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Stop Spending Money to Save on Taxes with Gretchen Roberts · Budget Your Business

0:00
SPEAKER_01: So again, it's not the end of the world.
0:02
SPEAKER_01: These are estimates for a reason.
0:04
SPEAKER_01: Some people choose to do that, like I said, because they want to put the capital to work elsewhere, or they literally don't have the cash flow for whatever reason.
0:11
SPEAKER_01: So but you know, in the end, the the piper always asks for his due.
0:16
SPEAKER_00: Welcome to the budget your business podcast, where small business owners go to learn how to financially plan for every aspect of their business.
0:23
SPEAKER_00: Let's get started with your host, Scott Geller.
0:27
Scott: Hello and welcome back to budget your business.
0:30
Scott: Today I had with me Gretchen Roberts of Red Bike at Advisors to talk about the tax advisory for small business owners.
0:40
Scott: How are you doing, Gretchen?
0:41
SPEAKER_01: I'm great.
0:42
SPEAKER_01: How are you, Scott?
0:43
Scott: I'm good.
0:44
Scott: I'm good.
0:45
Scott: So, Gretchen, for folks that who are just meeting you for the first time, could you share a little bit about who you are and what you do?
0:54
SPEAKER_01: Of course.
0:54
SPEAKER_01: So I'm CEO of Red Bike Advisors.
0:56
SPEAKER_01: We are a tax accounting and advisory firm.
0:59
SPEAKER_01: We're based in Wilmington, North Carolina, but we serve small business clients all over the country to help them save on taxes, make more profit, and have more time.
1:09
Scott: And I'm gonna have to, um this doesn't have a whole heck of a lot to do with the podcast, but I don't care.
1:15
Scott: I'm gonna have to jump in here and say Wilmington, North Carolina is one of my favorite places.
1:20
Scott: I graduated from UNC Wilmington.
1:22
Scott: Gretchen, you and I already had this conversation about how what a great place it is, but just had to throw in the uh the the the extra comment about that.
1:31
SPEAKER_01: Yep, love Wilmington.
1:32
SPEAKER_01: It's a beautiful area.
1:34
Scott: It is, it really is.
1:36
Scott: Well, Gretchen, I I can spend the whole time talking about that, but we're not going to.
1:42
Scott: What I will say is what what we are gonna talk about is taxes.
1:45
Scott: And before we jump right into that, is a quick story.
1:48
Scott: I was down visiting my parents, they're in Williamsburg, Virginia, and I saw my first Christmas decoration.
1:57
Scott: We're recording this at the end of October before Halloween.
2:01
Scott: It always annoys me when it happens.
2:03
Scott: It always comes earlier every year, right?
2:06
Scott: Now, what doesn't come earlier every year are business owners planning for their taxes.
2:12
Scott: You correct me if I'm wrong, but uh it seems like the pace to put up Christmas decorations output outpaces the schedule for for looking at their taxes.
2:21
SPEAKER_01: Yeah, I I would definitely agree.
2:23
SPEAKER_01: Tax time feels really far away.
2:25
SPEAKER_01: It's March 15th for a business return, April 15th for a personal return.
2:29
SPEAKER_01: So that feels like something to tackle after the holidays.
2:32
SPEAKER_01: But to your point, looking at where you're at right now is a really good year-end thing to do because some things, some moves you could make to save on taxes this year actually expire at the end of the year.
2:44
SPEAKER_01: Other ones you can potentially do later.
2:46
SPEAKER_01: But it's definitely worth taking time right now to look at that before you get into full holiday swing season.
2:53
Scott: So, Grossha, maybe walk us down that path of what should somebody be thinking about?
2:58
Scott: Well, probably before the end of October.
3:01
Scott: But maybe walk through how in an ideal world, how would you recommend a like the timing?
3:08
Scott: Maybe let's start with the timing.
3:10
Scott: The timing around when a business owner should start thinking about their taxes.
3:14
SPEAKER_01: Well, you know, I I would be remiss if I didn't say you should think about them all the time, but no, just kidding.
3:20
SPEAKER_01: I am also a business owner.
3:22
SPEAKER_01: I don't want to think about taxes more than I have to either.
3:24
SPEAKER_01: Um, but there are definitely certain times of the year that that comes to the surface and it becomes an important, if not urgent, thing for you to take a look at.
3:34
SPEAKER_01: So obviously filing tax season is a big deal.
3:37
SPEAKER_01: You want to pay attention then, got all your documents in, get your questions answered.
3:41
SPEAKER_01: But now is the other next best time to have that tax conversation.
3:46
SPEAKER_01: And, you know, we we call it planning and projection season.
3:49
SPEAKER_01: And those are maybe two different things and we can break them down.
3:53
SPEAKER_01: You know, what is planning?
3:54
SPEAKER_01: What is projections?
3:55
SPEAKER_01: What should a small business owner be thinking about?
3:57
SPEAKER_01: But this is definitely the season to be doing that.
4:00
Scott: Yeah, let's start about, let's start breaking that down.
4:02
Scott: So I'm guessing you start with, or let me ask, do you start with the planning or the projection first?
4:07
SPEAKER_01: Well, they're they're interrelated, but the way I describe it is projections are so so most small business owners, and this is not completely true.
4:17
SPEAKER_01: I mean, there are some that have C corps, but most of them are pass-through entities.
4:21
SPEAKER_01: So they um they have an S corporation.
4:24
SPEAKER_01: If they're really small, they just have an LLC that passes through on their individual return, or maybe they're in a partnership.
4:30
SPEAKER_01: And so that income is coming through typically on a K1 or on your Schedule C.
4:33
SPEAKER_01: So it goes through to your personal return.
4:36
SPEAKER_01: Most business owners also pay quarterly taxes.
4:39
SPEAKER_01: So, you know, there's certain deadlines for that.
4:42
SPEAKER_01: Now let's hope you've been paying those on a regular basis or you have the cash to pay them when they come due in April.
4:47
SPEAKER_01: But now is a really great time because so what happens to backup is let's say we file your business return in March and then your personal return in April.
4:58
SPEAKER_01: And then at that point, we spit out some uh vouchers for you for estimated taxes.
5:03
SPEAKER_01: And those are based off of the year before, the in the net profit, the in your overall income the year before, right?
5:09
SPEAKER_01: So let's say you're paying those all year, but by October, you'll know a lot more about how the business is going to perform or how it has been performing through the year, right?
5:21
SPEAKER_01: So we're in 2026.
5:23
SPEAKER_01: So those vouchers were based off of your 2025 income.
5:26
SPEAKER_01: And that's what you're paying on, and that's great.
5:28
SPEAKER_01: That's called safe harbor.
5:29
SPEAKER_01: You won't get fines or penalties for just paying that amount.
5:32
SPEAKER_01: But let's say you had a banner year, and what's gonna happen is you're going to owe a lot more in April than you realized because you've been paying the estimates, but you're going to owe a lot more at the end.
5:42
SPEAKER_01: So this is a good time to look at that and go, okay, we're going to look at your year-to-date income.
5:47
SPEAKER_01: We'll forecast for the last quarter of the year, and then we can do a true up of those estimates that we originally gave you.
5:54
SPEAKER_01: And, you know, if if you need to plan for the cash, then that's a good thing to do now because you don't want to take all the cash out as an owner distribution at the end of the year, spend it on holiday gifts, and then have nothing left.
6:05
SPEAKER_01: Conversely, if your business has not performed as well as the year before and you have some, if maybe if you're cash strapped, then it's another good time to do a true up.
6:15
SPEAKER_01: So you can go, okay, I've been overpaying.
6:18
SPEAKER_01: It's too bad that, you know, I didn't make enough income this year, but this can at least relieve some cash flow issues by saying, okay, we're gonna lower these payments for the next two quarters.
6:31
Scott: And how accurate could a business owner perform these calculations on their own?
6:36
Scott: I mean, I I typically recommend they go talk to a CPA.
6:40
Scott: Could you, you know, kind of contrast, you know, trying to calculate that on your own versus first having the CPA do that for you?
6:49
SPEAKER_01: So it it's it's not actually rocket science and it's called an estimate for a reason.
6:54
SPEAKER_01: And I think new business owners get confused by this because they expect it to be on the on the nose, right?
7:00
SPEAKER_01: But it it is an estimate.
7:01
SPEAKER_01: And so we're you know, we're just looking at you know, what is your income and what what are your expected taxes based on everything we know to date.
7:08
SPEAKER_01: Sometimes we don't have answers to things though, like and let's get into the the planning piece of it.
7:14
SPEAKER_01: So, for example, you may be considering buying a piece of equipment, you may be considering fully funding your retirement account.
7:21
SPEAKER_01: There may be some other you know, dials and levers happening in your personal life that would make the taxes go up or down.
7:28
SPEAKER_01: So, so it is just an estimate.
7:31
SPEAKER_01: The the best thing to do is, I mean, you should definitely, if you're gonna calculate anything yourself, uh, do the safe harbor, which is, and it depends on your income bracket, but it's either 100% or 110% of last year.
7:43
SPEAKER_01: So if you just do that at a minimum, then you'll at least avoid fines and penalties from underpayment.
7:51
SPEAKER_01: One of the things that not everybody knows is that the IRS wants those payments on time on their quarterly schedule, which is by the way, not fiscal quarters.
8:00
SPEAKER_01: But they rearranged the schedule for their own benefit, I think sometime in the 1960s.
8:06
SPEAKER_01: And so it's January 15th, April 15th.
8:09
SPEAKER_01: And then the next one is two short months later, June 15th, and then September 15th.
8:15
Scott: So let's let's throw those dates out there again for everybody because I know those are dates.
8:20
Scott: Everybody knows April 15th, right?
8:22
Scott: Yeah, yeah.
8:23
Scott: Well, so maybe throw those out there again for our listeners.
8:26
SPEAKER_01: Yep.
8:26
SPEAKER_01: So January 15th, April 15th.
8:29
Scott: 15th is one that a lot of people forget.
8:30
Scott: That January 15th one, like everybody thinks, oh no, I'm not paying taxes until April.
8:35
Scott: Right.
8:35
Scott: Sorry, I don't need to interrupt you, but go ahead.
8:37
SPEAKER_01: No, and a lot of people do that, and and then they'll just get the bill in April, and there'll be a couple fines and penalties because they didn't make that quarterly estimate in January.
8:46
SPEAKER_01: Honestly, there's kind of pros and cons to that.
8:49
SPEAKER_01: So when the interest rate rates were really low several years ago, remember when you could get a home mortgage for like 2.0%, the IRS interest rates in terms of how they assigned penalties were pretty low as well.
9:01
SPEAKER_01: And so a lot of our business owners would actually just not pay till the end of the year because they wanted to keep the cash flow and they could put that money to work elsewhere.
9:09
SPEAKER_01: The interest rates are higher now.
9:11
SPEAKER_01: They they ebb and flow like other interest rates.
9:14
SPEAKER_01: And so it may not be as fiscally responsible to do that.
9:17
SPEAKER_01: But yeah, to your point, a lot of people do miss that January 15th payment because it just doesn't feel like a time you should be paying anything.
9:24
SPEAKER_01: You're just getting over the holidays and you're not even into tax season yet.
9:28
Scott: Right.
9:29
Scott: Exactly.
9:30
SPEAKER_01: What if a company is not paying those estimated taxes during that they'll just owe it at the end of the year and there'll be some fines and penalties for not paying in on the estimated payments.
9:40
SPEAKER_01: So again, it's not the end of the world.
9:42
SPEAKER_01: These are estimates for a reason.
9:44
SPEAKER_01: Some people choose to do that, like I said, because they want to put the capital to work elsewhere, or they literally don't have the cash flow for whatever reason.
9:51
SPEAKER_01: So, but you know, in the end, the the piper always asks for his due and it will be something you owe at the end.
9:58
SPEAKER_01: And if you can't pay that on time, then there may be some other options in working on a payment plan, but that's a whole specialized area called tax resolution.
10:07
Scott: Right.
10:08
Scott: And before we get into that, let's talk about the planning side of it.
10:13
Scott: Because I I think I don't think it really got into that as much as we can.
10:16
Scott: So, how do you go through the planning side of once we're kind of getting into that end of the year?
10:21
Scott: And and again, the really important thing is you've got a couple of payment dates on the other on this other side of December.
10:29
Scott: How do you take your clients through that tax planning process?
10:33
SPEAKER_01: Yeah, so we have two levels of tax planning.
10:36
SPEAKER_01: One is year-end tax planning, which we're we're in the middle of that right now.
10:40
SPEAKER_01: You know, it's we we typically do that from mid-October to mid-December.
10:45
SPEAKER_01: And this is again, we're doing the true up to make sure they've been paying the right amount of estimates or if they need to increase anything, we'll we'll talk about that then.
10:52
SPEAKER_01: Um and then we're sometimes we'll run projections.
10:54
SPEAKER_01: It depends on the client, what they're kind of thinking about doing.
10:57
SPEAKER_01: Like I said, if they're thinking about buying a piece of equipment or a car, or if we want to have a conversation about depreciation for this tax year versus a different tax year, we one of the other big ones is funding retirement accounts, right?
11:11
SPEAKER_01: So what we look at there is there's a cash outlay to that, right?
11:14
SPEAKER_01: So let's say you want to put 20 grand in and this is your tax bracket.
11:18
SPEAKER_01: And so this is your tax savings, or this is the deduction, but there's still a cash outlay to it.
11:23
SPEAKER_01: So you have to balance all those things.
11:25
SPEAKER_01: That is, you know, we call it planning, it's year-end planning.
11:28
SPEAKER_01: I'd say the other level is we call this our tax savings blueprint.
11:32
SPEAKER_01: I think of this as I call it a 10-year plan.
11:35
SPEAKER_01: But we're really that's a way more holistic look at, okay, who are you?
11:39
SPEAKER_01: Um, let's talk about all your businesses, um, your investments, your personal goals.
11:44
SPEAKER_01: What are you trying to get out of the business in the near future versus long term?
11:48
SPEAKER_01: Are you, you know, are you close to exiting?
11:50
SPEAKER_01: Are you just starting out?
11:52
SPEAKER_01: Um, are you somewhere in the middle?
11:54
SPEAKER_01: Are you growing?
11:55
SPEAKER_01: Are you holding steady?
11:57
SPEAKER_01: And that's a really holistic look at every tax planning opportunity that we could execute.
12:04
SPEAKER_01: Typically, we're looking for things we can execute once, but that carry over year to year and just multiply the saving.
12:11
Scott: Okay.
12:11
Scott: And that's that that's that's obviously the longer term view of the business.
12:16
Scott: Could you give us an example of something specific of how that's benefited a company that you've worked with?
12:23
SPEAKER_01: Yeah, so there's there's a lot of different things we look at there.
12:26
SPEAKER_01: Like I said, it's really holistic.
12:27
SPEAKER_01: So we'll look at entity structure and think about that first.
12:32
SPEAKER_01: That's that's probably the biggest lever if if you don't have that set up properly.
12:36
SPEAKER_01: So to give you an example there, if you're, let's say you're a small business and you have, well, here's an example.
12:43
SPEAKER_01: We we have a dental client who started up their dental practice for a long time.
12:48
SPEAKER_01: They were losing money the first year because they put a lot into it.
12:51
SPEAKER_01: Second year, they were starting to make a little money, but their balance sheet didn't look that good.
12:55
SPEAKER_01: Now they're in the third year, and we're looking at doing an S corporation election for them because at this point they've got a healthy balance sheet, and then their um their net income is such that it makes financial sense to convert them to the S corporation with those associated costs and compliance pieces because we we can see that it's not only going to save them money this year, but it will save them, you know, every year to come from a tax perspective.
13:22
SPEAKER_01: And then, you know, and honestly, once you do that, the more money you make, the more you can save after you establish your reasonable salary.
13:29
SPEAKER_01: So that's one piece.
13:31
SPEAKER_01: We're also looking at retirement, we're looking at different, you know, things that you could do that are appropriate to that individual.
13:37
SPEAKER_01: Not everything is.
13:38
SPEAKER_01: For example, you know, a lot of people talk about hiring your kids, right?
13:41
Scott: Right.
13:42
SPEAKER_01: But the IRS actually, if you look at the documents that have gone through tax court, they've approved that for seven years and up.
13:49
SPEAKER_01: There's a lot of people who go, yeah, I'm gonna hire my my baby to do Facebook photos for promos.
13:56
SPEAKER_01: Right.
13:57
Scott: My baby's a model, right?
13:58
Scott: Why can't I do that?
13:59
SPEAKER_01: Yeah.
14:00
SPEAKER_01: I mean, and some people do that, but you know, it's you know, we look at stuff that is what we're looking for is things that work for that person's situation and then also their time and willingness to execute, because some of the strategies take a lot of work to document and to execute on, and other ones are are really simple and things they can do once and then they just carry over.
14:22
SPEAKER_01: So, an example there, if you're an S corporation, you should have something called an accountable plan that reimburses you for expenses and your employees as well.
14:29
SPEAKER_01: And it's just it's an IRS paperwork thing.
14:32
SPEAKER_01: You just you feel like you should be able to reimburse yourself for part of your cell phone and your internet and some of your home stuff if you have a home office, but you actually need to have it documented in case of an audit.
14:42
SPEAKER_01: So that's an example of something we'll put together, hey, let's do this accountable plan, let's look at all your expenses that could go on this plan, start reimbursing yourself for this.
14:52
SPEAKER_01: Yeah, so there's lots of stuff like that.
14:54
SPEAKER_01: And, you know, we're looking at retirement planning as well.
14:56
SPEAKER_01: Another example I have there is so we we have clients who have blue-collar businesses and they really don't need to do a retirement plan for their employees to be competitive in their market.
15:09
SPEAKER_01: But then when we look at our professional services, they do.
15:12
SPEAKER_01: And so we had a client who was a professional, and she said, Hey, I'm losing employees because they want a retirement plan and every everybody else offers it and we don't.
15:23
SPEAKER_01: So again, cash outlay, but it's a recruitment tool, and there are some tax savings involved.
15:28
SPEAKER_01: So that's the kinds of things we model.
15:30
Scott: Okay.
15:32
Scott: And I I think uh going back to your your dental example, your dental practice, maybe they didn't come from corporate, but it is a significant difference from people that have been a historical corporate paying tax position as a W-2 to owning a business and paying taxes on a business.
15:54
Scott: Could you walk through what some of those differences are?
15:57
SPEAKER_01: Yeah, it's I always tell our clients who are brand new business owners and they're suddenly moving from W-2 over to either 1099 or they're getting a K1 or you know, whatever it is, that everything's gonna change and it's gonna take you at least a year, if not two, to kind of figure out what all the cadence is and what you're doing, because there's a lot of new deadlines and things, just because the the tax code likes to overcomplicate things, right?
16:23
SPEAKER_01: So, so you you no longer have withholdings from your W 2.
16:27
SPEAKER_01: And of course, there are exceptions to that.
16:30
SPEAKER_01: So if you are an S corporation owner, you do need a reasonable salary and you do get some deduction, some withholdings from your W-2, but it's not going to cover your all all of your business income.
16:39
SPEAKER_01: So you're still gonna pay quarterly taxes.
16:41
SPEAKER_01: So those quarterly deadlines are are suddenly in place for you.
16:46
SPEAKER_01: You now have a business return, and we do recommend if you are filing a business return, you should have a professional set of books that are completed monthly, and you you should, you know, have somebody file that business return.
16:59
SPEAKER_01: They're not as simple.
17:01
SPEAKER_01: I mean, you know, I we have had clients go, yeah, I just went on HR block and filed my business return.
17:07
SPEAKER_01: But I mean, honestly, it's that's that's kind of like saying, my my car broke down.
17:12
SPEAKER_01: I really don't have a lot of experience with it, but I'm just gonna fix it myself.
17:16
SPEAKER_01: Some people have the expertise for that, but most people don't.
17:19
SPEAKER_01: And your time is valuable.
17:21
SPEAKER_01: So, you know, we recommend professionalizing your tax and accounting.
17:25
SPEAKER_01: That's that's kind of a big one.
17:26
SPEAKER_01: You're making quarterly payments now.
17:28
SPEAKER_01: And then the third one, which applies to most people in most states, is the and it's kind of a long tax game story.
17:38
SPEAKER_01: It's a little bit like those shifting chess pieces around or whatever.
17:42
SPEAKER_01: But there's an election called the PTE election.
17:44
SPEAKER_01: It's passed through entity tax election, and most states provide for this because the deduction on your personal return was limited to$10,000.
17:53
SPEAKER_01: But basically, you can have your business pay its state tax and then it's deductible on your federal personal return.
18:01
SPEAKER_01: So again, super confusing.
18:02
SPEAKER_01: I actually like to show a diagram of that because people just go, Oh my gosh, what are you what are you talking about?
18:08
SPEAKER_01: And I'm like, just follow the process and you're gonna save a lot of money.
18:12
SPEAKER_01: But it's just one of those things that makes people's heads spin because it it's just confusing when you're not used to doing it.
18:18
SPEAKER_01: But again, once a year or two goes by and you get in the cadence, it's no big deal.
18:23
Scott: I I can speak from experience of 20 years as a W-2 corporate employee to going off on my own.
18:32
Scott: I done my own tax I didn't I don't enjoy doing taxes, I never have.
18:36
Scott: But I did my own my own taxes for a long time as an well, as a family, but as an individual.
18:42
Scott: But when I started my own business and went off my own, I was now a 1099, you're talking about all these other factors that come into play.
18:50
Scott: I decided, look, I I need to get CPA because I know I see I know how it can go wrong.
18:56
Scott: And there's a whole lot more ways it can go wrong, but then you're gonna know to get it right.
19:02
Scott: So yeah, I I I can speak from again, I can speak from uh experience to say please have your books put together correctly.
19:12
Scott: If not, if if you don't know how to do it, then have a bookkeeper do it.
19:16
Scott: And then make sure you use an expert to do your taxes.
19:19
SPEAKER_01: Yep.
19:20
SPEAKER_01: I I could not agree more, and I'm not just saying that because I'm in the profession, it's because it there really is a lot that can go wrong without you even realizing it.
19:28
SPEAKER_01: There's that quadrant, you know, what I know, what I don't know, what I don't what I know, I don't know, and then what I don't know, I don't know.
19:36
SPEAKER_01: And I think a lot of that falls into that last bucket is what I don't know, I don't know, and that's where you become dangerous.
19:41
Scott: It does, it does.
19:43
Scott: Let's let's talk about something that happens with a lot of people, a lot of businesses, specifically small businesses, where they think as they get towards the end of the year, they need to spend as much as they can so they don't pay as much in taxes.
19:59
Scott: It it drives me nuts.
20:01
Scott: But I'd love to hear your response or or or your uh input on what you think about that.
20:07
SPEAKER_01: I agree with you so much, Thurskott.
20:09
SPEAKER_01: I I really don't like the idea of spending money to save on taxes.
20:14
SPEAKER_01: It is similar to walking in, so let's say you're in the 25% tax bracket, just to make some easy numbers.
20:21
SPEAKER_01: It's like walking into the store and there's a hundred dollar item and it's 25 off, and you have no need for it really, but you buy it anyway.
20:29
SPEAKER_01: And you're like, well, I saved it.
20:30
Scott: You're not saving money.
20:32
Scott: Yeah, you're still spending it.
20:34
SPEAKER_01: Yeah, and and the way we talk about it with our business owners is is this expenditure going to bring you ROI?
20:42
SPEAKER_01: And there's a couple different kinds of ROI.
20:44
SPEAKER_01: So, you know, maybe maybe there's actual ROI that you can demonstrate you're going to get from buying, for example, a piece of equipment.
20:52
SPEAKER_01: But if you're just upgrading something or buying something because it's fun and you don't really have a business plan for it, I'm like, don't spend that money because it's real money you're spending, even if you get a tax deduction for it.
21:04
SPEAKER_01: So, so that's a the the first kind of ROI.
21:07
SPEAKER_01: And then the second one might be kind of intangible.
21:09
SPEAKER_01: An example there is if you invest in a new employee or something having to do with culture.
21:15
SPEAKER_01: Or, you know, one of the things we just mentioned earlier was putting a retirement plan in place to become competitive in your market.
21:21
SPEAKER_01: So those are good reasons to spend money, but then also save on taxes.
21:26
SPEAKER_01: A third one we see a lot with business owners is they want to get a vehicle and, you know, take the depreciation on it and all that.
21:35
SPEAKER_01: And I'm not saying don't do that, but again, you know, if don't just replace your vehicle willy-nilly just to get that tax deduction.
21:43
SPEAKER_01: Because if you think about where could that, because because it's again, you're spending real money and where else could it go?
21:49
SPEAKER_01: It could go somewhere else, it could go into investment, it could go back into the business to reinvest for growth.
21:54
SPEAKER_01: There's a lot of other things you can do with it.
21:56
SPEAKER_01: So we like to say if you have a business reason.
22:00
SPEAKER_01: This you should do it, but then let's also talk about the timing because maybe you're trying to squish something into this year, but you actually expect next year to be income-wise to be a lot higher.
22:11
SPEAKER_01: Maybe we should talk about the timing and maybe delay either a purchase or the depreciation to spread it out over the year where you're going to suddenly jump into a different tax bracket and it actually makes more money to do it that way.
22:25
Scott: And I'm I'm gonna throw one more on the regression.
22:27
Scott: You already mentioned it.
22:29
Scott: I'm gonna say it again.
22:31
Scott: You might have cash in the bank in December to buy that vehicle, buy extra inventory, whatever it happens, they hire that person.
22:41
Scott: But if you're not doing the cash flow planning, what happens when you get to April and you have to you have this tax bill?
22:47
unknown: Yeah.
22:48
Scott: Do you have the cash at that point?
22:49
Scott: So I'm sure you you already mentioned it, but I I've got to bring it up again that yeah, you you gotta plan out the the cash comp the the the cash uh offset as well.
22:59
SPEAKER_01: Yep, for sure.
23:00
SPEAKER_01: And that is that is something that I think a lot of people when they're doing tax planning don't realize is there's often a cash outlay to the savings they're going to generate.
23:09
SPEAKER_01: So that has to be factored in.
23:12
Scott: Right.
23:13
Scott: Uh well one other little little bit different different topic for you.
23:16
Scott: Can you speak to a little bit around how to handle the section 179?
23:22
SPEAKER_01: So that goes a little bit into what we were talking about before.
23:26
SPEAKER_01: And I don't want to bore everyone with all this the details, but big picture.
23:31
SPEAKER_01: So as the as kind of thematically we've been talking about, it is a deduction.
23:37
SPEAKER_01: It's not a refund or a credit.
23:39
SPEAKER_01: So, you know, when you buy something and you take depreciation on it, you're still spending the cash.
23:44
SPEAKER_01: And so you still want to ask yourself, do I actually need this?
23:47
SPEAKER_01: Is there a business case for it before I do it?
23:49
SPEAKER_01: There's also some levers and dials involved.
23:52
SPEAKER_01: And again, I don't want to get super technical.
23:54
SPEAKER_01: And I it's hard to do an example because everybody's situation is so different.
23:57
SPEAKER_01: We have to actually run it.
23:58
SPEAKER_01: But the deduction actually flows through to the owner's personal return.
24:03
SPEAKER_01: And so again, the timing matters according to your what your net income is, but it also affects the QBI deduction.
24:10
SPEAKER_01: So again, dials and levers, and you just kind of want to run the numbers and go, is this the right year to do this?
24:16
SPEAKER_01: And and ultimately, I would say that, you know, year end is it's a time to plan.
24:23
SPEAKER_01: And it's a time to think not just about the year that has all nearly gone by and what you can do in this year, but it's a time to think ahead as well.
24:31
SPEAKER_01: So uh don't think of it as a shopping spree, think of it as a planning window.
24:36
Scott: I like that.
24:37
Scott: I I I do.
24:38
Scott: Um, I I I preach on on this and in any other podium I can get on that it's not just planning at the end of the year for for January through December, it's continuous planning.
24:51
Scott: So, what does the next 12 months always look like?
24:53
Scott: And I don't think taxes are personally any different.
24:57
SPEAKER_01: Nope, definitely not.
24:58
Scott: Well, Gresham, this has been great.
25:00
Scott: I know we're we're coming up a little bit on our time here, so I I don't want to keep you too longer than that we agreed.
25:07
Scott: We always end up with two questions.
25:09
Scott: And one of them is one of three immediate takeaways that a listener could put into practice in their in their business.
25:17
Scott: It could be something you mentioned already today.
25:19
Scott: It could be something around planning or budgeting uh a small business.
25:23
Scott: What what do you have first?
25:26
SPEAKER_01: So, number one, I'd say based on everything we talked about, if you are not doing at least a true up at the end of the year to make sure the estimates you've been paying in are accurate and correct for your actual year-end income, I would get with your tax advisor and get get that true up done.
25:44
SPEAKER_01: If you have not been paying estimates in at all, and you know you're going to owe a big chunk at the end of the year, then you really need to look seriously at your cash on hand and your cash flow and make a plan for how to pay for those taxes.
25:58
SPEAKER_01: Obviously, best practice there is to to pay on time and also to have a savings count where you actually allocate a portion of your net income for taxes.
26:06
SPEAKER_01: But most people don't do that.
26:08
SPEAKER_01: So you should look at your current bank account and make a plan.
26:11
SPEAKER_01: And then third is to again think of it as this is an ongoing process.
26:16
SPEAKER_01: Um, we we tend to just just based on the fiscal year and the way the year ends, we we think January to December and then another January, December, and maybe you break that up even further into quarters.
26:26
SPEAKER_01: But as a business owner, you need to be thinking more long range, like it, you know, into the next year, into the next three years, then the next five or 10 years.
26:35
SPEAKER_01: And what are your personal goals and how can we make some tax moves to align with those?
26:41
Scott: Couldn't couldn't agree more.
26:44
Scott: Our our other question we ask everybody is a favorite podcast or favorite book recommendation.
26:51
SPEAKER_01: So I love the book Buy Back Your Time by Dan Martell.
26:56
SPEAKER_01: I like to say from the accounting side, I don't do my own books and you shouldn't either.
27:00
SPEAKER_01: But and I'm saying that.
27:01
SPEAKER_01: Yeah.
27:02
Scott: Yeah, you do that as well.
27:03
Scott: Perfect.
27:03
Scott: Because I tell people that, but it's even it's even more valuable for me based on uh the advice you that advisory you provide.
27:09
Scott: But go ahead, please.
27:10
SPEAKER_01: Yeah.
27:11
SPEAKER_01: Yeah.
27:11
SPEAKER_01: So so Dan Martell, his concept is you should, you know, you you think you need a COO to replace what you do in the business because you're burned out and tired and you don't have enough time to run the business and operate in it.
27:22
SPEAKER_01: And he's like, no, you actually need to start with an executive assistant.
27:26
SPEAKER_01: Get somebody into your email and calendar, start small, and that actually takes off so much, so much off your plate to start with, to free you up to do higher level tasks, and then you can build from there.
27:38
Scott: Firm believer in that as well.
27:41
Scott: Well, Gretchen, this has been great.
27:43
Scott: We're coming up on our time here, but where can people find out more about you?
27:47
SPEAKER_01: You can go to redbikeadvisors.com.
27:50
SPEAKER_01: We have a free strategy session if you'd like to talk to me or Gwen, and we can see if we'd be a good fit for you.
27:58
Scott: And if I wanted to go to Wilmington specifically, could I meet with anybody in the all in an office just as an excuse for me to get to Wilmington?
28:06
SPEAKER_01: Well, we do have an office.
28:08
SPEAKER_01: I would say post-COVID, we're probably more remote first.
28:12
SPEAKER_01: So a couple people do come into the office, but it's it's a little bit rarer than it was maybe five, 10 years ago prior to COVID.
28:19
Scott: I I I suspect it as much, but any excuse for me.
28:22
Scott: Well, Gretchen, thank you so much for joining me today.
28:25
SPEAKER_01: Thank you.
28:26
SPEAKER_01: It's great to be here, Scott.
28:27
Scott: All right, folks, that's it for today.
28:29
Scott: Thanks for listening.
28:30
Scott: Just a reminder, as we come near the end of the year, we will take a little bit of a break towards the end of the year and then jump right back into it in January.
28:39
Scott: Thank you.
28:40
SPEAKER_00: If you like the show or found something useful, text someone right now and say, I have a podcast recommendation to check out, budget your business.
28:49
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28:57
SPEAKER_00: Thank you for listening.
28:58
SPEAKER_00: And we hope you join us for our next guest on Budget Your Business.