Episode Transcript
[00:00:00] Speaker A: They could get audited because it does raise a red flag if you're always reporting losses. And all the IRS logic you think is like, hey, eventually you have to make some kind of profit. If not, how are you living? Right? And then also if you want to do, like, get a loan, buy. Buy a house and stuff, you know, you need to qualify. You know, you go to underwriting, underwriting is going to ask for your tax information, and they're going to see, what income do you have?
[00:00:21] Speaker B: Welcome to skin view. I'm Dr. Anna Chacon, and today we have a very special guest joining us. Get ready for some expert insights you won't want to miss.
Tell everybody you know, who you are, how you got to know me, and a little bit about yourself, where you're from.
[00:00:37] Speaker A: Yeah. So my name is Jose Cruz. I'm Cuban. I came to this country when I was three years old. My parents actually won something called the bombo, the lottery, back in Cuba. So I basically grew up here my entire life. I got introduced to you. Ana Kong, BNI group.
A common colleague, a common member of the group. You reached out to her, asking her how, you know, you were looking for an accountant. And I just happened to be a part of that same BNI group.
So she connected us and we had our calls and we just clicked and we saw that it was a possibility of us working together. I got started in accounting in a very unorthodox way. Fresh out of high school. I actually did an internship over the summer at an accounting firm locally to kind of see and get my feet wet because I wasn't sure what I wanted to do. And then I just. I fell in love with it because I saw how the potential in accounting with everybody, bro, both in individuals and businesses, because accounting is like the language of business. So I saw myself be able to provide valuable resources and information to a lot of people, especially small startups and small businesses. A lot of individuals are like immigrants, like my parents, that didn't have the same resources that like, you and I did growing up here. Knowing the country, knowing the system, learning the language. So I wanted to be able to kind of bridge that gap for them and be able to provide them this big firm quality at a smaller, more scalable, achievable person and firm.
[00:01:58] Speaker B: I didn't know that you were born in Cuba. Cool. That's really cool.
[00:02:01] Speaker A: Yeah, I came in those three.
[00:02:02] Speaker B: How did you get into just, you know, offshoot question. But how did you get into bni? Who introduced you to that? How did you hear about it? I myself didn't hear about BNI and why would it maybe be something our listeners would think about?
[00:02:17] Speaker A: I got into this BNI because I like I said, I started my business and I kind of wanted to gain access to business owners and other professional that I can use to build my network, right? So actually somebody reached out to me. Another young financial advisor reached out to me via LinkedIn and like, Hey, I saw that you, that you started your own firm. I've actually, I think you would benefit from attending this meeting. So I went to that meeting, but they already had a cpa. But then somebody else in that meeting said, hey, you should join these other meetings. I went to that other meeting, they already had a cpa. And that's where I got introduced to Maria, which is a common colleague that we have. And then she brought me over to her chapter that I was also looking for a cpa. And I think being I so far has been great for me because like it really connects you with a lot of people and our professionals. You kind of grow this book of business for yourself. And my kind of role, accounting, law, financial advisors is very much of a trust type of scenario to create a distrust and be very transparent with your, with your clientele and also with other professionals that you can like work off of. Like I used to work a lot with attorneys, older CPAs, older attorneys, they already have their set people that they rely on and they work with. So it's very hard for them to deviate from that. So I wanted to join BNI Young to kind of grow my own network of young attorneys, young realtors, young other professionals that you know, we can grow together later down the line. We build these connections early on and they're strong connection that we've known each other for years and, and it's a better, more business can flow among us and we just go together. We help each other's businesses grow. That's kind of why I want to do it, to create my own little book of business and my own connections.
[00:03:48] Speaker B: What are some of the most common tax mistakes you see in individuals and small businesses?
[00:03:53] Speaker A: The most common one that I've seen is abusing the schedule C. So schedule C is basically where you report like your, your small business income, you're a 1099 employee or you have a small side gig or something, you report that profit or loss on schedule c of your 1040. But a lot of people, especially the 1099 workers, they are really abuse the system in a way that I think is going to eliminate it for all of us. Like, when something is too good and you abuse of it too much, eventually somebody's going to take notice and they might, like, you know, take it away for everybody for good. And the reason why I say that is because people. I've seen so many different things on, like, schedule C because people go to different accountants. Some are shadier than others, some are still professional, but they put all of these things that are not always necessarily the most truthful things in this schedule C to create these big losses and offset these losses. And there's ways to do that legally, but I've seen other people do it in ways that I know are not legal or not ethical. And that creates these, like, big losses and then these people getting these huge refunds that then jeopardize them down the line because especially when they want to buy a home or something, you know, you need your tax return to qualify. A 1099 pay stub is not going to cut it, right? So at that point in time, you're faced with a decision like, hey, I have to amend my return. It's gonna. It's gonna cause a red flag to the irs, have to pay all these taxes, all these bills, all these penalties, right? And then it's just kind of ruins it for everybody because then everybody expects that to be. That. That to be the norm. You know, they expect everybody to get these gigantic refunds, and they don't know what it takes, what. What's being put on those returns, you know, to be able to get those big refunds and something. Then when the IRS comes knocking, they. Because they're big refunds, and they have a pretty good idea of, like, what to expect on your return. You know, then they start freaking out because they just don't understand what's being put on the return. They just trust that they give it to the preparer. The preparer is doing the right thing. And not always. They don't always do that. And then that comes and bites them in the foot later on.
[00:05:47] Speaker B: How does it bite them in the foot? Do they get audited by the irs? Like, it could.
[00:05:51] Speaker A: Like, they. They could get audited because it does raise a red flag if you're always reporting losses. You know, the IRS logic, you think is like, hey, eventually you have to make some kind of profit. If not, how are you living? Right? And then also if you want to do, like, get a loan, buy a house and stuff, you know, you need to qualify. You know, you go to underwriting, underwriting is going to ask for your tax information, and they're going to see what income you have and it's the same thing like are you always making a loss? Like, you know, and then at that point in time, if you want to like correct it, then you can, it can still be done. But then it's going to raise even more questions and point even more red flag at you unnecessarily or something that could have been avoided. You know, if you don't think down the line, they think of like now, right? They don't want to, they don't want to deal with it later, but later on when they have to deal with it, they have to go back and fix in. That can create an issue and bite them in the but in the butt.
[00:06:37] Speaker B: What's really funny. So there's actually people that they just report losses. That's all they do kind of in their business.
[00:06:45] Speaker A: There's people, yeah.
[00:06:47] Speaker B: Oh my God, yeah.
[00:06:47] Speaker A: There's people that have W2s, W2 jobs and then they come create this fake schedule C that they do like tutoring services or even like Uber drivers and stuff like that, which you can still take Uber driver like stuff. But they just abuse it, right? They abuse the system. You can be savvy and like, you know, take advantage of the tax system. It's meant to do that. But you can't be abusive and greedy and put false information there, right? And then these people that are like, they're making like 40 grand on like their W2, then they report another 30 grand like side income and then they put 60k of losses. That creates a 20k offset a 20k loss that they can use to offset the W2 income that they're being withheld on. So they get all that money back, which if you have justice or like reasons to prove it and justify that's 100 acceptable every side whenever it's justifiable. But most people don't have the paperwork or the justification to create these big expenses and these big offsets. And I've seen that a lot of times on the return, especially some of these tax preparers, they put self prepared on the return. Even though you pay them, they put self prepared. So if anything happened and you want to go back at them to the irs, it looks like you did it. Even if you paid them to do it, it says on the paper self prepared. So that's a big thing that I've seen a lot of these individuals make that they don't catch, you know, these mistakes that you're paying somebody to perform a service, you want them to be able to give back you up if anything happens for that service, you know, that you want. You want to see their name there, their pton. You know, something that gives you peace of mind that, hey, if this goes south, I can go to you to help me out. And a lot of people don't do that. They seem so prepared on that and say, you're on your own. So that's a huge mistake that I've been seeing a lot, especially in the small, small business, south Florida area. You know how South Florida are a lot of Latinos. So I see that a lot in our community. I try to. I try to explain to them, I
[00:08:31] Speaker B: never even heard of that. So people just kind of create a business, make it a loss, and they get a huge tax return. Wow.
[00:08:38] Speaker A: Yeah.
[00:08:39] Speaker B: I mean, yeah, I guess these are ideas that I've never even thought of.
And the schedule C is. What do you mean when you say schedule C? Because I never heard that term before either.
[00:08:48] Speaker A: Yeah. So there's different schedules on your return. There's. There's a page one. There's all on your individual return on the 1040. So there's a page one, page two. Right. And there's a different schedule. Schedule A, B, E. Right. Like on schedule E, you put like any rental income you have. There's certain schedules that the IRS put, puts out where you put. And you report certain information in the schedule C.
The information that you report there is profit loss from a business. So if you have a side job, a side hustle, if you have 1099 income, this is where you will report all of this information. Right? So that's where you would report. Like, I have an office job, I have a clinic job making W2. But on the side, I do tutoring. On the side, I clean houses. On the side I. I do bookkeeping. Right. These little side jobs, that's perfectly normal to do. Even if you do like construction job, handyman jobs on the side, that's perfectly fine to do. Right. But I see a lot of people putting, like, they do medical services on the side or they do like, tutoring on the side. And like, I just know them and I know how they like how they live. And, like, I see like, the justification, I'm like, this is like, I asked them for tax returns for prior year because what I always do, I always like asking for prior tax returns whenever a client comes to me because I like seeing what they have going on in the past. That kind of helps me dictate the future.
Right. One year from the next, it should the tax information shouldn't really differ that much unless you did something like, hey, I just finished med school, I'm about to get paid. I know that. And you're also expecting that. But, like, from one year to the next, unless it's a big drastic change, there shouldn't be that many, like, changes. Right. So I like looking at last year to kind of see how their situation is. And I see these things and I asked them, hey, what is this? What is this appreciation? What are these contractor expenses that you're reporting? What is that? And they have. I don't know. I have no idea. What's that? So that's why I already know that, hey, you don't know what's on your return. You just give it to somebody and then you just want a refund. So you don't know what's on your return. You know, it's not. If I. If you come to me, I'm going to do it the right way. I'm still going to maximize your savings, but I'm going to do it the right way because I have a license to protect. And you may not like the result. So I just try to explain to them and have them understand why what they did was wrong or, like, how it can affect them later on the line. Because you can never get audited by the irs. It's like a roulette, but you can also get audited. So I just want them to, like, know their risks and, like, the potential of you might get audited, you might not. But, you know, just I want to inform you of what could happen just because I know you don't really know what was put on your return, and that's your name and your social on the line.
[00:11:11] Speaker B: So accountants, can they get in trouble for, let's say these accountants that help people with these huge tax returns or.
[00:11:18] Speaker A: Yeah, they can get in trouble. So every accountant or every tax preparer has to file with the IRS and get a ptin. It's like a code that they give you for every preparer that basically links you to the irs. Unless the IRS know, hey, this return came from so and so. Right. That's usually linked to a CPA license or an EA license certification with the irs. Right. And that's what is on the line. Right. So if they see that constantly, a lot of these returns that are being submitted with this pizza number are having these issues and are having these conflicts that keep raising the red flags to the irs and eventually they're going to go to, to the preparer and also Tax taxpayers have a very liable legal defense where it's like, hey, I relied on the professional advice of the person that I, that I contracted to do my taxes for me. And that's a very legal, justifiable advice. The problem comes for those taxpayers is if it says self prepared on the return, if it's not prepared on the return to the irs, even though you pay somebody and you rely on their expertise, you didn't catch that they didn't put their information on the return. So for those, it's kind of hard to justify, like, hey, I relied on them. But for those that do put the keys in and they still put the wrong information, the IRS can definitely come challenge you and can take away your license, can take away your EA certification, and can they ban you from performing certain tax activities? You know, so, yeah, there's definitely ways for people that is, there's cases all the time on the doj, DOJ versus so and so of the IRS going, or Department of Justice going against these bad preparers that are inflating certain expenses incorrectly and are evading taxes.
[00:12:52] Speaker B: Wow. Department of Justice. Yeah, we really don't want that.
[00:12:56] Speaker A: Yeah.
[00:12:57] Speaker B: And then can you walk us through the process of a business valuation and why it's important?
[00:13:02] Speaker A: Business valuation is a little more niche. I used to do forensic accounting at a, at a regional firm here in south Florida. Top 100 firms. So I got introduced to business valuations, and they're very neat because they kind of. It's like when you go buy a house on the market and you're like, hey, this house is going for a million. This house is going for $500,000. An appraisal comes and they say, this house is worth this much, and they place a value on it. It's a subjective number, but it has some kind of reasoning behind it that is back that you can back up and like, support that number. It's the same thing for a business valuation. The only difference with a business valuation is that businesses have both an intangible and a tangible side to them. So they have tangible sides. Like, for example, they have an office building, they have machinery, they have employees. Right. That's a tangible side of the business. But they also have, like, in your case, in my case, the knowledge, the, like what we bring to the table, that's an intangible aspect of that business, the trust that, like these clients, these customers rely on when they go to you. So a business valuation helps kind of value what this business is worth, taking into account both the tangible and intangible. Side of things to come up with a value in case you want to like sell the business, buy another business estate plan, right? You want to pass down your business to somebody, you're getting a divorce. And now this is a marital asset that needs to be split up or you have other partners that you, that you're trying to buy out, right? You need to know what this business is worth to be able to properly pay them out and buy them out. Divorce, like separate the asset, right? So it comes very handy for a lot of situations that people don't always think like exit planning. And what it really is is basically you go through like these professional guidelines from AICPA and naca, right? And they, and the IRS even, and they say that you got to value a business using primarily three different methods, which is you got to approach them and consider at least three different methods, which is the income approach. How much income is this company generating that could be used as a source to measure is profitable, it's profitability and how much it's worth. You can also value it being how much assets does it have? Is it a holding company that just holds a bunch of investments for you? And if that's the case, then the majority is not generating profit. It's generating like this is what it has under its portfolio, that's the worth of that business. Or you can look at the market approach, which is like, what are other companies that are similar to this selling for in the market, both in the private market and in the public market, like publicly traded companies. If there's, if they're comparable enough, you can say, well, if X company that's, that's publicly traded on the New York Stock Exchange is selling for this much a share, my company that's also very, very, very similar to that could sell at that exact same price, even though it's not public, right? So yeah, you got to consider these three different methods and then you come up with a value and then you justify this value with like looking at industry and economic reports and data, plus historical and projection personal financial information of the company. Because every company is different, right? So you got to look at where they've been, where they're going, where they think they're going, how the market and that industry is doing, and you kind of combine all of this stuff in a big pot and then you produce a value, then you justify and then they can use to support any gift tax returns. If you're giving somebody like business interest, you're gifting your niece or your son some business interest that is A reportable tax event you got to file a gift tax for, but you got to know what that number is, what's the quantity, Right. So that's what the, this business valuation will come into play and all these different scenarios.
[00:16:33] Speaker B: What are some tax saving strategies that real estate investors should be aware of?
[00:16:38] Speaker A: There's two types of properties. There's a personal property and an investment property. Right. Your personal property, you buy and you live in it. That's your personal residence. If you live in it for three out of five years, that qualify as a personal residence. When you sell it, when you go sell it, there's something called exclusion or primary resident exclusion. So you know if you're married or single, you can exclude up to a certain amount of that capital gain. So it's non taxable. So you sell it within an amount that that capital gain falls within amount, then whatever that sale is is tax free to you. No income taxes. For the investor side, the biggest one is depreciation and doing a 1031 exchange. Depreciation is basically just taking the, the expense of this property over a certain period of time, usually 27 years. And then a 1031 exchanges. If I have a property that's for real investment, I want to sell it. When I sell it, I'm gonna have to recognize a capital gain. And the primary resident exclusion that I talked about earlier doesn't apply when it's a person. When it's on investment property. That's how you do a 1031 exchange. It basically is whatever capital gains I'm getting, I'm going to pick up from this property, I'm going to apply it to this other property. That way I never pick up that, that gain on my taxes, so I never pay taxes on that. But with a 1031 exchange, there's, there's certain rules to follow. You have to identify the whole transaction has to happen in a certain amount of time and you have to identify certain properties within a certain amount of time. And you have to involve a third party called a qualified intermediary that can that. So basically you can never touch those funds. If you touch those funds, then that automatic that automatically makes it taxable. So you got to involve all of these people and you get, and you got to really plan them out for them to fully work. You know, a lot of people have that misconception. They just say, hey, I'm going to do a 1031 exchange. Yeah. Before you even think about setting the property, I think about, okay, who do I got to contact to be able to do the same thing. Exchange. Right. Because it does require steps to be able to do it properly. Those are the two biggest ones to avoid the capital gains and to get a big tax deduction on your. On your taxes.
[00:18:33] Speaker B: So you said you can't touch. I'm confused. You. You can't touch what? And then to involve necessarily.
[00:18:40] Speaker A: Yes. So like accountants, lawyers could be qualified intermediaries. They have to have like a certain designation that makes them qualified intermediaries. And they can't. They have to be unbiased. Meaning they can't have service you within the last two years or so. Right? They have to be completely unbiased. And when I say that they can't touch that you can't touch that money is like, if I sell this house, house a for a hundred grand, right? And I'm gonna get a capital gain of 50. I cannot touch that. My bank account cannot touch that money. That 50 has to go to the qualified intermediary's bank account. And he or she's gonna hold it for you until you identify your new property, your new investment property. And then she's gonna pay that 50k or them they're gonna pay. They're gonna apply those 50 grand to that new property. So on your behalf. So they're doing it like if you did it, but you physically never have possession of that cash or of that money. And by doing that, you never have to pick up that capital gain because it was never under your control.
[00:19:37] Speaker B: This is something I always wondered myself. How does working with the cpa. How is that different from working with a traditional accountant or tax preparer?
[00:19:46] Speaker A: Anybody can prepare a tax return up to a certain point so that you can do a tax return up to $1 million and you don't have to have a CPA designation or anything. Right. And there's also EAs, which are just as qualified.
However, EAs are more specific for tax and is an IRS designation. The benefits of working with a CPA is that we have to be. It's a national exam that we have to pass, similar to like doctors and boards. We have to have a lot more educational requirements and credits to be able to even qualify to sit down for that exam. And once you do, the exam is so comprehensive that it only doesn't only talk about taxes. Also talks about, you know, accounting and auditing. If you have a big company that you need to make sure that you're following up to a certain accounting standard. It also talks about other economic issues and like how that applies to a business. Right. So We're a little more well rounded than a regular taxpayer or an EA that may only do 1040s or may only deal with IRS tax returns. So we are a little more like a one size fits all, one stop shop for a lot more financial partner. Like we're more of a financial partner than just like a tax partner. Right. We can offer a lot more services than just tax. We can also do taxes or we can go beyond taxes, but requirement wise, basically a lot more educational requirements and a little more stricter guidelines to follow and to get licensed with the state. Plus we also have to maintain more CPE every two years. And like an EA would, for example, EAs have to maintain a certain amount of educational credits to maintain their certifications. We have to maintain more than that for the reason that we're more of a full financial partner than just a pure tax partner.
[00:21:22] Speaker B: What is an ea? That's the first time you've heard that term?
[00:21:26] Speaker A: Yeah, An EA is an enrolled agent. It's basically a certification or a designation with the IRS that allows you to file tax returns on behalf of the IRS without necessarily having to have all the strict requirements of a cpa. But they're very strict with taxes because there's a designation issued by the irs. So it's only related to taxes. But a CPA is by nasba, which is monitored by the AICPA and the fasb, which are all big words and very technical. But basically it's like a lawyer, like a doctor. Right. You get a license with a state and then you can practice in that area. And you're more well rounded in taxes in, in accounting and financial presentation and auditing and economics. Right. You're more holistically, you're a better financial partner than just someone that's purely just tax. They're both great and they can both do the same thing when it comes to taxes. They can both prepare returns up to whatever. But everybody tends to specialize. Even if you're a CPA or any, we always tend to find a niche in our special and our specific client base that we just understand more and we gravitate more towards. So I would say, you know, if you're, whether you're doing a CPA or an ea, find somebody that really understands your industry or at least the level of business that you're at. You know, you don't want to get somebody from like KPMG to really handle your small business because they don't have, even though they got a lot of exposure, they're getting a lot of Big company exposure that your company may not necessarily fall into that realm. Right. So that's the difference. But they're both qualified for taxes.
[00:22:54] Speaker B: What are some simple financial habits that can make a big difference for entrepreneurs?
[00:22:59] Speaker A: So the biggest one is keeping track of everything, of your expenses. I know everybody keeps track of their income because no, they got paid. Everybody looks for to get paid, but they always forget to, you know, what the offset is to that income. And you need that for taxes. And it's really hard. You come to me at tax time and you're like, hey, I made 80 grand. Great, great. What do you do? Oh, I'm. I'm in construction. Awesome. I know you have, I know you have to buy tools. I know you drive around a lot and you have a truck. Give me that, give me those reports. And they're like, oh, I don't know. Right. And then it's hard for me to kind of help you out and like bring down your income. And I really want to. And you should. Right. So the biggest thing is kind of QuickBooks account, whether it's on an Excel QuickBook, something kind of track of everything. Because the only way you can actually scale a business and grow is if you skate, is if you track everything. And if you track everything, then you know where you can take advantage of in the law, in the tax law. That's the biggest thing that I've always seen. People don't track their mileage, they don't track their expenses, they don't track their meals, they don't track their tools. Right. Tracking it is the most important and crucial thing for any small business.
[00:23:58] Speaker B: What tools can people use to do that? Because, for example, I had, I think I told you, an accountant, old family accountant. And, and I have never been told to use QuickBooks. I started using it last, last August. It's been about a year.
[00:24:14] Speaker A: Small businesses, like I would recommend QuickBooks, there's a bunch and a ton of accounting softwares out there, but they get overly complicated unnecessarily. The most easiest, user friendly one that I found is QuickBooks. It's very simple to use. You connect your bank account and everything that happens on your bank or credit card side gets automatically downloaded to QuickBooks. And then from there on forth, all you got to do is log in, whether it's yourself, your partner, your sibling accountant, or a bookkeeper that you hire, and you got to go in and categorize it properly and it's going to create these financial statements for you that are going to be needed for bank purposes. Or for tax purposes. But you can also create rules in these QuickBooks files that you know if you're always shopping at. Like if you go to Starbucks every morning and get a coffee, you know, before work, or you go have lunch at the same place, you can actually put a rule in QuickBooks saying, hey, whenever you see a charge from Starbucks, this is going to be a meal, it's going to be a deduction. So automatically it'll learn that and it'll do that for you. So you have to do less and less and less. But at first it doesn't know you. So you have to like really like be like baby steps with it. Tell it, hey, I do this, I do that, I spend here, I spend there. But over time, it'll learn you. And it'll automatically help you categorize things a lot better. It'll recommend where the expense should go because it learns you. That's the easiest, most inexpensive one.
You can actually do it on your phone or on a laptop. And then for tracking business miles, like if you drive a lot, there's an app that you can actually download on your phone that actually tracks where you've been and how much it took you to drive there.
[00:25:41] Speaker B: Wow. What's the name of that app?
[00:25:43] Speaker A: I don't know. There's a few. If you look at business model tracking app on the app store, there's a few that come out. They're all pretty good. Some are free, some are not. But the whole purpose is for to track where you've been because that's another thing that you can get on your tax return. Especially if you're a solopreneur or like a 1099 self employed small business, you can get a deduction for the mileage that you drove for business. That's a not no. And that's a paper law. So it's not like an actual expense deduction is like a paper deduction kind of depreciation. So there's no actual cash flow that has to leave for you to put that on your return, you know, so that's a huge one that you can do without having to actually spend money.
[00:26:16] Speaker B: And how much money can you deduct for mileage?
[00:26:19] Speaker A: So there's two ways to do it. There's the standard rate, which is like a predetermined expense per mile that the IRS lets you, they take similar to the standard deduction. So if you know, have 2,000 miles in a year that you drove for business, you can say, hey, I want to take 65 cents per mile. Which is like my hometown, where the IRS is at. I want to take 65 cents per 2,000 miles that I drove. And that could be your deduction. I believe it's limited to about a thousand five hundred or so or 1,300. I have to double check. It gets adjusted every year. Or you can take another one. Like if, if I drove 2000 miles in a year for business, but in total I drove, you know, 8,000 miles in a year. Right, you did. You divide that and you get a percentage. That percentage is your, is your allocatable business use percentage. And if you have like, if you have a lot of child tire changes, if you have a lot of maintenance on your car parking, right. You can add up all of those deductions that you did and you can take, even if they're personal and you can take a business, that business percentage. You can apply it to all of those deductions. Gas Matt can also give you another deduction that you can put for the actual personal deduction that you, or expenses that you, that you spent because you determine what's the business use of that vehicle that's both personal and for business. So if all of these deductions, if all these expenses that I spent on my vehicle, I spent $10,000 on my vehicle and I can take 20% of it as business out of that 10,000 that I spent, 2000 is a business deduction that I can take.
[00:27:45] Speaker B: I thought you could deduct all your gas for business if you were, if that's, you know, if you used a car that was like.
[00:27:52] Speaker A: Yeah, if you, if you track it correctly. The problem is how do you, if you're using a personal account, how do you know what's business gas versus personal gas?
[00:27:58] Speaker B: But if you put it on a
[00:27:59] Speaker A: business account, ideally everything there should be business.
[00:28:03] Speaker B: Yeah, but you're saying to go a step further and get one of these recommended apps so you have an actual proof.
[00:28:08] Speaker A: That's only if you like, like, if you use your personal vehicle for like purposes, for work purposes and you're self employed, I would definitely recommend getting these apps, especially if you like invoice people. You can also put the address on that invoice to help you like keep track of where, where that invoice service took place.
Because a lot of These solopreneurs, like 1099 individuals, they don't really have a separate bank account for the business side of it. You know, their paycheck, Even though it's 1099 and it's contractor is going to their Personal. Right. So they need a way to kind of like parse out what, like get a business. Get a, get a business benefit for that. Right. So this is a way to get the business benefit for people like that. You have a fully established business and you have a separate business account. In theory, everything that you run through that business is 100% deductible because that's a business deduction. But if you don't have that, you're like a barber, you're like an RBT or realtor. Right. That you're very 1099. This is a viable option for you to take some kind of benefit for your mileage.
[00:29:04] Speaker B: And then how have recent tax laws impacted clients?
What should listeners be aware of for the upcoming year?
[00:29:11] Speaker A: I think the three biggest takeaways from the big beautiful bill, the new one that jump, that Trump, that Donald Trump just passed, is the energy credits that before, you know, Biden put it into place, all these renewable energy credits for solar panels and evs are going away.
They're repealed. So you have up until September 30th to really take advantage of these. Another one is the whole no tax on tips. A lot of these people, if you're making a certain amount, you want to see that big of a benefit. But if you think about the majority of people that are waitresses and waiters and barbers, right? They're within that 50 to $70,000 annual range. If you can wipe off $25,000 of their income, that's a big chunk of their income, right? So that allows them to keep a lot more money in their pockets. And then the main purpose of the bill, you know, with the whole terrorist that he's putting on these other companies for importing over here, and you're going to pay a tax on whatever you import. So he wants to basically incentivize people in the U.S. to kind of like invest in the U.S. and produce things in the U.S. so one way that he's helping incentivize businesses is he brought back bonus depreciation, bonus appreciation. What it is, is basically a method of accelerated depreciation. So basically, the IRS lets you, when you buy an asset, the IRS lets you take the full benefit, the full value of that asset in its earlier years. That's what bonus depreciation basically is. But over the years, it's kind of been phasing out. Every year it's been phasing out. So you're going to take 60, 40 and so on. But now you brought it back for 100%. What's his purpose of that, he wants you, the business owner to go out and buy that equipment that you need to produce that, that product here and not have to import it overseas anymore. And if you buy that equipment this year, you can take that full deduction this year and that full benefit on your taxes to help offset whatever additional cost it might cost you now to employ more people to like no man the machine that, that equipment. So construction companies, manufacturers, anybody that really has an asset, you can take full advantage of that this year. Even medical, medical professionals. If you buy an equipment, if you buy furniture for your office, you can take that fully this year. If it was placed after a certain day in January, I forgot the exact date. But ever since it was placed after that certain day in January, in 2025 and moving forward you can take that in the year that it was placed 100%. You buy a hundred thousand dollar machine this year, they need to like, you know, be able to see clients eyes or whatever. That's 100k deduction that you can take this year. And you didn't, and you didn't pay it because you might have financed this machine over I don't know how many years. But you can take that full benefit this year. So that's a big, big incentive that he brought back with this new law. And a lot of business owners should really be aware of that, to really take advantage of that. Because depreciation is one of the most underused tools in, in taxes, especially at the lower scale businesses. And it could be a huge game changer because it's all paper losses. It's basically a paper loss. You don't have to actually pay that cash. You know, it's just a paper loss that you, an expense on paper that you're putting.
[00:32:09] Speaker B: And you're saying this is really important for like medical devices and stuff. What was it before the big beautiful bill? Like you could not take that.
[00:32:18] Speaker A: No, you can take it, but it was fake. But it was limited. So there's certain percentage that was limited. Like I think it was like 60%. So you're going to take like, like 60% of it, you know, or like 40%. I forgot there's different tiers like equipment, furniture, vehicles, right. There's different categories of assets. But you only take a certain portion of it. But not what he brought back and he made it permanent is that you can take 100% fully in the first year that you buy. So there, there's no longer that portion. Like hey, I'm going to take only a portion of this full expense, right? No, now I can take the full benefit of it this year or in the year that you place in service.
[00:32:52] Speaker B: What accounting technologies or tools we talked about? QuickBooks, what other ones do you recommend for small business owners?
[00:32:59] Speaker A: That's an app that keeps track of your receipts, that you take a picture of the receipt whenever you go out to like a meal or something, that you want to justify that meal. There's an app attracts all these receipts, these pictures on this app, so you don't have to actually have the pictures or like the actual receipts handy. There's a lot of these things, but I basically recommend, you know, using some kind of accounting software. And if you don't want to pay for QuickBooks or can pay for QuickBooks, then have it on Excel. You know, on Excel could be on your phone notes, you know, just kind of an electronic way of keeping records. Whether it's through an app like the mileage app you put, hey, I'm driving from point A to point B. Whether you use this app to maintain and track all of your, or store all of Your receipts, or QuickBooks or another accounting software, cloud based software to kind of track your accounting. If you don't want to do that, then go Basic and go Excel. You know, go Excel, track it, go on your notes, on your phone, use your camera, any type of way to better track yourself. Whether it's through an app that are very convoluted, very expensive, very, very simple, or you go, literally everybody has Excel nowadays. Everybody has Word notes on their app, on their phone, right? Just use that, whatever is most convenient for a lot of people. A lot of people are very much on their phone all day. You know, use the app, use a notes app, find whatever app on the app store. There's a bunch of them, hey, what can I use to track my mileage? What can I use to track my expenses? Right out of the top of my head. I mainly recommend the, like those three, which is like the mileage app, the receipt app, and then QuickBooks.
[00:34:27] Speaker B: What is it about QuickBooks that you guys like? Because I hated it at the beginning, it was like Chinese. I was like, what is all these connections? At one point I couldn't even log in. I didn't even know what to do.
What is it that makes it so, you know, cool to accountants or so handy for you guys?
[00:34:45] Speaker A: I guess to accountants. To me, I see it more on like the, the technical side of it. So like, I don't see, when you get paid, I don't see it as like, hey, A deposit or as an expense or a payment. I don't see it that way. I see as more of a debit or credit. That's how I taught me at school, right? Everything in accounting has two sides to it, debit and credit. But what makes it so good is a, it's relatively inexpensive, right? It's a subscription and it's relatively inexpensive to a lot of people, us business owners, right? It's, it's, I think the max that it goes is like 200 something dollars a month for like Mac daddy version of like the software which not everybody needs. So that's one thing the price and the other thing is like for a lot of people that are not very like accounting savvy or like these technical terms that like a debit, right? It's very plain English. Like you got paid. It says received money, money received money in, money out. A bill. Oh, I, I got this bill in the mail. Let me register the bill. Oh, what are my expenses? Oh, how much? Like who do I got to pay? People who owe you. There's like literally a section that says people who owe you, people who you own, who you owe. If you click on that, it will give you a report like hey, these are all, all the vendors that you have still pending, right? So I think not a way why a lot of business owners like and why we recommend it is that it's very plain English. You know how finance people, they use these very fancy words for like all of these terms for a stock or like a penny stock or whatever. Like they're very complex terms sometimes in business. But I think QuickBooks per se uses it very, very, very dumbed down. Especially like it's meant for smaller, smaller firms, smaller companies because other accounting software, they require you get a financial dimension and start, you know, breaking things up in this more convoluted way. And it's a lot more not user friendly QuickBooks. I think the most not user friendly thing in QuickBooks is creating a journal entry that's purely debits and credits. But the rest of it, you can record payments, you can see your invoice, you can send invoices. So it's very plain English and it's very accessible to the average Joe though
[00:36:42] Speaker B: I think who's tax and advisory group support the needs of the South Florida community and abroad and beyond, especially for bilingual clients.
[00:36:51] Speaker A: Like I said earlier, we try to, we came from like an immigrant background. My parents came to this country. I was three years old. I remember they used to give me letters in the mail. When I was nine years old, because I speak, because I spoke English and like, what does it say? And I'm like, I have no idea what this says. I'm lying, right? So I feel like I wanted to give this same like feeling to like, there's a bunch of immigrants and a bunch of like, you know, people that came from other countries that are business owners and they make money and they're trying to hustle and like, you know, get a better life and they still need to have access to people like, like myself, like yourself, like, like lawyers, right? That all these resources that these big firms have, these people that have been here for years have, and they may not always necessarily be able to achieve those people because of the money or the language barrier, right? So what I wanted to do is kind of be bring that down to home. Like me and my wife, we started this. We both worked in public accounting. Big firms, global firms, national firms, right? Multimillion dollar firms. And we saw how it is in those firms. And we have the experience, we have the credentials, we have the knowledge. Why not bring it down to our community, right? And help these mom and pops that still need it. They're still paying taxes, they're still, no, they're still to save. And explain to them like, hey, hey, you're making enough money now where an S corp might make sense. This is what that is, right? Hey, you should consider investing in retirement. This is what you should do. Talk to this person, right? I feel like I wanted to give them that big firm feel for a very low, more attainable price to them. And also since I'm bilingual, it doesn't matter if they may speak broken English to get by, but on a day to day, they speak Spanish, right? I speak fluent Spanish, same as my wife. So it's an easier language. There's no language barrier, right? It's easier for him to talk to me. And also I feel like a lot of the new entrepreneurs are not, are the new people that are up and coming or younger. I think since I'm on the younger side, I'm a little more relatable to the new up and coming generation, right? Than like an old CPA that's sitting behind their desk, doesn't really answer emails, it doesn't really text you. I think I'm a little more relatable to them. They can talk to me. I'm like, more plain English, More like, hey, I saw this tick tock about this guy talking about taxes. Is that true? And I, and I can answer, right? And like an Older gentleman. So I feel like we're more relatable and that's kind of why I wanted to bring it to South Florida.
[00:39:03] Speaker B: What is the advantage of an escort? And you mentioned something interesting. Do you need to make a certain amount of money to have an escort?
[00:39:10] Speaker A: Yeah. So there's two types of taxes that every business owner gets assessed. Income taxes and self employment taxes. The income taxes is a tax bracket that everybody knows. And then self employment taxes is 15.3% flat rate on whatever net profit the business is generated, which is basically your retirement contribution, your Social Security, your Social Security and your Medicare. The same with an S Corp is that if you're, if you're a schedule C, if you're a regular, no LLC, single member, right, you make 100 grand in net profit, let's say, right, you're going to get assessed income taxes on that 100 grand. But on top of whatever income taxes you're going to get assessed, you're also going to get taxed 15.3% on that 100 grand. That's $15,000 of taxes unnecessarily. So what an S Corp does is like if you make enough money, it makes sense to switch. So in this case, if you make 100 grand and we convert it to an S corp, what the S Corp says like hey, you have to pay yourself a reasonable salary out of your net profit. And out of that reasonable salary, that's what we're going to charge the 15.3% tax on. So if you take that 100 grand and you pay yourself, I don't know, 30 grand and like a reasonable salary, you're only applying that 15% on that 30 grand which is 5 grand in taxes give about, right? So you're saving 10 grand in taxes right there just because of where that 15% of tax gets applied, the 100k versus 30 grand, right? So that's where you can start really saving the tax benefit. You shed that tax, that self employment tax by a lot. The more you make, the more you can shed it, Right? That's where it makes sense to like see if it makes sense for you. Because if you're not making a certain amount of money, then isn't it cost you more to switch than the savings that you're going to get? Because the tax prep services, the fees tend to be higher. Now you have to do payroll, pay a payroll provider, file payroll returns, do a better job bookkeeping because I need a full set of financial statements. So it involves all of these other costs that if the numbers don't make sense. I never advise my clients to do it. Yet if you're making a significant amount of money and it makes sense 100%, you should do it because you're going to be saving the tax.
[00:41:11] Speaker B: And how much money do you suggest doing?
[00:41:13] Speaker A: If you're netting about 20 grand or more, 20, 25 grand or more net profit, that's when it might make sense, or at least it might make sense to explore the opportunity and the possibility of like, hey, can I, can I convert? You know, under that? I think you're still smart enough where, like, the benefit that you're going to see is like a few hundred bucks, 400, 500 bucks, which, you know, the, like, tax prep fees, the bookkeeping, all that stuff is going to overrun it, you know, so you gotta be paying more for this, right? So I wouldn't recommend it there. But when you're. I passed 20, 25 grand, then you can start seeing like 2, 3 grand in taxes and that kind of offset. Even if you're saving 100 grand, you're still saving money, right? That's good, because now you have the proper structure. Right now you're saving 100 grand. But you already structured this in a way where now you can scale it, you can go as high as you want, and you're saving more and more and more because the fees stay relatively the same, right? So that's where it makes sense. 25 grand or more, that's that, that's the sweet spot to really start looking to see if it makes sense to switch it.
