Let’s Talk Taxes — Avoiding Expensive Mistakes

Speaker A00:00:29

You know what time it is, right? It's that end of the year crunch when business owners all start whispering the same thing. Trust me, I'm hearing this every day now.Ralph, please don't let me owe too much in taxes this year. Listen, I hear this all the time, but let's be honest with ourselves.Tax time shouldn't feel like a gut punch every year, but for so many small business owners, you might be one of those people right now. It does. It feels like that gut punch. And every December, it's the same story year after year. Missing receipts, surprise tax bills, and stress.Talk about stress that could have been avoided with a little planning. So today I want to help you fix that. Let's talk about how to stop losing money to the IRS and start keeping more of what you earn.That's what I'm going to cover on today's show.

Speaker B00:01:15

Running a business isn't easy. It's long hours, tough calls, and relentless pressure. No shortcuts, no handouts. Just grit, grind, and the will to keep going when most would quit.Welcome to Grit and Growth Business, the show for entrepreneurs who know success is built the hard way.Hosted by Ralph Estep Jr. A seasoned business coach, accountant, and fellow fighter in the trenches, each episode brings you real talk, proven strategies, and the unfiltered truth about what it really takes to build something that lasts. Because if you've got persistence, perseverance, and determination, this is the place for you. This is Grit and Growth Business.

Speaker A00:02:04

Hey, friends, I'm Ralph. Welcome back to Grit and Growth Business. This is the show where we get real about running a small business.On this show, we talk about the wins, we talk about the struggles, and we talk about the numbers that actually matter. And I got this question the other day from a listener who said this. They said, ralph, every year I feel blindsided by taxes.I make decent money, but I still end up owing more than I expected. What am I missing when it comes to planning ahead?I'm going to say right now that's a great question, but I'm going to key in on one word, and that's the word we really need to focus in on today. Planning ahead. It's two words. I should have said two words. But that is so important. Planning ahead. And this is the same question I hear all the time.This time of year. People are scheduling time. Come down and sit with me. They do a zoom call call. This is what they're asking me. And this is what I do for a living.I've been helping business owners with taxes Accounting cash flow for over 30 years. Yes. It makes me feel old sometimes. And I've seen both sides of this. I've seen the chaos of waiting too long.Those people that come to me in March or April, and they're like, ralph, you got to get this tax returned on right away. I can't possibly owe this much. I worked it up at home. This can't be right. I've seen that.But I've also seen the people who live in peace because they had a plan. And see, I'm not just an accountant. A lot of people say, well, he's good with the theory. He's good. He's book smart. But guess what?I run businesses, too. So when I say I understand the pressure of what you're going through, I really do. Let me tell you about a story of two clients.And this is really going to lay into what we're talking about today. Let me talk about this one client. And this client every year always waited till April to talk to me.Didn't understand the value of meeting with me throughout the year. Wasn't one of my monthly clients, just said, ralph, you know what? I can handle all this stuff. I'll bring you this stuff in April.You can put it in a nice bow, shine it up, and send it off to the irs. Well, year after year, this became an issue. And when I looked at their books this past year, I realized we almost missed $18,000 in deductions.That's right, I said 18,000. Why? Because their books were a mess. And that mistake, if I hadn't caught it, could have cost them real money.And I'm gonna tell you right now, I've looked at returns that have already been filed for people that come in to see me, and I see these mistakes all the time. If your books are a mess, key takeaway. Right as we get started today, get your books in order. Because those mistakes cost you real money.They cost you real tax dollars. But let's talk about another client. I had a creative freelancer, and she did it completely differently.She came and met with me in January, and she says, ralph, listen, it's a new year. I want to get started on the right foot. What can I do? And I said to her, here's what I want you to do. First of all, keep track of your records.Second of all, here's what I want you to do so you're not surprised at tax time every month, I want you to set aside 25% of every deposit for taxes. We used something I talked about on the show a couple weeks ago and different buckets, different accounts.And by year end, she wasn't panicking anymore. She was prepared. Listen, we had her books in order, so she knew what was going to happen before it happened.And even better than that, when she had to write that check to the irs, she says, ralph, I've already got the money and guess what? I love you. It's less than you told me to set aside. So guess what? I don't have that stress.And I want you to write this down and commit this to your mind today. The best time to save on taxes isn't in April. It's before December 31st. It's right now, actually.And if you're interested in our action plan, we always do an action plan for the show. You can get those action plans by going to gritandgrowthbusiness.com action. Again, that's gritandgrowthbusiness.com action.We'll put that in the show notes today. So here's what every smart business owner should remember. And we're going to dig into this a little bit deeper in a second.But I want to start off at the high level. Tax planning is about timing. A lot of people call me. They say, ralph, what are the tricks? What are the little nuanced things? There are no tricks.It's all about timing and understanding your books and making decisions when they're impactful. I say this to clients all the time.There's not a lot I can do for you when you come in in March or April and say, ralph, what can I do to save money on taxes? At that point, I'm just putting the numbers on the paper.And I keep you out of trouble with tax evasion and getting in trouble with the revenue agents and all that kind of stuff. But there's no tricks to it. At that point, you've already missed the timing. Here's another big takeaway, a big problem.A lot of small business people don't understand. You've got to keep your business and your personal books completely separate. We'll talk about that in a few minutes. Another thing.My freelance client learned this. You got to review your income and expenses before year end.This is something that I honestly think you should be doing weekly or at the very least monthly. You don't put it off till we. We talked about this on the show a couple weeks ago. You don't put it off till the end of the time because guess what?At that point, it's too late to make any decisions. Which leads me to this. Pay your Estimated taxes on time. One of Ralph's pet peeves.A lot of people get upset with me when I say to them, hey, not only do you owe money, but guess what? The IRS wants you to pay them a penalty. Like, what do you mean I owe a penalty? How can I possibly owe a penalty?It's bad enough they're taking money from me, but guess what? The IRS wants to get paid as they go.So you've got to make sure you're paying estimated taxes or at the very least, setting aside that money so that it doesn't come as a big shock and you're not scrambling to find the money. Another thing, key takeaway for today. Track your deductions as you go. We kind of talked about that a little while ago with the timing.But make strategic, not emotional, year end decisions.We're going to dig into that because I've got a lot of clients, they get into this year end mode and they just make the dumbest decisions on the planet because they're working out of emotion. Because, listen, you don't want to owe anything. And another thing, if you have an accountant, if you don't have an accountant, first thing, get one.I'd be happy to talk to you. I'll talk to you a little bit later and show how you can make a discovery call with me. But stay in touch with your accountant all year long.And listen, if your accountant's not getting back to you, if your accountant isn't communicating with you, I just. It's funny. I'll tell you a little side story here. Last night I was on Facebook. I like to go on Facebook to see what's going on in the industry.And somebody had put on there, I'm really looking for an accountant. And I reached out to them and I said, well, tell me why you're looking for an accountant. They said, ralph, my accountant doesn't communicate with me.I said, I get it. I hear that time and time again. Stay in touch with your accountant.If your account's not getting in touch with you or you can't communicate them, guess what? It's time to find a new accountant. All right, so I promised you I'd break these things down. Let's break down these things one by one.As we talked about on today's show. First thing, we got to start here, proactive beats reactive. Every single time. The biggest savings happened before December 31st, not after.Like I said a few minutes ago, if you want me to help you in February or March, even in January, guess what? It's Too late. We've got to start planning. This is the time of year right now we're getting ready to get into the middle of November.This is the ideal time to be planning for year end because even one mid year check in. Listen to me on this. This is the truth. I've seen this time and time again over my years of working.One mid year check in could save you thousands of dollars. And listen to me a little pet peeve. Don't buy that shiny new truck just for the write off.So many of my clients say, ralph, it's the end of the year, I don't want to owe the irs. So guess what? I'm going to go buy a new truck or I'm going to go buy a new piece of equipment.Unless that thing is really growing your business, take a step back and say, wait a minute, it doesn't make any sense to spend it just to not pay taxes if it's not growing your business. Which leads me to this. Keep your cash flow in sight and your records clean because here's a big powerful takeaway. Clean books are powerful.All right, well let me get to the piece of le resistance of today. What you really came to listen to today. And that's my 10 point year end tax reduction list.And this is going to be in the show notes again, our action plan@gritngrowthbusiness.com Action I encourage you download it. It's real simple to get it. And listen, once you get this one, you get an open door to all of them.So here's 10 moves that you can still make this year to lower your tax bills and finish strong. Are you ready? Let's get right into it. Number one thing, prepay your expenses.Thing I say to clients time and time again, look at what you're going to pay in January and February and think about paying those things ahead, things like rent, things like insurance, anything that you can push that money out the door. Because most taxpayers, I want to get lost in the details, but most taxpayers, what we call cash basis taxpayers.So basically when you spend the money, that's when you get the deduction. So if you're going to pay for it anyway in January or February, guess what? Pay for it before the end of the year.Make sure that payment gets out the door. That's number one thing. Second thing, defer income. Think about it. It's like a balancing act.We're going to prepay expenses, we're going to defer income. So if you've got that job that's going to finish up maybe a little bit into the new year, hold off invoicing it, let that person pay you next year.Now it depends on your particular situation, which is why we've got to have clean and accurate books. But, but that's another big thing. You can defer that income. Here's another thing a lot of small business people forget about. Max out your retirement.Maybe you're a small business person. You don't have that traditional 401k plan or the at work pension plan, but you have options.But right now is the time to get those things established. Because if you wait till the end of the year, you're not going to be able to get to it.There are great things like the Solo 401K, the SEP IRA, there's a ton of these things. A simple Iraq, your future will thank you. But you got to start planning those things right now. Don't wait another week. Call somebody today.Set up a call with me, talk to a broker and get that stuff set up now so that you can fund that retirement. Because guess what, there will be a time when you're going to look back. And I've experienced this myself.When I first started my business, I wasn't paying as much attention as I should have to putting away for retirement. My wife finally said, ralph, I am sick and tired of not putting away for retirement.Everybody else has got these big balances, Ralph, why, when are we going to start doing it? You need to do the same thing because if you're self employed, you don't have that traditional business pension to fall back on.So make sure you're funding that. Make sure you've got that infrastructure set up. Now here's another big thing. Use Section 179 deductions.You might be like, ralph, what in the world is a Section 179 deduction?Well, basically it's a fancy IRS code section that allows you to write off stuff that you buy this year that you would normally have to capitalize, that you normally have a useful life of more than a year. But the IRS gives you what's called bonus depreciation. That's for equipment.Whatever goes on in your business, again, make sure it's a smart thing to buy. I just met with a client the other day. We started thinking about, okay, what can we spend at the end of the year?But what are those things that make sense to buy, not just to spend the money, but use those 179 deductions wisely? There's another thing you can do right now. Audit Your expense categories.Go back and look at where you've spent the money, be that on travel or meals or home office. All those things add up. Maybe you've missed some things. Go back. Because listen again.When you come and see me in March or you come and see your account in March, you're not going to remember those things that happened last February or January. Which leads me to this. Clean up your books. Your books should tell a story.If I open up your books, I should be able to read the story of what happened in your business each and every day, each and every week, each and every month. Make sure you're categorizing things correctly. This is a great time to go look and say, did I miscategorize something?Those miscategorizations, I've seen them cost clients thousands of dollars in tax. What happens usually is a year or two later they say, ralph, you know, I just remembered. I forgot to tell you. I bought a new truck last year.Well, guess what? I've already filed the return. We could have done a Section 179 deduction. Or even scarier, I've had clients have stuff in the wrong bucket.We took it as an expense. And they come in and say, ralph, I just got this letter from the irs. They're auditing me. And I realized these numbers don't make any sense.How in the world could this happen? Well, you didn't look at your stuff. Here's another good year end tip. Review your payroll and owner's compensation.A lot of people don't do this, especially if you're a small business or a subchapter S corporation. You've got to make sure you're taking what the IRS deems is a reasonable salary. But make sure that salary fits your structure.Here's another big takeaway. A lot of people don't think about this. Maybe your business isn't doing well.Well, why are you still taking a huge salary if your business isn't doing well? You're just robbing Peter to pay Paul. You're moving bucket from one, but you're paying taxes on that. Sit down with your accountant.Call me and review that. Make sure it makes sense. Here's another big takeaway for year end. Even as a business owner, look at your charitable giving. People miss this.Look at every single dollar of donations. Did you donate equipment? Did you donate stuff? Did you donate cash? Make sure you're keeping records of those things because we can use those.Another big thing, check for unused credits. A lot of people don't realize this. There's a lot of credits out there that you can get on your tax return.Energy credits, research and development, there's hiring credits.But you've got to work now and make sure you've got all your ducks in a row so that by the time we get to the end of the year, you're ready for those credits. I was just meeting with a client the other day. He is a chiropractor.And chiropractors actually have some ADA credits where they could buy new equipment to help people who are disabled. And there's huge tax credits for that.But again, you've got to plan those things and make sure you've got your books in order so that we can take those. Which leads to me, my last thing for today and that schedule a year end tax review. Don't be foolish, spend a couple dollars.Because one meeting with somebody like me could save you thousands of dollars. It amazes me how many people aren't willing to spend 150, $200 for a consultation. I can help you save potentially.I'm gonna say this potentially because it depends on your situation, but I could potentially help you save thousands of dollars. And it all starts with a free discovery call. We'll talk about it in a minute how you can do that. But then sit down with somebody like me.It doesn't have to be me or somebody else who's qualified and sit down with them because here's the thing, you either pay with your time or you pay with your money.And if you don't do it correctly, you could be leaving thousands of dollars on the table because there are things that you can do right now to prepare you for a year end which could make seismic differences on your tax bill. So here's what I want you to do next. Book your tax planning call before Thanksgiving.If you've got an accountant, reach out right now, get on the phone, get online, reach out to them. If they're not communicating with you, find somebody new, but get on their book. Make sure you're sitting down with them.Make sure that they are giving you some guidance. But listen before you even make that appointment, make sure your stuff's in order to make sure your profit and loss is together.Make sure you've got all your books in order. If you don't, make sure you spend some time doing that, review that profit and loss. Make sure there's nothing weird on there, any weird expenses.And here's a big takeaway. Again, it's a great time to open up a dedicated tax savings account today.Let's say you've had a great year and you're like, ralph, man, I have had a wonderful business year. But man, I haven't put a lot away for taxes yet. Well, guess what? It's never too late to do that.Start that tax savings account now so that by the time April comes around or March, you have the money to pay. Because the worst possible scenario is you owe them money and you can't afford to pay. A lot of people don't know this.You can extend the amount of time you have to file the tax return. They'll give you a six month extension. But here's a dirty little secret. They don't give you an extension to pay it.So even if you file an extension to file, you still owe the money at tax time. So plan ahead for that. So let me ask you a few reflection questions as we kind of bring this to closure today.Ask yourself this, how confident am I my business is paying only what it truly owes? Really be honest with yourself. Have you really thought about that? Have you sat down with your tax advisor, your accountant?Or maybe you've got an internal staff? How confident are you that your business is only paying what it truly owes? If you have any question marks, reach out to me.We'll take a look at this and let's see if we can make some changes. And that being said, what's one change that could make tax season calm instead of chaotic?Listen, but you deal with one tax return, I deal with 100, maybe a couple thousands attack returns. I know what chaos looks like. So what's one thing that you can do to make tax season calm instead of chaotic? And let me ask you this question.This is my big pie in the sky question for today. And if taxes stop scaring me, so what could I focus on instead? See, if you're using mental energy, you're using your psychological energy.So focused on taxes, is it taking you away from your business? Is it taking you away from business growth? Is it taking you away from that inspiration that you once had in your business?So if taxes could stop scaring you, what could you focus on instead? See, the end of the year isn't just about closing the books. A lot of people get stuck on that. Well, Ralph, I gotta have a strong close.It's really your final chance to shape that tax bill. And once that December 31st comes, it's stamped, it's done. There's nothing else you can do.But a few smart, consistent moves today could mean less stress and more profit later, more money in your pocket. Because taxes don't have to be scary. You just need to have a plan. And I talked earlier about this.If this episode has hit home, let's talk about this together. You can go to gritandgrowthbusiness.com coaching and and you can schedule a one on one year end review. It starts with a 15 minute discovery call.It will cost you nothing. We'll have a 15 minute telephone call. You'll get to know me, I'll get to know you and we'll talk about next steps.Because tax planning isn't just about saving money. It's about taking control. If you want to take control of your business, when you know the numbers, you can make better decisions. And guess what?When you can make better decisions, I don't know about you, but I sleep better at night. So before you close those books this year, take a few hours to plan, prepare and protect what you've built.Because every dollar you save on taxes is a dollar you can reinvest in growth in your team. Or maybe in that investment account, in that retirement account. So don't wait until April to panic.Act now while there's still time because you've worked hard all year. I know what you do. You're a hard working person. You put blood, sweat and tears in this. Let's make sure your money works just as hard as you.So thank you for joining me today. I'll see you again next week right here back in the trenches. God bless you.And again, if you're interested in talking to me, it's gritandgrowthbusiness.com/coaching. I would love to talk to you today. God bless you. Have a great day.