Intelligent Investing #57 - Wendy Thompson of Absolute Tax & Financial Solutions - Year End Business Tax Planning

In This episode I talk with Wendy Thompson of Absolute Tax & Financial Solutions. 

We discuss: 
•Important year end items that Business owners need to thing about
•Deduction vs Credit – Which one is better?
•Should your company be a sole proprietor, LLC, C-Corp or S-Corp?
•What are some of the differences between the tax structures and how does it impact your taxes
•Setting up Employer Sponsored Retirement plans to offset and lower company taxes

A little about Absolute Tax & Financial Solutions:
Absolute Tax & Financial Solutions helps people and businesses maximize their money!
 
Whether it’s tax preparation, payroll, or bookkeeping – they are the best in the business. With 30+ years of tax preparation experience, they are known for providing the “absolute” best service for their clients, which is why they have a positive & strong reputation.
 
Call (928) 440-5022 today to schedule a no obligation consultation or an appointment for your next tax preparation.
Loyal – Dedicated – Committed

Phone: (928) 440-5022
5200 E Cortland Blvd E110, Flagstaff, AZ 86004
http://www.absolute.tax/

Wendy is happy to do a prior tax analysis for you. If items/deductions/credits were missed that could benefit your company, Wendy can go back and amend previous returns up to the last 3 years. Getting a second opinion on your taxes is probably one of the best things you can do every few years for your business. 

Thanks for joining us on Intelligent Investing with Glenn Leest! Your go-to source for navigating the complex world of finance and becoming an intelligent investor. We appreciate your trust in us and your commitment to your own financial future.

Connect with Us:

Glenn Leest
Senior Investment Advisor
WT Wealth Management
Office Phone: (928) 225-2474 Office
Email: intelligentinvesting@wtwealthmanagement.com

Website: https://www.wtwealthmanagement.com/team/glenn-leest
Instagram: https://www.instagram.com/intelligentinvestingwithglenn/
Facebook: https://www.facebook.com/GlennLeestIntelligentInvesting/
YouTube: https://youtube.com/@IntelligentInvestingGlennLeest?si=d6S0y14lghz0eaHa


**Don't forget to subscribe, rate, and review our podcast on your favorite platform.
Your feedback helps us provide you with more valuable content.

We'll be back with more insights into intelligent investing and how it relates to your world.
Stay informed and make those smart financial choices.
Until next time, this is Intelligent Investing with Glenn Leest, helping you make your money work for you.
...

Transcript

You are listening to Intelligent Investing with Glenn Leest. In today's episode, we have Wendy Thompson in studio with us today to talk about taxes and things that you need to be thinking about before the end of the year to strategize for next year stay. Tunes going to be a great episode.

All right. Welcome to the studio we've got with us for the first time in the studio. Wendy Thompson. Wendy, how are you today? I am super awesome, , uh, Wendy and I have known each other for. Oh man. Almost like 10 years. It's been 10 years. Yeah. I think this is my 10th tax season. Wow. 11th tax season. And I met you in our first year.

You came walking through that door and introduced yourself. Yeah, exactly. When I first got into the industry, I was going out and just making connections and making professional, um, relationships, and I went by and introduced myself. To you guys and your team, and then the rest has been history. We've been yeah, absolutely.

Doing business back and forth and helping our clients, uh, on each side of it. So Wendy's, uh, company is called Absolute Tax and Accounting over on a country club. And, um, they've been, you guys have been growing like crazy, so Absolutely. Yeah, we exploded yet. Super blast. Yeah, so I still remember when I first walked in it was just like maybe two, three people there.

And now it's like offices on pod offices. Offices. Yeah. We've moved three times. Three times in that same little complex. Yeah. So what I wanted to have on today with, uh, my, for Wendy as my guest, is we wanted talk about. Taxes and specifically things that we should be looking for before the end of the year to strategize for 2023.

And I think one of the things I've noticed that I've been doing this, you know, 10 years and you've been doing this more than 10 years, is that sometimes, uh, I, I found that people don't take the initiative to strategize and plan for their own tax situation. Right. And by the time they need to implement something, it maybe started too late.

It's too late. It's too late. Yeah. So, What we want to do today is talk about what are the things we should be looking at now before the end of the year. Because there are certain deadlines within the tax year that if you want to have them done and implemented, probably need to be done before the end of this.

Yeah, before the end of this tax year. Exactly. So that's what we want to talk about today. So, um, kind of hit on that. Um, we'll do a kind of a multi-part series talking about all the different things. We should be looking at. But what I want to focus on today is specifically for business owners. Because that's what I found over the years is, um, most people that have individual returns, um, there's not a lot of complications unless you have like multiple properties or lots of investment accounts or stuff.

It's usually pretty straightforward. Straightforward now. Mm-hmm. , right? Yeah. But when we get into the business realm, that's where, you know, whether you have an LLC, S Corp. C Corp, right? That's where. I will plug Wendy. She has done such an amazing job for my clients, really helping them get dialed in and helping their tax situation.

I actually heard this stat the other day, which is crazy. That, um, the average business owner misses around 13 to 13,500 of deductions and credits each year just because they're, whoever on an average scale, their, their CPA or tax person just isn't doing the due diligence. So doing the due diligence, you know, with a professional like you to say, Hey, are we, are we looking down every single avenue to make sure we're maximizing everything we can do?

Makes a big difference. I mean, sometimes it could be the difference of you having a huge tax bill to not having a tax bill if, if, if. Dial in things correctly as a business owner. So when we talk about, um, being a business owner, one of the things, uh, we should look at doing, which you and I, when we first started working together, um, kind of my background is, um, I was a sole proprietor when I first started, right?

Meaning, you know, I would bill my clients for the work that we do and then, um, you know, they would pay, you know, the company WT Wealth Management and then WT would pay me just like as a normal waged employee. And so that was a sole proprietor. And one of the things I notice, Quickly on that was, um, I found out something called self-employment tax.

Your Social Security Medicare tax. Yeah, exactly. So maybe we'll start there, because the, the differences between how your company is structured between a sole proprietor LLC, C Corp, S corp, can have some pretty big differences, so. Exactly. Yeah. So, um, so sole proprietor, the, that category is just one person, you know, maybe running a small business, really small business.

And everything is pretty much personal and business is all kind of all in one, if you will. Kind of, yeah. Right. They're not like really separated as much as you might think. So these are might be someone who's maybe doing kind of small volume, not doing a ton of business every year. Because once you start hitting a certain threshold, you really need to look at the status of your corporation.

Right. And that's what I've seen a lot. Lately, the past few months, it's, I've had, this is the time of year where I'm starting to get phone calls. Yep. People wanting, you know, some tax advice coming in, looking over the returns, and I'm seeing some pretty large numbers on a Schedule C with 70, 80, a hundred thousand dollars in profit.

And it's like as a sole proprietor. As a sole proprietor. Wow, that's a lot. And their social security Medicare tax is huge. So, so yeah. So Social security, Medicare tax, what are those, what are those rates that the, well, the Social Security Medicare tax combined is, you know, when you work for somebody, they pay half, they pay half, and then you match half, and they take that all out of your, is it like 15 or something?

It's like 15.3 15. Yeah. So as a sole proprietor, you're paying both sides, but as the, they're paying both sides, employer and the employee. The employee, and then your tax bracket on top of that. So when I'm figuring those numbers, I'm just figuring about 30%. Wow. Yeah. So, and that's, if you do a sole proprietor, if you're in that lower bracket, if you're in a 22% bracket, you are getting killed in taxes.

So one of the first things that we should look at before the end of the year is my small. Categorized correctly as far as the status of it. Is it a sole proprietor when it really should be an LLC? And, and one of the things I've noticed, cause I've had multiple LLCs and s-corp and C-Corp over the years, is, is there's kind of almost like this stigma.

Like, oh my gosh, it's so hard to do. It's not that hard to do. Like you, you file the paperwork with the state, you publish it, you do your name, get a tax. It's very easy. Very easy. Arizona is one of the simplest ones to do one thing that you, you made a comment. The LLC. Okay. And I want to make it clear because many people come in and they'll, they'll, they'll come in, they'll say, yes, I set up an LLC.

Mm-hmm. , remember the LLC is just your umbrella of protection over you from lawsuits. You still have to sit down and figure out how you want to be taxed. You can be an LLC, still be in tax as a sole proprietorship, or you can be in an. C being taxed as an S Corporate or a C corp, right? Or you've got to just go to the IRS.

There's certain forms that you fill out. You know, if you want to, um, be an l c I went to the state, we formed all of our legal documents. I was a sole proprietorship. We went to the state, formed all of our legal documents.  and then we went to the IRS. We knew we wanted to be a S corporation. Yeah. We wanted to be taxed as an S corporation, which gives you the same, my husband has a, um, construction business.

Mm-hmm. , and he's an S corporation, but he is at Inc. So we have to file with the state every year. Yeah.  where an LLC is just a one time thing. Hmm. Okay. So that's going to be a huge one. In fact, um, before you came in today, um, I had a, another client that we were kind of talking about doing some rental properties mm-hmm.

And he's asking me do I, should I do an LLC, you know, for this rental property? And I said, Yes, yes, and yes. And here's why. Not only from the protection standpoint, right? Right. So there's that. The LLC, once you form it, whatever's in that LLC, that's the limit of the liability. You know? So that's, it's almost like it's own separate person.

You're creating this own separate person. It's own tax id. And if something happens bad in that, uh, in that realm and say, you know, you have a rental property and it's through an LLC and someone falls and, and breaks their leg and they try and sue you, well they can only sue the LLC. Correct. And they can only get out as much as the LLC is worth.

That's the max and that's where your protection is. And so if you don't do that though, they can come after you on the personal level. So the LLC is huge from a protection cause it kind of creates this island by itself. I fully agree. Mm-hmm. . Additionally, on top of that, how you're able to route your deductions, expenses, how you manage that business.

Cause the LLC is a business. It is. And you get to decide how you want to run that business. You can run it really well, you can run, it's not well, but at the end of the day, it's your business to manage. So, That individual, we were talking about their rental property and said, yeah, you should do an LLC.

Here's why. One, from the protection standpoint, but two, you know, you're, it's, there's going to be costs that are associated with managing and running this rental property of yours. It's going to take time out of your schedule. You're going to have to do maintenance, all these things, if you have that all through the LLC, those are all now.

Business expenses plus doesn't the business need to pay you something for your time and energy? So now you're able to, so let's, let's do some easy math here. So let's, um, say the person has, uh, a rental property and they're paying, uh, charging $2,000 a month. So they're getting $24,000 a year. If they were just doing it on the sole proprietor level, you know, their, their amount that we'd actually be able to deduct and run through expenses is somewhat limited.

They still can do some stuff, but not as much as if they did an LLC where maybe they do the. C and they say, okay, well it's going to cost, uh, you know, I'm going to pay myself a salary of 20 grand a year just to manage this property. Plus, um, you know, all the expenses that are, you know, incurred for upkeeping, the property are going to be paid by the business or the LLC, you know, the roof fee, you know the plumber to come out, you know, the insurances.

Those are all going to be covered. And so what ends up happening is at the end of the day, the LLC may show that. You know, on that scenario, say they made $24,000 a year in revenue, but actual net profit after they paid the employee, which is the owner, they end up probably zeroing out most of that. So it's a way for you to route some of the expenses and deductions through the business, which are all going to be things you're probably going to have to pay for anyways.

Right. But now that more, that money's being able to be kept in your pocket, um, because he is coming over as a personal wage from the LLC and you have those layers of protection. So those are. Kind of some of the ideas I was trying to talk through like, Hey, I think it is a good idea to look at this. And yeah, there's a little bit of work.

Yeah, you got to, you got to file a tax return, you got to pay your cpa, you got to do stuff with the state and come up with a name. It has to have its own tax id. But once you get that done and kind of get the ball rolling, it's pretty easy to maintain it. It's once you get set up and you've got everything organized and follow your plan.

One thing that I want to say is you. The LLC, I, I just look at it as the umbrella of protection. Mm-hmm. , you're still, I still go back to what is the entity going to be? Yeah. Okay. If it's rental property, you know, I might leave it on a Schedule E. Mm-hmm. . If it's, if it's, I just, uh, met with somebody yesterday that had an Airbnb.

There was some confusion at the very beginning when Airbnbs really became popular. Yep. It was a Schedule C subject to social security Medicare tax. Mm-hmm. , and then that's with the way people were doing it. And then there was a little bit more clarification. If you really were just, you had a house and you're, you're renting it out and it's just here and there.

Yeah. It's, it's the, it's a, um, a company that, those Airbnb companies that take over the reservations and you just own the house and you're collecting the money. That's really just rental income. Yeah, yeah, exactly. That's really not a sole proprietor that should not be subject to Social Security Medicare tax.

Mm. Yeah. But at the very beginning, it. Okay. Now, if I had that, that could be the difference of making a profit and not making a profit. Well, if I had an Airbnb, but I also made it, what is it? Those bread and breakfast? Mm-hmm. . Yeah. So now I'm, you know, I'm offering meals, I'm offering, you know, da da da da, da.

That could possibly be a Schedule C item. So you kind of got to look at. How is the entity going to be taxed? Yeah. Okay. And if it is subject to that social security Medicare tax, how much is that tax? Yeah. Yeah. How much is it going to be? Okay. Cause really between all the different businesses, okay. Really the deductions are going to be mostly the same.

You always hit your miles, you always get your supplies, you always get your repairs, you always get your, you know, When you start getting into the corporate levels, the S corporation, the C corporation, there's a little bit more tax planning, there's a little bit more, um, room to, to negotiate those expenses.

Yep, yep. You know, so I've got a nice profit at the end of the year. I'm an S corporation, you know, can I push some of that money into my retirement? Can I, yep. Yep. Can I do so? But when I'm deciding whether somebody should switch from a. LLC, sole proprietorship to ANS corporation. I'm looking at that.

Social security Medicare tax. Yeah. If they're paying six, seven, $8,000, you could be cutting that in half by Huge. Yeah. Huge. And the other thing that. You know, this is, you know, we, we've got so much content we need to cover and so much of it here. Here's how I look at all this stuff, is the more you understand about taxes and how to run a business and how to properly do things, the more profitable you're going to be.

Exactly, because you're going to be able to minimize your tax liability. And there's, I don't know why, there's a stigma where people are like, oh, well, if I somehow minimize my tax liability, that's going to get me in trouble with the IRS. No, there's nothing in the IRS that says you can't, you know, minimize your tax liability and maximize your profit.

They're assuming that's what you're going to do. That's, but it's on you as the individual. To take ownership of that and to look at each ev, each and every avenue of how do I maximize within what's allowed in the tax code. So a good example with that, even with that LLC property, is maybe they have a SCOR or a C Corp and they decide, hey, um, I want to pay myself, uh, a salary, plus I want to give myself some healthcare benefits too.

Right? You know, from Right. My own corporation because maybe this is the only thing I'm doing right now, and that's another corporate expense. Even though it's being paid out to you as the employee. So there's, there's a lot of planning that goes involved. Yeah, there is. And I learned that real quick. The first year when I had a sole proprietor and I had to pay the social security Medicare, right.

All those taxes plus the self, the self-employment tax, which is another, you know, I think 15%. So Well, your, your, your federal and state practice. Yeah, exactly. So I ended up like being pushed into this high bracket and I, we, you, you and I were working together at the time with my taxes and we were like, Oh, crud.

What are we going to do? Like, um, I didn't, I mean, it's kind of like the, the cruel joke in the world is that as soon as you start becoming successful and make some more money, if you don't do it right, you're going to give it all back in taxes. Right? It's like we have a, a progressive tax system, whereas the more money you make, the higher percentage you pay.

So it's really important. Um, and I also look at it too, is if you can dial in, if you have a. The First place you should look to maximize efficiency and profits is taxes. That's going to be the easiest, lowest hanging fruit. And to make sure like, Hey, am I doing everything right? And I believe everyone should get their taxes audited, you know, by a separate CPA or tax person every couple of years, just to make sure like, Hey, is my current person maximizing?

Because I've heard so many times over the years, clients come in and they just say, we just don't feel like. Tax person or CPA is doing enough for what is allowed and what is reasonable in our situation. And we're having to pay a lot of taxes and we wonder is there a more effective way of doing this? And that's where, you know, an individual can come out over to you and just bring their previous returns and say, Hey, did we capture everything?

And if we. Didn't say we missed a credit or a deduction. You can actually go back and amend it. We can amend it. I think you have a three year period, so you can go three. Your phone should be calling, you know, be off the hook where people saying, Hey, um, I want a second opinion. You know, um, I've been working with, uh, my CPA or tax person for years and you know, I just want to make sure they're doing a good job.

And I do the same thing in my business too with the investment management portfolios. If someone comes in just says, Hey, I want a second set of eyes, will you take a look at this and just make sure. Whoever is managing this or doing this, if it's being done, um, as best as it can be, and if there's any room for improvement, what can you do?

And that's an opportunity for, for both of us, you know, in our professions to say, here's how we can improve your situation, make it even better. Right? And a 10%, 15, 20% extra, you know, efficiency within your tax. Can make all the difference that can make you go from a profitable year or a non-profitable year to a profitable year.

I mean, you think about, you know, the stock market, everyone's like, oh, you know, it'd be great if we got 10, 11, 12% return on average this year. We haven't done that. But, um, the taxes are one of those things where you could do that and get that dialed in. Now, I actually had one client years ago, say if we just got our taxes dialed in properly, we'd probably save 20 to $30,000 a month.

And for me, I. Why, why, why am I hearing this? I, yeah, that should have been, we did re, you know, dial things in and get as effective as we can, because I was like, wow, maybe the company made a million dollars, but they're giving up an extra two 50 and unnecessarily because they didn't have their taxes dialed in correctly.

I mean, that's, that's huge. So that's why it's so important for our people to come in for the end of the year, look at, do we need to make a change to the corporate structure? Yeah. Because they're all taxed a little bit differently. And I like, you know, I always tell people, you know, there's, I, when I'm, when you're looking at that whole tax planning, you know, there's dollar amounts that you, that you're looking for.

You know, are you ready yet for that? S are you ready to take that leap of faith because there needs to be thresholds. Yeah. When you become an S corporation, you must. Be on payroll. Mm-hmm. , you must be an employee of your own business. Yep, yep. With a sole proprietorship. The money in your bank account, at the end of the day, after all your expenses are paid, that's your paycheck.

Yeah. Yeah. So there's a little bit more work involved with an LLC, S Corp, C Corp, S corporation. There is. There is, but the benefit, that's why I look at, yes, there's more work, but the benefit is going to be in your favor if you do it well or have, or you pay someone. That's, I'm a big fan of, My professional people in my life, I will pay them and pay them very well for the work that they do, because I value what they do, and I don't want to be doing it myself.

I, I mean, I run my own books and I have my own profit and loss, but I don't want to be doing payroll and bookkeeping and all that. I mean, I, and I want a second set of eyes that's the expert in that area. And I think some people fall into that trap of like, I'll just do it all myself. Or I'll, I'll do, I'll list my house for sale and don't use a realtor.

I'll do a for sale by owner, because I'll, I'll save in the commission. And then what they don't realize is that by using a realtor, they end up netting around 20 to 25% more after all the cost. That's the national average between. Doing a for sale by owner and then using a realtor. So the difference on that would be, say you had a $400,000 house and you did a for sale by owner and you maybe sell for 400,000, but if you sold that same house, the realtor, you might get 500,000.

It might, it might get to more. Yeah. And then even after you paid them their commission, you're still far ahead. And that's how I look at even my own business too, is that at the end of the day, yes, we are compensated for the work that we do, but on average the stats say by using a financial advisor, you're going to.

Three, four, 5% on average, better returns than if you were to do it yourself. And there's so much that goes into it, not just how the portfolio's constructed, but maybe there's some tax things that we, you know, they didn't even think about. Or there's some other planning things that, you know, we are able to help them with or we are able to help them not make a silly decision and, you know, battle all their money on one stock and it blow up sort of thing, you know?

So those are all those reasons why it's so important to have a professional in your corner. And I always, you know, say my, my CPAs and my. My estate planning attorneys, they're worth their weight in gold. I will happily pay them. In fact, I, I usually want to pay them more because they like, they do such a great job.

So, um, if you haven't already, um, if you're working with a tax person, great. But if you want a second opinion, call, call Wendy Absolute tax. Um, what's a, what's a good contact number if people want to reach out to you? 9 2 8 4 4 0 5 0 2 2. And you guys are over on Portland Boulevard. On Portland Boulevard, and I'll put all the, the descriptions, the link in the description of the episode below of where to find you.

Mm-hmm. . Um, we're going to take a quick break here and then we're going to come back and cover some other important areas to consider when it comes to year end tax planning. And, um, we got, we got a lot of great stuff here in store, so stay tuned and we'll, uh, we'll be right back.

Welcome to Intelligent Investing with Glen Le. If you enjoy today's episode, please make sure to like and subscribe. If you want to give me a call, my number here is 9 2 8 2 2 5 2 4 7 4, or you can email me at Intelligent investing@wtwealthmanagement.com. I can help you give a second opinion on how you're doing with your investments.

See if you're doing everything you need to be doing. With that, give me a call. Love to talk with you, see how we can help

all. We're back here and, um, we have, we have like five things we wanted to talk about for end of the year tax planning. And that first one we talked about this, the, just the nature of how your company's set up is so important. Yeah. Um, and, and I want to stress, um, call your cpa, call, call Wendy in absolute tax and say, Hey, is my current structure the most efficient way possible?

And if I merge over to a C corp or an S corp, you know, does that help me as far as taxes and maximization of profit? And you can help walk them through that and get an idea. Now if you're, if you're just selling a couple knickknacks, you know, on the weekends at an art show and you're not really bringing in a whole lot of revenue, right.

Sole proprietor's, probably fine. Right? Exactly. But if you're actually starting to make, you know, Double digits. You know, sometimes triple digit profits, you a hundred percent need to be looking at that, right? Cause the cost is set up, an LLC, S corp, C corp, all in. If you use a professional, less than a thousand bucks, I mean it's, it's very reason.

Pennies on the dollar that you're saving. You just need to do it one time. I've set up mine a couple different times, very easy. Got its own tax id. So my corporation is its own individual entity, separate from me and my personal stuff. So I like that because now the corporation can. Take on debt if it wants to.

Right. And if the corporation goes under, I'm not liable for that. It's, it's whatever the corporation, it has its own, you know, it's its own person. And, you know, my wife and I are 50% owners in the company, so, you know, we still get, decide what the company does, but there's a lot of things that we can do.

And, and one of the things I want to talk about today too is, um, One of the things I didn't even know, this was something that I learned recently is um, and I, I remember hearing about Microsoft Bill Gates and how they gave a ton of money to the Bill and Melinda Gates Foundation, which is a non-profit, and I was thinking, wait a minute.

So Microsoft is donating money, you know, to this charity organization and that comes off, you know, a certain percentage of that can come off as a charitable donation, help lower their overall tax liability. I had no idea that was even doable. And there's certain, there's certain obviously, criteria for how much you can do, but I didn't know that you can do that on the corporate side.

So, because for me, like I, I send my tithes and my money to the church every month on the personal side, right. When I was looking at it and going, wait, why am I not just doing this on the corporate side because I'll get a better bang for my dollar tax wise. And, uh, you shaking your head no, I was, because I kind of wondered that myself too, you know?

Cause the corporation itself doesn't get the charitable donation. Yeah. It flows on an S corporation, it's going to flow through to the shareholders. Yep, yep. And then you take that on your personal return, and that was something that, you know, all the inner workings of it. I'm not a hundred percent solid on how it works, but I knew that for me, in my situation, It actually made a little bit more sense to start doing more on the corporate side as far as, you know, how my structure was set up.

It was more beneficial to do it that way, but I had no idea. Like that was something that I didn't even know was possible unless I would've called and, and talked to my CPA and, and, um, you know, talked to you guys and say, Hey, um, you know, I got you guys on speed dial. I'm always calling like, Hey, you know, what do you think about this question?

Or What about this? Or, you know, sometimes businesses will want to buy a vehicle, you know, for business purposes, and there's certain. Size vehicles, like get bigger deductions than others. There's like, there's all these different like little rabbit holes within the, the tax code that, you know, like say you're in the construction business, right?

And you're like, Hey, I need a new truck. And uh, this year was a good year, you know, and uh, maybe we can make a capital purchase and you know, then we can depreciate it. And depreciation, you know, has a couple different ways you can do that too. You can do it like over multiple years. Sometimes you can even do it all in one year.

All in one year. Yeah. These are like things I never even knew about. Right. This could be a topic we could spend. Forever talk. We're going to do another show. We're going to do another show. We're going to talk about depreciation and those other things. Yeah. But those are just things that, like when I sit down with clients sometimes and I've, I know that they've got a corporation, I'll ask them, Hey, are you doing this?

Are you doing this? Or Have you ever thought about that? And they go, no, I've never thought about that. You're like, that's why you need to call Wendy. Call Wendy and look at every single avenue, because each one of those little. Things that you implement or do or maximize within the tax code, all start to add up and they can really help bring down that overall tax liability.

Like another thing that happened during the pandemic, there was so many credits and taxes and things that came out. Payroll, holidays, it's, it was unbelievable. Oh, it was crazy. Yeah. So I remember you and I were kind of like talking about all the different changes and there's so many of them. And there's even ones that's like the employee retention tax credit or something like that, where it's like if you, during the pandemic still kept your people on in payroll, the government gives you an, an additional like credit and you're like, wait, what is this?

Like this is on top of the ppe on top of the, you know, all the other funding that came out. And so that's why it's so important, like, I think it's so naive of us to think that we're going to know more than the professionals do that do this every single day, that have been doing in a decade, and they've got a whole team.

Um, we really need to be having those people in our corner, like, I'm not going to do my own car repaIRS. I'm not going to do my own surgeries on myself. I'm going to hire the professional that that is their lane. That's. All they do, and they're really stinking good at it. And so, you know, people need to be calling you guys to say, Hey, um, you know, I want to make sure our corporation is dialed in as, as, as effectively as possible.

And, you know, does that corp, the charitable giving, does that make sense? Does do I need to appreciate down some assets? Do I need to set up a retirement plan? That's where a lot of you and I come together too, is looking at business owners. And that's actually the next thing I want to talk about is, you know, Year end planning is, does it make sense for my business to implement a company sponsored retirement plan?

And kind of how the offshoot goes with retirement plans, there's really two different subcategories. There's ones that are through your employer and ones that are not through your employer. Mm-hmm. . So the ones that are like not through your employer would be like your traditional IRA and your Roth IRA.

Right. And you can contribute to those as long as you have earned income for the year. Correct. And then, You have your employer plan, which is through your employment, which can be you just work at the company or you're also the owner of the company, because you're still an employee there. Um, and those would be like your simple IRA, your step IRA, a 401k, or even a defined benefit plan or profit sharing.

There's all these like, Tears of them. And one of the things that we do is as we sit down and talk with clients together, because we do a lot of business back and forth, you know, we, we, I don't even know how many clients we have together. We have a lot. Um, and it's, it makes a great relationship too because they're like, okay, um, you know, if we can just.

Fund X amount into the retirement plan that Glen has set up. Here's how it'll impact the taxes, and we can get this all done. But when we look at retirement plans, if you're going to implement one at your employer level, you have to, you really want to scale up to what makes sense for you, right in the business.

Because if you, you know, only have a small business operation and really don't have a lot of employee. You may not even need to do an employer retirement plan through your employer. You may be able to just do traditional IRAs, right, and call it good. And then you're not having to offer any additional benefits to your people.

But you may say, well that's not enough. You know, because the traditional IRA, you know, kind of the way I think about that is, um, so you get a tax deduction for putting money in and then money in that account grows tax deferred. So say you make $50,000 of income, you put $5,000 into your traditional IRA. Now when you go to do your taxes that year, you're going to be taxed at 45,000 of income.

Mm-hmm. And that 5,000 gets to go on your retirement account and grow tax deferred and keeps growing every year. And hopefully we do a great job and it goes to like a million dollars. And then one day when you retire, you can start pulling it back out and you just pay income tax. And that's, you pay tax.

You pay tax it then. Yeah. So it's never, it's not that traditional IRA is never going to be tax free. It's just tax deferred. The, the Roth is tax free. That one you make $50,000, you put 5,000 into your. Um, you still made $50,000. Yeah. You don't get any tax deduction, no deduction now. But that $5,000 never gets taxed again.

So it can grow to become a million dollars and it's not going to count as income. You don't have to pay taxes on it as long as you've had it in the account for a certain amount of time. Yeah, like five years. So those are your, like your non-retirement plans, you know, or your non, um, employer sponsored retirement plans.

And then your employer ones would be like, okay, now maybe I need more than just a traditional IRA for me and my spouse. Um, because the, the. And the IRA is going to be on the personal tax returns. Yep, exactly. Now where the ones you're talking about now is something that the corporation. Exactly. So, um, let's paint a picture there.

So say you have a simple IRA, which is kind of like the first, um, First kind of retirement plan you might implement because they're very easy to implement, very cost effective. You don't have to do a ton of filing with the IRS. Um, pretty plain Jane. And what you actually have to offer to your employees is pretty minimal.

So say you're a business owner and you make a hundred thousand dollars a year and you want to set, set up a simple IRA, you would have to offer it to all your employees once they've met, whatever the criteria, say they've worked for you for a year. And that's your criteria. Once they've worked for you for year, they become eligible for the plan.

And then you can say, Hey, we're going to match dollar for dollar up to 3%. That's the first option you can do. Um, or you can just say, I'm going to give everyone 2% of whatever the pay is as a employer contribution. So those are the simple IRA, the two offshoots. It's either dollar for dollar. Up to 3%. And then the thing with that one is if the employees don't contribute, you as the employer don't have to put in anything in for them.

But if they do contribute, they can put in three. You have to put in three. That's correct. And the other side of the simple is I'm just going to do 2%, whether they put money in or not. And everyone that's eligible gets 2%. Now what that 2% does, or that 3%, whatever you do, which other route is going to come off as an employer contribution?

Those monies when it goes into your employees, employees retirement plans. You get to reduce your, your tax, your, your, your revenue or your, your income as a business. So, say easy math, your, your business made a hundred thousand dollars. And between the simple IRA benefits between all your employees, say you put a, you know, $10,000 away between, you know, um, what you gave as an employer contribution.

So now your, your, your company is now at $90,000. Of, uh, you know, net profits, you know, for that example. Um, and then also the simple allows you to put money as the employer, but also the employees can put money in as well. So the employee side of it's, you know, that's always separate. That's always like whatever the employee wants to put in, they put in it reduces their taxable income like the traditional IRA does.

But the employer contributions, those come off as a business expense. And so that's where you can use this as. Tool to say, I want to encourage people to stay. I want to encourage them for doing good work and I can do this via retirement plan. Help me as a business owner, reduce my taxable income, help the business, reduce the taxable income, and offer a benefit to the employees.

Which I feel like nowadays, like there's just so many people that are not saving for retirement and there, there needs to be so much more emphasis on that. Like, Hey, just put some money away, you know, 50 a. 200 bucks a month. Just start now. And that's the only thing that you and I were talking about over the phone the other day is you said, I just wish I would've done a little bit more contributions to my retirement accounts years ago, because the compounding interest really starts to add up.

Yeah. And so that's where that conversation makes a lot of sense for you and I and the. Business owner is because it's a win-win win when you think about it. They're able to put money away for themselves in their own retirement. They're able to reduce their taxable income on the corporation level, and they're able to offer a, uh, employee retention benefit basically to say, Hey, if you're a good employee, we're going to reward that.

And then you can even tie in some additional things with the different plans to say, we can have, you know, kind of one tier of contributions from the employee, employer, sorry. And then another one. Based on the profit of the company. And they call it like a profit sharing. Profit sharing. Mm-hmm. . Yeah. So there's all these different ways, all different kinds of ways.

You know, one thing you know that at least my company, because I have. That's my bus. That's my specialty is small businesses. Yep. I love the small business tax return and watching them when they first come in, starting the business, watching the company grow, guiding them. Yeah. And when we convert, Over when we make that decision to be that S corporation, that's mostly what I deal with.

Is that that single owner converting to the S corporation that doesn't have employees? Yeah, it's just him and his wife. But remember now if, if it's your business, You're the employee. So when we're talking about this employer employee contributing, it's like they get both sides of it. Yeah, they're contribu, both sides of it.

Mm-hmm. . Right. So I don't want people to think that because I don't have any employees. This is, this is, this isn't what you're just talking about. Yeah. We're talking, we're talking about even that single member sole proprietorship. Just one or two people. In fact, that sometimes that's. Better. It's better because you can put a whole lot more away, but we're not, and you're not having to offer anything additional to your employees, right?

Because it's just you and a spouse or whatever, you and a family member. And so that's where, you know, we work a lot with clients. One of the things that we've done a lot of, which we should do a whole episode on this, is called a solo 401k or an individual 401k with kind of how that works. It's a retirement plan through your company and.

In order to qualify for that one, cause there's a regular 401k and then there's a solo 401k. Solo 401K is pretty much for just the business owners, right? It's a, you know, husband and wife, or just a couple small knit owners, you know, and there's no really real employees, aside from just the owners of the company and the solo 401k.

What I like about that is the amount that you can contribute and reduce your taxes by. As outstanding, you know, so here's some easy math. So, um, we'll kind of paint pictures. So we have a business that makes a hundred thousand dollars a year. Husband and wife, they each get paid $50,000 a year of salary, and they decide to implement a solo 401k and say they're over the age of 50, so that solo 401k will allow them to contribute 27,000.

Each as an employee, you know, so they can each do 27,000, that's the max. There's no minimum they can do a 27,000 max as the employee. Plus on the employer side, they can do as much as 25% of their salary. So on a $50,000 salary, you know, what is that? That's a 12,500. Per person. So you're looking at 27,000 plus 12,500.

So you add that all together, you're like, wait a minute, hold on. What, what is the math on that? Because that is, um, so let's do 27,000 plus 12,500. Um, so that's 39,500. Per person. Person. So if you have a husband and wife, you know, they would bely be able to double that. So on a hundred thousand dollars of revenue the company generated and 79,000 of it is being able to be deferred back into their own retirement account.

Right? Which is their money, right. And you know, there's probably other deductions in the business too. So that's where this, this tool, this solo 401k is so great because there's no minimums. You don't have to fund it. You can have one year where you just don't fund it at all. You're like, Hey, it wasn't as good of a year.

We don't want to, we're not in the hook to fund it. But then the next year, if we want to, we can really max this thing out. And I've been maxing out my solo 401k for me and my wife for years. Been a huge difference. So I think about just that example, a hundred thousand dollars, uh, of business, you know, um, and say they didn't do any retirement plans, they're probably going to be at a 22% tax bracket.

Right? So in that scenario, they may pay 20, $22,000 of taxes for that year, plus or minus, kind of roughly. But say they maxed out that 401k in that snare we just gave of, you know, being able to put away basically 39,500 each. So a total of almost. You know, it's 79,000 now on a hundred thousand dollars of income, you do a hundred thousand, you know, minus 79,000, um, kind of ballpark.

Now you're more like 20 something thousand dollars of income, you know, or profit times the 22% tax bracket. Now you're like 4,600. So the difference between that snare of maxing out and not is the difference of paying. The IRS 4,600 potentially in taxes or paying them 23,000. So there's an $18,000 swing your direction, and guess what?

All the money in that retirement account is the business owner. It's their money. It's not the IRS's money, it's their money They're putting in their own pocket. So we've done so many of those plans because the solo 401k. There's no additional reporting requirements, meaning you don't have to file something with the Department of Labor or ERISA because you don't have any employees.

They're able to kind of just make it an owner only, and so there's no like third party administrator that has to be involved. Cause whenever you do a full 401K and you've got multiple employees and people, there's a lot more accounting that has to happen to make sure that the plan is compliant and fair.

And so there's a little bit of cost that's involved with that per year. But usually it's still always in the business owner's favor, right? We always look at to say, Hey, if it's going to save you 20 grand in taxes, but you have to pay one or $2,000 to have the 401K administered each year, you're still ahead 18,000, and it's your money and 401K plans.

You can even loan against them if you wanted to in the future. Or you can buy real estate. In fact, you can even buy shares of your. Own company in a 401k. Think about that, like the power of that. So we do so many of those retirement plans together and help businesses get set up. And I just love those solo 401k plans because there's no, there's no all those additional requirements.

It's just, Hey, if I want to fund it, I can. If I don't want to fund it, I don't have to. But that's a nice tool. And your tool belts, you really reduce your taxable income substantially. I, I, I keep thinking of that couple. Last year at, was the day before the deadline . Yeah. Remember. And they couldn't contribute to their, was it an IRA?

Roth IRA? What? They made too much money. Yep. So, okay. So this, this, this is a kind of a cool scenario. So, um, as a husband and wife, um, they, they have a business, um, and, uh, like a construction business or something that. And, um, basically they came in and said, Hey, um, we had a good year in business and we've made so much money on the business.

Plus, you know, the other spouse works a normal day job that we're in a too high of a tax bracket and we've put money into our Roth and now we have to take that money back out of the Roth because we've made too much money. So you sent him over and we said, Hey, why don't we just open up a. Simple or SAP or 401k.

We actually did the solo 401k and we were able to sock away quite a bit of money and that actually brought their income back down under the threshold, so they were able to keep that. Now were able to keep contribution, plus they paid a whole lot less in taxes and we got that done like. Instantly. Like I think they came in on a Saturday and I got them all set up and going and they were like, wow, this is really a neat program that I didn't even know that we could do.

So that was one where we helped that couple tremendously. I don't even know how much we saved him in taxes probably. It was tremendous. It was tremendous. But if he was a sole proprietorship, we wouldn't have had that same outcome. Yeah. Yeah. So that was one thing that was important. And it was a, um, That was a C corp.

That was a S corp. S corp. Yeah. All right. So, um, we're going to take a break here. Um, we're going to come back. We've got more episodes on the line. Uh, this is all great stuff. I'm having so much fun talking about this. Um, but make sure to follow us, like us. Subscribe us. Um, if you want to reach out to Wendy, her number is, what's your number again, Wendy?

9 28. 4 4 0 5 2 2. And name of the company is Absolute Tax. Absolute Tax and Accounting, and over on the Country club area, kind of by that toasted owl Toast Owl. Yeah. In that, in that complex. Yeah. Yeah. So if you're looking to have a second opinion on your taxes, or you are a small business owner and you said, Hey, I really want to look at some of these things that Glen and Wendy are talking about.

Go over, talk to Wendy, go over talk to me. We work together and have, we're our own separate companies, but we've been doing business together for almost a decade. And so really helping our clients just, uh, maximize every single, I mean, at the end of the day, it's like you work hard for your money. We all work hard for our money.

I don't want to give more of it back unnecessarily if I don't have. To, um, I, we can even talk about this in another segment, but my, my thoughts on income taxes are like, almost like, why are we even, why do we even have to pay these things? But anyways, that's, that's a different story. But, um, thanks for joining us today.

Uh, it was a lot of fun talking about stuff. It's super fun. Yeah. Yeah. We, we'll have to have you back on for some more episodes talking about taxes. So, uh, feel free to give Wendy a call. Absolute tax. Um, you can always know where to find me. 9 2 8 2 2 5 2 4 7. Or you can email me at Intelligent investing wt wealth management.com.

Glenn Leest signing off.