Subscribe
Share
Share
Embed
Hit 7 figures but losing 5 figures to taxes? Earn a 6-figure income but feel financial chaos? Welcome to the show helping you Simplify Your Numbers.
Most business owners in the $1M–$10M range feel like "passive payers"—surprised by a massive bill every April and wondering why their hard work isn't reflected in their bank account. Host Fabrice Metan, a veteran CFO and tax strategist, cuts through the noise of complex financial data to provide straightforward, actionable insights for the "7-6-5" entrepreneur.
This podcast is the bridge between traditional bookkeeping and high-level advisory. We move you away from a reactive "compliance mindset" and into a proactive strategy where your business becomes your greatest wealth-building tool.
Stop being a passenger in your own financials. It’s time to simplify your numbers, maximize your profit, and hold onto more of what you earn.
Subscribe to join the 7-6-5 community and start your transformation today.
Ep10
===
Welcome to Fabrice Reacts
---
[00:00:00]
Fabrice Metan: All right. Here's another episode of what I like to call Fabrice Reacts. I love to always find out different things on social media you know, that people might [00:01:00] say. I answer clients' questions from time to time. I get texted different videos and asking if this is legal, is that something I can, can't do?
But sometimes my producer also shows up with more content, and so we'll do another one of those and see what we can find
All right[00:02:00]
All right.
Employees vs Owners Taxes
---
Fabrice Metan: So that's a great video and great concept. And I mentioned in another video before where I said that employees pay taxes and then spend, while business owners spend and then pay taxes. And the whole idea about it is that as an employee, you're getting taxed on your gross income coming in, and then you receive the net to go ahead and take care of your, your personal expenses.
And the business owners get the opportunity to reinvest in their business before their net profit is determined, and that is the number that they get you know, they get taxed on.
Phantom Expenses Depreciation
---
Fabrice Metan: Now, here's the issue. One thing that she's not [00:03:00] mentioning in the video is the difference between actual expenses that take cash, right, out of your business versus phantom expenses, right?
So here's the difference, because in the breakdown that she gave for the business owner, she's mentioning things like advertising, right, marketing expenses. I believe she mentioned something about insurance, if I'm not mistaken, and so-- or interest on the business loan. Well, those items are actual items that are taking money out of the business.
So in other words, you're actually spending those dollars and your net take-home income changes. That is different from depreciation, which is a phantom expense, right? Because de- depreciation is something that you get because you already own that asset. You would have already purchased an asset either with debt or your own money, but most of the time with debt.
And essentially, you would get the depreciation expense to reduce your taxable income without money actually leaving the business. Those are the expenses that you want to [00:04:00] be able to focus on.
Reimbursements and Write Offs
---
Fabrice Metan: During your tax planning strategy, the idea is to essentially identify all the expenses that you can either reimburse to yourself, so things that you would normally already pay for.
Like for example, if you're an employee, you can't really write off your home office. You can't really write off your mileage going to work. But as a business owner, you can reimburse yourself for those items, right? And so in other words, money that you're already spending and already benefiting from becomes a business expense.
So you're reimbursing yourself and it reduces your taxable income. At the same time, you can even reimburse yourself for health insurance, right? And depreciation is another expense that you would get without necessarily having to spend the cash. So that's what you want to identify. As long as you're doing that right, yes, as a business owner, you would definitely dramatically reduce your taxable income compared to what an employee is a-able to do
All right[00:05:00]
Okay.
Business Travel Write Off Rules
---
Fabrice Metan: So I would be extremely careful with this one, and here's what I mean. So when, when it comes to business travel, there's two things that are extremely important: intent and [00:06:00] time spent, right? So The purpose of the trip has to be for business first, not leisure. So it depends on how you structure the facts.
The purpose of the trip has to be for business first for that to be a business expense, right? And then the time, at least fifty percent of the time that you spend on that trip is supposed to be related to that business purpose. So the idea that you would simply travel to Hawaii, shoot a podcast video that takes you maybe three hours, and then write off a hundred percent of that trip I can almost guarantee that the IRS will frown upon that and probably remove it as a legit tax write-off.
Proving Intent and Documentation
---
Fabrice Metan: But instead, one of the things that I usually tell my clients is, we have to prove intent before it happens, not after the fact. And so if you're going to take a business trip, I want you to send me a confirmation by email with a [00:07:00] short explanation. "Hey, Fabrice, I'm going to Cabo. We have a conference that we need to visit there, and I have a few clients that I'm gonna meet with.
Here's my flight reservation, here's my hotel, and I plan to be there for five days." That proves intent. I have a paper trail to protect you in case of an audit. Right? Now, as you go there, again, we wanna make sure to document as much as possible. Document the meetings, document the time, everything that you could possibly do to show that you essentially had for first purpose to go there and handle business, and then while you were there, you just so happened to do some fun things for yourself and your family, right?
The problem with the idea of just, you know, having a podcast and then turning that into an entire tax write-off is that it would be very hard to prove that, first of all, it took you as much time on your trip to do that. And then the other side of things is that you, you typically has to show an economic benefit, right?
[00:08:00] So, could it be argued that you didn't have to spend, this much money to receive the benefit the business benefit or the business purpose out of this trip? Is it possible that you could have shot this video or this podcast while at home doing it virtually, as opposed to spending fifty thousand dollars on a, on a, on a trip, right?
So different things like that is what the IRS is probably going to bring up. And so in this day and age, and with the number of audits that we see, I would definitely recommend caution but don't just take that advice and run with it, right? You gotta be extremely careful with how you document it and how you prove purpose, intent, and time spent.
[00:09:00] Okay. So that, that's a great one as well.
Debt Is Not Taxable Income
---
Fabrice Metan: One thing that is a fact is that you don't pay taxes on debt, right? Now, don't take this as financial advice. I'm not telling you to go out there and get more in debt, right? Essentially, what it is, is that you can leverage the debt to grow your business. When debt comes into your business, right, it is not considered taxable income because it's simply a liability, right?
P&L vs Balance Sheet Basics
---
Fabrice Metan: So one thing you have, you, you have to keep in mind as a business owner is that you have two reports that are telling the story of your business. You have a profit and loss, and you have a balance sheet. Your profit and loss focuses on the revenue coming in and the expenses going out, while your balance sheet is showing your assets, liabilities, and equity in your business, right?
When you borrow money, it's a balance sheet item. Cash goes up, liabilities also go up. You have a debt. There's nothing that happens on your profit and loss, which means there's no taxable event [00:10:00] at that point. When you're repaying that debt, cash flow goes down, liability also goes down. So technically, you can't have a tax write-off for something that you didn't get taxed on to begin with.
The m- the only thing that you'll be able to write off is the interest portion of that repayment, right? So you have interest and principal. The principal goes towards the liability to turn that-- to, to reduce that amount, but then your expenses would increase the amount of expenses you have in your business, lowering your taxable income, right?
And so by leveraging debt, you get an opportunity to grow your business and, by the way, create more income and profit, which you will get taxed on. But you don't get taxed on the debt initially when it comes in, and that is what is being explained in this video
[00:11:00] Hmm.
Real Estate Stocks and Business
---
Fabrice Metan: Yes, so I almost 100% agree with this video, right? So the tax treatment between you owning and starting a business compared to what happens with real estate [00:12:00] and stock is extremely different, right? Real estate is where we're buying an asset using mostly debt. We get an asset that then brings us a bunch of depreciation and offsets our income if we have the proper structure, right?
Either a real estate professional or short-term rentals. There's ways around it because you don't wanna be capped by the passive loss limitation. But essentially, real estate allows you to preserve that wealth after you've created it. When the money is there, it creates tax write-offs that you can use to offset the rest of your income.
On the flip side, your stocks, as you're investing in the stock market, the money continues to grow, but does not create a taxable event until you take the money out, right? So as the money continues to grow, you get more wealth, you become wealthier, right? Technically, you have more money on paper because the money is there and the stock continues to grow, but there's no [00:13:00] tax event until you decide to take out the money out of the, out of the stock mar-market.
And at that point, you would have a taxable event on the gain. That is very different from running a business where anything can really happen, and you have a lot more control, right? So you're starting a business, you grow the business, you make your money, but the best way to preserve it would be to move into those different investments, right?
To be able to preserve the wealth that you've built through the business. And so taxed very differently, and that is why most of the seven-figure entrepreneurs that we work with love the idea of going into real estate after they've made so much money into their business.
All right.
Genius or Tax Fraud Wrap Up
---
Fabrice Metan: And so a lot of the times when I get you know, exposed to those videos, what people are essentially asking me is, is this genius or is this tax fraud, right? And so my, my idea is to, you know, really understand why people are, [00:14:00] you know, mentioning that potential advice. And a lot of the times the advice is good, just not enough detail, just not enough background supporting exactly how you're supposed to do it, which is the reason why having a tax strategist working with you is the best way to make sure that you're doing things in a n- tax efficient ma- manner, but also in a legal manner.
And so that is the main reason why having a tax strategist, you know, being involved with you and helping you make those tax efficient decisions is extremely important.
And so if you don't have anyone helping you with that, let's talk. Simplifymynumbers.com, one of our tax strategists can give you a call and discuss your, your personal situation and seeing how we can help And so hopefully this gave you a few nuggets that you can implement in your business, and we'll see you next time in our next episode
[00:15:00]