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The Tax Essentials Every Business Owner Needs To Know // Deltrease Hart-Anderson
Episode 191st January 2024 • Six Figure Business Mastery • Kirsten Graham & Jeanne Willson
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As a business owner, understanding tax essentials is the key to financial success! In this short and informative video, we break down the must-know basics that will empower you to navigate the complex world of business taxes with confidence.

Tip #1: Get a Federal ID

Understanding the importance of a Federal ID is crucial for any business. Learn why obtaining this identification is the first step in establishing your business identity, facilitating financial transactions, and ensuring compliance with tax laws.

Tip #2: Know Your Business Structure vs. Your Tax Structure

Delve into the differences between your business structure (e.g., LLC, corporation) and your tax structure (e.g., sole proprietorship, S corporation). Uncover the impact of these choices on your tax obligations, liability, and overall financial strategy.

Tip #3: Knowing Your Numbers

Numbers are the language of business, and understanding them is key to making informed financial decisions. Explore the importance of tracking income, expenses, and other financial metrics to maintain a healthy bottom line and make strategic business moves.

Tip #4: Know the Type of Accountant You Have

Not all accountants are created equal. Learn about the different types of accountants (e.g., bookkeepers, tax accountants, CFOs) and how each plays a unique role in managing your business finances. Discover the right fit for your business needs and ensure you have the expertise required for success.

Join us on this journey to demystify the world of business taxes and empower yourself with the knowledge needed to make sound financial decisions. Don't let taxes be a roadblock to your business growth – master the essentials today!

Remember to like, share, and subscribe for more valuable insights into business, finance, and entrepreneurship!

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Transcripts

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I'm Kristen with Six Figure Business Coaching, and that's Jeannie.

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Exc trees heart Anderson.

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Her accounting and she's not She keeps the I.

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R.

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S.

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Of your wallet and ou through tax saving today she had to talk to Tax essentials

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every business owner should know, because you can't afford to put off learning how

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to better your tax and accounting systems.

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So let's talk about keeping the IRS out of your pocketbook wallet and bank accounts.

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Thank you so much for being here Deltrese.

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Thank you for having me, Jeannie.

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I am so excited.

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You're talking to people probably like most business owners that

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are scared to death of the IRS.

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They hate all things about taxes and bookkeeping because it's

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generally not what they're good at and it's not what they enjoy.

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So what would be your first tip for everyone?

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What's the first thing you'd recommend that every business owner do?

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So my first tip to any business owner, if you don't have a federal

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ID number, get a federal ID number.

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For your business.

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Okay.

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So think of this federal ID numbers like the social security

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number for your business.

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And whenever you get that number, the first thing you want to do is secure that

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number, put that number in a safe place.

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That number is going to come to you on what's called a CP 575 notice.

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Keep that CP 5 75 notice that notice is like a social

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security card for your business.

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So you always wanna keep that number handy for bank purposes.

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That notice is also gonna tell you what tax return you need to file.

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So you wanna have that number always.

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That's tip number one.

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And anytime you're going to use a merchant service account like Square and

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Stripe, you're going to need that number because that's going to be the number

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you're identified with when they send those 1099ks at the end of the year.

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Perfect.

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All right.

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My second tip is know your business structure versus your tax structure.

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Now, If I ask 100 small business owners, what is your business structure,

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they're going to tell me it's an LLC.

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And then I'm going to ask them, what is your tax structure,

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and they're going to tell me.

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It's an LLC structure and the tax structure are totally different that

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business structure yes you may be an LLC, and that all that business structure is

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doing that LLC is providing you legal protection that has absolutely positively

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nothing to do with your tax structure what the IRS is looking for the IRS could

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care less whether you're an LLC or not.

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You as a business owner should care if you're an LLC, because now you have that

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legal protection around your business.

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But that tax structure is where the magic really happens.

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Know if you are a single member LLC taxed as a sole proprietor.

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Know if you are a partnership and you have an LLC if you're taxed as a partnership.

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If you are an S corporation, if you're a C corporation.

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Those are the tax structures and That's what you need to know when it

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comes to tax time to tax planning, how you can save, how you can keep

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the IRS out of your pocketbooks, your wallets and your bank account.

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If you know your tax structure, because you'll know how to handle

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your business and how to save on your taxes and tax structure can

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sometimes change in my right.

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So if you were an LLC partnership.

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And maybe once you hit a certain volume, you might want to file as an S corp.

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Is that right?

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That is correct.

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You can change your tax structure almost any time.

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Sometimes you will have to have permission from the IRS to do so, or

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you have to file additional paperwork, but Definitely, you don't have to

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remain in the same tax structure.

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And that's where getting with a good accountant and looking at tax planning

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comes in because that accountant can look at not just your business

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income, but all of your sources of income to determine What's going

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to be your best tax structure.

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And I think that's something people don't really think about, and we're

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all busy trying to get clients in the door and get our marketing done

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and build our teams and make money.

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So it's that I feel like the tax stuff and the bookkeeping and all that

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kind of gets put on the back burner.

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And again, since it's not something most business owners love and enjoy.

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So how would you recommend a business owner broach the

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subject with their accountant of.

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Their tax structure.

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So would you just encourage them to ask, do you feel like my tax

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structure is the right structure for me based on the revenue I'm creating?

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What would you recommend?

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So that goes into, two other of my tips, knowing your numbers.

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So first you have to know your numbers.

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And when I talk about know your numbers, every business owner at some point

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in time needs to generate in their business, a profit and loss statement.

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As well as a balance sheet.

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Okay, there are some other financial statements, but those

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are the most important statements.

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Well, statement of cash flow is very important too.

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As a matter of fact, that's probably the most, but when it comes to analyzing

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whether What business structure that you want to be in or you need to be in, you

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first have to start with knowing your numbers that profit and loss statement is

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going to let you know what your income is and what your expenses are, are you making

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a profit or are you losing money that balance sheet is going to share with you.

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What your assets are in the business, what your liabilities,

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how much, who do you owe?

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How much do you owe those people and what your business worth is?

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So that's what you have to start with knowing what your

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profit is in your business.

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And then pairing it with other income that you may have.

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You may be a business owner and a real estate investor.

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You may be a business owner and still have a part time job or a full time job.

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So you have to look at the profits of your business in conjunction

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with all of your other sources of income, you may be married, so

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you have to look at your spouse's income as well, all of the income.

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that you will report on your tax return in addition to the profits or losses

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of your business is going to determine what your best tax structure is.

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So that's tip number three.

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Know your numbers.

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Okay, and I'm grateful that Kirsten knows our numbers, because I

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was like, Oh boy, that's a lot.

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The tip number four comes in as know the type of accountant that you have,

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when you have these conversations with your accountant, you have

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to make sure that you're talking to the right type of accountant.

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There are all sorts of accountants.

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Accountants come in different shapes and sizes.

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You have your bookkeepers.

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That bookkeeper is probably going to be the one that is going to help you form

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or create those financial statements.

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But that bookkeeper may not necessarily be the accountant that you Get to

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analyze the information to determine what's your best tax structure.

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But that bookkeeper could be that person you have your bookkeepers.

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That's an accountant You have your tax preparers.

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That's also an accountant.

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If your tax preparer is used to doing individual tax returns,

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but all of a sudden you have this business, this is your baby, and

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you're not used to doing business tax things or business tax returns.

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Analyzing your tax return or your financial statements to see what

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tax structure is best for you, then you might want to go a step further.

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So it could be a tax preparer, but just a tax preparer that

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focuses on business taxes.

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It could be a CFO type accountant.

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So a chief financial officer accountant that may prepare taxes and analyze

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taxes, because the thing you want to understand is preparing a tax

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return is different from tax planning and tax analysis or tax strategies.

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So you want to have the conversation with an accountant that can provide you.

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Tax strategies or tax planning.

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Yeah, because it would be terrible to realize that, you've lost you paid

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30, 000 more in taxes than you had to because you didn't do any planning.

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And that's something you see all the time.

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Business owners who are paying a lot more taxes than they need to, because

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simply they're not planning ahead.

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They don't have strategy.

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They don't understand, like, to change their structure with the IRS.

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So, Want to share a story with us where you save someone a lot of money?

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So I have a story that broke my heart.

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So I am always in the business of strategic planning and saving money,

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but I'd like to just share a story where I could not help a client.

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Because those stories are, They're few and far between, but it happened.

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So I had a client that came to me last year and they wanted their

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taxes and they wanted a strategy and they wanted their taxes prepared.

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They were in a C corporation.

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Now in a C corporation, it's different how your losses are treated.

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She had gone into business with a family member and they

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had a loss in the business.

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Well, they could not take any of those losses.

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They had to eat the losses.

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So typically when you're first starting out in business, if you have losses

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and you have a W 2 job, those losses can offset the income of your W 2 job.

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These losses, because she was in the wrong business structure, these losses

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could not offset The income that she had.

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So she just had some losses sitting there that she couldn't do anything with.

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That's horrible.

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That's why you want to talk to an accountant, a tax accountant, not just

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any tax accountant, an experienced accountant that understands tax strategy

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and tax planning and don't get caught up in the alphabet soup, if you will.

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Some people say, Oh, I'll just go to my CPA.

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Well, I have plenty of CPAs that refer work to me all the time.

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I am an IRS enrolled agent.

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So I represent taxpayers when they're in tax trouble businesses

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as well as individuals.

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But a CPA will send me two types of clients.

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One, if there's Tax strategy that's needed because they don't do that

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type of work or they'll send me their clients when they need representation

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for the IRS or a state agency.

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So not just any old CPA will do.

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I'm an IRS enrolled agent.

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So you really have to interview the accountant and ask them, Hey

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accountant, What is it that you do?

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Do you do bookkeeping only?

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Do you do bookkeeping and tax prep for individuals?

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Do you do tax prep for businesses?

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Do you provide tax planning strategies?

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So it's a whole conversation that you have to know who you're getting.

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Yeah, that's important.

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I think, again, it goes back to being afraid to ask, right?

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Because you're kind of going to this person, asking the

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doctor questions, right?

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You're kind of going to this person who is the professional, and you assume

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that all of them have the experience and the knowledge to do what you need

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them to do, because you really don't always know what you need them to do.

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So I guess that question about, like, do you specialize in business taxes?

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And do you do business strategy?

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Will you help me set up a The best tax structure, and I would say another

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question that I might recommend is, will you take time to educate me?

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I don't want to be one of those business owners who sticks my head in the sand.

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I would, and I don't ever want to be an accountant, so I don't

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need a high level education.

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But will you take the time to say these are the things you need to understand and

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just make sure that, you're encouraging me to learn the basic things that I need

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to know to be a better client of yours and to be a better doer of my money.

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Absolutely.

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I get at least three or four times a week, someone coming to me saying, Hey.

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Could you just look at my taxes?

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Tell me why I owe so much.

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I can't get a straight answer.

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Why do I owe so much?

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My accountant won't tell me.

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Well, sometimes the accountant doesn't know.

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And it's okay not to know.

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Everyone has their length.

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I don't do bookkeeping.

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If someone comes to me right now and say, I want my books done.

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I have so many colleagues that I can refer them out to, I know how to read

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the financial statements once they get back to me, but I don't do bookkeeping.

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So I stay in my lane.

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So, with part of strategy.

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Do you ever question what someone's spending over?

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You always hear this rule of thumb.

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You should spend 10 percent of your budget on marketing.

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Well, you should spend 10 percent of your market, your budget on marketing if

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you're getting great returns on that 10%.

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So it's not just about spending.

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It's about looking at the rate of return on it.

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So do you advise people?

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Maybe they're, out of whack on a category.

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That's where the CFO type services come in to that has nothing to

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do with tax planning per se.

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It is expense management.

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We do analyze that those financial statements to see.

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What is being spent the percentages and you're absolutely right when

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you talk about, Oh, spend 10%.

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Why are you spending it?

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Let's see the results as a result of this expense.

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How much more income did it add?

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How much did it add to your bottom line?

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What did it add to your profit margin?

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So those things are very important.

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And we do have those conversations with our CFO clients.

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And that's another thing.

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I spent over 10 years in corporate America in finance and accounting

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companies in fortune 500 companies.

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So I understand how to analyze the financial statement.

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I know how to do bookkeeping.

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I just don't want to do it.

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So I can analyze the financial statements.

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I can also analyze the tax returns.

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You may have to get multiple people.

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And most of the times your tax professional, they may have a

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team that they put together if they don't do all of those things.

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What can you do for me?

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And of the things that you can't, can you point me in the right direction?

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And for your audience, if there's a need of anything that your accountant Doesn't

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do you can definitely reach out to me and I can point you in the right direction.

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I literally have Colleagues across the country that I talk to on a regular basis.

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So at what point?

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What a business owner?

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Hire you as ACFO.

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Do you, explain to people what that is, what it means to be a fractional

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CFO, and then my next part of that question would be at what level of

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income or what size businesses do you normally see raising their hand and

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saying, I wanna have a conversation about, hiring ACFO right for me?

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Great question.

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So, the CFO, just as we were talking about before, looking at the numbers

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all the time, keeping a pulse on those numbers, how much you're spending how

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much you are bringing in, and not just how much but ways that we can cut costs.

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Ways that we can increase income, answering those questions that

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you may have, whether it's tax related or accounting related

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questions on a regular basis.

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Just anything.

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Money related or near money related, then that CFO is going

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to be the it person for you.

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That is your accountant on call, as I call it.

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Is going to help you establish a budget, they're going to, again, all

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the ways that you can grow your revenue, as well as lower your expenses, as

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well as look at those tax strategies.

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Other businesses can get away with having them.

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Every three weeks, once a month, and sometimes even with those businesses,

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especially if they're on a growth path, they want those conversations at least

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twice a week, and just have a regular meeting, you still want to be able to have

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access to your CFO on call, if you will.

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Thank you so much for all this information.

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I think so So many people are really going to find this helpful.

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And if somebody wanted to reach out to you to talk to you about, maybe they're

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in trouble with the IRS or they know someone who is, or perhaps because getting

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in trouble with the IRS, I think is very typical for business owners early on,

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because they just don't really understand how to put money away for taxes.

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So, or if they're at a point where they really want to have a

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conversation about a fractional CFO.

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Or if they maybe want you to give them a referral to someone else, what's

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the best way for people to reach you?

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Absolutely.

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So the best way to reach me is www.call the tax pro do com.

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That's C-A-L-L-T-H-E-T-H-X.

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P.

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R.

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O.

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So call the tax pro dot com.

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They can schedule a time to just chat with me and I meet

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business owners where they are.

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You talk about that education piece.

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I am literally probably a month away from putting together just an education

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program where business owners that may not be at that level yet where they

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need or can Board a fractional CFO, they can still have access through a group

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membership program, but whether someone has tax issues, whether someone wants

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to avoid having tax issues, they can still have, I can still meet with them,

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I can have a consultation with them.

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We'll definitely put a link to that.

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We really appreciate that.

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Wow.

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You're welcome.

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Thank you so much for being with us today.

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We really appreciate it.

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And I've learned a lot, so it's exciting.

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You are a wealth of information.

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Yes, we appreciate it so much.

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Yeah, and like Kirsten said, we'd love to have you back.

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Thank you so much.

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Thank you so much.

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We'll see you soon.

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Okay.

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Bye.

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Take care.

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Bye bye.

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