Unbound is a weekly podcast, created to help you achieve more as a leader. Join Chris DuBois as he shares his growth journey and interviews others on their path to becoming unbound. Delivered weekly on Thursdays.
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On today's episode, learn how you can save 10s of 1000s of dollars by understanding how to properly manage your tax situation. Are you a leader trying to get more from your business and life? Me too. So join me as I document the conversations, stories and advice to help you Chivo matters in your life. Welcome to unbound with me, Chris DuBois. Roger Pearson is the founder of seagull technologies for over the last two decades, he's worked as a master tax advisor and IRS Enrolled Agent watching hundreds of small business owners lose 1000s of dollars needlessly. This led him to making it his mission to provide entrepreneurs and knowledge to build a solid foundation under their business to keep more money in their pockets and give less to the government today, he's going to give us some advice on how we can also do that. Roger, welcome. Not bad.
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Thank you.
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All right. Place we always start on episodes here is with your origin story. So take it away.
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Well, I've been I've been in business one way or another for well, over the last 50 years, I've managed a lot of businesses, I've owned a lot of businesses and found out what I didn't like, I didn't like owning a landscape business. I didn't like owning a custodial business. And, and the 90s were kind of a dreadful year, that was the year all the corporations were downsizing. And I was downsized out of a management position three times. I said, Whoa, I didn't know what to do. And somebody suggested that well, go take this tax course you can lose, give me some to do in the meantime, you know, so I did. And I found I really loved it. In particular, I loved helping other small business because I've been through the trenches of trying to build a small business. So I knew a little bit about it. And here we are 23 years later, and I'm still doing it. So even to upgrade. So it's been it's been quite a journey.
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Awesome. But yeah, maybe obviously found something that you you enjoy. So
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I do I really, really do. I you know, this thing about life, I find that I've come to a point in life, it's not about it's not about how much of riches you you obtain, or how much money you make. It's about how many people you can help along the way. And that's more rewarding.
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Cheers. That is the foundation of this podcast. So we're good answers. So let's talk about so you as an IRS Enrolled Agent, you see a lot of different instances different way people are managing the money within businesses, what are some of the most like common costly tax mistakes you see small business owners make?
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The biggest thing I think I see year after year is small business owners, especially those starting out. And even some that have done it for a while do not realize the importance of properly keeping and managing their paperwork. And it cost a lot of money because of that because they don't give me what I need to do the best job I can do for
3:19
InDesign paperwork of just like everything make their spending, they like things that could be deducting that type of a move exactly. I
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mean, I mean, some you know, especially when they're throwing it, you'd rather go pay cash for something and, and they won't keep the receipt. And you got to keep the receipts. Or I've had him even bring in every throw everything in a box and bring it to a big four, I've had people come to me and say, Well, my checking account is my bookkeeping. And it doesn't quite work quite that way. Because chain count and credit card statements are good backup, but they don't prove that you bought something for your business instead of personal.
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You know, a piece of advice I was given a long time ago. So this may be completely wrong. We should probably say I'm not gonna name you've told me advice in case it is. But the the IRS cares a lot about the income that you're making, and that less so on the things you're trying to deduct. And so you'll get a slap on the wrist for Miss claiming a deduction versus actual, like fines and everything for your income. Is this generally true?
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Yeah, that's certainly true. I mean, they're they're out to collect a taxes on every single penny that you make. And if you don't, if you try to hide some of the money you're making in your business, then they really take that more seriously than if you mistakenly are overstated and deduct
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right. And so they save your receipts and stuff where there's a scenario where if you just don't have the receipt and it's only if they call you out for like checking or verifying that deduction
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right If you're right, if you're audited, they're going to ask you for the receipts and proof of all these deductions that you put down here to reduce your taxable savings
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receipts people. That's easy enough, right? So what are what are some of the steps, entrepreneurs can proactively take early to like, legally minimize some of that tax burden as they're growing their companies?
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I think one of the first things that entrepreneurs need to learn is all the different legal formats that businesses come in, whether sole proprietorships there's two types of corporations, there's five types of partnerships. And, and they need to know each of these because as you grow your business, you may start like with a sole proprietorship, and you may have to, when you start making a lot of money, then you want to phase into like an S corp, if you're planning on someday going public, you want to be a C Corp, and you can go to S corp castle and become a secret. If somebody comes to you and says, Hey, you know, let's go. Work together, I got a great seeking here, you know, let's become partners, well, you need to know how to write partnership agreements, you need to know which type of partner you want to be with this other person, whether it's a general partner that actually does the work, whether it's just an investor, all these things you need to know so that you're ready. when that opportunity comes along. You say, I know, this, is this is one of the most important things you can do. And every one of those decisions you make, from a legal standpoint is going to affect how much tax you pay.
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And so do you often find people are like they're coming to you, right to get help with, with taxes and everything, and then they, you actually have to make the recommendation that they shift how they're classified?
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Well, I do that every year, every year, I have people that their business took off, you know, and I had one new client last year with a personal chef, she's very good. And her businesses went crazy. And, and she was operating as a sole proprietorship. And she was going to owe $6,500 in taxes. Because you know, you owe, she's going to owe 40% of your net profit in taxes. And so because she came to be by March 15, so I was able to back up, re put her into an S corp, save her a lot of money. And actually, she ended up getting a $3,500 refund, instead, by properly structuring her. But if this was the first year, she came to me, and she only made a few $100, would I recommend going to a corporation? Absolutely not. Because you have to balance the cost of the extra forms and the extra paperwork and the extra license that you need to do that. And guess what you're making? So there's a time and place for each of those. That's why you need to know.
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All right, well, yeah, just personal story. I was a sole proprietor for four years, and my tax guy was very good at helping me make sure it wasn't you guys paying what I needed to and the good. And then when income went substantially higher, I still went in with a mindset like I'm good at my tax guy, I'll figure it out. But there was only so much he could do. And so my tax bill at the end of that year was huge. And he made me promise that I would slide away incorporate from there even though he had been nudging me before. So yeah, easy, easy recommendation to save a lot of money is make sure you are classified appropriately. Excellent, bad enough for a couple of vacations had and I lived out of my pocket. So how much of a role should your tax strategy play, I guess when when first structuring and forming that business, right, like you've mentioned, it is important to classify appropriately to make sure you understand these opportunities as they're coming in. But is that one of the leading kind of things people should be thinking about?
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It is, because when it comes to expenses for your business, your tax bill is probably the major expense that you're gonna have, unless you're a large corporation of mine, huge machinery and things. But for the small business person starting out, your taxes are going to be the biggest expense you have on your spreadsheet. And that's why it's so important to to know what tax structures are and how they work. And the percentages, you know, it's just, if you're, if you're a small businessman just starting out, you need to be putting back least minimum 25% of your net profit just to cover taxes. That's the minimum and first time somebody comes in sits down with me that doesn't know this information. They go into shock, especially if they've made a lot of money and I have to tell them, I have to give 40 person that and if you're in a state that as state taxes, unfortunately not. But if you're in one of those states, you can pay up to 50% of your net profit in tax. access to the government. And that's just, that's just amazing.
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It can be so much money. I guess, building off that. So what? What critical errors do you see a lot of like entrepreneurs making, or, or just opportunities that are missing when trying to maximize tax deductions and credits?
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Well, the first of course, is, as we've discussed, you got to keep gotta keep every receipt you have every penny you spent, and you have to categorize it, what type of expense it is. The second thing is that optimizing taxes actually is when you sit down with your tax person. And if you're not sitting down with your tax person, and discussing these things do you find need to find a different tax person, I have so many people that have five inherited because their accountant or whatever, retired. And they, they'd come to me, and they were amazed, because I want to sit down and talk to them. And I want to discuss their business with them because they were used to just dropping him off. And they would be called when they came out. And I and the other thing that amazed so many people was this, I'll have this ready for you next week that and they said, What do you mean? It you know why accounting usually files an extension, and I get it in October. And that's an amazing thing. Also, that that's one thing, it really bugged me. Some sub accounts and CPAs will probably hate me because of it. But it's important, it's important that you sit down with them, they need to learn your business, you know, because every when I when I take on a new client, when I take on a new business client, I basically have to learn their business. I know a lot of construction. Now I know painting companies and landscape companies and all the others because these people have come to me and I've had to learn their business to be able to do a good job for them. And so when you're going out and getting a an accountant or CPA or tax repair, you need to be interviewing, you need to interview them to make sure that they know what they're talking about. And they even care about what you're doing. You really need to do that. And which is another reason you need to know all this information, because how can you interview somebody if you don't know what they're, you're interviewing them for? Now,
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do people in your role usually? Or do you ever see people I guess focus specifically on like a type of corporation, some say like, Hey, I only work with escorts like, curious on that? Well,
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not so much. It's like in the tax office to dive in. I mainly I specialize in small businesses, sole proprietorships partnerships and in corporations, others another person in the office that that specializes in foreign income matters, and knows a lot about that. So each person I think when you get into tax repairs, you will find, yeah, we all have our own little specialties and things that we'd like to do. Because my background was small business than nationally. That's what I gravitated to. The person that handles our international stuff is because they have international investments of their own. So that's what they're familiar with. So and when you're interviewing, that's another thing that you need to ask how much experience you have.
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Right now, are there there any lesser known but still impactful tax incentives that entrepreneurs should be aware of?
13:40
Well, there's there's a lot of business credits in the tax code, a lot of them but practically all of them have to do with large business. I think the things in the tax code that small business people will come across the most is using the depreciation schedules and section 179. Section 179 Isn't couldn't be a good thing for sole proprietorships is a bad thing for partnerships and S corporations, that's actually will lose you money if you use it there. Depreciation is one of those things where if you buy equipment that has a life of more than one year, you're required to depreciate it. However it costs for instance, if you bought a computer system, government wants you to depreciate it over five years, little bit. You ducked a little bit every year, there systems where you can deduct up to Missy 2023 is up to 50% White off the top and depreciate the rest of it if you aren't. So one of the things you can sit down and say okay, well, are you going to make more money? And this is a question I asked you based on your projections are you going to make more money next year than you make this year? And so if they're going to make more money, they got a big contract coming out or something like that. Then you want to say okay, I don't want to delays Some of these expenses I had this year, less money to the next years, why would we make more money and I need, the more. And there are things in the tax code like depreciation schedules where you could actually do that. And that's again, that's one of the things you need to be discussing if you're buying equipment.
15:17
That makes sense, fun. I have a lot more to think about with, with my tax guy. What are some of the red flags that you might find it like an entrepreneurs finances, that we're gonna kind of cue you in that there's a problem coming in the future?
15:35
What are the biggest things that is probably going to cause a problem is I have people come in and they commingle file files, they use their personal checkbook for both their business and their personal, they do not have a business checkbook. And that's again, that's up. If you walk into otter with that, you're, you're you're gonna get some nasty short hair, because they just hate that. That's just, it's just bad business. One of the if you're going to go into business, one of the first things you want to do is opens a totally separate account, separate Debakey accounts, separate credit cards, everything for your business, put up a wall between your personal and your business. Yeah.
16:13
Any so not every bank also has a, like a business kind of side, right? There's a difference between like a personal and a business bank account. Do you have recommendations for like, online banks, which make it easy for for businesses to track everything? That's like,
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and you and you have to wonder, most of the credit unions out there for our sense, they they, they cater to small businesses, where if you get a larger, firm like Capital One or something, you have to be a company that does business in the seven figures before they want to talk to you about this, they will they will do small businesses. So you're going to be probably better off just going to what are the small local banks or credit unions to get started with, I mean, if you go huge, and to where you meet the qualifications in larger banks, that's fine. But most of the time, one of the smaller local banks is going to do better for you. And it's going to give you more personalized support than the large.
17:17
So I feel like we've gotten a couple of days. So you can you can repeat them if you need to. But what what are like the top three pieces of tax or financial advice for entrepreneurs as they start growing, growing their business?
17:32
Well, the first, the first one is educate yourself. educate, educate, educate, and that's one of the things that we're at at work that I do at the tax desk is part of my job and working with tax it with businesses, is to educate them in what they need. A lot of small business people, they're so excited just to get out there and work, you know, they will and build their business every day, they don't want to sit down at night and have to study, you know, that's the last thing they do they want to you know, they want to do that to go they figure they go back to school. But if you're going to run a business, you need to learn how to run a business, if you want to be successful. And so you're going to have to go back to school, you're going to have to educate your audience on the basics that every business needs to know. I think that's the biggest thing. The other thing is learning how to, of course, organize your paperwork, and, and categorize and everything that you need. And the third is knowing tax structures, those three things, you have to know all those three things, if you really want to be successful, and keep as much money in your pocket as possible.
18:42
Do you recommend any places people can go for rec resources just to kind of educate themselves? On this? You
18:49
know, that's a question I have a lot with people when they come in, I'd say oh, 40% of you. Well, that open, nobody ever. They don't teach you this and stuff in school. They don't teach business at school. You know, for many years, I taught tax classes, actually. And I would have business majors call these business majors sit in my class, and they said, We never learned any of this stuff in school. You know, we'd ask our instructors about this type of stuff. And they say, well, we don't teach that here. You have to go ask them else. That blew me away. You know, they they teach them all the stuff to survive in the corporate world and that mindset, but not somebody wants to just get their hands dirty out and start working. So you are and they would ask me, Well, where can I go to learn this? Well, I mean, there's a lot of places you can go to irs.org and read there if you'd like to read IRAs, and most people would get our eyes glaze over if they read the IRS website, although they are trying to make it easier, but there's still a star. And so that's kind of what started me on the mission that I have is that I wanted to find resources that people go out or earn a All of this stuff they needed to do if they're really serious about at building a substantial business. And so I wrote like a nine parser is the foundation series, which I posted for free on my website. And it goes over all the major things that you need to think of when you're doing business from, from taxes, to business formats, to marketing, even. I mentioned all that good stuff. But I felt that something deeper was needed. So I actually sat down and spent six months writing a comprehensive college level course, on the three core things that you need to know, which is all the legal formats, all the organizational skills, and all the tax implications of your decisions. And I put that all together in an online course, which I have available for people, you know, it's like taking a college course it really really so it's like seven hours, the video on on the thing with us all the downloads. So anybody that goes through there is probably going to have a leg up when it comes to really building a successful business. Sir. Roger,
21:06
you've packed a lot of information in this this one episode. So far, I've got three more questions for you. With the first being, what book do you recommend everyone's
21:20
thinking Grow Rich by Napoleon Hill. If you're serious about being in business, read the book. It's been around for long years, but you will find that the principles contained in it are the same principles that every successful business person goes by should ours just, you know, from the the,
21:41
I followed up with getting his actual massive book for the book, but for those listening, the law of success, it's like a 600 page book, where it just deep dives into all of the fewer stories than you'll get reading thinking Grow Rich, I, I would support that one too. But if you ever want to go deeper on it, that this book is second encyclopedia for success. Awesome. The what's next for you professionally?
22:15
Well, professionally, I've Well, I've every tax season, of course, I I've had about five other clients that I work with. But my goal is to you know, and my goal is to reach as many small business people as possible, and to help a small MIT people as possible. Because all of the things I do my courses and everything else all come with personal consulting sessions, because everybody is different. Machspeed everybody's different and and to breed real. You know, everybody has questions. I don't care how much you study. If you read a book, or course whatever, you're going to have questions, and I want to be able to answer those questions. I think that's only fair really to do. That's awesome.
23:00
Finally, where can people find you?
23:04
My main corporate site is Seagull technologies. Seagull spelled like the bird like Jonathan Livingston. and.com Seagull technologies are calm. It has links to everything I do. I have YouTube business courses out there. Also, if somebody wants to take a look at my college level course, if you go to protecting my business.com You'll find it.
23:28
Awesome. Roger, thanks for joining me today. Great. Well,
23:32
I'm glad to be here. Thank you for asking.
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If you enjoyed today's episode, I would love a rating and review on your favorite podcast player. And for more information on how to build effective and efficient teams through your leadership visit leading for effect.com and as always deserve it
Transcribed by https://otter.ai