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Tax Preparation Isn't Tax Strategy: 3 Mistakes Growing Businesses Make · Profit Points Podcast

• 0:00
  SPEAKER_00: Hey, glad you're here.
• 0:01
  SPEAKER_00: This is Profit Points, and I'm Megan Schwant, your accounting sidekick and certified Profit First Professional and Fix the Snex Advisor.
• 0:09
  SPEAKER_00: If you're a small business owner who wants to actually understand what is happening in your business financially, not just survive it, but genuinely get it, you're in the right place.
• 0:20
  SPEAKER_00: Every episode covers one concept, uses real numbers, and ends with something you can actually do.
• 0:26
  SPEAKER_00: That's the deal.
• 0:27
  SPEAKER_00: Let's talk about today's topic.
• 0:31
  SPEAKER_00: If you've been growing your business, and I mean really growing, adding revenue, adding clients, adding team members, first of all, congratulations because that's amazing.
• 0:43
  SPEAKER_00: That is something to definitely celebrate.
• 0:46
  SPEAKER_00: But today, I need to have an honest conversation with you about something that can quietly derail all that growth, which is your tax strategy.
• 0:57
  SPEAKER_00: Or more accurately, the fact that a lot of growing businesses don't have one.
• 1:03
  SPEAKER_00: They have a tax preparation routine, and that is not the same thing.
• 1:08
  SPEAKER_00: So today we're going to talk about the difference and the mistakes that it's costing you.
• 1:13
  SPEAKER_00: Welcome back to Profit Plates Podcast.
• 1:16
  SPEAKER_00: I'm Megan Schwan, CEO and founder of Sidekick Accounting.
• 1:20
  SPEAKER_00: And today we're going to talk about that.
• 1:22
  SPEAKER_00: So most small business owners relate to taxes, they do their thing all year long.
• 1:28
  SPEAKER_00: They hand their documents to a tax preparer, usually around February or March, and they find out what they owe.
• 1:36
  SPEAKER_00: That is essentially tax preparation.
• 1:39
  SPEAKER_00: And while a good tax preparer will still catch things and find deductions, they're largely working backwards at that point because it's reporting what's already happened.
• 1:50
  SPEAKER_00: Tax strategy, on the other hand, happens during the year.
• 1:54
  SPEAKER_00: It's about making decisions in real time that reduce your tax liability and intentionally move things around or strategize.
• 2:06
  SPEAKER_00: And the problem is that most business owners don't update or build their tax strategy as their business grows.
• 2:12
  SPEAKER_00: The tax approach that worked when you were at 80,000 in revenue is not necessarily the right approach when you get to 250,000.
• 2:21
  SPEAKER_00: And that gap can cost you thousands.
• 2:25
  SPEAKER_00: Today's profit point is tax strategy alignment, making sure your tax plan grows with your business.
• 2:33
  SPEAKER_00: So let me walk you through three big mistakes that I see growing businesses make when it comes to this.
• 2:39
  SPEAKER_00: All right.
• 2:41
  SPEAKER_00: So mistake number one, not reviewing your entity structure as you scale.
• 2:47
  SPEAKER_00: When you're starting out, operating as a sole proprietor or single member LLC is simple and it makes sense.
• 2:53
  SPEAKER_00: But as your profit grows, the self-employment tax, which is 15.3% on your net earnings, starts to become a more significant number.
• 3:04
  SPEAKER_00: And as your profit grows, or yep, we already said that.
• 3:09
  SPEAKER_00: For example, if your business nets 150,000 as a sole proprietor, your self-employment tax alone is roughly$21,200.
• 3:21
  SPEAKER_00: An S-corp election, which some business owners are eligible to elect at certain income levels, can potentially reduce that liability by paying yourself a reasonable salary and taking the remainder of what you want to pay yourself as a distribution, which are not subject to self-employment tax.
• 3:42
  SPEAKER_00: I'm not saying that this is right for every business.
• 3:45
  SPEAKER_00: It's a conversation that's worth having with your accountant, though.
• 3:49
  SPEAKER_00: And once your profit gets to a level where the math actually matters, and you can only have that conversation if you're proactively thinking about strategy and not just preparation.
• 4:00
  SPEAKER_00: There are different things that are limited to that.
• 4:02
  SPEAKER_00: I know the S Corp thing has been a very viral solution, but sometimes that's not your best bet either.
• 4:07
  SPEAKER_00: Maybe it's a C Corp.
• 4:09
  SPEAKER_00: The point is, is having the conversation is what matters and having an active relationship with your accountant is what's going to help you catch these things or be proactive and making moves or transitions throughout the year.
• 4:22
  SPEAKER_00: Okay, so mistake number two is not using retirement contributions as a tax strategy.
• 4:30
  SPEAKER_00: So when you're a self-employed owner and you're not contributing to some kind of a retirement plan, you are not only leaving significant tax deductions on the table, you're also not setting yourself up for success.
• 4:44
  SPEAKER_00: And this is a this is an area that gets missed a lot because business owners just aren't thinking about retirement when they're in the nitty-gritty of the day-to-day.
• 4:54
  SPEAKER_00: So it's really important to think about that and start um making some moves as on that as well.
• 5:02
  SPEAKER_00: With a SEP IRA, you are allowed to contribute up to 25% of your net self-employment income, which it was up to 69,000 back in 24.
• 5:16
  SPEAKER_00: Um, trying to think what it was this past year.
• 5:18
  SPEAKER_00: Um, anyways, it's there.
• 5:20
  SPEAKER_00: I should have looked that up.
• 5:21
  SPEAKER_00: Sorry about that.
• 5:22
  SPEAKER_00: The contribution is tax deductible.
• 5:24
  SPEAKER_00: So if you contribute$20,000 to a SEP IRA, you reduce your taxable income by$20,000.
• 5:31
  SPEAKER_00: So when you have that combined rate of 30% between your tax rate and your self-employment rate, that's about$6,000 in taxes that you didn't have to pay while also building your retirement.
• 5:43
  SPEAKER_00: This is one of the most powerful and underused tools available to small business owners.
• 5:48
  SPEAKER_00: So you want to make sure that you're checking into it and seeing what is going to be right for you as a business owner.
• 5:56
  SPEAKER_00: Now, the number three mistake that I see is not tracking deductions throughout the year.
• 6:02
  SPEAKER_00: So if you're not keeping up with your bookkeeping, most likely you're missing things.
• 6:07
  SPEAKER_00: But you also want to track things like mileage, home office, if you have equipment purchases, things like professional development, health insurance premiums, depending on how you file, those may be deductible expenses as well.
• 6:19
  SPEAKER_00: And so it's really important to track those things throughout the year because when you're talking about tax planning, you want to have real-time information in front of you so that you're able to look at it, assess it, and be able to make some decisions based off of that.
• 6:35
  SPEAKER_00: Every unclaimed deduction is a dollar of income that you're being taxed on unnecessarily.
• 6:40
  SPEAKER_00: So you want to make sure you set up some kind of a system, even if it's a simple spreadsheet, to make sure you're logging your deductible expenses every single month.
• 6:50
  SPEAKER_00: All right.
• 6:51
  SPEAKER_00: So, action step this week.
• 6:53
  SPEAKER_00: I want you to schedule a proactive tax strategy conversation with your accountant before the end of this quarter.
• 7:02
  SPEAKER_00: Not to file anything because we already got past that point, but just to talk, just to have a conversation.
• 7:19
  SPEAKER_00: Am I maximizing my deductions?
• 7:22
  SPEAKER_00: And those three questions will tell you a lot about them.
• 7:27
  SPEAKER_00: If you need more, I also have a freebie on my website.
• 7:31
  SPEAKER_00: So you can go to chatwithmeg.com is my website.
• 7:35
  SPEAKER_00: It's nine questions to ask your accountant.
• 7:38
  SPEAKER_00: It's going to help you.
• 7:39
  SPEAKER_00: They're not even like questions that have to be answered correctly, but they're questions that are going to give you an idea of whether or not the professional you're working with has experience in small business, is going to be proactive on your behalf and help you really make sure you position yourself well.
• 7:54
  SPEAKER_00: And of course, if you're looking for somebody, we're happy to help at Sidekick Accounting.
• 8:00
  SPEAKER_00: And we have a couple of different tax planning services that are affordable and available for business owners just like you.
• 8:07
  SPEAKER_00: So the businesses that really build wealth aren't just earning more, they're also keeping more because they have a plan.
• 8:14
  SPEAKER_00: Tax strategy isn't just for corporations with big legal turn teams and a whole suite of accounts.
• 8:21
  SPEAKER_00: It's for every business owner, every business owner that's willing to be proactive.
• 8:26
  SPEAKER_00: And the good news is that once you have that right team and the right approach, it really doesn't have to be complicated, especially for most business owners that need this.
• 8:37
  SPEAKER_00: If you've grown your revenue but haven't had a real tax strategy conversation either recently or ever, I want to talk to you.
• 8:46
  SPEAKER_00: So book a call with me at Sidekick Accounting.
• 8:50
  SPEAKER_00: Go to chatwithmeg.com.
• 8:52
  SPEAKER_00: We do this work every day.
• 8:53
  SPEAKER_00: So business owners at your stage can save money and not leave money on the table.
• 9:00
  SPEAKER_00: All right.
• 9:01
  SPEAKER_00: I will see you next week.
• 9:02
  SPEAKER_00: I hope you have a wonderful day.
• 9:04
  SPEAKER_00: Bye.
• 9:04
  SPEAKER_00: All right.
• 9:05
  SPEAKER_00: That's your episode this time.
• 9:07
  SPEAKER_00: Don't forget your action step.
• 9:08
  SPEAKER_00: I want you to actually do it, not just add it to the list.
• 9:12
  SPEAKER_00: If this episode was helpful, share it with a fellow business owner who needs to hear it.
• 9:16
  SPEAKER_00: And if you're ready to go deeper on your specific numbers, book a strategy call with Sidekick Accounting.
• 9:22
  SPEAKER_00: Go to chatwithmeg.com, and I'll see you next time on Profit Points.