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Guest: Diane Gardner, founder of Tax Coach 4 You.
Host: Kevin Mako, founder of Product Startup and the leading expert in hardware startup consulting. A hardware entrepreneur since 1999, Kevin has advised more than 1,500 founders and built and scaled MAKO Invent through its acquisition by TriMech in 2024.
Finding Overlooked Small Business Tax Opportunities
Diane Gardner explains common deductions U.S. business owners may overlook and discusses ways family members can legitimately work in a business. The episode encourages founders to plan ahead, keep better records, and bring more informed questions to a qualified tax professional.
Episode transcript
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Filip Valica: Hey, everyone. Welcome to the Product Startup Podcast, a podcast that helps bring your product idea to life by chatting with successful inventors, product designers, and other industry professionals. This podcast is run by Mako
Filip Valica: Design + Invent and hosted by Filip Valica. Our goal here is to get to the bottom of what makes a product successful. From initial idea to putting your product on the shelf, we're taking you step by step to build a functional product and scale your product business. Now onto the show.
Filip Valica: The product startup, episode 40. Van Gardner shows us how we can reduce our taxes.
Filip Valica: Hi everyone and welcome to the Product Startup Podcast where we talk about turning ideas into successful products step by step. I'm Filip Valica and thanks for listening today.
Filip Valica: In the last episode, we talked to Tim Pinell. He developed the refinator, an agricultural machine that converts shallow rocky soil into deep productive soils at an economical cost.
Filip Valica: Make sure to check out episode 39 if you want to hear more about how Tim prototyped tested and now manufactures this heavy machinery. I'd like to now feature a question from a listener. Cornelius wrote in,
Filip Valica: Apple owns a patent involving punching very tiny holes in a material that would otherwise not allow light to pass through. When a backlight LED is on, it allows for a nice, bright indication.
Filip Valica: Otherwise, you can't tell that there are tiny holes in the surface, let alone an LED underneath. I noticed that a startup is using this technology in their product. My question is, how are they not being sued by Apple? Is the company just too small for Apple to care?
Filip Valica: Also, I'm really interested in using the same technique in my product idea. Would this be possible or would I just be asking for trouble?
Filip Valica: Cornelius, thanks again for writing in to the show and for asking your question. And before I answer, I'm just going to tell everybody I am not a patent attorney. I'm just speaking based on my experience as an engineer and based on my patent experience
Filip Valica: with some of the companies that I've worked for. Here's some possibilities about why Apple has not taken action on it. I'd like to see the patent claims, but it's possible that the patent claims. the startup is not infringing on the patent if they're using a different manufacturing method,
Filip Valica: for example, if it's a process-based patent, or they're somehow designing around the claims. Apple has an amazing team of IP lawyers, so I doubt that they left a big enough hole for that.
Filip Valica: A more plausible answer is that the startup isn't aware that they're infringing, and neither is Apple. Many companies I worked for would not do their due diligence to uncover any infringing patents during the design phase.
Filip Valica: The cost of doing all this research was just too high. Instead, they prefer going to market and then, if the product succeeds, they were to work out a deal with the IP owner, assuming that the owner even enforced their IP.
Filip Valica: Another option is that Apple is aware, and they're just waiting for the company to launch. I think it's a lot harder to claim damages without lost sales. So this way, I think they can force them into a licensing deal or buy them out if they are in the same space.
Filip Valica: Or, of course, they could force an injection, whatever is more beneficial for Apple. Perhaps they're just waiting to see how successful the product is so they can come out with their own better version. If it was me, I probably wouldn't follow this path.
Filip Valica: You can certainly risk it, but if you have any sales of your product, you could be forced to stop selling and rework the product at an expense to you, not to mention all the litigation costs.
Filip Valica: I'd rather design around this patent using a tinted plastic or glass or maybe another mesh material that exists in the wild, like a speaker grill fabric or another type of mesh.
Filip Valica: What I found interesting from Cornelius' question is that HTC, the phone manufacturer, has some phone cases with holes in them to give the front of the case a pixelated LED look when there's status and clock updates on some phones.
Filip Valica: These, of course, are much larger holes spaced further apart, but it would be interesting to see the specifications of Apple's patent, particularly around the hole spacing and hole size.
Diane Gardner: So thanks again for that question, Cornelius, and let's get started. with the show.
Diane Gardner: Hi, Diane. Thanks for coming on the show today.
Filip Valica: Thanks so much for having me on your program. I'm excited about sharing some great
Diane Gardner: information with your listeners. Yeah, I'm sure everybody else is really excited to talk
Filip Valica: about taxes, right? It's a… Come on, it's an exciting topic.
Filip Valica: Well, here's what's exciting about it, right, is if you do your taxes, right, you could definitely save some money. One of the reasons that you're on the show is because I used to submit my taxes using
Filip Valica: turbo tax. And at the very end, they would tell you how much you paid in taxes compared to
Diane Gardner: everybody else. And it was always demoralizing because I seem to pay more than everybody around me
Filip Valica: my same income bracket. We always say you need to pay your fair share if tax, but nobody says you have to leave them a big tip. A lot of the people that are listening now are either small
Filip Valica: business owners or they're looking to get to that point. They may already be receiving some revenue from some things and definitely have some expenses, what are some of the things that they should
Diane Gardner: be thinking of right now before they get too big? Like, what are some of the major problems that people hit before they even get to a point where they can hire an accountant? Probably the most common things that I see people missing all the time on their tax
Diane Gardner: returns is something as simple as tracking their miles, their business miles. I get the deer in the headlights look all the time when somebody, when I, when I asked them, how many business miles did you drive last year? And they go, what?
Diane Gardner: I have to keep track of that. Isn't there just some number I can pull based on my sales? It's like, no.
Diane Gardner: So the IRS says we need to keep a written mileage log. And then there are multiple ways that you can actually calculate the deduction, whether you're using the standard mileage rate or you're using the actual expense method or whatever it might be.
Filip Valica: But you do have to have a written mileage log. And that is just really key to what could potentially be a pretty large deduction depending on the kind of business that people are in. Absolutely, if you travel around a lot, like if you're a freelancer or a consultant.
Diane Gardner: And I think there's even apps on both marketplaces, certainly for Android, where you just hit a button, and then you hit a button when you finish the trip, and it just logs it for you. Yes, yeah. And I love it when the clients do that.
Diane Gardner: And then a lot of them will actually email it to me periodically.
Filip Valica: And so come tax time, I've already got their miles. And it's a nice little precaution against losing it somehow that, you know, they've been sending it into me throughout the year. Well, I imagine if you were to get audited and knock on wood,
Filip Valica: I hope nobody's going to get audited. But if you do get audited, I imagine having some sort of
Diane Gardner: a log like that is probably worth a lot more than what looks like a book that was quickly put together last minute. We would never do that now, would we? No.
Diane Gardner: I'm just throwing that out there.
Diane Gardner: I've had clients that have had to sit down and recreate those mileage logs and it is a very unpleasant task, to put it mildly, because usually by that time, it's two or three years
Diane Gardner: down the road, and you're having to go back and look at your invoices, your receipts of items
Filip Valica: that you paid money for, and look and see where did I go on each and every day and try to reconstruct it, and it's a nightmare to have to do it after the fact.
Diane Gardner: Well, and while you're talking about going back a couple of years, so in the U.S., how far back can the IRS go if they needed to audit you? Well, generally there's three open years. So you have the current year and the two previous.
Diane Gardner: But if during the course of an audit, they found that you really, really messed up somehow, they can go back an additional four years. So we tell our clients to
Diane Gardner: save the last seven years worth of their tax returns. And then if they have big, big momentous things like buying a home, selling a home, buying a business,
Diane Gardner: Those kind of biggies in life don't ever throw those returns away.
Filip Valica: Hang on to them because sometimes they affect tax returns way into the future as things get carried forward for several years.
Diane Gardner: Yeah, I can't imagine throwing all that stuff away because usually it comes with a bunch of small print that I didn't read at 100% and so I always keep it around in my back file cabinet somewhere.
Diane Gardner: We've got a lot of people with some huge net operating losses from back during the recession years that, early 2008, 9, 10, when businesses were losing so much money and going out of business,
Diane Gardner: and some of those people are still carrying those losses forward. It will be for quite a while.
Filip Valica: So in that case, you want to make sure you've got all that documentation going back to the year when that loss first happened. And then, you know, if it's questioned, you can trace it forward as to how much has been used each year. Now, that makes good sense.
Diane Gardner: And while you're talking about record keeping, I think, at least in my opinion, one of the the biggest infractions for small business owners is not tracking their income and expenses properly. Would you say that's true? Most definitely, yes, yes.
Diane Gardner: And people who don't track their income and expenses correctly almost always overpay their taxes just because they don't have a good record keeping system. Right.
Diane Gardner: And so different times over the years when we've picked up somebody and done a year's worth of bookkeeping,
Filip Valica: we almost always go back and amend the tax return that went with that year and get them back a few thousand dollars. And that seems to just happen over and over and over and over again.
Diane Gardner: So a lack of record keeping is very expensive.
Filip Valica: Well, yeah, and so you brought up two points. One, the CPA will or should pay for themselves, right, in saving use taxes, or at least that's my perspective, right? That's something that I wouldn't cut. Right, yeah. The absolute last cut you make are there.
Filip Valica: Now, you were talking about keeping track of expenses. I use Wave, which is nice because it's free, and I'm a freelancer, and it has some built-in things for invoicing and things like that. Plus, it ties into my credit union, which is a really tiny credit union here in Houston.
Filip Valica: There's certainly other apps out there and programs like QuickBooks and even more complicated things like Zero, which I found to be really intimidating for what I was looking for. Me too.
Diane Gardner: And there's, you know, and then you look online and there's like zero consultants. So, you know, you know when there's consultants for the app that you're trying to use that maybe it shouldn't be the first step.
Diane Gardner: What would you recommend as one step above using a shoebox for keeping track of receipts? Well, if they're a really small business, there are some free or almost three versions of the QuickBooks program,
Diane Gardner: but they're very limited in what they'll let you do. So they give you a chance to kind of get in and get started with it. otherwise a simple Excel sheet works really well. I've got lots of my clients that we just email out as a little standard Excel sheet to them.
Diane Gardner: And they're tracking as they go throughout the year. They've got basically the date, the description of who the vendor was, the dollar amount they spent, and then we break it off into categories, whether it was advertising or insurance
Filip Valica: or their telephone or their rent or whatever it might be. And just total that at the bottom. And that works really well too for a basically somewhat free, you know, because most of us have that on our computers.
Filip Valica: Just a way to quickly pull together some records. You know what? That's so
Diane Gardner: painful though. I mean, I understand that it's free, but there's no way that I'm going to sit there and key and all that stuff. So I'm a huge fan of automating. So if there's a way that you can use an
Filip Valica: app that connects to your existing accounts, I'm a fan of using that because that just brings you
Diane Gardner: one step closer to having somewhat of an accurate picture. Right. Some apps are nicer to work with for accountants than others. We've seen some over the years. It's like, oh my gosh, they're really great on the input side and they're really bad on the output side.
Diane Gardner: So what would you say are a couple of the ones that are just terrible to work with her accountants? And I was just going to tell you and I just kind of, is it waived? My memory. No, I haven't done much with Wave.
Diane Gardner: I have only had one person on Wave and she had such a mess that we kind of just trashed it and put it all on QuickBooks for her.
Filip Valica: But that was because of her doing, not because I don't think the program was bad or anything. Oh, I can't even think of the name of the program, but it's so cumbersome to get in and out.
Diane Gardner: I've only have one person using it and I cringe when they come. in every year. Because it's so cumbersome to get the numbers back out of it. That's okay. I put you on the spot. Bottom line is use something that's easy for you,
Filip Valica: use something that you're going to stay on top of. I think you should be putting stuff in at least monthly, right, and categorizing stuff monthly. Yes, at least. And then make sure it's got
Diane Gardner: a nice output feature for your account and your tax preparer so they can get the data out without spending hours trying to get it out and get it sorted and stuff. Yeah, I guess the QuickBooks is one of
Filip Valica: the main formats of exporting data and maybe CSV. Is there anything else we should look out for? That's probably the main one. And that's, you know, so many of the accountants out there have
Diane Gardner: had to become QuickBooks users just because they dominate the marketplace in so many areas. So now that we started tracking our expenses and hopefully it's going to help us add up all the
Diane Gardner: deductions that we're going to take at the end of the year, what are some of the other things that people should look out for as they're going through their day to day and their business? Well, another area that I see people miss all the time is the meals and entertainment area.
Diane Gardner: So often they don't realize what's a deductible meal versus what isn't a deductible meal. And a deductible meal is a meal where you're meeting somebody else. You do not have to pay for their meal. You can each pay for your own meal.
Diane Gardner: But you have to be meeting for the purpose of furthering your business, whether you're getting a sale out of it, whether you're just making building a relationship, you're building a team, something business related.
Diane Gardner: And so I have clients all the time who take their spouse out to dinner, or they just go out to dinner on a regular basis, and they might talk about business for a little bit, and they think that makes it a deductible meal.
Diane Gardner: And in reality, it doesn't because there's no way that the business is being furthered. There's no way that they're enhancing their business relationship with their spouse, because they're already their spouse. And so we see people taking advantage of that area and getting it disallowed in an audit
Diane Gardner: environment.
Diane Gardner: So making sure that it's a legitimate business meal and that you have information such as the date, the name of the restaurant or wherever that you met, the dollar amount that
Diane Gardner: you spent, the person that you met, and the business reason for that meeting, that you have those five pieces of information on there so that it becomes a deductible meal. And then
Diane Gardner: making sure that if you do entertaining at your own home, that you're picking those up, I see those being missed all the time. People will have maybe a barbecue or something in the summertime
Filip Valica: or a Christmas party or something along those lines and invite their customers or clients in and not realizing that that is deductible even though you didn't go out somewhere. You had them
Filip Valica: come in instead of going out. So there are some special rules that apply, but just basically knowing that those types of things are deductible and keeping track of it. Those are some good tips. And And one of the things that I learned early on was that the downside of being self-employed
Diane Gardner: is that you get that double taxation from the Social Security side, right? You don't have an employer that's paying your Social Security tax. But the upside seems like is that you can have the company pick up some expenses for you.
Diane Gardner: And so I've seen people either come out ahead or at least break even when it comes to being self-employed. What's your perspective on some of that stuff? It all, I think it all has to do with really being familiar with what's deductible and what's not.
Diane Gardner: And I think that's a hard area for people because over the years I've had people ask me, I don't know, hundreds of thousands of times, isn't there one list somewhere that I can go to of everything that's deductible?
Diane Gardner: And the IRS just says expenses that are ordinary and necessary in the running of your business. Well, that doesn't give us a whole ton of guidance. And so in my book, stop overpaying your taxes, I devoted.
Diane Gardner: a whole chapter to all kinds of lists for various industries just based on various information that I was finding as I was doing research to be able to answer questions from my own clients.
Diane Gardner: And so compiled them all into some lists in that particular chapter so that we at least had a place that I could send people and they would look at that and go, I had no idea that was deductible. How come nobody's ever told me that?
Diane Gardner: So, you know, try to just help people in little areas like that so that they're not missing out on deductions, things like hiring your kids to work in your business and taking that as a legitimate business write-off. A lot of people have never even heard that they can do that.
Diane Gardner: IRS says a child needs to be at least seven years old to be able to work in your business
Filip Valica: and that you have to pay them a wage that goes along with their age and their skill level and that type of thing. But what a great way to take money that you give your kids anyhow and be able to ride it off
Filip Valica: through your business, plus teach them a work ethic and teach them a little bit about being self-employed or being an entrepreneur.
Diane Gardner: And so we love using those kind of strategies whenever we can make them work for our clients. You know, it's interesting that you brought that specific example up because I sat in on a workshop here in Houston where there was a CPA, and that was one of the examples that he brought up.
Filip Valica: And he basically said, you can pay your kids, like you said, a wage appropriate to their skill set and have that go against their college fund or whatever it is. or their private school or the camps that kids like to attend throughout the summer or how about
Diane Gardner: contribute some of it to their Roth IRA when they're 10 or 12 years old or 15 or whatever and let it just sit there and grow over the years.
Filip Valica: I mean, there's so much you can do with that particular strategy.
Diane Gardner: That's fascinating to me because I would think that the IRS would look at that and say, you really, you hired your kid and you paid them, whatever it is, five bucks an hour to sweep the floors and they work for you 15 hours a week. That's not true.
Diane Gardner: Well, you need to keep a timesheet, and you want to really put them on payroll and do it right and have a job description so that you are able to substantiate that, yeah, this really happens and they're really doing this work.
Diane Gardner: You'd be paying taxes on them, too, as an employee, I imagine. Well, it depends. If you're in an unincorporated business, meaning your sole proprietor, then you don't pay social security and Medicare on them if they're under 18. Okay.
Diane Gardner: So, yeah, so you get a couple perks that way. But you can also take that and you can flip it the opposite direction.
Diane Gardner: How many of us are helping out older parents who may need a little extra help during their, quote, golden years because they're trying to live on just social security or something like that.
Diane Gardner: I know I have that example in my own life where my mom needs that extra little bit of help. And so she comes into my office and she does shredding for us and filing and just kind of takes out the garbage, you know, just miscellaneous stuff.
Filip Valica: but he gives her an extra maybe $300 a month or something, and that's about all she needs.
Diane Gardner: And as money, I would be giving her anyhow.
Filip Valica: And I'm glad she's not listening to this podcast, but she needs that help.
Diane Gardner: So I would be helping her anyhow with an after-tax deduction, but by having her come in
Filip Valica: and help in my office, I moved it from an after-tax deduction to a pre-tax deduction. And so it helps me and it helps her.
Filip Valica: So if you're a sole proprietor, you don't have to pay me. Medicare, Social Security tax. What if you are in LLC or you've incorporated? Then you have to pay the tax. Yeah, Social Security and Medicare. It only works on the unincorporated businesses. That's even if your children are under 18.
Filip Valica: I believe so.
Diane Gardner: I believe that's a federal law. And then it depends on the various states as to whether you have to pick up state unemployment or not. So while we're on the topic, one of the first things that a entrepreneur or small business owner does is form their business entity.
Diane Gardner: I know when I started, I created an LLC for very, reasons. I enjoyed the pass-through taxation and I appreciate the simplicity of it. And there's only myself that's a part of the business. Can you mention some of the more typical business entity
Diane Gardner: types that someone would go into? You bet. Seems like most people when they start up in business, they're not really thinking entity type too much. They're thinking more about I know how to do
Diane Gardner: X, Y, or Z and I'm going to go in business and do it. And so they do nothing. And because they do nothing, they are automatically a sole proprietor. And a sole proprietor is a entity type where
Diane Gardner: the business income and expenses are reported on your personal income tax return on a Schedule C form, and that net profit that you have from your business is subject to self-employment tax of 15.3
Diane Gardner: percent in addition to your federal and or state income tax. It also does not offer any liability protection. So depending on the type of business that you're in, that may be a good or a really bad
Diane Gardner: entity type to be in. So the next step up the ladder is the LLC or the limited liability company. It's one of my personal favorites. I happen to live in a state that's very LLC friendly.
Diane Gardner: I like an LLC because it's a hybrid entity. It can act like a sole proprietor, a single member LLC. if it's a multi-member LLC, it can act like a general partnership,
Diane Gardner: it can act like an S-corporation, or it can act like a C corporation. So it gives a tax planner like myself a lot of flexibility if somebody has become an LLC.
Diane Gardner: So one of my favorites, and it also offers limited liability protection, which is governed by the laws in your state.
Diane Gardner: it because it can act like all of those in or any of those entity types you have a little bit of planning you can do for tax purposes you have the ability to
Diane Gardner: save self-employment tax by having it act like an s corporation or even a c corporation so you have the ability to move things around a little bit easier than you do
Diane Gardner: with some of the other entity types so then another entity type is we start getting into our corporations and s corporation or a C corporation. The biggest difference between the two corporate entity types is an S corporation.
Diane Gardner: The earnings or the profits from the business flow through to your personal tax return via a form called a K-1. And from there, the income tax is paid at the personal tax return level.
Filip Valica: A C corporation pays its own income tax return, and the shareholder, the owners of it,
Diane Gardner: just have their W-2 income and they don't report it. anything else on their personal tax return.
Diane Gardner: So those are the basic entity types, and they each have their pros and cons. And before you just say, oh, I think I'm going to be a whatever,
Diane Gardner: you might want to do an entity analysis and actually look at the various entity types and see which one would be the best fit for your business today and into the future. Sounds like at least the LLC that's
Diane Gardner: being just taxed as an LLC with pass-through, and then LLC as a C-Corp might be the most popular ones for the smallest entities? Is that what you've found? Well, I have a lot of single-member
Diane Gardner: LLCs that are reporting their income on a Schedule C and they're still paying the self-employment tax.
Diane Gardner: Then I have another whole group of businesses that I've worked with where we've taken that LLC and we've helped them get permission from the IRS to be taxed as an S-Corp. And that with that way,
Filip Valica: then they take a salary or a wage from the S-corporation. And in essence,
Diane Gardner: they're paying the self-employment tax on that wage because of the withholding and the employer matching of the social security of Medicare. But then the net profit of the business is not subject
Diane Gardner: to self-employment tax. And that's where some tax savings can start happening. I have just very few clients that are operating as a C-Corp. That doesn't seem to be as convenient as an entity as some
Filip Valica: of the others are. Yeah, and as you go through that list that you mentioned,
Filip Valica: the further down the list you go, the more paperwork that you have to fill out, is that about right? Yes, yes, yes. But the nice thing is if you're really an LLC acting like one of those other entity types, then you don't
Filip Valica: have to issue shares of stock and have those annual shareholder meetings and things that are required
Diane Gardner: if you are truly an S corp or a C corp. You're still an LLC, you're still governed by the laws of your state, but you can potentially have the tax benefits of being taxed like an S-corp or a
Diane Gardner: C-corp. Yeah, great tips there. And that's something I probably need to look at too. I'm sure once you had a certain revenue level, one will have a little bit better benefit than the other. Have you found a threshold for that? And I don't want to quote you on this. And obviously,
Diane Gardner: everybody needs to go see their favorite CPA. But is there just a broad number where you can throw out there to say, hey, you know what? If you're a sole proprietor or if you've got revenue, under this value, don't stress about the details and just get out there and start your business.
Diane Gardner: Right. Well, usually if I'm working with sole proprietors, if their net profit, more so than
Filip Valica: they're gross, but their net profit is less than about 70,000, it really is not cost effective
Filip Valica: for them to be taxed as one of the corporate entity types. Just because you now have to file a second tax return. You now have to have payroll processing taking care of, which means make
Diane Gardner: a monthly payroll deposits and some of that stuff. And all those little things have a cost to them. So in order to make it cost effective, it seems like about that 70,000 net profit
Diane Gardner: seems to be about where it starts really paying out and then the client starts coming out ahead on the other side. Perfect. Yeah, thanks for sharing that. As you get a little bit larger and you mentioned having your parents or your children as employees in your business,
Diane Gardner: you can also include things like pensions and retirement plans. So you're not just relying on the IRA that you self-fund that you can even create your own little small business for a 1K. Can you talk a little bit about that? You bet.
Diane Gardner: I love it when clients are ready to start having that conversation. And a lot of them are and a lot of them aren't because they're still in super growth mode or whatever. But those that are ready for that conversation,
Diane Gardner: You can do something as simple as setting up a SEP.
Diane Gardner: And with a SEP, you're able to deduct approximately, because it's not exact, 25% of your net income or your net self-employment income. So it's not exactly 25%.
Diane Gardner: There's a calculation that we go through, but that's, I'm trying to keep it easy here. And you're able to contribute that, your business is able to contribute that into a retirement plan in your name, which basically is a supercharged IRA.
Diane Gardner: So it allows you to put in more than the 5,500 or the 6,000 or wherever you're at that you can contribute to an IRA. So we like steps for the smaller businesses that are just getting started and they don't have employees.
Diane Gardner: Now, once you have employees, you pretty much can't afford to contribute 25% of earnings for each of your employees in addition to yourself. It starts becoming too expensive. And so then a lot of times we'll look at a simple plan,
Diane Gardner: which is another kind of a turbocharged IRA. And a simple plan allows you to contribute up to $12,500 for yourself. And then the company can match it at either 2 or 3% each year.
Diane Gardner: So that's another way to start getting some more money put into a retirement account. The next step up the latter is one of the 401K products. Generally, the steps and the simples don't have a bunch of administration.
Filip Valica: administration fees. You start moving into the 401K products and there's some additional administration fees because there's annual reporting and things like that that happen because
Filip Valica: they are truly a qualified plan under the eyes of the IRS. But they allow you to put about $54,000 away, which is a whole lot more money. And for the right business, it can be very
Filip Valica: cost effective. Just depends on the business and where they're at with net profit and their
Diane Gardner: growth and how many employees they have. Because there are some things like a safe Harbor 401K that allows you to put away extra money for yourself over and above what you put away for your staff, you know, some of those kinds of things. But trying to keep this a very simple
Diane Gardner: discussion today. No, no, absolutely. And I'm certainly not in that position where I'm ready to fund retirement through my business yet. But it's something to look forward to. But hopefully
Diane Gardner: in addition to it being a tax write-off, right, because you're able to deduct some of the stuff from business expenses. You bet. So what are some of the other places people can spend money on that will benefit their lives
Diane Gardner: or their community and it will reduce some of their taxes and maybe bring them into a lower bracket? Right. Well, a lot of people are not aware that there is the potential to ride off 100% of all
Diane Gardner: of your out-of-pocket medical costs through your business. And we love this one as we work with clients all across the U.S. and sometimes we get the right fit for the right client and we're able to do some pretty wonderful stuff in that area.
Diane Gardner: The best entity for writing off those medical expenses is, believe it or not, is a sole proprietor. And the way that works is it's called a medical expense reimbursement plan or a Section
Diane Gardner: 125 plan and you need to have a spouse to make it work. So you have to hire your spouse to work in your business and you legitimately hire them. They actually do work in your business.
Diane Gardner: But you can potentially pay them in health care benefits and not even have to put them on payroll. You just reimburse their out-of-pocket health expenses for them, for their dependence,
Diane Gardner: which becomes you and your children as far as your health plan goes. So that can be a very nice write-off for the right type of business who happens, you know, a business person who happens to be married and a sole proprietor.
Filip Valica: Now, it does not work well in the S-corp environment. It works again really well in the C-Corp environment, and you don't even have to have a spouse if you're in a C-Corp because you are the employee of that corporation and
Diane Gardner: you're able to set the planet for just yourself there. And so in the right situation, that could be a really nice write-off because so many of us are losing our medical expense write-offs as that number on your itemized deductions
Diane Gardner: is now you now have to start. subtract 10% of your income from your medical deductions before you can get a deduction of any sort. That number was 7.5% just a couple of years ago. So it's getting harder and harder to deduct
Diane Gardner: those medical expenses. But in the right situation, that's a great tax strategy deduction for somebody. Sweet.
Diane Gardner: As we went through this list, have we missed anything? Typical mistakes that small business owners make whenever they're starting up their business and not keeping track of
Diane Gardner: expenses or not accounting for their taxes properly? I would say the very biggest mistake that I see working with people is they're failing to plan, not even realizing that they can plan their way
Diane Gardner: to a lower tax liability. They get so caught up in the day-to-day, just the inertia of keeping their business rolling, their marketing, they're doing whatever their product or their services.
Diane Gardner: They're trying to deal with customer and client retention. They're being the janitor. They're being the fulfillment center. They're doing it all. And they're not even thinking about the fact that they can plan. They gather up all their receipts and their stuff and they hand it off to their
Diane Gardner: tax preparer at tax time. And here comes the phone call that says, oh, by the way, you owe X amount of money. And they, you know, their chin drops to the floor. And it's like, how did that happen? Oh, yeah, I really had a good year last year.
Filip Valica: they didn't realize that had they done some advanced planning, they could potentially have changed that outcome significantly.
Filip Valica: I'd take just a second and just brag on myself for just a minute. We had set a goal of saving $1 million in tax savings for our clients by December 31st of this last year.
Filip Valica: And so when I sat down and tallied it all up, we actually came to $1,122,000 in tax savings for our clients. That's a pretty impressive number.
Filip Valica: And that's just using these basic strategies that we've been talking about today and doing them over and over and over and over again for people.
Diane Gardner: And reaping that savings, I'm not getting into the advanced tax saving strategies that are out there. Just basic tax saving strategies for people that anybody can use and implement.
Diane Gardner: But doing most of the implementation for them because they are so busy doing it all themselves. Yeah, definitely understood. And as people look for the right tax preparation professional, right tax planner, what should they be looking for?
Diane Gardner: You know, I've used some of these services once very, very early on after I graduated college that you can find in the nearest strip center that our chain, who I will not name by name.
Diane Gardner: But I can tell you that I understood the tax code better than a lot of the other people did, that they were just using a form where they input in a bunch of data. And if the box doesn't ask the question, they won't ask. ask you that question. Right, right.
Diane Gardner: Basically, they're order takers in a way. How can we find people that are capable in finding some of these small business deductions? Well, I always tell people, when you're out there looking for accountants and tax preparers,
Diane Gardner: if you can find somebody who has the letter CTC behind their name, stands for certified tax coach.
Filip Valica: And there's about four or five hundred of us across the U.S. That person has been trained and has invested quite a bit of time and money into this training on how to spot these mistakes and missed opportunities, how to dig a little deeper,
Filip Valica: how to ask the right questions, how to make sure that you're paying the least amount of tax you can legally pay.
Diane Gardner: And I know I always love to offer a copy of my book for free. We just ask people to pay the shipping and handling on it. And it's entitled The Ten Most Expensive Tax Mistakes. cost you thousands.
Diane Gardner: And that's where some of these topics have been that we've been talking about today is coming straight out of this short little book, nice and easy read, to get people started along the road of realizing they can make a difference in their own tax liability or
Diane Gardner: they can hook themselves up with somebody who's a tax planner who will spend some time taking a look at those tax returns for them and giving them some guidance along the way. Excellent advice. And we'll have a link to that book in the show notes in case.
Filip Valica: you aren't able to get to your pen and paper right now.
Diane Gardner: But I wanted to ask you, as you're looking for some of these professionals, is there a
Diane Gardner: reasonable range of rates? And I know there's going to be a pretty broad range that you should expect to pay for this type of service.
Filip Valica: I don't know that there is a reasonable range of rates because it kind of depends on
Diane Gardner: where the person is located. somebody who has an office in, I'm going to say, you know, a accountant in California is going to charge more than I probably do up in northern Idaho. Sure. So it just kind of depends on where they're located.
Diane Gardner: It depends on what kind of value they bring to the table. Somebody like myself who has credibility and is, you know,
Diane Gardner: has become a little bit of a celebrity out in the tax planning world is worth more than somebody who's just flipped their open sign up and says, I'm here to do taxes. Sure. No, absolutely. There's a lot of things that go into the playing on that.
Diane Gardner: Just do your homework. So it's important then your tax professional is located in the same state as you. Not necessarily. I work nationwide.
Filip Valica: So we have met some of the nicest people via phone or Skype and do tax returns in the majority of the states anymore. So, yeah, not necessarily required that they're right there local.
Diane Gardner: Great. Well, Diane, is there anything else that I forgot? Well, one thing I would like to just add, in addition to giving away the free book, I love to do a free tax
Diane Gardner: analysis. And in my tax analysis, I like to see copies of the last two years income tax returns for personal and or business. If they keep their books on QuickBooks, I'd like to
Diane Gardner: see a QuickBooks backup. And I enjoy reading tax returns and digging into QuickBooks backups and seeing what kind of tax savings I can find for.
Diane Gardner: for people. It's a lot of fun to go back and amend tax returns and get a bunch of money back for people just because they simply didn't realize something could have been deducted or their
Diane Gardner: prior accountant missed a particular deduction. So we, you know, we always are doing these free tax analysis for people and that is one of the ways that we have found some of the most awesome
Filip Valica: entrepreneurs across the U.S. that we now get to work with. Awesome. Great service. I'm definitely going to have to take you up on that. So where can people go to find more information about you and
Filip Valica: get a copy of your book? The best way is to go out to www.com. Taxcoachfor-you.com, and we use the number four in that website address. On there, if they click on the link or click on the tab that says
Filip Valica: books, they can see the 10 most expensive tax mistakes that cost you thousands. There's the generic version. There's a contractor version and a real estate version. Soon we will have a dental
Filip Valica: version and a medical professional version out there. So all of those books we just ask the people pay the shipping and handling on. They might want to take a look at this stop over paying your taxes
Filip Valica: book. Chapter 5 is a chapter that's nothing but lists of deductions, various things that are deductible for different types of industries. There's a chapter in there about how choosing an accountant
Filip Valica: is a lot like dating. So we get into some of the questions that should be asked as you're looking for that accountant and making sure that you find somebody who's a good fit for you and for your business.
Filip Valica: Excellent tips. Thanks again, Diane, for coming on the show. I really appreciate you giving us advice on our taxes this year. If you haven't filed already, which if you're like me, I am putting it off until the last minute so I can make sure to get all those deductions in.
Filip Valica: Thanks so much for having me on the program. It's been a lot of fun. I hope that you were able to get valuable, actionable content from that interview with Diane. Here are my top three takeaways. Number one, keep good records.
Filip Valica: For me, accounting isn't sexy, but we need to keep track of income and especially expenses properly. I don't let things stack up in my email, so I like automating it as much as I can.
Filip Valica: I use WAVE for that because it ties in with my credit union and it imports all the data from my credit cards and PayPal transactions. Plus it's free, without any advertisements, and allows me to invoice clients and accept payments
Filip Valica: pretty easily. I know QuickBooks is also pretty popular.
Filip Valica: As business owners, we don't need to understand all the nuances of tax law, but being able to run a quick profit and loss statement or a cash flow statement helps us make better business decisions. I've seen too many businesses
Filip Valica: fail under their own weight even when they were growing really quickly. Number two, separate the business from personal. We didn't cover this during the interview, but it's essential. If you're running
Filip Valica: your own business like I am, chances are it runs into your personal life. But make sure that you're not mixing your personal and business expenses, especially if you have an LLC.
Filip Valica: As a sole proprietor, you can open up a second business account and second credit card in your personal name before you even get business credit, all for free. I do this in my business and it makes the county easy.
Filip Valica: Most importantly, I don't want to lose out on that liability protection that the LLC offers. It must be crystal clear when I accept payments and pay for expenses as a business. Number three, identify your top deductions.
Filip Valica: If we don't know what we can deduct, it decreases the chance that we will keep up with the records. So keep track of mileage spent for business using a log or even better an app on your phone. If your kids or parents are helping you in your business, make sure you're incorporated
Filip Valica: under the proper business entity type to take advantage of those deductions. Consult a tax planner, as oftentimes they will more than pay for themselves in the money that they save you. I know they have for me. If you'd like to get these takeaways
Filip Valica: in your inbox every week, just go to the product startup.com and scroll to the footer of any page and sign up to the weekly wrap-up. At the end of the week, you'll get my three
Filip Valica: takeaways for each guest, along with interesting articles, free tools, and inspiring innovations that help you with your own product startup. If you'd like to get your elevator pitch or
Filip Valica: question answered on the show, just leave me a voicemail at 681-321-1-1-5. Join me next week as I speak with Jay DeMerit with RockIt Logs. Jay is a former professional soccer player for the U.S. men's national team with a background in product design.
Filip Valica: After retirement, Jay started the Portmanteau Stereo Company designing one-of-a-kind stereos made from vintage suitcases and reclaimed wood from the forests of British Columbia. So tune in next week to hear that episode.
Filip Valica: I hope that you're taking action with your business and I'll see you next week.
Filip Valica: Thanks for tuning into this episode of the Product Startup Podcast, the show that teaches you what it really takes to bring your product to market and turn it into a big success. This podcast series is brought to you by Mako Design + Invent, the first firm in North
Filip Valica: America to provide global caliber end-to-end physical consumer product development to startups, inventors, and small product businesses. If you're looking for product development help on your invention, head over to Mako-design.com.
Filip Valica: That's M-A-K-O-D-D-Dign.com for a free consultation from one of Maca-D-D-D-E-D-O-D-D-E-O-D-E-C-E-E-E-E -E-C-E. Thanks for listening, and see you. See you next time.
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