In this episode of Keep More Money, Kimberly Tara, CPA, CTC addresses the challenges women business owners face with taxes and business finances while sharing her own experiences of balancing a growing business with family life. Kimberly discusses the critical differences between W2 employees and 1099 contractors, highlighting the tax implications and IRS rules associated with each. She emphasizes the importance of proactive tax strategy and proper classification to avoid costly mistakes. The episode aims to empower business owners and freelancers to take control of their financial decisions, minimize tax burdens, and build lasting wealth.
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Connect with Kimberly on Instagram: @kimberlytaracpa
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Episode Transcript
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(00:00):
Welcome to Keep More Money, thepodcast for profitable women
(00:02):
business owners who are tired ofoverpaying in taxes and tired of
chasing down their CPA,deferring to someone else for
every financial decision andgetting hit with surprise tax
bills every April.
If you've ever felt like you'llnever truly get on top of your
business finances.
This show is for you.
I'm Kimberly Tara, CPA,certified tax coach,
multi-business owner and Mamafour Littles.
(00:23):
With over a decade of experienceand more than 15 million saved
for my clients, my mission is toeducate and empower women just
like you to keep more of theirmoney, reduce financial stress,
and create lasting wealth.
Taxes suck, but they don't haveto hold you back.
I'll show you how to make taxstrategy simple, fun and easy to
understand.
You've worked hard for yoursuccess, and now it's time to
(00:44):
keep more of it.
Let's dive in.
Hello.
Hello.
So you might have noticed it'sbeen a few weeks since the last
episode and no, you didn't missanything.
There were no technology issues.
There really has just been.
A bit of a gap.
I wish I could say I was off onsome Grand World tour or doing
(01:07):
something glamorous, buthonestly it's just been life,
real life.
The kind of messy, busy,unpredictable life that happens
when you've got four kids, abusiness and what feels like a
million moving pieces.
have you ever been there tooand.
Right now, I mean literallymoving because we bought a
(01:30):
house, which sounds exciting andit is.
but when you do it for the fifthtime.
It loses its luster and it justbecomes annoying Paperwork.
And if you've ever moved withkids, oh man, you know, it's a
whole different level of chaosbecause let me tell you, kids
come with so much stuff, thetoys, the clothes, shoes, books.
(01:54):
Oh my goodness.
We had three moving boxes fullof books, and we had already
purged from the move fromLouisiana to North Carolina and.
You're trying to box up all theart projects from preschool that
you're just like, why am Isaving all of this stuff?
And none of my kids are quiteold enough to be truly helpful
(02:14):
yet, like my dream of handing achild a tape gun and saying,
Hey, go pack up your room.
Yeah, like that's not happening.
Instead, they're playing withthe Legos that I ask them to
pack up, or they're yelling outto me, mom, I can't find Do
Doll, which is our five yearold's favorite stuffy.
So moving was an event to saythe least.
(02:39):
I'm so grateful my team came outhere and helped and we were able
to really strategize because,unlike my kids who weren't
helpful, my team was superhelpful and we could put things
in boxes while actually talkingat the same time.
so if you've ever been through amove.
Period.
But especially with children,you know that everything else
(03:01):
like comes to a halt because thehouse hunt, the packing, the
paperwork, the unpacking thelender, it becomes a full-time
job.
And so I think this is extratrue if you're a parent trying
to minimize the chaos in yourkids' lives, right?
You're trying to get.
Things, you're trying to waituntil the last minute to pack
them up.
You're trying to get thingsunpacked as quickly as possible
(03:22):
because I didn't want them, Iwanted them to feel a sense of
normalcy.
so on top of running the firm,keeping up with client work,
being a mom, at some point,something's gotta give.
And for me that something wasmarketing and unfortunately.
This podcast, I've always beenupfront with you that I don't
really, I don't schedule out ournewsletters.
(03:44):
I don't schedule out our podcastI want to be providing you with
information and education thatis in real time.
I want to truly connect withyou.
because I don't do that so farin advance, I don't do this
because I'm marketing.
I do this because I trulybelieve in.
The knowledge that I'm sharingwith you, when things like this
happen, sometimes I do have tohit pause and I actually made
(04:07):
the decision to hit pause on thefirm's marketing efforts, a
little while back.
And it's not because I don'tbelieve in showing up or staying
consistent, I do, but.
Sometimes the most strategicmove you can make is to just
stop.
Just pause, right?
And I think as business owners,we're conditioned to believe
(04:27):
that if we're not constantlyvisible, we're falling behind.
if you're not posting, emailing,launching, then you're doing
something wrong.
And I've been in business longenough now to know that that's
just not true.
That sometimes you need to stepback and look at what are the
things that are actually movingthe needle.
And what's just noise, andthat's really what this pause
(04:48):
has been for me, somewhat of areset.
It actually started back at myNantucket retreat, at the end of
September.
You can go listen to all of thatin episode 1 38, but I came back
from that trip with such astrong desire to just do less,
and not in a lazy way, but in areally intentional way.
I think that the story we tellourselves as high achievers.
(05:11):
That it is lazy instead ofstrategic.
so for me, this looks like doingless of the things that drain my
energy.
Less chasing of vanity metrics.
Like, oh, our firm hit a certainnumber in gross revenue this
quarter or this year when what Ireally care about is
profitability, sustainability,and exceptional client service.
(05:33):
because let's be real grossrevenue.
It looks good on paper.
It's flashy.
It's the numbers you see postedonline, but gross revenue
doesn't pay the bills.
It doesn't buy back your time.
It doesn't let you take a realbreak when you need one.
Your profitability does.
And having a firm that sort ofgrows itself because even though
(05:53):
we've been taking a hiatus frommarketing for the last month,
we've signed.
six new clients, right?
and we have more coming in themonth here.
The reality is that growing,quote unquote doesn't always fit
your season of, life.
And my life comes first, not theother way around.
It didn't always used to be thatway, but for now, that is very
much the focus because what isthe point of growing this
(06:16):
business if I'm stressed out andmiserable all the time?
So instead of trying to do.
All the things, the socialmedia, the podcast, the videos,
the newsletters being reactive.
In our tech woes and whatnot, Idecided to focus on what
actually matters most, andthat's serving our current
clients really well.
Sending out our weeklynewsletter because it has
(06:38):
exceptional open reads andresponses, and I hear all the
time how.
Much women love it tightening upour systems, our technology,
connecting one-on-one with newreferrals via email or Instagram
dms because they're reaching outand making sure the business
I've built actually works for meand not the other way around.
(06:59):
And this decision, honestly,feels so good.
I've been calmer, happier, alsoscared, right?
Because as a business owner italways feels weird to step off
the hamster wheel to see otherpeople still putting their foot
down on the gas.
But it really feels good becauseit's in alignment with, me and.
I talk about this with ourclients all the time, right?
(07:21):
That just because something'sworking doesn't mean it's right,
or doesn't mean it's right forright now.
sometimes you outgrow certainstrategies or your priority
shift or life demands a littlemore of you in one season than
another.
And this season, for me, it'sabout simplifying, focusing on
the things that move thebusiness forward, serving our
(07:41):
clients really well.
Being there for my family andletting go of the rest, even if
it's really hard anduncomfortable, I think that's
something a lot of us don't giveourselves enough permission to
do, right?
You probably love the idea ofbalance and boundaries, but then
the minute you're faced with achoice too, actually slow down.
You panic.
You think slowing down meansslipping, but I feel like that
(08:04):
couldn't be further from thetruth.
I think that sometimes slowingdown is the strategy.
And this isn't the first timeI've slowed down to speed up.
I didn't think it'd happenedagain so quickly.
But my personal life has thrownus a few curve balls.
And our firm has been rapidlygrowing and I just simply
refused to let our clientexperience suffer because of
that.
So taking a short pause was bestfor everyone.
(08:26):
And what I've been trying to dosince my retreat in Nantucket is
focus on embracing.
That shift both personally andprofessionally, trying my best
to remember that the goal isn'tto do more, it's to do what
matters And what matters mostright now is again, taking care
of my clients, taking care of myfamily, and taking care of
myself.
(08:46):
So if you've been in a seasonlike that, if you're in a season
like that right now, becausegosh, we're about to go into the
holidays and the end of theyear.
It's a time of feeling extrastretched thin or like you can't
possibly do one more thing.
I want you to know it's okay tohit pause and that by doing that
it doesn't mean you're failing.
It means you're being smart.
And the funny thing is that thisdecision to pause, to be like,
(09:11):
to take a step back, formarketing, actually creates the
mental space.
I need to think about somebigger picture stuff again and.
was getting so in the weeds andso I didn't feel like I was
having that space for, reallylistening and hearing or having
the best and most creative ideasfor our clients.
And that's the stuff that getsme fired up is to help you make
(09:33):
smarter money moves to keep moreof what you earn, to come up
with really amazing podcastepisodes.
And One of the things that, whenI've had a little bit of space,
I'm like, oh my goodness, I hearthe same thing coming up in
conversation with prospectiveclients again and again.
And that is the confusion aroundW twos and 10 90 nines, I swear
(09:55):
those two little forms.
And the type of income theyrepresent to you cause so much
drama and they're different, butthey really do go together.
They're like two sides of thesame coin.
So whether you're someone who'stransitioned from a W2 job to 10
99 income, or you're a businessowner trying to figure out
whether to hire your next teammember as an employee or a
(10:17):
contractor, understanding howthose two worlds work is so
important in both of thoseinstances.
Because here's the thing, theIRS is cracking down hard on
misclassification right now.
what that means is like payingsomeone like a contractor, but
they should really be anemployee.
And then there are major taximplications, not just for your
(10:37):
business, but for youpersonally, depending on how
you're being compensated.
(11:48):
So in this episode, I wannabreak it all down for you.
We're gonna talk about what itreally means to go from being a
W2 earner to a 10 99 earner, howto make that transition
smoothly, and then what you needto be thinking about from a tax
strategy standpoint before thisyear ends.
And then we'll flip it aroundand we'll look at it from the
other side.
(12:08):
And you're the one doing thehiring.
What you need to know about theIRS rules, how to classify
people correctly and what's atstake if you get it wrong.
Because again, these two things.
W twos and 10 90 ninesemployees, independent
contractors, they always gotogether.
You can't really talk about onewithout understanding the other.
To be clear and compliant, youneed to know the differences so
(12:31):
that you're making the rightdecision.
This is also a really good timeto, work with someone who
understands this and this is theworld that they live in, so that
you can have the type of supportthat you need.
And real quick, one more.
'cause I feel like I just kindof started, I was excited to
jump into the content, but Ijust wanna say thank you.
If you've been listening to thepodcast for a while, if you
(12:51):
follow me on Instagram, if youread the newsletters, thank you
for sticking around during quietstretches and understanding.
Why they happen.
I promise I haven't goneanywhere.
It's just been one of thoseseasons where real life took
center stage for a bit, I alsothink that's something worth
normalizing too, right?
That you don't have to be on allthe time to be successful.
You don't have to post every dayor hustle nonstop to build a
(13:15):
great business.
You just have to keep showing upwhen it matters and trust that.
The work you've done, the workthat you are doing still counts
even when you take a breather Ijust wanna make sure that I
share that with you too, and Idon't jump right back into this
like, nothing's happened.
Like, no, here's what'shappened.
And my business is still verysuccessful.
(13:38):
And I just always am so gratefulthat you're here.
Okay, so let's start with.
You the individual side of theequation, because I know a lot
of you listening are in thisexact spot.
You used to have a W2 job.
You've started getting 10 99income.
Maybe it's from consulting,freelancing, brand deals, side
(14:01):
hustle.
Those could be things like, newskin.
They're like so many things.
And I have these women come tome and they're like, oh.
Oh, I, I didn't realize thatthat made me a business owner.
Maybe you have a rental propertyor two, and so you're thinking
to yourself, oh, cool, I'mmaking this money, but I don't
know what it means for taxes.
'cause gosh, I didn't evenrealize that I'm actually a
business owner.
And so here's the deal.
(14:21):
When you're a W2 earner, youremployer does everything for
you.
Taxes are automatically withheldfrom your paycheck.
They're covering half of yourSocial Security and Medicare
taxes.
they might be offering benefitslike health insurance,
retirement.
You get a nice clean W2 form atthe end of the year that
basically says, here's what youearned.
(14:41):
Here's what you withheld.
If that's all you have, you canplug it into TurboTax and you're
done.
But when you move into the 10 99world, all of that disappears.
There's no boss withholding yourtaxes.
No one's matching your socialsecurity, no automatic paycheck
deductions.
You get your money and the IRSexpects you to set aside and pay
(15:04):
all of those taxes yourself.
And this is where a lot ofpeople get caught off guard.
Because when you get that first5,000, 10,000, 20,000 of 10 99
income, it feels amazing.
You're like, I just made 20grand.
This was the best decision everto go out on my own.
But then you've gotta pay yourexpenses.
(15:24):
Tax season rolls around and yourealize, whoops, I never set
anything aside for taxes.
And suddenly you owe thousands.
That you weren't expecting, andthat's kind of that welcome to
being self-employed moment thatno one really warns you about.
Now the good news is that.
That 10 99 income also gives youan opportunity because unlike W2
(15:49):
income where you basically haveno say in how your taxes are
handled, you can't deduct anyexpenses As a 10 99 earner, you
have control.
You can use strategy, you candeduct legitimate business
expenses.
You can decide how to structureyour income to keep more of it,
but only if you actually treatyourself like a business.
So if you're listening right nowand you're thinking, well, I
(16:12):
just have a side gig, or I onlymake a little bit from freelance
work, I want you to hear this.
If you're receiving 10 99income, you are a business
owner, even if you haven't filedfor an LLC yet, even if you're
just doing it under your ownname.
When it comes to taxes, that's abusiness.
so when you start treatingyourself like one, that's when
the magic happens.
(16:32):
let's talk about what thatactually looks like.
So first you really have toseparate your money.
You need to have a dedicatedbusiness bank account, even if
it's just a simple checkingaccount at your local bank.
Try to stop mixing your businessincome and personal spending in
the same amount because not onlydoes it make taxes a nightmare,
but it also keeps you from trulyseeing your numbers.
(16:55):
And then you can start actuallytracking.
Your income and expenses, that'ssecond.
Okay?
And you don't need fancysoftware or a bookkeeper right
away.
A spreadsheet works, but thegoal is to know what's coming in
most importantly, and thenwhat's going out and what's left
over.
third, now that you have thisinformation, you need to start
setting aside money for taxes.
A good rule of thumb is about30% of your 10 99 income and 25%
(17:23):
if.
You are deducting your expensesaccordingly, you could even just
open a savings account labeledtaxes and transfer money into it
every time you get paid.
And that way when quarterlyestimates or tax season rolls
around, you're not panicking.
And one of the things that Iwanna tell you here is that,
I've just helped so manybusiness owners over the year
(17:45):
that, they get in trouble.
when it comes time to file theirtaxes as a sole proprietor on
Schedule C, they were unaware ofself-employment taxes, ordinary
income taxes.
They don't have anything setaside, and then they're halfway
through the next year where theydon't have anything set aside.
And that's one.
Scenario that I see very often.
And then the other scenario thatI see is, I met with someone
(18:07):
yesterday and she has the moneyset aside, but she's not
actually paying in herestimates, like her quarterly
tax estimate payments.
And that's really gonna comeback to hurt her because the,
not only is she gonna get afailure to pay penalty, but
she's also gonna get interestaccrued because she wasn't
paying them throughout the year.
So that's really important toset the money aside and also pay
(18:30):
it in.
And then fourth, this is wherethe strategy comes in, right?
Start looking at whatdeductions.
Could qualify as businessdeductions because when you're a
W2 employee, you're not thinkingabout deductions.
Your employer is paying foreverything, and even if there's
something that you happen to payfor, you don't get to deduct it.
But when you are attending anine Earner, an independent
(18:53):
contractor.
The doors open wide for you,Think about everything you spend
money on that helps you earnincome, your laptop softwares,
you're purchasing a home office,mileage if you drive somewhere,
continuing education ortrainings your phone part of
your internet bill.
Those are all, or can belegitimate business deductions
(19:16):
depending on the type ofbusiness you have, and every
deduction means you're payingtaxes on a smaller amount of
income, and that means thatyou're keeping more money.
Now, where people get in troubleis when they don't plan ahead,
right?
Those scenarios I was talkingabout, they wait until tax time.
Dump all their receipts on theirCPA's desk and they're not
(19:38):
tracking anything and thensuddenly they expect magic.
The tax strategy reallyminimizing your tax bill doesn't
happen in April.
It happens now before the yearends, while there's still time
to implement strategies.
So if you've been operating as a10 99 earner, but you haven't
been thinking like a businessowner, I hope that this is your
wake up call that you need toget proactive about your tax
(20:01):
strategy before December.
Because once the year closes,many of your best options
disappear.
now I wanna flip the scriptbecause many of you listening
already see yourself as abusiness owner.
And now you're maybe thinking,you're either already hiring,
you're bringing people onto yourteam, adding virtual assistants,
(20:21):
you either have them or you'reon the edge of taking that
plunge.
And a question that we hear alot is, should I hire them as a
W2 or a 10 99?
And it sounds like a simpledecision, but it's actually
really often misunderstood andit's a risky area for small
business owners.
So I wanna start with the basicsbecause you, this isn't
(20:43):
something that you just get topick.
A W2 employee is someone whoworks for you under your
control.
You tell them what to do, how todo it, when to do it.
You provide the tools, thetraining, maybe even equipment.
They're integrated into yourbusiness.
They're part of your operations.
You tell them what hours towork.
(21:04):
A 10 99 contractor, on the otherhand, is an independent
business.
They decide how they're going todo the work.
They can take on other clients.
They bring their own tools orsystems.
They're responsible for theirown taxes.
They make their own hours.
The key difference is controland independence.
(21:24):
Now I really get why so manybusiness owners lean towards
hiring contractors.
On paper, it looks easier andcheaper.
You don't have to run payroll,you don't have to pay employment
taxes, your portion, you don'thave to offer benefits.
You can just cut them a checkand send them a 10 99 at year
end.
But here's the reality check.
If that person is working foryou in a way that looks like an
(21:46):
employee, but you're paying themas a contractor, the IRS has a
big problem with that, andlately they've been cracking
down hard.
We're seeing more audits, morefines, more reclassifications,
which is basically where the IRSsays, no, that person was an
employee, not a contractor.
And then they hit you with backtaxes, penalties, and interest.
(22:08):
It is not fun and it can bereally expense.
So the IRS uses something calledthe common law test to determine
classification.
It looks at three main factors.
The first is behavioral control.
Do you control how the work isdone?
The second is financial control.
Who controls how the person ispaid, reimbursed, or profits
(22:30):
from the business?
And then three is therelationship type.
So are there contracts?
Are they receiving benefits?
Is there permanency that lookslike employee?
so if most of these answers leadtoward you having control,
that's an employee.
So here's an example that Ithought of.
let's say you hire a virtualassistant and you tell them, I
need you online every day fromnine to five.
(22:52):
You'll use our systems, ourtemplates, our email address,
you review their work every day,and they don't have any other
clients.
That is not an independentcontractor, that is an employee,
but if you hire maybe a socialmedia manager and they set their
own hours, but they work for youwhen they want, you don't even
(23:13):
know their hours to a certainextent.
They use their own software,they have multiple clients.
They deliver results based onagreed outcomes.
That is more like a contractor.
So I know that difference canseem subtle, but I hope that
those two examples, you know,can show you the difference
because It matters a lot.
And listen, I get it.
(23:33):
Hiring W2 employees feelsheavier.
It is more commitment, morepaperwork, more responsibility.
But sometimes that's the rightmove for your business,
especially if the person is acore part of your operations and
you want them committed to yourbusiness and long term.
So here's what I often tellclients.
(23:54):
If you're relying on someoneevery day, if they're doing
work, that's critical to howyour business runs.
If you be in trouble, if theyquit tomorrow, if you need them
available, not at your beck andcall, but they're available when
you need them.
That's an employee.
On the other hand, if it'sproject based part-time or
something super specialized,then a contractor is what it
(24:16):
should be.
I think the goal isn't to avoidemployees.
It's really to classify peoplecorrectly and know what the
decision needs to be before youhire them so that you can
account for the cost associatedwith whether they're an employee
or a contractor, becausemisclassifying them as a
contractor to quote unquote.
(24:37):
Save money almost always costsyou more later.
Because the penalties can besteep, right?
And you could even have thestates get involved.
And so before you bring someoneon, think strategically about
the relationship.
Ask yourself, how much controldo I want or need over their
job?
For example, my tax team, Iwanna control how they serve our
(25:01):
clients, how they do taxstrategy.
Think about are you their onlyclient?
Do you want them to grow withthe company?
A lot of these answers willguide you in the right
direction.
you know, something else I wantyou to think about is, as a
business owner, you deserve tobuild a business that's
sustainable.
And having the right mix ofemployees and contractors can
actually help you do thatbecause employees.
(25:23):
Generally create stability, butcontractors create flexibility
and you need both.
And so my point here is that Iwant you to be intentional, not
reactive, to think about whatyour business can handle right
now, and even design a positionthat fits the IRS's test.
If you're in growth mode, maybeyou start with contractors.
(25:43):
If you're in a season of scalingand needing consistency, it's
probably time to bring on W2earners.
There's no one size fits allanswer, but there is a right
answer for your situation andfor the position that you're
creating.
And that's exactly where taxstrategy comes in, because when
you're paying people correctlyand when you're structuring your
own income correctly, you canplan, project, and optimize so
(26:06):
much more effectively.
Remember what I said earlierabout treating yourself like a
business if you're earning 10 99income?
the same thing applies here.
The more you act like a legitbusiness owner, which is what
you are, the more responsibilityfor how money flows in and out,
and the more control you haveover your outcomes.
All right, let's tie thattogether because I know that
(26:29):
this was a lot, whether you'rethe one earning the 10 99 or the
one issuing it.
The bottom line is this,understanding these two types of
classifications for income iscrucial.
It impacts your taxes, yourcashflow, and your long-term
financial stability and wealthbuilding.
And right now, especially as wehead into the end of the year.
(26:49):
Is the time to pay attention.
So if you've been getting 10 99income and still thinking of
yourself as just a freelancer orjust a contractor, it's time for
you to shift that mindset you'rea business owner and start
acting like one.
That means thinking aboutstrategy, not just survival.
It means making moves beforeDecember 31st.
That could save you thousandscome April, and if you've been
(27:11):
hiring help and you're nottotally sure you've classified
those people correctly, or youjust have that nagging feeling
that something might not bequite right, now's the time to
clean it up before the yearends, before the IRS might come
knocking.
I want you to keep more of whatyou earn.
That's the whole point of thispodcast, right?
It's not just about makingmoney, it's about keeping it.
And remember that happensthrough intentional strategy,
(27:34):
smart decisions, andunderstanding how the system
works so you can use the systemto your advantage.
So here's my challenge for you.
Don't let another year endwithout getting clarity on your
business's setup.
Don't go into tax season nextspring.
Hoping it all works out.
Take action now.
If you've been listening to thisand you're thinking, yep, that's
(27:55):
me.
I get 10 99 income, but I'venever really looked at it as a
business, or I'm hiring peopleand not sure if I've done it
right, then I want you to DM me.
Let's chat before the year ends.
Let's talk about your situationand figure out.
If this is something that youneed to be thinking about and
working on, because I don't wantyou overpaying, I don't want you
(28:16):
under prepared or caught offguard when the IRS starts asking
questions, because if there isone thing I want for you, it's
to be confident in how you runyour business and how you manage
your money and how you make yourbusiness work for you.
Because you've worked hard toearn it.
You've worked hard to get towhere you are, and I want you to
keep as much as possible.
(28:36):
And look, if the first thoughtthat came up is, ugh, I should
have been doing this months ago,that's okay.
You're not behind.
taking action now is whatmatters.
Don't focus on the should havesor the lost time.
Focus on now, you've still gottwo more months left in the
year.
Don't wait until your CPA tellsyou what you could have done or
what should have happened.
Let's make sure you're doing itnow while it still counts.
(28:57):
So send me a dm.
I'm at.
Kimberly Terrace, CPA, onInstagram, and I can't wait to
chat with you.
I can't wait to meet you andmake sure that you are set up in
a compliant way with the IRS andin a way that is going to help
you keep more money.
Thank you for being here, asalways, it always just means so
much to me and I can't wait tosee you next week.
Welcome to Keep More Money, thepodcast for profitable women
(00:02):
business owners who are tired ofoverpaying in taxes and tired of
chasing down their CPA,deferring to someone else for
every financial decision andgetting hit with surprise tax
bills every April.
If you've ever felt like you'llnever truly get on top of your
business finances.
This show is for you.
I'm Kimberly Tara, CPA,certified tax coach,
multi-business owner and Mamafour Littles.
(00:23):
With over a decade of experienceand more than 15 million saved
for my clients, my mission is toeducate and empower women just
like you to keep more of theirmoney, reduce financial stress,
and create lasting wealth.
Taxes suck, but they don't haveto hold you back.
I'll show you how to make taxstrategy simple, fun and easy to
understand.
You've worked hard for yoursuccess, and now it's time to
(00:44):
keep more of it.
Let's dive in.
Hello.
Hello.
So you might have noticed it'sbeen a few weeks since the last
episode and no, you didn't missanything.
There were no technology issues.
There really has just been.
A bit of a gap.
I wish I could say I was off onsome Grand World tour or doing
(01:07):
something glamorous, buthonestly it's just been life,
real life.
The kind of messy, busy,unpredictable life that happens
when you've got four kids, abusiness and what feels like a
million moving pieces.
have you ever been there tooand.
Right now, I mean literallymoving because we bought a
(01:30):
house, which sounds exciting andit is.
but when you do it for the fifthtime.
It loses its luster and it justbecomes annoying Paperwork.
And if you've ever moved withkids, oh man, you know, it's a
whole different level of chaosbecause let me tell you, kids
come with so much stuff, thetoys, the clothes, shoes, books.
(01:54):
Oh my goodness.
We had three moving boxes fullof books, and we had already
purged from the move fromLouisiana to North Carolina and.
You're trying to box up all theart projects from preschool that
you're just like, why am Isaving all of this stuff?
And none of my kids are quiteold enough to be truly helpful
(02:14):
yet, like my dream of handing achild a tape gun and saying,
Hey, go pack up your room.
Yeah, like that's not happening.
Instead, they're playing withthe Legos that I ask them to
pack up, or they're yelling outto me, mom, I can't find Do
Doll, which is our five yearold's favorite stuffy.
So moving was an event to saythe least.
(02:39):
I'm so grateful my team came outhere and helped and we were able
to really strategize because,unlike my kids who weren't
helpful, my team was superhelpful and we could put things
in boxes while actually talkingat the same time.
so if you've ever been through amove.
Period.
But especially with children,you know that everything else
(03:01):
like comes to a halt because thehouse hunt, the packing, the
paperwork, the unpacking thelender, it becomes a full-time
job.
And so I think this is extratrue if you're a parent trying
to minimize the chaos in yourkids' lives, right?
You're trying to get.
Things, you're trying to waituntil the last minute to pack
them up.
You're trying to get thingsunpacked as quickly as possible
(03:22):
because I didn't want them, Iwanted them to feel a sense of
normalcy.
so on top of running the firm,keeping up with client work,
being a mom, at some point,something's gotta give.
And for me that something wasmarketing and unfortunately.
This podcast, I've always beenupfront with you that I don't
really, I don't schedule out ournewsletters.
(03:44):
I don't schedule out our podcastI want to be providing you with
information and education thatis in real time.
I want to truly connect withyou.
because I don't do that so farin advance, I don't do this
because I'm marketing.
I do this because I trulybelieve in.
The knowledge that I'm sharingwith you, when things like this
happen, sometimes I do have tohit pause and I actually made
(04:07):
the decision to hit pause on thefirm's marketing efforts, a
little while back.
And it's not because I don'tbelieve in showing up or staying
consistent, I do, but.
Sometimes the most strategicmove you can make is to just
stop.
Just pause, right?
And I think as business owners,we're conditioned to believe
(04:27):
that if we're not constantlyvisible, we're falling behind.
if you're not posting, emailing,launching, then you're doing
something wrong.
And I've been in business longenough now to know that that's
just not true.
That sometimes you need to stepback and look at what are the
things that are actually movingthe needle.
And what's just noise, andthat's really what this pause
(04:48):
has been for me, somewhat of areset.
It actually started back at myNantucket retreat, at the end of
September.
You can go listen to all of thatin episode 1 38, but I came back
from that trip with such astrong desire to just do less,
and not in a lazy way, but in areally intentional way.
I think that the story we tellourselves as high achievers.
(05:11):
That it is lazy instead ofstrategic.
so for me, this looks like doingless of the things that drain my
energy.
Less chasing of vanity metrics.
Like, oh, our firm hit a certainnumber in gross revenue this
quarter or this year when what Ireally care about is
profitability, sustainability,and exceptional client service.
(05:33):
because let's be real grossrevenue.
It looks good on paper.
It's flashy.
It's the numbers you see postedonline, but gross revenue
doesn't pay the bills.
It doesn't buy back your time.
It doesn't let you take a realbreak when you need one.
Your profitability does.
And having a firm that sort ofgrows itself because even though
(05:53):
we've been taking a hiatus frommarketing for the last month,
we've signed.
six new clients, right?
and we have more coming in themonth here.
The reality is that growing,quote unquote doesn't always fit
your season of, life.
And my life comes first, not theother way around.
It didn't always used to be thatway, but for now, that is very
much the focus because what isthe point of growing this
(06:16):
business if I'm stressed out andmiserable all the time?
So instead of trying to do.
All the things, the socialmedia, the podcast, the videos,
the newsletters being reactive.
In our tech woes and whatnot, Idecided to focus on what
actually matters most, andthat's serving our current
clients really well.
Sending out our weeklynewsletter because it has
(06:38):
exceptional open reads andresponses, and I hear all the
time how.
Much women love it tightening upour systems, our technology,
connecting one-on-one with newreferrals via email or Instagram
dms because they're reaching outand making sure the business
I've built actually works for meand not the other way around.
(06:59):
And this decision, honestly,feels so good.
I've been calmer, happier, alsoscared, right?
Because as a business owner italways feels weird to step off
the hamster wheel to see otherpeople still putting their foot
down on the gas.
But it really feels good becauseit's in alignment with, me and.
I talk about this with ourclients all the time, right?
(07:21):
That just because something'sworking doesn't mean it's right,
or doesn't mean it's right forright now.
sometimes you outgrow certainstrategies or your priority
shift or life demands a littlemore of you in one season than
another.
And this season, for me, it'sabout simplifying, focusing on
the things that move thebusiness forward, serving our
(07:41):
clients really well.
Being there for my family andletting go of the rest, even if
it's really hard anduncomfortable, I think that's
something a lot of us don't giveourselves enough permission to
do, right?
You probably love the idea ofbalance and boundaries, but then
the minute you're faced with achoice too, actually slow down.
You panic.
You think slowing down meansslipping, but I feel like that
(08:04):
couldn't be further from thetruth.
I think that sometimes slowingdown is the strategy.
And this isn't the first timeI've slowed down to speed up.
I didn't think it'd happenedagain so quickly.
But my personal life has thrownus a few curve balls.
And our firm has been rapidlygrowing and I just simply
refused to let our clientexperience suffer because of
that.
So taking a short pause was bestfor everyone.
(08:26):
And what I've been trying to dosince my retreat in Nantucket is
focus on embracing.
That shift both personally andprofessionally, trying my best
to remember that the goal isn'tto do more, it's to do what
matters And what matters mostright now is again, taking care
of my clients, taking care of myfamily, and taking care of
myself.
(08:46):
So if you've been in a seasonlike that, if you're in a season
like that right now, becausegosh, we're about to go into the
holidays and the end of theyear.
It's a time of feeling extrastretched thin or like you can't
possibly do one more thing.
I want you to know it's okay tohit pause and that by doing that
it doesn't mean you're failing.
It means you're being smart.
And the funny thing is that thisdecision to pause, to be like,
(09:11):
to take a step back, formarketing, actually creates the
mental space.
I need to think about somebigger picture stuff again and.
was getting so in the weeds andso I didn't feel like I was
having that space for, reallylistening and hearing or having
the best and most creative ideasfor our clients.
And that's the stuff that getsme fired up is to help you make
(09:33):
smarter money moves to keep moreof what you earn, to come up
with really amazing podcastepisodes.
And One of the things that, whenI've had a little bit of space,
I'm like, oh my goodness, I hearthe same thing coming up in
conversation with prospectiveclients again and again.
And that is the confusion aroundW twos and 10 90 nines, I swear
(09:55):
those two little forms.
And the type of income theyrepresent to you cause so much
drama and they're different, butthey really do go together.
They're like two sides of thesame coin.
So whether you're someone who'stransitioned from a W2 job to 10
99 income, or you're a businessowner trying to figure out
whether to hire your next teammember as an employee or a
(10:17):
contractor, understanding howthose two worlds work is so
important in both of thoseinstances.
Because here's the thing, theIRS is cracking down hard on
misclassification right now.
what that means is like payingsomeone like a contractor, but
they should really be anemployee.
And then there are major taximplications, not just for your
(10:37):
business, but for youpersonally, depending on how
you're being compensated.
(11:48):
So in this episode, I wannabreak it all down for you.
We're gonna talk about what itreally means to go from being a
W2 earner to a 10 99 earner, howto make that transition
smoothly, and then what you needto be thinking about from a tax
strategy standpoint before thisyear ends.
And then we'll flip it aroundand we'll look at it from the
other side.
(12:08):
And you're the one doing thehiring.
What you need to know about theIRS rules, how to classify
people correctly and what's atstake if you get it wrong.
Because again, these two things.
W twos and 10 90 ninesemployees, independent
contractors, they always gotogether.
You can't really talk about onewithout understanding the other.
To be clear and compliant, youneed to know the differences so
(12:31):
that you're making the rightdecision.
This is also a really good timeto, work with someone who
understands this and this is theworld that they live in, so that
you can have the type of supportthat you need.
And real quick, one more.
'cause I feel like I just kindof started, I was excited to
jump into the content, but Ijust wanna say thank you.
If you've been listening to thepodcast for a while, if you
(12:51):
follow me on Instagram, if youread the newsletters, thank you
for sticking around during quietstretches and understanding.
Why they happen.
I promise I haven't goneanywhere.
It's just been one of thoseseasons where real life took
center stage for a bit, I alsothink that's something worth
normalizing too, right?
That you don't have to be on allthe time to be successful.
You don't have to post every dayor hustle nonstop to build a
(13:15):
great business.
You just have to keep showing upwhen it matters and trust that.
The work you've done, the workthat you are doing still counts
even when you take a breather Ijust wanna make sure that I
share that with you too, and Idon't jump right back into this
like, nothing's happened.
Like, no, here's what'shappened.
And my business is still verysuccessful.
(13:38):
And I just always am so gratefulthat you're here.
Okay, so let's start with.
You the individual side of theequation, because I know a lot
of you listening are in thisexact spot.
You used to have a W2 job.
You've started getting 10 99income.
Maybe it's from consulting,freelancing, brand deals, side
(14:01):
hustle.
Those could be things like, newskin.
They're like so many things.
And I have these women come tome and they're like, oh.
Oh, I, I didn't realize thatthat made me a business owner.
Maybe you have a rental propertyor two, and so you're thinking
to yourself, oh, cool, I'mmaking this money, but I don't
know what it means for taxes.
'cause gosh, I didn't evenrealize that I'm actually a
business owner.
And so here's the deal.
(14:21):
When you're a W2 earner, youremployer does everything for
you.
Taxes are automatically withheldfrom your paycheck.
They're covering half of yourSocial Security and Medicare
taxes.
they might be offering benefitslike health insurance,
retirement.
You get a nice clean W2 form atthe end of the year that
basically says, here's what youearned.
(14:41):
Here's what you withheld.
If that's all you have, you canplug it into TurboTax and you're
done.
But when you move into the 10 99world, all of that disappears.
There's no boss withholding yourtaxes.
No one's matching your socialsecurity, no automatic paycheck
deductions.
You get your money and the IRSexpects you to set aside and pay
(15:04):
all of those taxes yourself.
And this is where a lot ofpeople get caught off guard.
Because when you get that first5,000, 10,000, 20,000 of 10 99
income, it feels amazing.
You're like, I just made 20grand.
This was the best decision everto go out on my own.
But then you've gotta pay yourexpenses.
(15:24):
Tax season rolls around and yourealize, whoops, I never set
anything aside for taxes.
And suddenly you owe thousands.
That you weren't expecting, andthat's kind of that welcome to
being self-employed moment thatno one really warns you about.
Now the good news is that.
That 10 99 income also gives youan opportunity because unlike W2
(15:49):
income where you basically haveno say in how your taxes are
handled, you can't deduct anyexpenses As a 10 99 earner, you
have control.
You can use strategy, you candeduct legitimate business
expenses.
You can decide how to structureyour income to keep more of it,
but only if you actually treatyourself like a business.
So if you're listening right nowand you're thinking, well, I
(16:12):
just have a side gig, or I onlymake a little bit from freelance
work, I want you to hear this.
If you're receiving 10 99income, you are a business
owner, even if you haven't filedfor an LLC yet, even if you're
just doing it under your ownname.
When it comes to taxes, that's abusiness.
so when you start treatingyourself like one, that's when
the magic happens.
(16:32):
let's talk about what thatactually looks like.
So first you really have toseparate your money.
You need to have a dedicatedbusiness bank account, even if
it's just a simple checkingaccount at your local bank.
Try to stop mixing your businessincome and personal spending in
the same amount because not onlydoes it make taxes a nightmare,
but it also keeps you from trulyseeing your numbers.
(16:55):
And then you can start actuallytracking.
Your income and expenses, that'ssecond.
Okay?
And you don't need fancysoftware or a bookkeeper right
away.
A spreadsheet works, but thegoal is to know what's coming in
most importantly, and thenwhat's going out and what's left
over.
third, now that you have thisinformation, you need to start
setting aside money for taxes.
A good rule of thumb is about30% of your 10 99 income and 25%
(17:23):
if.
You are deducting your expensesaccordingly, you could even just
open a savings account labeledtaxes and transfer money into it
every time you get paid.
And that way when quarterlyestimates or tax season rolls
around, you're not panicking.
And one of the things that Iwanna tell you here is that,
I've just helped so manybusiness owners over the year
(17:45):
that, they get in trouble.
when it comes time to file theirtaxes as a sole proprietor on
Schedule C, they were unaware ofself-employment taxes, ordinary
income taxes.
They don't have anything setaside, and then they're halfway
through the next year where theydon't have anything set aside.
And that's one.
Scenario that I see very often.
And then the other scenario thatI see is, I met with someone
(18:07):
yesterday and she has the moneyset aside, but she's not
actually paying in herestimates, like her quarterly
tax estimate payments.
And that's really gonna comeback to hurt her because the,
not only is she gonna get afailure to pay penalty, but
she's also gonna get interestaccrued because she wasn't
paying them throughout the year.
So that's really important toset the money aside and also pay
(18:30):
it in.
And then fourth, this is wherethe strategy comes in, right?
Start looking at whatdeductions.
Could qualify as businessdeductions because when you're a
W2 employee, you're not thinkingabout deductions.
Your employer is paying foreverything, and even if there's
something that you happen to payfor, you don't get to deduct it.
But when you are attending anine Earner, an independent
(18:53):
contractor.
The doors open wide for you,Think about everything you spend
money on that helps you earnincome, your laptop softwares,
you're purchasing a home office,mileage if you drive somewhere,
continuing education ortrainings your phone part of
your internet bill.
Those are all, or can belegitimate business deductions
(19:16):
depending on the type ofbusiness you have, and every
deduction means you're payingtaxes on a smaller amount of
income, and that means thatyou're keeping more money.
Now, where people get in troubleis when they don't plan ahead,
right?
Those scenarios I was talkingabout, they wait until tax time.
Dump all their receipts on theirCPA's desk and they're not
(19:38):
tracking anything and thensuddenly they expect magic.
The tax strategy reallyminimizing your tax bill doesn't
happen in April.
It happens now before the yearends, while there's still time
to implement strategies.
So if you've been operating as a10 99 earner, but you haven't
been thinking like a businessowner, I hope that this is your
wake up call that you need toget proactive about your tax
(20:01):
strategy before December.
Because once the year closes,many of your best options
disappear.
now I wanna flip the scriptbecause many of you listening
already see yourself as abusiness owner.
And now you're maybe thinking,you're either already hiring,
you're bringing people onto yourteam, adding virtual assistants,
(20:21):
you either have them or you'reon the edge of taking that
plunge.
And a question that we hear alot is, should I hire them as a
W2 or a 10 99?
And it sounds like a simpledecision, but it's actually
really often misunderstood andit's a risky area for small
business owners.
So I wanna start with the basicsbecause you, this isn't
(20:43):
something that you just get topick.
A W2 employee is someone whoworks for you under your
control.
You tell them what to do, how todo it, when to do it.
You provide the tools, thetraining, maybe even equipment.
They're integrated into yourbusiness.
They're part of your operations.
You tell them what hours towork.
(21:04):
A 10 99 contractor, on the otherhand, is an independent
business.
They decide how they're going todo the work.
They can take on other clients.
They bring their own tools orsystems.
They're responsible for theirown taxes.
They make their own hours.
The key difference is controland independence.
(21:24):
Now I really get why so manybusiness owners lean towards
hiring contractors.
On paper, it looks easier andcheaper.
You don't have to run payroll,you don't have to pay employment
taxes, your portion, you don'thave to offer benefits.
You can just cut them a checkand send them a 10 99 at year
end.
But here's the reality check.
If that person is working foryou in a way that looks like an
(21:46):
employee, but you're paying themas a contractor, the IRS has a
big problem with that, andlately they've been cracking
down hard.
We're seeing more audits, morefines, more reclassifications,
which is basically where the IRSsays, no, that person was an
employee, not a contractor.
And then they hit you with backtaxes, penalties, and interest.
(22:08):
It is not fun and it can bereally expense.
So the IRS uses something calledthe common law test to determine
classification.
It looks at three main factors.
The first is behavioral control.
Do you control how the work isdone?
The second is financial control.
Who controls how the person ispaid, reimbursed, or profits
(22:30):
from the business?
And then three is therelationship type.
So are there contracts?
Are they receiving benefits?
Is there permanency that lookslike employee?
so if most of these answers leadtoward you having control,
that's an employee.
So here's an example that Ithought of.
let's say you hire a virtualassistant and you tell them, I
need you online every day fromnine to five.
(22:52):
You'll use our systems, ourtemplates, our email address,
you review their work every day,and they don't have any other
clients.
That is not an independentcontractor, that is an employee,
but if you hire maybe a socialmedia manager and they set their
own hours, but they work for youwhen they want, you don't even
(23:13):
know their hours to a certainextent.
They use their own software,they have multiple clients.
They deliver results based onagreed outcomes.
That is more like a contractor.
So I know that difference canseem subtle, but I hope that
those two examples, you know,can show you the difference
because It matters a lot.
And listen, I get it.
(23:33):
Hiring W2 employees feelsheavier.
It is more commitment, morepaperwork, more responsibility.
But sometimes that's the rightmove for your business,
especially if the person is acore part of your operations and
you want them committed to yourbusiness and long term.
So here's what I often tellclients.
(23:54):
If you're relying on someoneevery day, if they're doing
work, that's critical to howyour business runs.
If you be in trouble, if theyquit tomorrow, if you need them
available, not at your beck andcall, but they're available when
you need them.
That's an employee.
On the other hand, if it'sproject based part-time or
something super specialized,then a contractor is what it
(24:16):
should be.
I think the goal isn't to avoidemployees.
It's really to classify peoplecorrectly and know what the
decision needs to be before youhire them so that you can
account for the cost associatedwith whether they're an employee
or a contractor, becausemisclassifying them as a
contractor to quote unquote.
(24:37):
Save money almost always costsyou more later.
Because the penalties can besteep, right?
And you could even have thestates get involved.
And so before you bring someoneon, think strategically about
the relationship.
Ask yourself, how much controldo I want or need over their
job?
For example, my tax team, Iwanna control how they serve our
(25:01):
clients, how they do taxstrategy.
Think about are you their onlyclient?
Do you want them to grow withthe company?
A lot of these answers willguide you in the right
direction.
you know, something else I wantyou to think about is, as a
business owner, you deserve tobuild a business that's
sustainable.
And having the right mix ofemployees and contractors can
actually help you do thatbecause employees.
(25:23):
Generally create stability, butcontractors create flexibility
and you need both.
And so my point here is that Iwant you to be intentional, not
reactive, to think about whatyour business can handle right
now, and even design a positionthat fits the IRS's test.
If you're in growth mode, maybeyou start with contractors.
(25:43):
If you're in a season of scalingand needing consistency, it's
probably time to bring on W2earners.
There's no one size fits allanswer, but there is a right
answer for your situation andfor the position that you're
creating.
And that's exactly where taxstrategy comes in, because when
you're paying people correctlyand when you're structuring your
own income correctly, you canplan, project, and optimize so
(26:06):
much more effectively.
Remember what I said earlierabout treating yourself like a
business if you're earning 10 99income?
the same thing applies here.
The more you act like a legitbusiness owner, which is what
you are, the more responsibilityfor how money flows in and out,
and the more control you haveover your outcomes.
All right, let's tie thattogether because I know that
(26:29):
this was a lot, whether you'rethe one earning the 10 99 or the
one issuing it.
The bottom line is this,understanding these two types of
classifications for income iscrucial.
It impacts your taxes, yourcashflow, and your long-term
financial stability and wealthbuilding.
And right now, especially as wehead into the end of the year.
(26:49):
Is the time to pay attention.
So if you've been getting 10 99income and still thinking of
yourself as just a freelancer orjust a contractor, it's time for
you to shift that mindset you'rea business owner and start
acting like one.
That means thinking aboutstrategy, not just survival.
It means making moves beforeDecember 31st.
That could save you thousandscome April, and if you've been
(27:11):
hiring help and you're nottotally sure you've classified
those people correctly, or youjust have that nagging feeling
that something might not bequite right, now's the time to
clean it up before the yearends, before the IRS might come
knocking.
I want you to keep more of whatyou earn.
That's the whole point of thispodcast, right?
It's not just about makingmoney, it's about keeping it.
And remember that happensthrough intentional strategy,
(27:34):
smart decisions, andunderstanding how the system
works so you can use the systemto your advantage.
So here's my challenge for you.
Don't let another year endwithout getting clarity on your
business's setup.
Don't go into tax season nextspring.
Hoping it all works out.
Take action now.
If you've been listening to thisand you're thinking, yep, that's
(27:55):
me.
I get 10 99 income, but I'venever really looked at it as a
business, or I'm hiring peopleand not sure if I've done it
right, then I want you to DM me.
Let's chat before the year ends.
Let's talk about your situationand figure out.
If this is something that youneed to be thinking about and
working on, because I don't wantyou overpaying, I don't want you
(28:16):
under prepared or caught offguard when the IRS starts asking
questions, because if there isone thing I want for you, it's
to be confident in how you runyour business and how you manage
your money and how you make yourbusiness work for you.
Because you've worked hard toearn it.
You've worked hard to get towhere you are, and I want you to
keep as much as possible.
(28:36):
And look, if the first thoughtthat came up is, ugh, I should
have been doing this months ago,that's okay.
You're not behind.
taking action now is whatmatters.
Don't focus on the should havesor the lost time.
Focus on now, you've still gottwo more months left in the
year.
Don't wait until your CPA tellsyou what you could have done or
what should have happened.
Let's make sure you're doing itnow while it still counts.
(28:57):
So send me a dm.
I'm at.
Kimberly Terrace, CPA, onInstagram, and I can't wait to
chat with you.
I can't wait to meet you andmake sure that you are set up in
a compliant way with the IRS andin a way that is going to help
you keep more money.
Thank you for being here, asalways, it always just means so
much to me and I can't wait tosee you next week.
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