Tax Saving Tips for Investors and Business Owners

Taxes are one of our biggest lifetime expenses. They impact our cash flow, investments, properties, and businesses…not to mention our overall net worth. While they may spark *dread* instead of joy, they still deserve our time and attention—because understanding different strategies to lower your annual tax bill can really add up over time. Today's episode is a recording from our February community event with Candace Galiffa, a Certified Public Accountant and Owner of NewWay Accounting—she talks through taxe101 and shares actionable tips for your stock market, real estate, and business investments. 

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  Hey y'all, it's Taylor, Factora’s head of marketing. I wanted to hop on real quick to introduce today's episode. In case you didn't know each month, we host Free Live community events on different financial topics. These events are open to everyone and in my opinion, are a ton of fun. February's event was called Let's Talk tax savings strategies for investors and business owners. It was super informative, and the women who joined us walked away with a ton of actionable tips and strategies for saving on their taxes. So today, we're going to be sharing a recording of that event. If you're a visual learner like me, we've also uploaded the recording of this event, which includes the slide deck, and all of the visuals. We'll be linking that in the show notes, so feel free to check it out. And if you want to be in the know about future events, make sure to join our newsletter which we will also link in the show notes. The next one is going to be in mid March. And we'll be announcing the topic soon. So make sure to sign up and we'll see you at the next one. With that. Let's dive right in.

  This is Allegra mo Brantley and you're listening to the coffee and coin podcast where women talk wealth. I'm the founder and CEO of Factoria, a company on a mission to lead 1 million women to 1 million in net worth. Because when women have more money, we'll have more power to be the change we want to see in the world. If you're ready to hear real women share their real numbers and investment journeys and have a sneaky feeling you should be doing a little more with your money. You are in the right place. Just sit back, relax and turn me up.

  All opinions expressed by Team Factoria and podcast guests are solely their own and do not necessarily reflect the opinions of Factorio Incorporated. This podcast is for informational purposes only and should not be used as the basis for investment decisions. Team Factoria and podcast guests may maintain positions in the securities or investments discussed in this podcast.

  Hello, everyone. Happy Thursday and welcome to fact Taurus February community event. My name is Liz Pataki and I am the community manager here at fact Torah. I am calling in from Tampa, Florida, I would love to know where everyone else is coming to us from so if you have a second, open up the chat and pop in your location so we can all get to know each other a little bit better. Welcome to our community event. Welcome our factory members, our current Springwell circle cohort and anyone else who is joining us, we are so excited you are here. Once a month we open up our programming so our financial education can reach even more women. So If today is your first back Torah event, we welcome you graciously. And thank you so much for joining us. For those who don't know us yet. Factoria is a personal finance education company that teaches women how to invest and build wealth. We are on a mission to lead 1 million women to $1 million of net worth. And we do that through our 12 week live online investment course called wealth circle, or Springwell circle actually did just kick off this month and our next wealth circle does not happen until this fall. If you're interested in learning more about the wealth circle, we will drop a link in the chat for you so you can check it out. But let's get into today's event, all about tax savings strategies for investors and business owners. Taxes, as you may know is one of our biggest lifetime expenses. They impact our cash flow or investments, our properties and our businesses, not to mention our overall net worth. While they might spark dread instead of joy, guilty as charged. They still deserve our time and attention because understanding different strategies to lower our annual tax bill can really add up over time. Today you're going to hear from Candace. She is the president and owner of new way accounting and she's going to share some of the basics to help us all get started aka tax 101. She will also share actionable tax saving tips for your stock market real estate and business investments as well as how to find a great CPA to work with. We will have some time to answer questions at the end. So please remember to put them in the chat and we will do our best to get to as many as we can. With that. I'm going to hand it over to factoids founder and CEO Allegra take it away.

  Hey everybody. I am so impressed to see over 140 women here to talk about taxes. So yes, I'm Allegra I'm founder and CEO of Factoria. accompany on a mission to help women build their wealth to the million mark and far surpassed it. And with that means we're going to have a very large expense to Uncle Sam, he's always going to get his. So in the wealth building world, it is really smart to know about how to be strategic with your taxes as a personal investor, maybe someone that owns a business. And so I'm at Candace a few years ago, and we brought her into fact Torah, she is fact Torres, business accountant and my personal accountant. So I thought we have so many interesting conversations offline, where she is teaching me and the fact to our company, what to do to lower our tax burden. So why not bring her in to teach you all the same. So Kenneth, I am so thrilled that we finally made this happen. And we are here, and we have so many women who also know taxes, may not love them, but they gotta get done. So how can we do them better?

  I'm so excited to be here and with your crew. And like, like I said, and listen, my name is Candace. I am founder and president of new way accounting. And what my company does is we specialize in supporting female entrepreneurs, and startups with their finance, accounting and tax needs. So this type of group, empowering other females is just totally our jam. So I figured I can get started and share a little bit about my background, not just business, but also personal, you know, in life with the fact that this is about investing in wealth, wealth building, I'll kind of share some of our strategies as well. So you can get to know me a little bit. But I started my career at PwC in public accounting, and then I moved into Independence Blue Cross in corporate America, corporate accounting function, I had a number of leadership roles in corporate accounting, financial planning, and investments and cash and investments. And during that time period, my husband and I started buying rental properties, and mostly in lower income, short, long term rentals. And when we decided to have our first daughter, I just knew I didn't want to do the corporate America hours, I just wanted to try out the stay at home mom thing I really wanted that experience. And I also didn't want to raise a baby working the hours that I was working. So we were fortunate enough. Even though I made more money than my husband did, we were fortunate that I was able to quit my job rely on his job, because we also had some passive income from our rental properties. And I come from a family of small business owners. So I've always done bookkeeping and taxes on the side for businesses. So I figured you know what I'll do, I'll just take on a couple more clients, some small business, local clients do their bookkeeping do their taxes, it'll be a cute side hustle, like a really cute little Javi. During my babies, you know, naps and on the weekends and at night. And through this experience, I learned that I can't do anything 50% Everything has to be like 100. And so it just absolutely totally blew up and took off. And as Allegra says, I retired my husband within a year, he became the stay at home dad. And now new accounting is just a little bit over four years old. And we are so fortunate to serve over hundreds of clients on a month to month basis. We have a team of 13, amazing humans, all women. And we continue to grow. And again, in light of the fact that this group is about teaching women financial literacy and growing wealth, I'll be transparent with our journey with that new way accounting goes about 1.5 million in revenue. We're continuously looking for ways to scale continuing to build our team serve our clients and build that function out.

  From a personal perspective, we sold our rental properties at the height of the pandemic for market reasons, and the market was H O T hot. So that worked out really great. A little over a year ago, we continue to build our investment properties though. And we we bought our dream home or our forever home with our girls moved into there. And then just nine months ago, and last spring we've bought off each house. So while it's not exactly a rental property, it's still a great investment and also provides a lot of joy to us over the summers. So this is what we do. We're continuously looking to scale the business, invest in real estate and investments. And in the last four years, we've had now three baby girls in three and a half years, it's been an absolute wild four years. So I've been on such a beautiful journey and I'm so excited to share some of the tax knowledge with all of you, I promise I will do my best to not have it be excruciatingly painful and try to bring a little bit of simplicity to it, and educate and so when my background that I've just explained feel free if you have any questions along the way, Adam Ciao And hopefully we can get to a lot of them at the end. So, like Liz mentioned, we're going to do a little tax basics tax 101. And then we're gonna talk about how taxes relate to your investments, real estate and business Plus, we're going to touch on how to find the perfect CPA for you. So that's on the agenda for today. So, first up, taxes, a lot of people are surprised to find out that taxes are probably one of your biggest expenses in your, in your life, right? Who is subject to tax? Everyone, right? You are subject to not only income tax write, you know about that your paycheck is tax. But also, you may also have property tax, you probably have sales tax in your state, your investments are going to be taxed, your real estate investments are going to be taxed, your business income is going to be taxed. So we all need to be aware of this so we can plan accordingly. The big thing with taxes is being empowered to understand what it is so that you can plan and then also strategize to reduce them as best as possible. So, right, the funny quote here is there's only two certainties in life, death and taxes, right. So that's, that's the legit thing. So we want to make sure we understand them. So let's talk about some basics. Right? He was taxed. We already said that everyone's tax. So the biggest tax that we have is income tax. So if you get a paycheck, or you own a business, right, you are subject to income tax on that pay. So if you check, take a gander at your paycheck, you see that you have federal income tax withheld from each pay. And we know about this, right? This is what we buy, at the end of the year with our annual tax returns due April 15. We have federal income tax withheld, the rate is based off of our household income, right, and the tax brackets we know about that one. But there's also this hidden tax, right? That's called Medicare and Social Security. Or if you're self employed, it's called self employment tax. So next time you get a paycheck, take a look at it. And you'll see the federal income taxes withheld. Plus, you have seven and a half percent of your paycheck withheld from Medicare and Social Security. And your employer matches that seven and a half percent. So each paycheck, the IRS gets 15% from Medicare and Social Security. And if your business owner, the IRS views you as the employee and the employer, and they get off 15%. So this is why your income tax and tax rate in general can become really high really quickly. You've got income, you've got payroll tax, or self employment tax, you've got possibly state income tax and in some states local tax, so it can grow really quickly. So what how does income tax and then tax returns all interrelate? So your tax return that's due April 15. All that is is a tax reconciliation, right? It's saying hey, how much did you make this year? What can we deduct from that? And then how much tax Do you owe? Okay, so this how much you owe? What did you actually pay during the year? Right? What was actually withheld from your paycheck? Or if you're a business owner? What did you pay via quarterly tax payments? And all this tax return is is saying is how much you owed? This how much you did pay? Did you pay too much during the year? And then you get a refund, okay? Or did you pay too little during the year, and now you owe a little bit more. That's all this tax return is. So a lot of people get really excited about a refund, don't be excited about a refund. A refund is just you giving the government an interest free loan. And a refund is great for folks who can't save money and can't plan accordingly. But if you're savvy, right, and you're getting a refund every single year, review your paycheck, and reduce what you have withheld from your paycheck each time and take that difference each paycheck and invest it or really do anything but give it to the government because you're gonna get it back. So instead take that difference, that $100 difference, a $200 difference per paycheck that you would get in a refund at the end of the year, and then invest that right, instead of giving the government interest rate low. The last thing on here with marginal tax rate, which really this next slide is much more beneficial to show. So the question we get all the time is oh, wait, I'm now this year, I'm making $90,000 instead of $89,000. So now I'm up into the next tax bracket. And they're trying to figure out ways to lower it. Don't freak out about this, this is not a big deal. We work in a marginal tax system, which means that when you move into that next tax bracket, only the money in that tax bracket is taxed at that new rate. So when you make X amount of dollars if you're either single or married, and now you're subject to the 32% tax bracket, your entire income isn't being taxed at 32%. Only that dollar in that amount. So this is just something to be mindful of right when when people are freaking out about the highest tax rate being 630 6% or 35%. It's not like your entire income is taxed at that amount. It's a step up bracket, right. So only the dollars in that next tax bracket are subject to that tax rate. Okay, so that's our basics right. Now what I want to talk about is some investment tax strategies, and basically what it means what are some of these terms? Right? So there are two main things when it comes to investments. And let's use, you're buying some apple stock as our example here, right? So there's two different things you're taxed on. When you buy stock, and you hold it and you sell it. Right? This is this is what we want to talk about. So let's say you buy Apple stock for $10. And at the end of the year, it's worth $12. Are you subject to tax? No, right? You're not subject to any tax, when you bind, you hold an investment, there's no tax on that. Now, let's say you sell that Apple stock for $12. Right? So you bought it for 10, you sell it for 12, you made $2. That's the tax, that is what you're subject to tax on. And that's called a capital gain. So when you buy something and you sell it, you're subject to tax when you sell it, and you're subject to the profit that you make. And now what tax rate you're subject to is dependent upon how long you held that asset. And so those are the first two things you see on the screen, right, short term gains, long term capital gains, short term capital gains means you only held the investment for less than a year. So you buy something in January you sell it and that June, right, you're going to be subject to short term capital gains on the profit that you made. And that's taxed at a higher tax rate is taxed at your ordinary income tax rate. But if you held that investment for more than a year, it's taxed at a thing called Long Term Capital Gain rates. And that is more favorable, they're generally lower than your ordinary income tax rate. And those rates are dependent again, on how much you make, but they're generally either 0% 15% or 20%. So the goal is to always, if you can hold your investment for at least a year, so you are then subject to capital gains tax or long term capital gain tax rates intended instead of short term. Now with that Apple stock, there's something else that could happen, you could earn dividends. So let's say that Apple decides to issue dividends this year. And what that means if a company decides to say per share, every share that a stockholder owns, they're getting $1 per share. And then you're given that every quarter or every year, whatever, when you receive that money, that's subject to tax, and again, dependent on what type of dividend is, is how you're taxed on it. Most dividends are ordinary dividends, and they're taxed at your ordinary tax rate. There are some dividends based off with the qualifications of a company that could be at the favorable long term capital gain rates. But the important thing to remember here is that you're taxed based on when you actually receive the money. So if you buy and hold a stock, it's just sitting out there and your Robinhood account and your vanguard account, you haven't actually received the money in no time, you're not subject to tax, but when you actually sell it, and then you get the money, or you actually receive the dividend, that is when you're subject to tax. And this slide here is just an overview of that again, right, there's two different types of dividends, which we just talked about an interest. So if you put money into an interest bearing money market account or a savings account, when you receive that interest, you're actually getting that cash in, that's when that's taxed. And similarly, with the investments, right with the capital gains, you're not subject to the capital gain tax until you actually sell that investment. So even if you bought an investment, and it just dominates, which we're hoping for this year, right? Like the market just goes beautifully up. And we're super excited about it. At the end of the year, your investment in XYZ stock or XYZ mutual fund has just done amazing, but you haven't sold it, you are not subject to any tax.

  So in regards to investments, basically what we've been talking about here is mace basically a brokerage account, right, that last line on this slide, that's your traditional investment account, you open it up with fidelity with Vanguard with wherever and you're buying and selling stocks, mutual funds, ETFs, etc. Right? What we talked about there is the how those accounts are taxed. When you put the money in, right, you don't pay tax when you hold it, you're not being paid tax. However, if that investment yield interest or dividends, it's taxed then, and then at the end, when you sell it, it's taxed. Now there's this other world of investments that are invested in the stock market that are more tax advantaged. So the first one, the ultimate one is the HSA. That is a health savings account. And what that is, is as we know, we use it for medical expenses. So each year if you have a high deductible health insurance plan, you can contribute money into an HSA. And the money you put into the HSA tax free as it grows in that account, tax free. And then when you use it for qualified medical expenses, tax free, so it's a really great account to utilize. Because we're all we all have medical expenses at some point. So it's a great way to save for them. Now, we also know about retirement accounts, right? This is the 401k this is an IRA. There's two different types. You can make traditional contributions or you can make Roth contributions. Let's walk through traditional contributions first, when you make a contribution to a traditional 401k or traditional IRA, when you put the money into the account? It's tax free. So what does that mean? Like, what does that actually mean tax free, let's say your salary is $50,000. And you decide to put $5,000 in from your salary to a traditional 401k. Instead of paying tax on $50,000, at the end of the year, you only are paying tax on 45,000. So you're literally getting a deduction, a tax deduction for the money you put into that account. If it's traditional, then that traditional IRA IRA or 401, K grows tax free. And when you withdraw the contributions in retirement, you pay tax on it, then at your tax rate in retirement. So that's what a traditional, a Roth is the opposite a Roth you put money in, and it's already taxed. So let's use that example. Again, you have a salary of $50,000, and you put $5,000 into a Roth IRA, you're still taxed on the 50, the $50,000 salary. So that's why the money that you put in then it's taxed, then, but it still grows tax free. And then in retirement, when when you withdraw the funds, still tax free. So it's just the difference there. So these are all those top options, these are great tax advantage accounts each take account, just take advantage of, obviously, the pro here is their tax advantage. The con is, you can't exactly grab that money very easily, right. There are penalties that come when you are withdrawing from a traditional IRA ahead of time. Now the brokerage account, obviously, you don't get as many tax savings there, but you have those funds, you know, whenever you need them. So let's talk about some approaches when we're looking at the brokerage account, right. And this is not in regards to the 401 K or the HSA. This is in regards to just your standard brokerage account. So obviously, we kind of touched on this, but one great method is the buy and hold, right, because if you buy something this year, and you sell it and you're subject to capital gains, and you only held it for less than a year, you are subject to a higher tax rate. Now you hold that investment just for 366 days, right, just just a little bit over a year, then you're subject to short term capital gain rates, which depending on your income is 0% 15%, or 20%. So lower than your effective tax rate, generally speaking. So that is definitely a perk, you may depending on your income, if you happen to be married, and your total income is under $80,000. And you have capital gains, you actually don't pay any tax and capital gains. So if you hold the investment for more than a year, so you always want to if you're able to pull those investments for at least a year in a day. So you're subject to short term capital gain rates over long term. And then the last strategy that is great to use is called loss, tax loss harvesting. And what this is, let's use that Apple stock example. Again, you buy Apple stock for 10 bucks in a year and a half. Because we want short term capital gain rate or long term capital gain rates, you sell it for the $12, you have a gain of $2 that you are taxed on right, we know that you have to pay tax on those $2. But we don't want to pay tax on $2. And you've got some other stocks or mutual funds that have been at a loss, you're not really digging them anymore, and you want to get rid of them or you need the cash for whatever reason. And let's pick on Tesla for an example. And let's say you buy the Tesla stock at $10. And now it's only $7. And you're like you know what I sold my Apple stock and I have a $2 gain, I'm going to also unload the Tesla stock because who knows what Elon is doing right? So now you have a loss of $3, you get to offset that $2 gain with your loss of $3. And now you have knowing you're not paying any capital gain tax, instead, you actually get a small capital loss and you get to apply against your other income. So these are things that is especially meaningful when you do big sales when you're selling off big amounts and you have big games or you sell a rental property and you have big gains there and you're trying to reduce that this is a great strategy when you know you have big gains. Okay, speaking of real estate, let's talk about real estate and the taxes associated with it and why we always hear about real estate being such a wonderful tax strategy when it comes to investing. So the first question we always get when it comes to investing in real estate is, uh, I gotta put my, the property in an LLC, right like I should do that I should totally opened up an LLC to manage my investment properties. Here's what the LLC does for you. If you decide to to use it. If you put the property in the LLC, meaning you buy the property under the LLC, the loan is under the LLC name the insurance is with the LLC, what you're doing is you're protecting your personal assets. So if someone is on your property and they slip and fall and they sue you they're suing the LLC and your personal assets. You know your personal bank account your personal Home, your personal 401k, those assets are protected. And here's the thing, there is a 00 tax incentive. To put it in an LLC, you deduct the exact same expenses, you would for a rental property if it wasn't an LLC, or just in your personal name. And here's the kicker with the LLC, it is a pain in the ass. To put properties in LLC, it's for a number of reasons. Number one, it's more expensive, because you cannot get a 30 year fixed mortgage. Right? With an LLC, you're now having commercial lending, and it's more expensive, your insurance is more expensive. So there's a lot of red tape to make that happen. So personally, what we've always done is when we buy the investment properties, we then I always do in my personal name and my husband's name. And then we buy a big ol umbrella insurance policy, right? For like a $5 million insurance policy so that if there's a slip and fall and we are sued, right, we have a policy that covers it. Those policies, again, depending on your location are going to be a couple 100 bucks a year. And in a lot of states, that insurance fee is going to be a lot less expensive than your LLC. So it's just a different option. I always like to caveat, I am a CPA and an attorney Always talk to your attorney for legal advice. But from a personal perspective, that's generally a recommendation we make. So what can we write off? What are what are we able to write off on when it comes to rental property? Why are there tax benefits then, of investing in real estate? So the big thing here is this thing called depreciation, what is depreciation? It's basically this free deduction we get to take every single year when you own a rental property. So when you buy this property, we get to take the purchase price of the property divided over a number of years and take a deduction every single year is not actually money you're spending. It's a you know, it's like a free deduction, we're writing off the property because it's being used for a rental or for business, right. So that's huge. Then there's also the obvious rental expenses that we get to write off, right, your utilities, cleaning management fees. But there may also be some other ones that you're not thinking of every time you drive to the property you can deduct that mileage right. That's that's another great deduction. Let's say you're expanding your portfolio and you're looking to buy some condos, some short term rental condos in Florida, to travel to and from Florida is completely a deduction. So these are some additional things that you can even layer into your rental property expenses.

  In these examples, here, we're talking about this rental income being passive income or passive losses. And there are certain certain situations where you can make real estate income or losses active to have them offset personal other active income. But there's some complexities around that. It has to be a short term random, you have to be actively participating real estate professional. So what I always like to say is, there's some really cool, deep strategies that you can get into when it comes to real estate investing and the taxes around it. Be sure to talk to your CPA, in this example that we're going to show here, we're going to be talk we're talking about passive income. But I think this is a really great case study example that we can use to really show like, Wait, how am I really how am I really saving money with real estate taxes? Like how's this working? So let's talk about our Gauss Sydney. She's a go getter. She's got a full time job. And she's like, You know what, I want to buy a rental property for passive income. She buys a rental property for $300,000. So what does this look like for Cindy? Right? So she rents it out for three grand a month. So she gets $36,000 a year in rental income. Awesome, right? But she's got expenses. She pays about $24,000 a year in mortgage taxes and insurance. Plus, she's got another $5,000 A year and other rental expenses, right? The fridge breaks, she's got to replace that she's got to pay some local license fees for it to be a rental. She's got to do an exterminator. Right? So about five grand. So she spends during the year for her rental about $29,000. So net net, Sydney receives $7,000 cash in the bank, right? She actually makes $7,000 a year off of this rental property. Cool stuff, right? So how she taxed? Is she taxed on that $7,000. Now, how this works is she still have to claim the $36,000 in rental income. We know that and we don't get to write off mortgage principal payments, only the interest taxes and insurance. So instead of that being 24,000, that's about 20,000 she still gets a write off those other expenses, the fridge the exterminator at the 5000. But she also gets to deduct this thing called depreciation, which in her case for $300,000. Home, it's about $10,000 a year. So instead of her expenses on her tax returns being 29,000 or 35,000. So she's got income of 36,000 on her tax return expenses of 35. So she's made seven grand in real cash, but she only has to pay taxes on $1,000 So that is the great example of how real estate can really provide cash flow to you. That is not always taxed. Right. So cool example there. Now let's talk about my bread and butter, business, business taxes, how it works, what you should be doing. So when I'm talking to potential business owners, I always talk about the first three things you need to do. And I want to make it really clear this is not just for business owners, right? This is for anyone who is contemplating a side hustle. Anyone who's a freelancer, anyone who's in the gig economy, this is not just for straight business owners, these are the things you should be doing if you have any type of side hustle, thing going on, right? So step number one is you got to look at entity structure. Should you create an LLC, right? This is similar to the conversation I have with gals about the rental property in the LLC, do I need to have an LLC? So first thing, what is a sole proprietorship? It's just you operating your business on your on your name, and that is 100% legal. People always like, Oh, I'm not legal, I'm not doing it right. I'm just, I'm just kind of doing this thing. No, it's totally fine. You don't have you don't have to have an LLC, you are absolutely allowed to be operating your your freelance, your side hustle under your personal name, that's totally fine. Why would you then create an LLC, because it's taxed the same, just like the rental property, it's taxed the same if you operate as a sole proprietor or an LLC, it's completely tax the same. The reason why you want to create the LLC is to protect your personal assets, right. So if you get sued by a client, they can't go after your personal assets. So what I tell people is don't let the scary thought of creating an LLC, to deter you from starting your business or from scaling your business, you can operate as a sole proprietor and then once you get bigger, then create the LLC, right that that's the next step. But don't let this be like red tape for you. The next step that you have to do when you're doing this is separating your business versus your personal income and expenses is so important. So if you had the LLC, you got to create a separate business bank account with your EIN open up separate business card of business credit cards, and have all of your income, all of your expenses for the business flow through these accounts. It's so important. Now if you're gonna say, Well, what about I'm a sole proprietor I don't, I can't open up a business bank account, that's fine, no biggie. Instead, open up a separate personal checking account, a separate personal credit card account. So that and make sure you use those counts solely for your business income and your business expenses, right? This way, everything is separated. So you can see you don't have to remember, because my third tip is boring. It's not a super sexy tax strategy. But it's so important. It's called bookkeeping. And the reason why it's so important is Forbes came out with a study a couple years ago that said that 93% of business owners overpay on their taxes. And the reason being is there's just no documentation, they're not tracking them. So you miss the deductions. Because think about this, if it's this time of year, and you're doing your taxes, and you're going through your bank statements, and you're looking at charges from last March, like, well, that coffee expense without a business expense or not, you know, you're not gonna remember, so you're not going to include it. So it's really important to separate them. And then you now have a separate bank account, a separate credit card. So each month, you're going to mark your calendar, and you're going to do your bookkeeping, it doesn't have to be on QuickBooks, it can be a spreadsheet, and you're going to pull your income in. And that is the actual cash that hit your bank account, not the invoices you sent right to truly when you've been paid, you capture that as your income, then you're going to break out all of your expenses, from the statement write and just mark them down. Are they marketing? Is it office expenses is that travel, and then the important thing is to look at for net income. So you're gonna see what your income is, every month, you're gonna see what your expenses are every month, and then you're gonna see your net income. And so that's super important, because then you can't do any of the next level tax strategies until you know that you can pay quarterly estimated taxes unless you know that you can't elect to file as an S corporation unless you know that. So that's super important. Now, though, we want to make that net profit number from a tax perspective be as low as possible, right? We want to make sure everyone is optimizing and empowered. So they know what deduction they can really take. So you're not missing out on things. So there's tons of tons and tons of tax deductions. The tax code has actually written for us. Most of the tax like 95% of the tax code is actually about deductions and credits, right? It's not about how to charge folks more money, it's about how to save you money. So anything that's a straight business expense, obviously you want to capture that these are some of the other more ones that are a little bit trickier or you know, people may not fully take advantage of that I want to walk everyone through today. So the first one is travel. fairly obvious. If you're going to a conference and networking event somewhere your flight your hotel, the travel is all the deductions you pay for from your business account. But what if it's a mixed trip? What are the business low pleasure So this is where it can get, you can get really aggressive with tax strategy. So let's use an example. Right, so let's say you're going to Nashville, you fly down on a Monday, and you come back on a Friday, we're looking for your business days Monday and Friday don't count because our travel days. So we're looking at Tuesday, Wednesday and Thursday. And as long as you do a business activity for more than 50% of days, you're there. So two out of the three days, it's a business trip. And so you may ask, well, what's the business activity, it's any non work from home activity. So this could be meeting with a potential client for lunch, this could be looking to rent a new office space, this could be doing a brand photoshoot. For content for your product or selling, it could be anything, it doesn't even have to be a full eight hour day, right? It can be an hour during the day, and then that's a business day. And as long as you're doing that for two out of the three days, that's a business trip, and you can write off your flight. And you can write off the hotel based on the number of business days versus personal days. So you can see how you can really maximize your business to the business expenses and being able to write it off. Okay, next big topic, right is meal. And this is pretty timely, because this is just changed again for 2023. So if you go out and you meet with a business contact partner, client mentor, you guys talk about business, you buy their meal and your meal. And it's not like lavish and too extravagant, right? That's a business deduction. And you can write that off and pay for that from your business.

  In the past two years, because of COVID, the IRS allowed us to take 100% deduction for business meals, because we were trying to support restaurants in during the pandemic, now and 2023, it's back to 50%, which is kind of a bummer, but it is what it is. So that's how it goes. Right now, of course, like everything with the IRS, there's a couple exceptions to the rule. So if you're traveling for business, even your meals by yourself or 100 are fully deductible, right? So you don't have to if you go to Nashville for that conference, all of your meals by yourself are also a business expense, you don't have to be beating someone else. The other thing to keep in mind is if you're taking an employee out or feeding an employee, it has to be used for business or productivity purposes. For to be a write off, meaning you bring in pizza for your office and to so your employees can still work or you go out and you have lunch, and that's your you know, annual review with that with that employee. And then lastly, here's a cool one you get to so all these meals I just talked about are 50% write offs, right. But there is still one case where it's 100% of a deduction. And that's if you have like an open house or an office party. So if you have an annual holiday party, for clients and your office or if you have, you know, the company birthday anniversary party picnic in the summer for the entire office, the food for those events are actually 100% of a deduction instead of a 50%. So nice little there. Okay, home office deduction. So, you may or may not have heard from some accountants, I refer to them friendly in a loving way as dinosaurs. They say like, home office deduction, that's a red flag to the IRS absolutely don't take a home. No, are you kidding? Everyone works from home, you should absolutely be taking a home office deduction, as long as it's legit is not a red flag in the slightest. So if you use that space in your home regularly and exclusively for business, you should absolutely be taking the home office deduction. And how it works is if you're using a space in your home, for business to meet with clients to store inventory, you can then take a portion of all of your real estate taxes, your interest for your mortgage or rent your utilities, your cleaning person your maintenance and repairs, you can take a portion of all those expenses and write it off through your business. What's important is the documentation of the square footage of that space. So obviously your standard office might no I know office right now, this is obviously my office, it is part of the square footage of my business use of my home. I also at night fire off a bunch of emails from my kitchen island after my girls go to sleep. I can't use that as that square footage, it has to be exclusive. So whatever space in your home you have to exclusively use it for business and on a regular basis. But if you have that space, even if it's not an office, even if the corner of your living room that you have a desk that you always use, you should absolutely utilize that. And then another one is auto deduction. So if you are driving to see clients or to do business, you should absolutely be taking advantage of the audit deduction. And the only caveat here is that mileage to and from your place of work so mileage to and from your office or to and from your co working space. That does not count as business mileage that come out counts as commuting. But for those of you that work from home, that means that any mileage that you do driving for business is true business mileage. And so what the most important thing here is for you to track your business mileage, because your tax accountant at the end of the year can then calculate if we should take the standard deduction or the actual expense method. There's a bunch of different ways to do that. But they can't do that unless you're tracking your mileage. So if you do a decent amount of driving for your business or for your freelance or for your side gig, right, track your mileage, download the app MileIQ. It like is like magic. It pops up on your phone, every time you're in the car, it knows you're driving, and then you swipe left or right if it's a business or personal drive. And so it's there automatically for you. So because that deduction can happen unless you're tracking your minds. Okay. Lastly, when it comes to businesses, and what you should be doing is this quarterly taxes, right. So who needs to pay quarterly taxes, if you are making money, a library needs to pay quarterly taxes. If you're making money, the business side hustle freelance, you should be paying quarterly taxes. Now people always like oh my gosh, never made a quarterly tax payment ever, ever. Like what happens? No, you're not getting hauled off to IRS jail. But it's important because the IRS requires it. And if you don't do it, what happens is when you file your annual tax returns, they're just going to tack on some interest and penalty, penalties. And I'm all about paying Uncle Sam what he's owed, but not a dime more. And right now, IRS interest rates are 7%. So we want to pay quarterly taxes so that you're not paying them more than you have to be paying them. And the next question I always get is like, well, so how does this work? If I pay quarterly? Do I still have to do a year end tax return? Yes. quarterly payments are just that they're just payments. For folks who get a W two, they IRS is snagging money from everyone's paycheck every two weeks, right? And they're getting paid. But if you're a business owner, you probably don't have a paycheck. And so you're not getting paid every two weeks. So the IRS is like, yeah, we want money. We're not going to make you pay us money every two weeks, but we want it quarterly. So what you're doing with quarterly taxes is literally just saying these are my net profits of my business. This is how much money I think I would owe and I send it off to the IRS. So the and then you still then the annual tax return is still that reconciliation of your year of Did you what's How much did you make? How much do you owe? How much have you paid? And what do I owe? What do I get back. So these quarterly payments are due April 15, June 15, September 15, and January 15th, you need to know what your net profits are of your business wise bookkeeping, so important. And then you calculate your quarterly estimated tax payment off of that work with a tax accountant. But of super, super DIY, high level estimate would be you take 30 or 35% of your net profits. And that's what you're going to send off to the IRS. And you can pay it online, they make it very easy to take your money and Google IRS direct pay, and they will snag it up for you. Most states also have income tax, so you also likely will have to pay a estimated tax payment for income tax as well. Okay, and then lastly, I want to talk about what the actual sexy tax strategy is, or business owners once are at a certain level and that is the S corporation. Right? So S corporations are the next level tax step for more established businesses. What is it? What is it? So it's not a separate entity on S corp election is you're telling the IRS and your state that you want to be taxed as an S corp, which means small corporation. Now does it save you money? So I was drawing on about earlier about that Medicare and Social Security tax act 15%. Right, and how if you're self employed, you're subject to the full 15%. So what the S corporation does, it helps you lower that self employment tax. So you become an employee of your corporation and you're paying natural paycheck like a W two, you actually get a paycheck, it's super cool. And your paycheck is subject to that 15% self employment tax. However, all the earnings outside of your of your paycheck that you can still withdraw from your business is not subject to the 15% self employment tax. So it can be a massive tax savings tool for you. But when does it makes sense. You want to make sure like it's a corporation now and you're gonna have separate administrative costs. You are now a corporation. So you have a march 15 separate entity tax return due every single year, you have to be set up on payroll because you need to issue yourself a paycheck. So there's always additional administrative costs. So you want to make sure that your federal tax savings greatly outweigh those costs. Generally speaking, it's when the business is starting to make between 50 and $70,000. Depending on your location, that's when the S Corp. Makes sense. But the S corp comes with a lot of additional compliance. So I always say you got to work with a CPA do not go the S corp route without working with a professional work with someone who can handle the compliance because you need to be paid a reasonable wage via payroll. You should be set up on an accountable plan. So you You can write off your home office so you can write off your auto spend. And there's additional financial reporting things that have to be done, you need to have a balance sheet. So anyway, moral the story is, don't do the S corp alone work with a professional. Okay, so how do you find that professional? How do you find someone who you really have an intimate relationship with, I mean, think about it, when you're handing over all of your like financial things, like that's very intimate. So you want to make sure you find someone that you trust, and you respect and that can really take care of you. My one piece of advice is, find the person who specializes in you, right? So a new way accounting, we only work with business owners. It's all we do. Because so we know business deductions, like the back of our hand it is our specialty is all we do, we do not work with individuals only business owners like that's our jam. So if you only own rental properties, you want to make sure you work with a CPA, who's a real estate professional. If you are Nomad and you travel all you want to make sure you work with someone who is aware of the Foreign Tax exclusions, you just want them. So that will be the first thing is make sure you find someone who's not just a generalist that knows your situation. And you obviously want to make sure that they're responding to your emails or your calls timely. You want to make sure you understand their fees upfront. And you personally, I think it's such a personal intimate relationship, you just want to make sure that you're comfortable with asking them questions, and you're actually getting a response and you're feeling good about the response you're getting. So that's my, that's my take away for free.

  So I have some resources, I'd love to share. These are all business driven. Like I said, we work with business owners. So if you do have a side hustle or you own a business, feel free to check out our new way accounting LOGG. It's chock full of resources about how to just maximize your taxes, how to pay quarterly taxes, all of the things. If you're thinking like Well, I think I should do the S corp election. We've got this snazzy S corp tax savings calculator, it also includes an S corp 101. So you can plug in your information, you can see like, hey, how much money can I save on taxes by being an S corp. And then we also have an accounting checklists for entrepreneurs. So it says like, hey, as a business owner, what do I need to be doing weekly, monthly, quarterly annually. So these are great resources. There's even more than this on our website. So check it out. And then I'd love to hear from you. If you have questions from this, feel free to shoot me an email at can set new way accounting.com Check out our website at New accounting.com. And if you just like want to see my face all the time, follow us on Instagram we are we try to post daily tips and tricks. The team's got me doing well, crazy rules and all types of things. But we try to be super educational and serving serving our community. We are currently no longer taking on tax only clients for 2020 to work. But we are always bringing on new clients for our monthly services for our bookkeeping and tax strategy. And then if you came on monthly, we'd also do your 2022 taxes. So feel free to reach out. I'd love to, I'd love to hear from you. Candace,

  thank you so much. That was so enlightening. I the I was living in the chat. And there are so many good questions that we're going to try and get to. I even had a few questions. I know that. Well, first of all, you all definitely go and follow new way accounting because they're like the fact Torah for taxes, right? They are very education forward very helpful add a lot of value. So no reason not to be learning because taxes are so important. You just heard why for the last 40 minutes. But one of the first things I want to ask you before we get into the questions, because we see so many women inside the factory or community asking for CPA recommendations. So obviously, it's important to find someone who is either like you specializes in business, if they are looking for that kind of help, and they have a business, or maybe someone who specializes in real estate and knows all those depreciation tips and tricks if they have real estate. But what about state specific because a lot of people ask in our different channels, hey, I'm looking for someone in New York or hey, I'm looking for someone in San Francisco. How important is that in the CPA world? It really depends

  on the CPA. So we work with clients across the entire country. And that's just a part of our education with our team. We need to know every state and how it works. And we've taken that on as education for our team and so our team is comfortable with that. There are definitely other accounts out there that are like new why no New York tax and that's it and that's fine, and that's totally okay. So you may hear people saying like, Oh, no, you need to find someone local in your area and like that. Some CPA that's true because they don't they don't educate themselves on other states and that's their property. That's no problem. But there are a lot a lot of my colleagues now are working with clients of Across the country, and we know the tax rules in each state, because, you know, with the with our education resources and online world, it's really easy to stay educated in each state nowadays, if you want.

  So it's not like lawyers who get barred in a certain state or real estate agents who can only actually sell houses in a certain state.

  That's such a good question. Now my CPA license allows me to work in every single state when we have a lot of preparers that are CPAs, or EAS, which is an enrolled agent with the IRS. And that allows our team to work with folks in every single state.

  Okay, awesome. Well, I think Liz is going to come on and hand us some questions, we'll kind of go through the way you went through the presentation and answer some stock market related stuff, then real estate and business. But just for a first general question, is there like, a common mistake you see everyone make on their taxes? That it's just them and we should all pay attention?

  Oh, well, I think it's just what I see the most. And again, it's from a business lens is just people being scared to take deductions that are like, legit deductions. I think that's the biggest thing is like, Oh, I don't like the home office working. Like, I don't really know, like, how it works. And I, you know, I heard some person tell me, it's like red flags, I'm just not gonna do it. No, don't,

  don't do that.

  I'm not saying for you to lie on your taxes, but make sure you take the deduction that you're entitled to.

  And that's what it sounds like, it's really important to work with the CPA, because if you're just trying to figure out how to do a home office deduction on TurboTax, it's probably not going to be very clear, or I don't know if you can do it at all. But if you have a CPA who works with businesses, they can answer all your questions to identify whether or not you have a legit space in your home to be able to deduct,

  exactly like, that's when it's most important to be working with someone is we don't make our clients figure out their like home office deduction or auto deduction, we just automatically proactively ask for that information. And then we do it behind the scenes, right? We make sure we have everything, so was legit. And then we do it. You shouldn't have to be figuring out these deductions. That's not your area of genius. That's not what sparks joy. Right?

  Correct. Like measuring my office, but I do love living and working inside of it. Okay, what am I got? Liz, hit us with some good questions.

  So start with some stock market ones, if we sell an investment, is it taxed as it comes out? For example, here if we sold something on E trade, or will we owe additional taxes at tax time?

  Great question. So you owe additional taxes at tax time e trade. And the other platforms are not nearly savvy enough to be then also withholding some of that money and sending it to the IRS. So E trade fidelity, those platforms are not like your paycheck, where money is withheld and sent to the IRS, they just think you are on it. So if you again, for let's use our apple stock, if you buy that Apple stock for 10 bucks, and you sell it for 12 bucks, they are not withholding any money from that $2 You're getting all that $2 in and then you're gonna be reporting that during tax time, and then you're gonna be paying

  great. If we if you make a loss on selling stocks, does it matter if it's short term or long term loss? Does it make any difference?

  No, that's a great question, it does not make any difference, you can still write off any of those losses against other capital gains. Now, if overall, you have more losses than you have gain, those losses are capped at $3,000 a year. So even if like unfortunately, some of my bitcoin and other crypto traders from 2022 are experiencing I just saw yesterday like $37,000 in losses that they actually sold, we can actually take that for $37,000 in loss, we can only take three.

  Great if we reinvest our dividends, are we still taxed on them the year we received them?

  Awesome question. Yes, you are, because you got that money. So even though you're reinvesting it, you got it, you actually had it physically received it, so you're taxed on it. And that's still

  true if you're reinvesting dividends inside of a tax advantaged account.

  No, not true tax advantage account. As that money grows either via the investment growing the interest growing the dividend, you're receiving interest receiving dividend No, not taxed. Good. Okay.

  So just want to make that distinction. For listeners. This is why it's really important to have tax advantaged accounts and taxable accounts because they offer you different things. But when you have investments inside of a tax advantaged account and you're reinvesting those dividends, you're not getting taxed on them then whereas you are with your taxable brokerage account naturais

  so someone's asking about RSUs. So this is usually a form of compensation for employees. So with the restricted stock unit, is there anything to consider how much to withhold and taxes on those?

  Yes. So this is a significant thing that can have massive impacts on folks without even realizing it. So, and it's also a very personalized thing. So let me try to break it down to the audience. Right, if you receive stock options, you have the option to buy come to buy stock to buy into the company you're working for, that's what a stock option is, you're not actually given the stock in the company, but you're given the opportunity to buy into the company at a low price. When you receive the option to buy in, there's no taxable event, when you then buy in. And there's the company, you know, sells for XYZ, that difference is subject to tax. And it's dependent upon a lot of things, how long you had the stock, what's your, what's your tax bracket is personally. So if again, this is like another one where it's super specialized. If you receive stock options, receive equity in a company, you absolutely want to talk to a CPA to make sure that you're set up for success. So there's not a big scary surprise tax bill at the end of the year, because most companies will only withhold like a flat 10% Because they don't know your tax situation. So they have no idea. So it's likely that they'll withhold something when those big liquidation events happen, but probably not enough.

  I just want to pop in here to remind you all that it's not the company's job or duty to know your personal tax situation. That's why it's our responsibility to understand this stuff. Because, for instance, if you are making a certain salary at your job, yes, they know that, but they don't understand your household income. Do you have a partner where you guys do your taxes together? Do you have dependents? Like there's so much outside of that one number that they contribute to your household finances that they can't possibly account for? Yep.

  Okay, let's move on to some real estate questions. Can you still write off utilities? If you charge your tenants for utilities?

  Yes. So it's all at the pass through. So if you charge your tenants utilities, and so they're paying you, you're gonna capture that as rental income, and then you write it off again. So at the end of the day, it's not an actual, like net deduction for you, but you still claim it as income, then you write it off as an expense.

  Great. So the more specific scenario from Sarah, can you address depreciation and taxable income for a rental property that was converted from a primary residence? I bought a house in 2018 lived in it until September 2022. Can I claim depreciation from the initial purchase, or just from when the property became a rental?

  So what happens is we can start to write off all things rental property, once it's available to rent doesn't even have to be rented. It has to be available to rent, meaning that you have it on Airbnb, you have it on Craigslist, whatever, right? And then at that time, whenever that moment happens, that's when we can start to deduct rental expenses and start to depreciate it. And the amount that we get to depreciate it is still based on that cost that you bought it back in 2018. But we're just gonna start doing the depreciation once available for rent.

  Let's move into some business loans because we're almost at time here. Can you deduct for buying a vehicle if you're self employed?

  Absolutely. If you use that vehicle for business short can great.

  My CPA recommended the S corp route, but isn't helping with the compliance at all. It's on me to do the filing and figure out compliance isn't normal for CPAs to help with that.

  So I think it really varies by the CPA, I know some CPAs do all of the legal paperwork in house, other CPAs are like, no, it's on you. Just for transparency, we work. We work with a league group that does it so we partner with them. So we're holding our clients hand while it's getting done, even though we're not the ones doing it. So that's our personal approach. I think I would recommend find someone who will be more hand holding for you. But that's just my personal opinion.

  All right. Last question. Can an S corp election apply retro actively? For example, I haven't yet filed taxes for 2022 but also haven't elected to be taxed like an S

  corp. So yes, you can do it for up to three years prior. However, you need to have paid yourself I have a reasonable wage via payroll for that time period. So that's the more tricky part. So at this point in the game, I, we don't typically do it in February for the prior year, we're not doing as corporate elections because we would have also have to You didn't pay yourself via payroll. But you can we do it up until like the fall. If you're having a great year, and you're like, the Escort makes sense, we'll do a retro action election for the beginning of the year, and then get you set up on payroll for just like the last quarter of the year. Because the key is, you need to pay yourself a full year's worth of reasonable wage if you do the S corp election as of the first of the year. So that's the tricky part.

  I'm going to interject with one more question, because I thought it was good. So we were talking about the accountable plan and figuring that out. And I made a comment about TurboTax. And someone said, Well, they do ask you those questions on TurboTax, which is great.

  Yeah. So the follow up was,

  you say we should talk to a professional about our tax situations, but doesn't TurboTax asked you all of these questions. We just talked about something quite specific. Would they ask? You know, this last question we just talked to about helping you figure out whether you should be an S corp? Or how to determine reasonable wage or like, Where does TurboTax end and you need?

  Yeah, I think TurboTax is awesome. For someone that has a W two, they don't have rental properties, and they don't have a business. If you have a small side hustle, and you've done a decent job tracking your business and income I think TurboTax is great, because your apps are like TurboTax will ask you like your home office square footage and everything else. But I have seen so many wrong Turbo Tax returns from like depreciation, like someone buying a car, and they're plugging in the you know, answers to the questions, but there's just one place that goes wrong, and then the entire return is wrong, and the depreciation is in the wrong place. And it just like a lot of red flags. And TurboTax is not going to advise you at all in regards to an S corp or a partnership, etc. They're not going to set you up on an accountable plan, they're not going to TurboTax and even do most like local tax filings that our people don't even realize are required. So I think TurboTax is an awesome resource for a standard w two employee. But I think once you have a growing business, or once you have rental properties, or really anything that you're trying to maximize from a credit perspective, quite frankly, like solar panel credits, right, if you buy an electric vehicle like I would no longer be using TurboTax. I

  love it. Thank you so much, Candace, this was really, really helpful. The chat was buzzing with so much questions about taxes. I love that so many women chose to spend their Thursday with us learning about this stuff, because we want to reduce those amount of taxes we spend and enjoy our wealth for the things we care about. So we really, really appreciate you Liz, am I missing anything to wrap this up? Don't think

  so we will send out the recording and the resources that Candice shared with us to make sure everyone gets them. And thank you all for joining and have a great day. And thank you, Candace. Thank you for having me. It was so great. I

  appreciate being here.

  Loved it. Thanks, everybody. If you enjoyed this episode, come join us in a wealth circle. It's our live online 12 week course and community where we teach you how to create a personalized financial plan alongside hundreds of other women building wealth. It will change your life and your money for good. You can apply at factorial wealth.com forward slash wealth circle. That's factorial wealth.com forward slash wealth circle. See you in the next episode.

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