largest expense. So we definitely want to make sure we're getting good use out of those. If your vehicle is less than 100% business use, in other words, you're using it for personal reasons as well, we do need to separate it out. The personal use, we can't deduct that, but we're going to write off the business portion for sure. Best way to do that is to track your mileage. And I know tracking mileage is a pain in the neck. There are some great apps like MileIQ out there. That make it a little bit easier, but it's totally worth the deduction because you can get $0.70 per mile as a tax deduction. This is wonderful for fuel-efficient or electric vehicles. I can give you an example. My wife owns a janitorial company and in her business she uses a 2015 Tesla Model S. Which is kind of a wild car to be pulling up to an office to clean. But we've done the math on it, and that vehicle only costs us about $0.22 a mile to operate. So electricity, tires, insurance, but we're getting a $0.70 per mile tax deduction. With my wife's marginal bracket, her self-employment tax and Illinois state tax, It is better for us to write off that mileage because not only is the government covering the cost of operating the car, they're paying us an additional $0.09 per mile every time she drives. So there's a really cool arbitrage play there. If you have a fuel-efficient vehicle, if you have a larger truck or a van, then we're going to look at using actual expenses. So the actual fuel, actual depreciation. We also have the option of using bonus depreciation to possibly write off the entire cost of the vehicle in year 1. So if you are in a year where you've got some heavy tax expense, like maybe you're doing a Roth IRA conversion or you've just had a really big boom that summer and you need some tax breaks, buying a vehicle that qualifies for 100% bonus depreciation and writing off the entire thing in year 1 can dramatically drop your taxes to almost nothing. Just be careful that it does qualify. If the vehicle is less than 6,000 lbs curb weight, you might be limited to only $20,400 in year 1. All right. Other tax deductions that we might not be thinking of: phone and internet. Our iPhones or Androids, are we using them for business at least partly? And are we having the business get that deduction? Our internet, if we have a home office, are we writing off the business portion? Do we have to upgrade to a higher package so that we can, you know, get that speed to lead and make sure that we're, you know, contacting our leads in time? Let's write off that extra premium. Computers and technology, we're talking about laptops, cameras, phones, selfie sticks. All the things that we need to market and advertise our business can be deductible. Business travel. So flights, hotels, rental cars. Neat little trick here. If you can time your legitimate business travel to end on a Friday with your trip home being on a Monday, you can enjoy yourself. Oh, excuse me. You can have personal use during the weekend. And still write off the trip coming home on Monday. So some folks have gone to Southern California for conventions that end on a Friday afternoon. They enjoy Disneyland on Saturday and Sunday and they fly home as a business deduction. That's perfectly legit. Meals are 50% deductible if for business. So meals with customers, clients, networking, travel, those can be written off. Office supplies like paper, ink, shipping, and software are always going to be deductible. Education and training. So if it's something that is directly related to your business, such as a course or a conference, the PCA Expo every year, those are going to be tax deductible as well. And my tip here is keep good records. I know saving receipts is a pain in the neck, But those receipts are going to make sure that you don't miss out on any of these deductions and they're going to help support your tax strategy. So good bookkeeping will keep you out of trouble with the IRS. Let's talk about health insurance. That is a big thing in this country. Can we use our business to help us save on our health insurance costs? And the answer is absolutely. We have something known as the self-employed health insurance deduction that is an above-the-line adjustment. So for our non-accountants here, above-the-line adjustments reduce your taxable income and it may help you qualify for certain credits and deductions that you would normally phase out of if your income is too high. Your insurance can cover you as the business owner and also your spouse and your children. So the whole family is going to be able to benefit. You do need to have an insurance policy that meets minimum essential coverage. So if you're buying your policy from the Affordable Care Marketplace or from a place like UnitedHealthcare, Blue Cross Blue Shield, those are going to meet minimum essential coverage. Uh, if you are buying your insurance as a, a private plan, um, from an insurer that's not really a health insurer, or if you're doing like a healthcare sharing ministry, those may not meet that minimum essential coverage to get that tax deduction. And if you are buying your insurance through the ACA marketplace and you're getting that government subsidy, that's great. The portion that you do pay for out of pocket can still qualify, so you don't lose out on that benefit just because a portion of it is being covered by that premium tax credit. Hi. If you are an S corp, then you've got some other options here. You can still take advantage of the self-employed health insurance deduction, but the business does need to pay for the insurance premiums and then the business is going to write that expense off as a direct business expense. The cost of that insurance needs to be added to your W-2 as part of your wages. Now it's going to go into box 1, which will be taxable income, but it's not going to go in box 3 or box 5. And that's where your payroll taxes are calculated. So yes, it increases your taxable income, but it is not subject to payroll tax. So there's a little bit of a play here as an S corp owner let's say you need to hit a $50,000 salary to have that reasonable compensation. If you were to pay yourself $40,000 cash and $10,000 of payroll tax-free benefits, you would still hit your $50,000 reasonable comp, but you would save yourself $1,500 in payroll taxes each and every year by replacing $10,000 of cash with $10,000 of tax-free benefits. And then when you go to file your personal tax return, you're going to deduct the cost of the insurance as the self-employed health insurance deduction. So yes, it is a little bit of a roundabout way of doing things. It's how the IRS wants it done. But if you do it right, you can actually kind of double dip there by writing off your insurance and reducing your payroll taxes. Finally, let's look at retirement accounts. These come in two flavors, and we've kind of previewed this already. We've got the traditional IRA, traditional 401(k). That's where you receive an immediate tax deduction for the amount that you save, but you do pay taxes on that later when you make your withdrawals. The other version is called a Roth. Now, when you make Roth contributions, you get no tax break up front, but that money grows in your account tax-free and it comes out in retirement tax-free. So which one you choose is going to depend on what your goals are, and you might have a mixture of both, uh, in different years. Once you've decided whether you want to do traditional or Roth, we've got different vehicles that we can use. Uh, for just starting out, an IRA is great for individuals because these are tied to you as the human being. They are not tied to your business. You can open them up quickly and easily, a lot of times for no cost, and both you and your spouse can contribute up to $7,000 each into either traditional or Roth. If you want more than $7,000 and you are a sole proprietor, a SEP or self-employed pension plan is going to be a good option. It allows you to contribute up to 25% of your income tax-free. Beyond that, we've got the SIMPLE IRA, which is really kind of like a SIMPLE 401(k) because it's tied to your business. This is good for small businesses that need simplicity. So it's just like a 401(k), but employees can contribute up to $16,000 a year and the company is usually required to do a 3% company match. The costs are low and the investment options are simple and limited. Now, if you want a plan with more features, I want to recommend a regular 401(k). This is good for any size business. It allows your employees, and that includes you, to contribute up to $23,000 a year, and the company can do an optional match. If you're in a situation where you and maybe your spouse are the only employees in the company. So maybe you run like a subcontractor model, but the only people on payroll are you and your wife. We could look at doing a significant company match that allows you to put up to almost $70,000 a year into your 401(k)s, uh, completely tax-free. So that would be between you and your spouse, $140,000 every year that you don't have to pay taxes on. Now, sometimes people shy away from retirement accounts because, you know, we've been through several stock market crashes, recessions. Some folks are a little bit leery of, of putting their money with Wall Street, and I understand that. I recommend that folks invest in what they know. So I want to make it real clear that the 401(k), the IRA, these are tax-efficient vehicles. But what you put in that vehicle is going to be up to you, and it's going to depend on what you're comfortable with. So if you like traditional investments like stocks, bonds, mutual funds, ETFs, index funds, You can obviously buy that in your 401(k). That's, that's pretty straightforward. If you want to do something alternative, that's also possible. You could hold digital currency like Bitcoin, Ethereum, um, in your retirement account. You can own real estate. You can own other small businesses. You can do private lending like peer-to-peer loans. Or private construction loans. I even know one CPA who bought and sold cattle in his retirement account. He's from Texas. He knows the industry and he's made a lot of money buying calves, raising, having someone else raise them and then selling them for a profit, all tax-free, all inside of his 401(k). So this is typically referred to as self-directing. You're not going to get this option from places like Fidelity, Merrill Lynch. You might have to go someplace else that gives you that checkbook control. And the cost is going to be a little bit higher because you are getting, you know, more features here. But it's absolutely doable if you want to go outside of traditional investments. All right. Well, thank you for sticking with me through all of that. I think we're going to go ahead and open it up to any questions.

Great job, Richard. And we do have a looming question that was asked in the previous round. But for everyone out there, you can go ahead and type in your questions in the Q&A box at the bottom for Richard. We'll go ahead and start with this one. How would you convert a self-employed IRA to a Roth to minimize taxes? Taking the RMD at a small amount each year until age 72 and a half.

Okay, so, um, just to kind of clarify, an RMD is a required minimum distribution, and that applies when you have a traditional IRA. The IRS is not going to allow you to keep that money in there forever. When you hit a certain age, like around 72, 73, they're going to force you to take distributions and pay taxes. If you're much younger than that and you're thinking, hey, I really want to benefit from this Roth thing where I can grow my money, invest in Bitcoin, buy real estate, and never have to pay taxes on it. But all my retirement is in a traditional IRA. You can convert that from a traditional into a Roth. When you do that, you pay the taxes on that money. Because you had not paid them previously. So you're going to want to do this in a year where you are in a lower tax bracket or you have a strategy that is going to create a lot of deductions that will offset the tax on that conversion. So for example, maybe you are a real estate professional and you've bought a new property that you're going to rent out. You're looking at a cost segregation depreciation strategy that's going to generate, you know, six figures worth of deductions, and that's going to be used to offset the conversion. So to answer your question, you really want to talk to your tax professional and come up with a strategy. Maybe it means that you do this in tranches. You realize like the next 3 to 5 years you're going to be in a moderate tax bracket before your business really takes off. And so you want to do it in chunks so that you don't push yourself up into a, to a higher tax bracket. There's, there's different ways of doing it, but it's really going to come down to your personal situation.

Great answer. Thank you for that, Richard. I have one other question. What's the most amount of money you can make per year to qualify for a traditional IRA that only allows a $7K contribution?

Great question. Uh, there are phase-outs, but it depends on if you have access to another retirement account. So if you're— if you and your spouse do not have access to a company 401(k) or 403(b), so in other words, like, you're running your painting company, your spouse works at a hospital, and they have access to a 403(b), then they have access to a retirement account and there's going to be, um, a cutoff.

It's—

I don't know it off the top of my head, it's around $250,000, um, that you can make before you start to lose access to that, um, traditional IRA. But if neither one of you have access to another retirement account, then there is no limit. You can both contribute the full $7,000 and it will be tax deductible. If you, if you want to take it one step further, I just got to mention, maybe you don't— maybe your spouse does have access and so you don't qualify for that immediate tax break. You can still contribute. You just don't get to write it off. And then we could talk about maybe doing a backdoor Roth conversion where we sneak that money into a Roth and you've already paid the taxes on it. So there's, there's options if you're a high earner. Great.

Thank you, Richard. Any other questions regarding Richard's presentation? If not, we'll move on. So, all right, that brings us to— and I want to leave everyone with a real clear summary as to what we've covered today. First, is you don't need to guess your way through finances. There is a roadmap that's available to you. You don't need to overpay on taxes, as Richard emphasized. There's a plan for that. Even if you make a lot of money in one year and you don't need to run your business without a plan to scale properly, there's also a plan for that. So you saw how one key ratio can dramatically increase profitability without spending more on marketing. And how smart tax strategies can help tens of thousands stay in your pocket and stay completely compliant. Now, for those who want that expert eye on their situation, I want to highlight the things that Richard and Daniel offer. These are not sales calls. These are strategy sessions with Richard and Daniel. And I want to pause for a second because Richard I don't think you mentioned your strategy session that you're offering folks.

No, no, we saved the best for last.

So please mention that, please, before I say that.

So we do have, I believe, 13 slots available for a free tax refund finder. This is, as Cody mentioned, a one-on-one session with either myself with myself or Daniel, where we are looking at your personal situation. We are finding you some tax strategies that you can immediately implement, and they're about 30 minutes long, and you're definitely going to leave with some really valuable insights and probably save some taxes going into the next tax season. Cody, I believe if folks want to sign up for this, they can type "link" into the Q&A. And you'll send out that link. Super valuable offer. Really encourage everyone to take advantage of it.

Yeah, some folks already remember from the last session and I was getting links before we even said link, so I love it. And like Richard said, and I would emphasize, these are working sessions. So there's a lot— you're sitting down with Richard, the tax saving expert, and Daniel going over the CPA element. You're not meeting with me. I'm the sales guy. And so this is for you to really get some insight from those experts. Now, if you did not request the link, you can just look at the email that you'll receive after we close the session today. Both links will be in there. And if you qualify, go ahead and ask— answer a few of the questions and see if it allows you to schedule. If it does, jump in there and take advantage of some free eyes. Now, I want to thank everyone for joining again. And just something that I heard every day in the military, as well as repeated often by Alex Ramosi, founder of Acquisitions.com, a plan without action is worthless. So I ask that you go out, take actions, and if you have questions, need support, we're here for you. Thank you so much for joining the webinar today, and I hope you have a great day.

Thanks everyone.

Thanks everyone, have a good one.