#100: Taxes and Freelancing: What Every U.S. Freelancer Needs to Know

Welcome to the High Income Business Writing Podcast, helping you propel your writing business to a whole new level. And now, here's your host, Ed Gandia. Well, hello there. Thank you for joining me for episode 100 of the High Income Business Writing Podcast. My name is Ed Gandia and this is the podcast for business writers and copywriters who want to take their writing businesses to the six figure level or the part time equivalent. As a quick reminder, you can find the detailed show notes for this episode by going to b2b launcher.com episode 100 okay, so you're gonna have to forgive me right off the bat because I'm about to go on a bit of a rant here and I try to stay away from really controversial topics, but this is one that's really hard to ignore. Especially when you're out there as a self employed professional working your tail off and you realize that there's a system that in many ways works against you. The most serious problem facing US Taxpayers is the complexity of the tax code. And that's not just my opinion. That is an actual, almost word for word statement from the IRS in a report that I came across. According to that same IRS report, an analysis of IRS Data uncovered that US taxpayers and businesses spent about 7.6 billion billion with a B billion hours per year complying with the filing requirements of the Internal Revenue Code. And that figure doesn't even include the millions of additional hours that taxpayers have to spend when they are required to respond to an IRS notice or an audit. The compliance costs are staggering, both in absolute terms and relative to the amount of tax revenue collected. So let me share a couple of statistics with you. Based on Bureau of Labor Statistics data on the hourly cost of an employee, it's estimated that the cost of complying with the individual and corporate income tax requirements in 2006, which is the latest data I was able to get, amounted to $193 billion. Or a staggering, just to put it in perspective, a staggering 14% of aggregate income tax receipts. So just the compliance alone is 14% of what the government is bringing in. The tax code has grown so long that it has become challenging even to figure out how long it is. There are all kinds of estimates. Some I found put at 2.1 million words. And the same report found that the number of words in the code has more than tripled since 1975. So as you can probably tell, I'm not a fan of our current system. I'm not a fan of April 15th. I know we can do better as a country, I know we can do much better as a country. Personally, I think the Fair tax@fairtax.org is the best viable solution to replace a broken system because rather than penalizing production and effort, it taxes consumption and it's an embedded tax. It only replaces a current system without adding a tax burden. It's a lot more fair than what we have today and it's so much simpler. So that's the end of my rant. And you know, at the end of the day, we're stuck with the system we currently have and at least we're stuck with it for now. And until it changes, until we get real fundamental reform, we have to figure out how to navigate the ins and outs, especially when you're a self employed professional. And in this episode I'm going to attempt to help you do that by asking my guest a bunch of questions. You, you guys told me you wanted answered. My guest is Trevor McKendrick and Trevor started Salem Software, which is a developer of Spanish language iOS applications. He grew it to over a million users and sold the company in 2015. He's been featured in the Startup podcast, which is huge, one of the biggest podcasts out there, the Huffington Post, Business Insider, Fox News, Fast Company, and numerous other publications. Trevor holds a master's degree in accounting and just recently created an accounting essentials course for entrepreneurs and freelancers. And you can find Trevor and information on his accounting course@trevormckendrick.com. so with that, let's go ahead and get right to that interview because he's got a lot to share with you and I'll come back at the end with a quick announcement. Hey Trevor, welcome to the show. It's great to have you here.

Thanks for having me.

Before we get into the questions, we got some great questions, many of them from people in my tribe. Give us a little bit of background on yourself. So tell us what you do, where you work, a little bit about your background and what you've been up to.

Yeah, so I went to school, graduated in 2010 with a master's and a bachelor's degree in accounting from actually the top accounting school in the country and worked as an auditor for an accounting firm in Silicon Valley after that for a couple years auditing the finances of companies like Adobe and tech companies like that, and then quit. And I started my own software company back in 2012. We made Spanish language iPhone apps, I speak Spanish and we had a collection of apps and then I sold that at the end of last year and now I'm working on a couple of different projects that maybe we can talk about a little bit later. But yeah, now I'm happy to be talking to you here.

Excellent. Okay. And I am glad to have you here because the questions about accounting, bookkeeping, business structure and all that, these things come up all the time. And I have to tell people, listen, I can only speak about kind of my situation. This is not financial advice but these are questions that a lot of people have and unless they have an accountant of their own, they really don't know at least kind of where they should look and general direction they should go in. So very timely. Let's start with self employment taxes because this is one of the biggest areas that I got asked about when I put this out there. What are they and how on earth can I reduce, legally reduce self employment taxes as a freelance professional, so what are they?

So self employment taxes have a bad rep because they feel like they attack people who are self employed when in reality if you've been employed, if you've been an employee somewhere, you've always been paying self employment taxes. You just didn't kind of, you just didn't know it. Because the way self employment taxes work is you know, you get your paycheck and they take out you know, for, let's just talk about FICA which is like Social Security and Medicare, right? You, they take that out of your, out of your paycheck but at the same time, which most people don't realize is your employer matches that and so they have to pay exactly what you pay also to the government for these, for these FICA taxes. Well when you're self employed you're the employee but you're also the employer. And so now you're paying for both sides of it. That's what self employment taxes are. Now how can people avoid it or pay less of it legally? You know, we're going to get into the weeds here a little bit but the way to do that is to make what's called an S corp election. When you file your taxes and people talk about this thing all the time like oh, I hear that if I have an I have an S corp it helps me save on taxes. And they don't really know, you know, always understand what they're, what, what that is. If you just go to your accountant and everyone should have an accountant by the way, if they're serious about running a business, tell them that you want to understand more about making an S corp election and he'll be able to walk you through this whole Thing.

So self employment, I guess another word or another term is payroll tax. Is it the same? Are they interchangeable those terms?

They are, they are. And again the reason that people kind of get confused about it is because when your employee you're only paying half of it because your employer matches it. Basically when you're self employed you have to pay both sides.

Yeah, it's like 15 point something percent total.

Yeah, yeah. You know your know your numbers.

Yep. Yeah, before it was only the seven, but you know, let's. Yeah, so now you're paying the whole thing. And so an S corp is a good path to, to maybe reducing that. And that's something that your accountant should definitely be able to help you with. And I'm just curious, I'm not not. We don't need to get into the weeds too much but why would an S Corp suddenly change that? I mean what is it about it that that would reduce your personal, your payroll tax liability?

Yeah. So you pay self employment taxes on your on, on payroll on like what the business pays you. And the way the S Corp works is in the S Corp you pay yourself a salary on which you have to pay your self employment taxes. But any profit that the business makes beyond your salary, you pay regular taxes on those profits but you do not pay self employment taxes.

Gotcha. So it's in how you classify your overall income then.

That is exactly correct. Yes.

Okay. Okay, super, super. Now let's do this before we get and I want to come back to this S Corp idea because there were some questions about business structure. But before we get there let's tackle the other biggie which is the just income tax in general. So as a self employed professional had lots of questions from people about how do I reduce my tax burden, you know, how do I maximize deductions. What things should I be looking at that maybe I'm not looking at any ideas there?

Yeah, so everyone wants like you know, the list of all the deductions that they can take and what things can I deduct that I don't know about? And frankly no such list exists. And if you go to a CPA or an accountant, they'll tell you the same thing because every business is different and every business is going to have different deductions. So the rule is anything that you have to pay for in the course of your business is likely going to be deductible. So things that people don't always think about are, you know, educational expenses, like if you, you know, if you subscribe to, you know, Things like the Wall Street Journal or, or magazines or take courses online that are even generally related to your business are things that are going to be, going to be deductible. In my experience, the best way to maximize your deductions, though, because you don't, I mean, you don't want to have to know what is deductible and what is, and that's not your job, and that shouldn't be your expertise. The best way, in my opinion, to do that is to, is to hire a bookkeeper. And bookkeepers are very inexpensive, and they are, they will, they're experts at classifying your expenses. So they'll know, you know, they'll be able to group your transactions and your expenses in such a way that when you get your taxes done at the end of the year, because the expenses are properly classified, you know, the taxes get done, you know, they get done correctly without you having to worry about it.

Gotcha. Gotcha. So, yeah, you're right. It's, it's, it's. Why bother? It's, you'll never figure out all the different things. I think a lot of the concern there is that what things am I spending my money on now that I don't realize could be deductible? I think that's where a lot of that anxiety comes.

Yeah, that's. And that's fair. I would, you know, there's, there's lots of things. There's, you know, there's the home office deduction that, that people don't always realize. There's, you know, there's travel expenses which people may, you know, sometimes hold back on a little bit. And, and, you know, my, my experience is if it is, you know, generally related to your business, you know, put it on your, you know, you should have a separate business account, bank account for your business. You know, you can expense it there. And then when you get your books done, you know, every month with your bookkeeper, you can, you can have a conversation about that. Right. And if they say, oh, no, no, no, this, you know, this isn't deductible, or this shouldn't be a business expense, then in the, you know, in the, you know, going forward in the future, you'll, you'll know better and you won't do it.

Let's talk about home office deduction. A couple of people had questions about that. So what, what does that mean? I can deduct my, if I work from home, I can deduct my home office. And in what way?

Yeah, so you can deduct a Home office, if it is used exclusively for your business. So you, for example, what they, what the IRS does not want you to do is to have like a spare bedroom and then, you know, throw a desk in there. And, you know, sometimes you work there, but you also have guests that stay over and stay in the room. That is not deductible. It has to be exclusively used throughout the entire year for your business. And then what is deductible is, I mean, there's two different ways to do it, but just generally speaking. And I think, you know, that's kind of in the weeds. And your accountant will tell you exactly what you can deduct, but just know that if you want to deduct it, you have to use exclusively for the entire year. And some of the expenses that you'll be able to deduct are, you know, the Internet that you pay for at home part. You'll, you know, you'll be able to deduct some of your rent. You know, basically the percent of the, you know, square footage that your office is of your, of your, of your home, you'll be able to deduct from your business.

So, yeah, if it's 10% square footage wise, my office, which is exclusive for business, is 10% of my home square footage, then 10% of utilities, 10% of my rent or mortgage. I mean, would a mortgage apply as well?

The interest expense would. Yes.

Okay. Which is interesting because interest expense is already deductible in the US for most people. Isn't.

Is. I would have to do some research. But you wouldn't. I just, I know off the top of my head, you wouldn't be able to double count it. You can't double count, I think, anything as far as taxes go. But yes.

Okay. So home office is a big one. So Eli had a question about buying a car versus leasing a car as a, as a freelancer. So are there any advantages that you.

Know of either way as a freelancer for your business? It wouldn't make, it wouldn't make a difference because the way, you know, the way that most people deduct their or deduct their car expense and frankly is the way that I recommend, because it's just so much easier and more straightforward, is to count your miles. So there's two ways that you can deduct a car. One is to just track all of your miles whenever you travel or drive somewhere that's related to your business. And there's lots of apps for iPhone and Android that can help you do that. They're really straightforward. And. And then the other way is you have to keep track of all of the expenses related to your car. So, like oil changes and every time you fill up your tank and all these things which are normally personal expenses, now you have to keep track of those too, which is, in my opinion, which is kind of a pain. And the question here about leasing versus buying, that's one of the expenses that you would. You'd be throwing to the lump here that you'd be tracking. And so what I just tell every people is to track your miles.

Gotcha. Okay. Which, yeah, it's going to apply no matter what. Right. So.

Yeah, exactly.

Okay, so let's circle back to the question about should I incorporate? And if so, what type of structure is best for a freelancer and when does it make sense to look at that? Any, Any insights or suggestions?

What I tell people is you don't need to do it right away. You know, if you're, if you're just dipping your toe in the water or maybe you have a client or two and, you know, you know, you got some money coming in, you know, you know, it's. It's really based on, you know, how comfortable you are with the possibility of being sued, frankly. Right. Because incorporating protects your business assets from your personal assets. At the end of the day, for these small businesses, that's what it's doing. But once you've gotten to a place where you're really serious about this as a business, maybe you're doing it full time, or maybe it's providing a significant portion of your. Of your personal income, then I think it absolutely makes sense to incorporate. And not only does it provide you legal protection, but then it also forces you to go open a business bank account, and then it forces you to track your finances separately, which is not only invaluable for doing your taxes and just maintenance and bookkeeping, but it's also just going to be very helpful in helping you run your business and making sure that you know the health and the status of your business.

Now, I get asked this all the time, and I'm not sure if he can give us an answer because it might depend state by State, but LLCs vs. S Corp. Does an LLC typically give you better protection of your assets than an S Corp? Do you know?

No. As long as you're good about, you know, separating personal from business expenses. And you don't, you know, you don't, you don't make personal expenditures with your business card, they're gonna give you the same, you know, the same quote unquote protection. In fact, what I recommend for basically anyone who's just starting, they don't know what to get. You know, I want to incorporate. What do I do? Which one do I get? You know, I hear all these different things online. Just get an LLC. LLCs are, they're the most simple and straightforward structures. They're the most flexible, they're the cheapest to run. They have the least number of reporting requirements like, like you get all of the benefits of, of legal protection and being official by getting an LLC without the burden of, of maintaining an S corp or having a board or all these different requirements that come up with other types of entities. So that's what I recommend. And one other thing there, you know, getting back to the, you know, filing, making an S corp election and saving on self employment taxes. It's really confusing because here I'm saying get an llc, but you know, but what about this thing to save, you know, to save on self employment taxes? Well, it's super confusing, but it turns out that what you legally file as or excuse me, what you legally, the entity is with the states, whether it's an LLC or an S corporation, it can actually be something totally different when you file your taxes with the irs. So you can be an LLC legally with your state and file your taxes as an S corporation. And it's totally normal and legal and above board. And so that's, that's what I recommend for, for most people.

Okay, gotcha. Yeah, so there's, yeah, there's a legal aspect to it and then kind of a taxation aspect to it is what it sounds like. So. Okay, so let's talk a little bit about estimated taxes. So this is a really hot topic when I put this out on Facebook. In terms of when and how you should calculate those. And let me start with Suzanne. She asked, in terms of estimated taxes, what if it's your first year freelancing, how do you figure estimated taxes that you have to pay? But maybe start, Trevor, by explaining what those are and then answering her question.

Yeah, sure. So estimated taxes, again, people don't realize that they've been doing this already as an employee. Right, because normally as an employee, your employer withholds taxes for you and gives us to the government. And then when you file your taxes at the end of the year, say you know, your total tax liability is $10,000, but you've already withheld 8. And so your total bill, cash out of hand at the end of the year is $2,000. Right. And so what the IRS is trying to avoid here with these estimated payments is, is that you are unable to pay when your tax bill comes at the end of the year and that you, so that, so they forced you through these quarterly payments to, you know, quote, unquote withhold taxes yourself quarterly. And so, and so the way that works are safe. It's, you know, if it's your, it's your, if it's your first year or any year the IRS gives you, they give you two ways. But I'm going to mention one because I think it's the most straightforward. And so you say, I have no idea what, you know, how much should I be paying out of my pocket quarterly? I don't want to underpay, but I don't want to overpay either because that's cash out of my pocket. And so the IRS is like, okay, we know we don't want to be too much of a burden upon people. And so they say, hey, whatever you paid in taxes last year, if you don't know the number, go ask your accountant. You can look it up in your tax forms, whatever that number is. Let's just say that again. Let's just say it's 10,000, doll. As long as you pay that $10,000 divided by 4 in quarterly payments throughout the year. As long as you've paid that by the time taxes come, you know, maybe your tax bill ends up being 15,000 or maybe it ends up being 30 or some larger number. As long as you paid the $10,000 in quarterly payments, they'll be like, that's okay. We're not going to penalize you for not paying enough throughout the year. Right? So you, so the way it works is you take the 10,000 divided by four and you end up paying $2,500 at four different specified dates that you can look up online. And so that's, you know, that's the way this quarterly payments work. They're not extra taxes, they're not, you know, they're not anything. They're new. It's just the self employed way of doing withholdings throughout the year.

Okay, that makes sense. That makes sense. So that leads me to the next question, which is from Hannah. It's similar. She said, okay, what if I'm earning just a little bit freelancing right now and I'm doing it part time? Do I still have to pay quarterly estimated taxes?

Yeah, so that's a good question. So if you're, if you're making more than, I think it's, it's either. And I'm sorry, I don't know off the top of my head, it's either 600 or $1,000 in, like, 1099 income, then you're going to be required to pay quarterly estimated taxes. What the good thing, though, is say it's part time. So, you know, I'm making assumptions here about members of your audience, but if they're working part time and are still employed full time by an employer, you know that employer is still going to be making withholdings. Right. And so one of the things you can do is you can just have your employer increase the withholdings and that a lot of times will cover these estimated payments. The rule is, is that for. Because what people don't realize, right, is that if, say you had no 1099 income and say you had no side business or anything like that, you were just an employee. If it worked out that your employer, at the end of the year that you owed more than $1,000 because your employer did not withhold enough money, like say you owe 2,000 in taxes at the end of the year, that means you actually should have been making quarterly estimated payments, too, even though you don't have a business, even though you don't have any cicum or anything like that. Right. And so the rule is, if you're going to owe more than $1,000 at the end of the year, you need to be making these quarterly estimated payments.

Okay, makes sense. Makes sense. Now, Dana and Test had a similar question regarding estimated taxes, and it had to do with cash flow and preparing for them. So I believe in Dana's case, she was hit with a huge, unexpected tax bill because she didn't pay enough throughout the year. So I know that's, you know, there's a lot of elements to that, but the real question was this. How can I better prepare for this? I'm getting checks in from clients throughout the year. How can I create a very simple system so that, you know, when. When those estimated taxes payments come due, I actually have the cash set aside? How do I make that determination?

Yes. So, I mean, I would. I just assume that I'm going to be paying. And this is. This is unfortunately not the most, you know, precise or specific advice because everyone's situation is so different. But I assume that I'm going to be paying through the nose in taxes. And so I will, you know, off the top, you know, with any, you know, with income from my business, I'll assume that 20 to 30% of that's going to go to taxes. And, and I will set that aside. Some of that I will use to pay my quarterly payments, but I also set some of it aside so that I can be able to pay my taxes at the end of the year. I think people just don't, this is a budgeting problem, right, where people just are just not aware of how much taxes really are and they're not used to paying the extra 7% from self employment taxes and they're not used to doing all these things. So it's a budgeting problem. So just make sure that you're budgeting an extra, you know, or off the top line, 20 to 30% of your revenue for, for your taxes, make your quarterly payments and then also be tracking, you know, know what your, your net income is month to month. Like if you have a bookkeeper, right, which you should, or if you're doing your books yourself, which is also totally fine. Well, you know, then you know what your, what your net income, your profit is every month. And if you know what your profit is, well then you know, you have a rough idea of what your, you know, of what your, of your tax bill is going to be.

And I agree with you and I know where they're coming from because I've been hit with that surprise several times before. But when I've been diligent about just taking a percentage, it's worked out really well. I just don't always do it. So I guess what I just got from that is, look, just be conservative and just take 30% of every check you get and automatically transfer it to a separate account. Which is so easy to do if you do online banking these days. Right. And that way that money is there.

Yeah, yeah. And some people might say, oh, 30%, that's a lot. And you know, that would be, that would be conservative. That was, you know, it was a high number to be safe. But yeah, but, but just make sure there is some, you know, amount, some 10%, 20% that you're putting aside for taxes. Because if you're self employed, you know, it's happened to you. It's, it's, you know, it's happened, it's happened to everybody where you end up paying more taxes than you expected. Like it's going to happen. So if you have some money set aside for the end of the year when the tax bill comes, it's going to feel a lot better. You're right.

Okay, so let's talk a little bit about retirement savings. Somebody had a question and I didn't jot down who it was. But the question said at what point when you start earning money as a freelancer do you consider putting away for retirement and at what point during the year? I think it's a difficult question to answer because everyone's different. But I think what I got from it is when does it make sense generally speaking to do that?

Oh, that is a, that's a tough one because as you said, that's really specific not just to someone's business but also their, you know, their personal finances and their, you know, their, you know, their financial goals and how they want to retire. I like to, you know, put away every year as much money as I can, meaning after, you know, I have like an emergency fund that I, you know, keep in just in a bank account that's cash I can access anytime, you know, I have, you want to maximize contribution to, you know, if you have a Roth IRA or an IRA to those, and if, you know, any money left over after, you know, putting all these different plans, then yeah, then I'll, you know, then I'll put that into, you know, a separate investment account that I don't look at, that I never touch. But unfortunately, yeah, it's very specific to your own needs and financial situation. The only thing that I would say is that, is that don't underestimate how much money you're required to save up front to enjoy a decent retirement later on. And there's lots of places where you can find help on kind of calculating what those numbers look like. But yeah, but with compounding interest and compounding returns, the earlier you start. The earlier you can start, the better.

When I think there are several great options for retirement for self employed people that aren't necessarily available for people who are traditionally employed too. Right?

Yes. And there's a blog post that I wrote actually about that exact thing that we can refer your listeners to. And basically the way they work is that they, you know, they allow you to put away a lot more tax deductible actually than you could if you were just a regular employee.

Man, if he can send that to me, I'll make sure to include that link in the show notes.

Absolutely.

So Liz had a question about state taxes and specifically she was worried about what happens if I have clients outside of my state, which is extremely common or Even outside the U.S. how do I avoid getting in trouble with maybe the state taxing agency for the state the client is in or my state and any considerations there.

So where the client is located doesn't matter, right? It, what matters is where you're located and where your business is located. So you don't need to worry about if someone's, you know this and these are your clients. If these were your contractors, it'd be kind of a different story. But if these are your clients then, and it's your income, well then you just, you just do your taxes like normal. You, where the income is coming from geographically does not, does not matter.

Gotcha. So if I, I'm in Georgia and we have a state income tax. So if I generate income here for providing a service, I have to pay federal and state income tax for my state.

That is correct.

Okay. Same thing with the outside the U.S. right. So if I work, if I do some freelance work for somebody in the uk, my business is still located here in Georgia. The income gets recognized here, correct?

Yep.

Okay. Okay. So tell me a little bit about IRS audits. You know, are there any, anything we can do to avoid, to avoid audits? I know there's, this is a huge topic, but any kind of insights specifically for self employed people?

Yeah, so just as a general rule, self employed people tend to get audited just a little bit more than your, you know, your average income tax return. Mostly because they're more prone to get messed up, not because people are more fraudulent if they're self employed. And so there's certain things that you do that you know, kind of increase the risk of being audited. So like if you do the home office deduction, if you file as an S corp, because that's really easy thing to kind of overdo and underpay taxes. So there's certain things that are totally legal, you can 100% above board that you can, that's fine. It's just, you know, maybe more likely to increase your audit risk. Do you want me to get into the types of audits? Because I think that would be helpful to people too.

Sure, sure. Yeah.

And so what people, I think people hear this word audit and they're like super afraid that, you know, IRS agents with guns are going to be storming into their office and you know, going to be looking over all the returns and everything. And that's, you know, that thing kind of does happen. But mostly when people talk about audits, they're, you know, there's, there's four really three types of audits. One is what's called the correspondence audit where if, if realize if someone, unless someone told you that you're being audited, you may not even realize it. And this happens to people where, you know, they get basically they Get a letter from the irs, and the IRS says, hey, you know, we saw your return from, you know, usually it's about a year to two and a year, two years after the return has been filed, they'll say, hey, we saw your return for, let's say, 2014. We think you owe, you know, let's say, you know, $5,000 more because of XYZ. Either pay that or send us evidence and tell us why you do not think that you owe this extra $5,000. Right. This is called the correspondence audit. It's by mail. If you're above board, you just send them the evidence and they're totally fine with this. This actually happened with me in the state of Utah, where we were there a couple years ago, and they sent me a letter. They said, we think you, you owe this. And I spent. Sent back the documentation, and they were. They sent me a letter back saying, oh, okay, you're fine. It's no big deal. Right? So that's the. It's the easiest one. The next one is called, I think it's called an office audit, where. So the IRS has locations throughout the United States. And this is where they'll ask you to come in to see them in person. And they'll ask to see, like, some specific transaction or deduction. Again, they're just looking for evidence about a specific, specific thing, but they want to see you in person. So if it's a, you know, let's say it's a home office deduction, they want to, you know, they want to see proof that the room was as big as you said it was and that your expenses were as what they. What you said they were. And so you can gather that documentation, you go in person, you make your case. It's all true, you're good to go. Next type of audit is where the IRS comes to you. Now, this is, you know, going to be more serious. This is, you know, maybe they're going to do an audit of your whole return. That's called a filled audit. And those types of audits are, you know, the chances of. There's, you know, there's a random element, but there's also a weighted element based on the type of return and based on, you know, how, you know, the richer you are, you know, the more likely you are to be audited because it's going to be more worth their time to audit you. Right. For those three types of audits, there's a totally separate type of audit that's totally random. You can't do anything about. You Know, it's just, and it's, it's, it's unfortunately the worst type of audit. But they do, they do maybe 50,000 of these every year. There are very, very few of these audits done. And these types, I forget the name of it, but these types of audits are where they go in line by line. They check everything, because these are the ones that they use as a sample of how accurately people are doing their returns and that they use to update, like their algorithm for figuring out who to audit in the future. So you can't really do anything about that audit. Don't worry about audit. As long as you're above board, though, as long as you're doing your taxes correctly, you're going to be fine. These audits are just, you know, they're to get people who owe, actually genuinely owe more money, not just to make people's lives more difficult.

Wow. Some of those still sound scary.

I mean, it's, yeah. And it's, you know, it's no fun to get a letter from the irs, regardless of what they're asking from you. But at the same time, you know, if you've, you know, if business is large enough, you know, you should, you know, you should have a cpa. You should have someone doing your taxes at the end of the year and they'll be able to help you with this stuff if it's really serious.

So let's go there. And this is actually my last question. You've recommended that people should get an accountant, should get a cpa. You've also mentioned a bookkeeper. I couldn't agree more. I actually, very early on in my business, I got a cpa. It's one of the best decisions I've made in my business. And, and in 2008, I got a bookkeeper, which actually in the same office. And I've never looked back, but. So I'm not going to ask you if people should do it. You've already said it. I completely agree. I guess the overall question, though is what should someone look for in an accountant? Great. I know I need an accountant. I'm willing to get one. How do I find one?

It's a great question. The number one thing that I tell people is to look for an accountant that has clients in a similar industry to you. Right. So if you're a writer, you know, ideally you find an accountant that has other writing clients or if they don't, someone who at least has other full time, 1099 contractor clients. Because what you want is an accountant who know who's done a ton of returns that are identical to yours. That yours is boring. That all of your questions that he, you know, he, he or she, the accountant is going to, you know, going to see this a million times before. You don't want to be their first rodeo for your type of return. And if you're a freelancer, quite frankly, that's very unlikely to happen. But again, the one thing that I tell people is look for someone who's done similar types of returns. Now where to find an accountant, I say first of all, ask for referrals. Ask for people in your industry that you know, that you trust if they have an accountant and who they like. And then if that doesn't work, the number one website that I recommend where I actually found My accountant is thumbtack.com youm just go in there and say, you know, say where you are and what type of service you need and then they'll send you a bunch of people that you can then interview and go through. So those are the main things I recommend. One last point on this, and this is kind of just a bonus if you can make it happen. But what I've seen for myself and other people is if you. So you know, an accountant, a CPA works, you know, for 20 or 30 years and they build their book of business and their client base over this long period of time and over that, of course of time, you know, they get some very, very large clients that they're going to, you know, they're going to cater to more. You know, these are clients with, you know, million dollar business and larger. And so if you go to someone who's been in business for 30 years and let's say you make, you know, Even you know, 100, 200k a year, you know, your return might not be that important to them. You might just be another, you know, another 1040 that they have to get through versus going to someone who's experienced, who's worked with say a big firm for five or six years and they're just starting their own partnership, well then they're gonna be trying to earn your business. And maybe they have much greater aspirations and ambitions than doing returns for businesses for your size. But when they're starting out, they're gonna be, they're gonna cater to you because they want you to give them referrals and they want to treat you well. So you know, that's kind of a bonus. It's hard to find people like that. But if you can find someone who's smaller, that really would Care about you in particular. That's a really good thing to look forward to.

I think it's solid advice. I had the same experience. I worked with a really big firm, and they're huge. Got very wealthy people as clients, and I just wasn't a good fit. Eventually I left very disappointed after a few years. So. Yeah.

Yeah. And it's not anyone's fault. Right. It's just the incentives aren't.

It is totally. Totally. So what about bookkeepers? Where do I find a good bookkeeper?

So bookkeepers are everywhere. I mean, you've seen bookkeepers walking down the street, you don't even know it. Like, bookkeepers are just. I mean, Craigslist, thumbtack, just Google. I need a bookkeeper. And there's, I mean, literally thousands and thousands of these services. So it's not hard to find a bookkeeper. It's, you know, again, it's finding one that you like, that you work well with. And unfortunately, frankly, a lot of times that's just working with the person to see how you. How you work together. The good thing is that bookkeepers are relatively inexpensive. We're talking. I mean, it varies, but, you know, we're talking 15 to, you know, $30 an hour, and they work maybe a couple hours a month. And I would get a bookkeeper, you know, like today, like, bookkeepers just, you know, make everyone's life so much better. You get your financials every month. You know exactly how much profit you have. You know, then you can use that to figure out what your quarterly payment should be. And then once you have those beautiful books prepared every month at the end of the year, it's really easy to do your taxes because you just hand those off to your CPA and then they do your taxes, and you're like, oh, I didn't have to do a thing. It's great. So anyways, I know I've been harping on the bookkeeper and CPA thing this whole time, but that is really the best way to go.

One of the best days of my life was when I turned over my bookkeeping to a bookkeeper. And I'm a finance major. I mean, so. Oh, yeah, here's my philosophy. I thought, you know what? I think it can't hurt to do your taxes maybe a year or two and do your bookkeeping for a little bit, especially at first. You know, you're bootstrapping, right? So you gotta cut corners. But I think there's an element to just kind of learning this on your own so you understand what's under the hood. But, man, after that, I'm a big believer in giving it to somebody who can do it better, faster, cheaper. That way you can focus on what you do best. But I am grateful for having the experience at first because I understand what they're asking me and where it's coming from when, when we do have a conversation.

That's true, that's true. I mean, yeah, if, you know, if, if you just start off, if, you know, if this is a side gig for you, you know, it's not substantial income. Yeah. And, you know, you only have a couple of transactions a month. Yeah. It's going to make sense to, you know, to do your books by yourself at first. And that's, that's totally okay. You know, I, you know, I did that for a couple of years, too, and my wife has a photography business. She's done that too. So that's not foreign to me. But once you're serious about the business, once you have substantial or relatively substantial income coming in. Yeah, it will be one of the best days of your business's life when you hire a bookkeeper.

Trevor, this has been fantastic. Great information here, Very actionable. I know my listeners are going to be really happy to listen to this. Where can they learn more about you and what you're doing these days?

Yeah. So you can learn more about me and what I'm working on at my personal website@trevor mckendrick.com. and I also, I also actually offer an accounting course for freelancers and contractors that you can, you can. When it, you know it, when it relaunches, you can sign up to hear more about that on my website.

Oh, fantastic. Great. Great to hear. We'll, we'll include links to all that in the show notes. And again, thanks for coming on the show. This has been very informative, very helpful.

It was a lot of fun, Ed. Thanks for having me.

Well, I hope you got some great value from Trevor's information and from that discussion. I hope you enjoyed the interview. And don't forget, real quick, tax day this year is actually on Monday, April 18th. So if you're all set to go and ready to rush out to the post office, don't worry. You actually have till Monday to mail in your check and to file. So no need to go out of your way today if you're running behind. Finally, the number of this episode didn't go unnoticed. This is the 100th episode of the High Income Business Writing podcast, and I have a celebratory episode scheduled for the next show. Where I'm going to go through some of the biggest highlights and takeaways from the first 100 episodes of this podcast. So stay tuned for that in a couple of weeks. And that's it for today, folks. Again, I'm your host, Ed Gandia. Thank you so much for listening and I hope you have an awesome day. The High Income Business Writing Podcast is a production of Being Business Launcher. Learn more@b2b launcher.com.

That they use as a sample of how accurately people are doing their returns and that they use to update, like their algorithm for figuring out who to audit in the future. So you can't really do anything about that audit. Don't worry about it. As long as you're above board, though, as long as you're doing your taxes correctly, you're going to be fine. These audits are just, you know, they're to get people who owe, actually genuinely owe more money, not just to make people's lives more difficult.

Wow. Some of those still sound scary.

I mean, it's, yeah. And it's, you know, it's no fun to get a letter from the irs, regardless of what they're asking from you. But at the same time, you know, if you've, you know, if business is large enough, you know, you should, you know, you should have a cpa. You should have someone doing your taxes at the end of the year and they'll be able to help you with this stuff if it's really serious.

So let's go there. And this is actually my last question. You've recommended that people should get an accountant, should get a cpa. You've also mentioned a bookkeeper. I couldn't agree more. I actually, very early on in my business, I got a cpa. It's one of the best decisions I've made in my business. And in 2008, I got a bookkeeper, which actually in the same office. And I've never looked back, but. So I'm not going to ask you if people should do it. You've already said it. I completely agree. I guess the overall question, though is what should someone look for in an accountant? Great. I know I need an accountant. I'm willing to get one. How do I find one?

It's a great question. The number one thing that I tell people is to look for an accountant that has clients in a similar industry to you. Right. So if you're a writer, you know, ideally you find an accountant that has other writing clients or if they don't, someone who at least has other full time, 1099 contractor clients. Because what you want is an accountant who know who's done a ton of returns that are identical to yours, that yours is boring. And all of your questions that he, you know, he or she, the accountant is going to, you know, going to see this a million times before. You don't want to be their first rodeo for your type of return. And if you're a freelancer, quite frankly, that's very unlikely to happen. But again, the one thing that I tell people is look for someone who's done similar types of returns. Where to find an accountant. I say, first of all, ask for referrals. Ask for people in your industry that you know that you trust if they have an accountant and who they like. And then if that doesn't work, the number one website that I recommend, I actually found my accountant, is thumbtack. Com. You just go in there and say where you are and what type of service you need, and then they'll send you a bunch of people that you can then interview and go through. So those are the main things I recommend.