In this week’s episode of The Secrets of Business Mastery Podcast, Mike Agugliaro interviews Diane Gardner, who is a tax coach and best selling author. Diane’s personal goal is to make sure business owners aren’t overpaying their taxes and help them pay the least amount of tax they can legally. On average Diane saves small business owners $5-50K per year in 60 minutes or less through proactive tax planning. If you want to know the secrets of how to stop overpaying your taxes, then this is a great podcast for you.
Main Questions Asked:
- What is a tax coach, and why do I need one?
- Should I have a tax coach and accounting firm?
- What are the biggest mistakes you see entrepreneurs and small business make that cost them a ton of money in taxes?
- Talk about the different types of business entities.
- Will the different entities protect you from risk in a different way?
- What is the difference between tax preparation, tax projecting, and tax planning?
- What are some things we can write off that we are not thinking about?
- Can I hire my kids and have them work in my business?
- How do pensions and retirements plans work in small business?
- What is some advice you can give people in business regardless of whether they are two years in or twenty?
- If you were to rewind time and do things differently, what would you do?
- How does someone go about finding the right tax professional to work with?
- What has been the game changer or turning point in your career?
- What is the ROI on hiring a tax coach?
- When you are looking for a tax coach, does it matter on what level of companies they have worked with?
Key Lessons Learned:
What is a Tax Coach?
- A tax coach is an accountant who has made a niche within their practice for honing in on the types of deductions that are most often missed by small business owners and entrepreneurs.
- Most entrepreneurs are not aware that there are IRS approved and court tested deductions that you could, and should, be taking.
Types Business Entities
- The biggest mistake Diane sees businesses make is not listing their entity types correctly. This I mainly due to businesses having outgrown their entity type and not knowing they should be doing something different.
- Sole Proprietor: Most people start out this way. This is good if you are small, getting started, aren’t making much money, and don’t have any liability exposure.
- General Partnership: Similar to sole proprietorship, 100% profits are subject to self employment income tax (additional 15.3% on top of any federal or state income tax).
- LLC: This is a flexible entity that can have single owners or multi owners, and act like a general partnership, a C corporation, or an S corporation. If your business has potential liability issues, this will give you the limited liability protection so your personal assets aren’t on the line.
- S Corporation: Allows protection for liability purposes and self-employment tax purposes. The owners or shareholders become employees of the business and go on payroll, but the net profit is not subject to self-employment tax so there is a 15.3% saving on self-employment tax on net profit.
- Net profit pass through to the owners, and the tax is paid on the personal level.
- C Corporation: Pays own income tax on a corporate level.
Tax Preparation, Tax Projecting, and Tax Planning
- Tax prep: This is like looking in the rearview mirror, as it looks at what you have already done.
- Tax projection: Asks the question, “What do I need to do to fix what I have done in the year?”
- Tax planning: Involves taking a look over the next 3-5 years and putting a plan together, steps to get there based on your goals, and implementation.
Hiring Your Kids To Work In Your Business
- Children must be at least 7 years old to work in a business.
- The work needs to be age appropriate, and a time card needs to be kept to prove working hours.
- The wage must be the same amount as you would pay someone else to do the job (you can’t pay $500 to sweep the floor).
- If the kids are 18 or under, you may not have to pay social security, Medicare, or unemployment.
Pensions and Retirement Plans
- There are lots of options for small businesses depending on the profits they are showing at the end of the year, how many employees they have, are any of them related. This includes SEP (simplified employment benefit program) and solo 401K.
- This is a great way for a small businessperson to start to plan for retirement.
- Every business can afford to invest in some sort of a retirement plan and save tax money at the same time.
Advice to Business Owners
- Find a good proactive tax person to work with.
- Diane sees business owners buying DIY ‘out of the box’ tax programs, and because they don’t know what they don’t know, they miss out on a lot of thousands of dollars of write offs by not having a financial person on their team.
- Hire your weaknesses and work your strengths. Every businessperson needs a team with people from fields such as finance, legal, and marketing.
- Diane suggests you start out the gate with a coach and get involved in mastermind groups.
- Take a moment to look at who you are spending your time with.
- Is it successful business people who can teach and work with you along the way, or are you hanging out with your friends from everyday life?
Finding the Right Tax Professional
- A lot of accountants aren’t entrepreneurial, so look for someone who is and has invested in their own business.
- Your professional should be a wealth of information, especially when it comes to resource referrals.
- Diane likes to see businesses have $50k of net profit before it starts to become cost effective to implement the pieces of a tax plan.