What’s maybe one of the biggest mistakes? You mentioned earlier by not setting up their business properly in the beginning but next to that what’s one of the other biggest mistakes you see small business owners make regarding their taxes?
Failing to communicate with their tax professional. That’s a pretty broad base but too many people look at working with their accountant, their CPA as an expense item. I like to look at it as if you spend the time and you’re working with the right accountant, CPA, you’re going to uncover deductions so you’re going to turn that expense into, really, income.
That sounds … From our conversation here right now that sounds very obvious but I would imagine, to your point, I know a lot of business owners that I work with they see their CPA once a year. That’s of course in February or March for the previous year’s taxes and that’s pretty much it. Why is it important? Why is it important for a business owner to communicate more often with their CPA?
Is it because the CPA can look at hard numbers and let them know that they’re on the right or the wrong track, or take us through that.
When you meet with your CPA in February he’s looking in a rear view mirror, history has already occurred. Whereas when you meet with him throughout the year he can help you and you can basically write your road map what you want to do, how you want to do it, and what’s the most tax efficient way to do it. If you do that on a regular basis there’s tax dollars that you save.
How is that different than, and I think I know the answer to this but I’m just curious. How is that different than sitting with your financial adviser three, four, five times a year to make sure that your investments are on pat. Is it basically two different verticals moving in the same direction where maybe your financial adviser … Obviously, you’re talking about your 401k or your SEP-IRAs or anything of that nature but you’re saying kind of treat it the same way with your CPA to work with them hand-in-hand maybe two, three, four times a year to find out am I on the right path, am I doing the right thing from a tax and from a growth perspective. Is that kind of what I’m hearing?
Exactly. At the very least, you want to be speaking with them or meeting with them four times a year. It’s very important to have that communication. Your business is more than likely your biggest investment.
People go out and buy a car and they do all this studying and so on but when it comes to their business they’re just working on it, just going through the motions as far as working on their business versus working in it. As part of working in it it’s looking at your taxes and how can you reduce the amount of tax you pay?
When you work with your business owner clients, what’s maybe one or two things that you see on a consistent basis that most small business owners are really missing the boat? Is it, from a technical standpoint besides working on their business, creating a vision, and setting road maps, and setting GPS systems, and all those things.
Besides that, if we can kind of peek behind the curtain of one of your sessions what are you finding that most small business owners, where they’re really missing the boat?
Entity selection is usually the biggest issue we see, they choose the wrong entity. After that, there are so many little things that they can be doing, whether it’s the home office deduction, whether it’s the home athletic facility which is allowed, whether it’s the correct automobile expenses and purchasing equipment, and lease hold improvements. Are they depreciating the property in the correct manner? Are they taking advantage of the things that the code lets them do?
I will not say there’s one set that I see across all industries but those are some of the little ones we see. Some of those little ones can be very big, people don’t look at alternative minimum taxes, ways to reduce the alternative minimum tax, different strategies like that.
I know as a certified tax coach you probably get pretty intimate with your business owner clients. Besides from a tax perspective, from an overall bigger picture with your clients, when it comes to small business owners I know that when I coach my small business owners one of the, from my perspective at least, two things really always come to mind always. Number one is lead generation. I don’t have enough in the pipeline for prospects to turn them into clients, which turns them into revenue, which hopefully creates more profit in my business.
Then secondly is how to become more productive. They’re spinning all kinds of plates, especially if they’re a solopreneur, maybe they have one or two people and their days turn into 12 hour, 14 hour days. At the end of the day 75% of all small business owners are not profitable so when you see those things what’s maybe one or two things that you see that where some small business owners are missing the boat when it comes to overall growth?
Well, I think lead generation. When I talk to business owners, more people spend so much time working in the business versus on it. It’s like, I always say, “I’m not making money if I’m sitting behind my desk.” You need to be out there, you need to be meeting people, you need to be communicating with people, getting your message out. They don’t teach you that in school. They teach you your craft but they don’t teach you, you need to get the client through the door so you can help them.
What are … As I’ve done a little research for this I noticed you have some expensive tax mistakes that cost a business owner thousands. Maybe from your book you can share, and you probably talked some of it already but what are maybe … I have 10 but share as many as you like, 10 expensive tax mistakes that might cost a business owner thousands of dollars.
That’s in actually my second book which was The 10 Most Expensive Tax Mistakes That Cost Business Owners Thousands. I’m going to give you a lengthier show notes where they can request a free copy.
One business entity. Wrong retirement plan. Maybe they need to have a fuller solo 401k or 401k and they have a SEP. Missing out on medical benefits. Certain types of businesses can have what’s called a medical expense reimbursement plan so you can write off and get an actual deduction for those kid’s braces and stuff like that, that normally the code allows you to take on your tax return but because of a threshold you need to meet you do not get the benefit of it.
Home office. Meals and entertainment, the right way to classify meals and entertainment. Your car and truck expenses. Audit paranoia. Those are all things that we see people out there that they’re not doing. Audit paranoia is just like, the code says you can do it. If you do it, do it correctly, you cross your T, you dot your I, you’re okay.
Get your copy of my book the 10 Biggest Tax Mistakes That Cost Business Owners Thousands HERE!
Listen to the full podcast episode here.