January 10, 2025 • 25 mins
Prepare to revolutionize your approach to tax season bookkeeping with insights that promise to transform chaos into order. What if the demise of a major bookkeeping service like Bench could actually be your golden opportunity to get ahead? You'll discover the secret weapons top businesses are using to stay tax-ready all year round, maximizing deductions and minimizing stress. Our conversation uncovers efficient modern tools like QuickBooks Online and Dext, replacing outdated methods and providing seamless organization. With the IRS ramping up its audit capabilities, proper bookkeeping isn't just a good idea—it's essential for your financial safeguarding.
As we tackle the dreaded pitfalls of last-minute bookkeeping, we're not just preaching organization for peace of mind—there's real money on the line. Proactive bookkeeping can save you from the frenzy and extra costs that come with procrastination. We delve into the significance of year-round organization, highlighting tools like HubDoc and MileIQ to handle receipts and track mileage effectively. The episode wouldn't be complete without stressing the importance of a competent CPA or bookkeeper, emphasizing that their expertise is an investment with substantial returns. This discussion is your guide to navigating tax season with confidence, ensuring you’re prepared to face any audit with ease.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This is Daniel, the founder of Bookkeeping for
Painters.
Speaker 2 (00:04):
And this is Richard, the advising director with
Bookkeeping for Painters.
You all right?
Yeah, I am.
I'm just figuring out.
Start the podcast with a goodcough so they can't edit it out.
No, just cold weather.
Upper Midwest fourth grader andmy son's a fourth graderer and
(00:25):
he brings home all sorts ofstuff from school, so just
typical cold wow.
Speaker 1 (00:31):
Yeah, fortunately we haven't experienced too much
sickness, which I'm surprisedbecause it, uh, it might hit in
january february time frame, butuh, so far we haven't had too
much sickness in the house yet.
But I say that I should knockon some wood.
But today we're going to talkabout how you can get your books
(00:55):
ready for tax season, and thisis probably on a lot of folks'
minds.
So I figured I'd do a podcaston how you can get yourself
ready.
So I figured I'd do a podcaston how you can get yourself
ready and as we're putting thispodcast together, we just found
out some pretty startling newsthat Bench, which is a
bookkeeping accounting firmthat's pretty big, they have 450
(01:19):
employees and I know a lot ofpainting businesses use Bench.
They just put out a notice ofservice closure and it's posted
on their website right now andit says I'm just going to read
it we regret to inform you thatas of December 24th, the Bench
platform will no longer beaccessible.
(01:39):
We know this news is abrupt andmay cause disruption, so we're
committed to helping Benchcustomers navigate through the
transition.
From the entire team at Bench.
It's been an absolute privilegeto serve small businesses for
13 years.
Thank you for being part of thejourney.
So I don't know exactly whenthis came out, but I think it's
pretty abrupt because I did postit on social media and some of
(02:00):
the folks that use Bench arejust founding up from my
Facebook post, so I think it'shappened pretty recently.
It's kind of crazy.
Speaker 2 (02:11):
Yeah, and terrible timing too, because here we are
at the end of the year, peopleare trying to close their books
for the year and get ready fortax prep and their accountants
have kind of vaporized into thinair, and so I imagine a lot of
people, unfortunately, are goingto be left out to dry, not
having a you know accountingservice that can help them get
(02:35):
themselves closed up for 2024and get their taxes done for
2024.
Speaker 1 (02:43):
Yeah, it's definitely pretty crazy.
Well, so if you use Bench,definitely reach out and try to
get that handled as soon aspossible.
Hopefully you're not findingout from this podcast.
Hopefully you found out already.
So today I was hoping to gothrough some items on what you
(03:04):
should do to prepare for taxseason.
So we'll go through why beingtax ready matters, some steps to
prepare for tax season, somepitfalls to avoid and some
resources to increase your taxreadiness.
So, first of all, why should wecare about getting ready for
(03:27):
tax season?
It can definitely be in yourinterest to be ready for tax
season because we're talkingabout your money, right?
The IRS allows you to takedeductions against your income
and as long as you cansubstantiate it, it will hold up
and you'll be able to reduceyour taxable income.
Just by deducting, keepingproper records and deducting
(03:50):
those expenses, those purchasesyou made in the course of
business that are ordinary andnecessary.
Those will reduce your taxableincome and save you thousands of
dollars.
So that's a pretty good reasonto be tax ready.
Speaker 2 (04:08):
That's why I've got my big shoebox that I put my
receipts in throughout the yearand they're a little stained
with, like the hamburger greasefrom my fast food lunches, but I
just take my whole shoebox andhand it to my CPA and that takes
care of me right it to my CPAand then that takes care of me,
(04:29):
right?
Speaker 1 (04:29):
Well, not really, hopefully, uh, you're no.
Now that can be a process.
It's maybe more of an oldfashioned process that these
days there's a lot bettertechnology that you can use and
um a more robust, a robustsystem you can use and a more
robust system.
So I would say having somethinglike QuickBooks Online which
would pull in your transactionsfrom your bank accounts, your
(04:51):
credit accounts, and gettingthose categorized.
Maybe having a receiptmanagement software like Dext or
something where you're takingpictures of those receipts
instead of just putting them inthe shoebox.
You can keep them in theshoebox, but it's not really
great for organization where youcan just digitize them and then
they can be organizedautomatically.
(05:12):
So there's a few more stepsthan just putting in the shoebox
.
But this gets you thosedeductions.
It helps you protect yourselffrom an audit.
So if and when the IRS doesaudit your business, you'll be
prepared because you'll havebooks, you'll have those
(05:34):
receipts saved and this can be ahuge relief on stress and it
might Some business owners havetrouble really thinking am I
going to really get audited?
It doesn't seem like it happensthat often and we can tell you.
We work with a couple ofhundred painting businesses.
You know, at any one timethere's at least one painting
(05:59):
business that's being audited ineither by the state or by the
federal IRS in some manner.
Would you agree like one to twoat any point in time?
Speaker 2 (06:10):
You know it's funny.
You mentioned that, daniel.
I picked up my mail today.
In some of my clients I have apower of attorney filed on and
so I get copies of the noticesthat they receive from the IRS
and I actually received fiveenvelopes from an IRS auditor
today who is examining one ofour clients.
(06:32):
So a little serendipitous there.
It's an unfortunate serendipity, but yes, especially now that
the IRS has more budget thanthey used to.
And we've heard those stories ofthe IRS hiring 83,000 agents.
That's overblown.
(06:52):
But have they been hiring agood number of agents?
Yes, they have.
Has the current IRScommissioner publicly stated
that they are going to increaseaudits?
Yes, he has.
We have seen that they areexamining people more frequently
.
And I'm not saying this toscare anybody, because if you've
(07:15):
got your books and your recordsand your receipts, you've got
nothing to worry about.
But if you've been a little bitlax in that area, and
especially if your tax returnstend to throw up some red flags
because you've got higher thanaverage auto deductions or meal
expenses or just those thingsthat irritate the IRS algorithm,
(07:36):
you would want to make surethat you really have your your
source documents and your proof,because not everybody's getting
audited, but we are definitelyseeing an uptick in those who
are.
Speaker 1 (07:51):
Yeah.
So plenty of reasons why youshould be ready for taxes.
Maximize your tax savings,peace of mind, for when an audit
comes around you'll be readyand just having a good financial
foundation for your business.
All right, so what are somesteps that we can prepare for
tax season?
(08:11):
So, first of all, having yourbooks and when we say books we
really mean your bookkeepingright.
You're some sort of system tocapture the income and expenses.
Most folks these days are usingQuickBooks Online.
Hopefully you're not usingBench.
If you're using Bench, reachout to someone to switch over
(08:32):
and get that handled.
But QuickBooks Online is oftenthe choice there, and so the
whole process with this would beconnecting your bank account,
your credit accounts, toQuickBooks Online.
It will pull in thosetransactions, those expenses,
those deposits, money coming infrom customers.
(08:53):
Then you'll need to categorizeeach of those transactions and
reconcile those transactionswith your bank statements and
your credit statements.
And reconcile all that means isjust you're comparing what's in
your books to what it says onyour bank statement or your
credit statement from AmericanExpress or from Chase Bank, and
(09:15):
you're making sure that theymatch up.
So that's what it means toreconcile.
So there's a reconciliationtool in QuickBooks Online that
you would use to compare what'sin QuickBooks Online with what
the bank statement says or thecredit statement says and to
check off those transactions tomake sure everything is captured
and everything is accurate andprecise.
So that's kind of the big thing.
(09:39):
There is categorization ofthose transactions and then
reconciling those transactionswith your credit and bank
statements.
Speaker 2 (10:08):
Then from there, yeah , go ahead, stuff gets charged
back.
So, comparing what the banksays to your books and records,
making sure everything lines up,that's how you avoid those
missed deductions and thoseannoying little balances that
don't match and that driveaccountants crazy, that's how
you avoid those.
Speaker 1 (10:30):
Yeah, absolutely so.
Reconcile those accounts.
Also going through, if you haveemployees or subcontractors,
making sure that you've properlycategorized those payments,
especially for subcontractors,because we're coming up on the
(10:51):
due date for 1099s to besubmitted, which is January 31st
, and so when you havesubcontractors you have to
submit a 1099 to the IRS and acopy to the subcontractor that
you use.
If you pay them over $600throughout the year and they're
(11:13):
not taxed as a corporation andyou didn't pay them via credit
card, which probably most subsare, you're paying them with
Zelle or with a check or withsomething like that, you have to
send them a 1099 to the IRS aswell.
So making sure that they'recategorized properly in your
books will help you generatethose 1099s.
(11:35):
So in QuickBooks Online there'sa little box you check to say
track this as a 1099subcontractor or 1099 contractor
and from there, quickbooksOnline, you can actually submit
1099s through QuickBooks Online.
There's other tools you can useas well.
Maybe you're paying yourcontractors through Gusto, for
(11:56):
example.
They'll actually do your 1099sfor you, but just making sure
that, especially if you may havepaid contractors through a
different system like maybe youpaid through Gusto half of the
year but then the other half ofthe year you paid them with a
check.
Well, you got to make sure that, if gusto is aware of those
(12:16):
outside payments, so that the1099s are correct.
So going through making surethose subcontractor payments are
properly recorded so that those1099s can be generated
accurately yeah, and I, like you, mentioned contractors, um, but
also employees.
Speaker 2 (12:34):
If you have employees , making sure that their payroll
is up to speed, that you're notmissing any payrolls, because
those W-2s are going to getissued.
We want them to accuratelyreflect what the employees have
been paid and how much taxeshave been withheld.
And when you're looking atemployees, don't forget yourself
(12:54):
.
If you are an S-corp owner,especially if you're the only
employee in your company, makesure that you've run your own
payroll for 2024.
Maybe you're a new S-corp andyou did an election towards the
end of the year.
You've got about, you know,just a couple days before the
end of the year.
You've got about, you know,just a couple of days before the
end of the year.
(13:14):
Make sure you get that payrollin there so that you can show
those wages on your tax return.
We don't want to file an S-corptax return and not have any
owner's compensation or I shouldsay shareholder compensation on
there.
Speaker 1 (13:30):
That's one of those red flags that upsets the irs
computers, yeah so to avoid thatkind of brings us to our next
section, which is kind of commonpitfall, pitfalls to avoid.
So the common one that I see,especially for the, the smaller
business, newer business ownerswho are just kind of getting
(13:51):
started.
They are oftentimes mixingpersonal and business finances
together.
They have a credit card thatthey're making personal
purchases with and businesspurchases with, and this is not
good from a bookkeepingperspective but also just from a
liability perspective.
You want to keep your businessand your personal separate.
(14:12):
So having a separate creditcard for business, separate
credit card for personal, a bankaccount that is solely for
business transactions, you wantto keep everything separate.
One reason would be from just aliability perspective.
I'm not a lawyer but from myunderstanding the lawyers say
(14:46):
you don't want the courts to beable to pierce the corporate
veil yourself separate from theentity, the business.
That will hopefully build thecase that if someone sues a
business, the course won't alsoallow them to go after your
personal assets.
So having things separated canbuild that wall between yourself
(15:09):
and your business to protectyourself.
So that's the legal reasoningin your business, to protect
yourself.
So that's the legal kind ofreasoning.
And then, just from abookkeeping or accounting
perspective.
Keeping things separate justmakes it easier to understand
what's going on in the businessfor tracking purposes.
So we know when you made apurchase at Walmart, on your
(15:30):
business card it was forbusiness purpose, as opposed to
you just wanted to buy someHalloween candy or something.
So keeping that personal andbusiness separate is paramount.
Another, oh, go ahead.
Speaker 2 (15:47):
Oh, I was going to say they have a term for that I
think they call it co-minglingwhen you mix your business and
your personal together, that Ithink they call it co-mingling
when you mix your business andyour personal together.
And if you ever do get audited,you want to make sure that you
don't have any personal expenseson there, because those would
get disallowed.
And if it's severe enough, likeif you're trying to write off a
significant amount of personalexpenses, you could face
(16:11):
accuracy-related penalties, andthat kicks things up quite a bit
.
I think that's 20% is theaccuracy related penalty.
So just you know, be carefulthat we're not double dipping
and that you know we're keepingour business away from our
personal stuff.
Speaker 1 (16:29):
So yeah, absolutely, yeah, absolutely.
Another common pitfall is justmissing some common deductions,
like not tracking your miles foryour vehicle so you can do or
or not electing S Corp youmentioned earlier.
You know, in not properlyrunning your officer salary
(17:02):
there's a lot of pitfalls, likejust little things, that if you
kind of take advantage of thoselow hanging fruit, those low
hanging fruit tax strategies andimplement them before the end
of the year, it can really helpout with your tax bill and save
you thousands of dollars.
Speaker 2 (17:19):
Yeah, and if you have a corporation or a business
taxed as a corporation and youfind that you do have a bunch of
little tiny transactions thatmaybe you paid for with your own
personal money or like a homeoffice deduction or a personal
vehicle that you're using forbusiness, you're not out of luck
(17:39):
.
That's why we have accountableplans.
We can get you reimbursed forthose things and have the
business still take that taxdeduction.
But we do need to track it.
We need to know about it.
So the end of the year is agreat time to review that and
make sure that you getreimbursed for those things so
the business can write them offyep all right, oh, go ahead.
(18:06):
Oh, I was going to mention sowe've got one more pitfall, and
I think this is actually myfavorite, and that is the.
Uh.
Nobody likes last minutebookkeeping, nobody likes the
the shoebox full of receipts.
It's stressful on you, thetaxpayer, because you don't know
what's in there and you have noidea what your taxes are going
to be because you haven't,because you don't know what's in
there and you have no idea whatyour taxes are going to be
(18:26):
because you haven't tracked yourexpenses all year.
And I can say from experienceit's stressful for your tax
preparer and they're probablygoing to charge you more than
you should have to pay becausethey have to do a bunch of
bookkeeping, and not justbookkeeping but unfolding
receipts.
Let's change a little industrysecret Pain in the butt charges
(18:50):
are a thing for accountants.
If you irritate them, if youmake their life hard, there are
some accountants who will chargeyou extra for that.
I guess the appropriateness ofthat is debatable, but I get
where they're coming from.
So not leaving these things tothe last minute, having a system
where you are dealing with itthroughout the year so you can
(19:13):
know your numbers, have a goodidea of what your taxes are
going to be not be freaking outon April 12th because your
shoebox hasn't been gone throughyet.
Man, the peace of mind is, Ithink, it's worth its weight in
gold.
So, of all the common pitfalls,I personally find that one to
be the one I want to avoid themost.
Speaker 1 (19:37):
Yes, yeah, I just spoke with someone yesterday on
this one, really frustrated.
He's working with an accountantand nothing's done.
It's end of the year and he'sjust scrambling to get
everything together and stressedabout not really getting that
tax, understanding how much taxliability they're going to have,
(20:00):
not understanding how well theydid during the year.
So it's best to be doing itthroughout the year, not waiting
to the last second for sure.
Speaker 2 (20:09):
Right.
I mean the fourth quarterestimated payment is due on
January 15.
You won't know if you're payingin enough if you don't know
what your expenses are, and soyou'll probably not make the
payment or you'll make it toolow, and then you'll have
underpayment penalty orestimated tax penalty to go
along with that.
(20:29):
And so you know, when we thinkabout bookkeeping, we kind of
think of it as like oh, that'san extra expense.
Well, it is true, there is somecost involved, but it's also
saving you money because you'renot paying unnecessary penalties
or you're holding onto yourcash longer because you're not
paying unnecessary penalties, oryou're holding onto your cash
longer because you're notoverpaying the IRS.
(20:50):
So it's not all expense.
There is a financial benefit toit as well.
Yeah, and think of all themoney you'll save on Tylenol,
because, okay tylenol becauseyou, okay, exactly, um, all
(21:12):
right.
Speaker 1 (21:12):
So last section here is the tools and resources for
being ready for tax season.
So we mentioned quickbooksonline.
It's it's kind of the go-to formaintaining your books.
Creating those books I don'tnecessarily recommend unless
you're pretty savvy withbookkeeping, like you've had
some accounting classes or somefamiliarity with accounting.
(21:33):
Quickbooks Online is not reallya tool for everyone.
They have some useful featuresnow to make it more
user-friendly, but it's reallyan accountant's tool or
bookkeeper's tool to manage yourbook.
So I do recommend getting abookkeeper to manage QuickBooks
Online for you, because gettingit done right the first time is
(21:55):
always the best way to go aboutit.
The next tool would be somethinglike Dext or HubDoc.
These are receipt managementsoftwares where you can download
an app on your phone, take apicture of those receipts,
especially paying attention tomeals, because meals are
scrutinized more closely.
So whenever you have a mealwith a client or an employee or
(22:20):
a contractor, subcontractor,just get the receipt, write on
the receipts the reason for themeal, like meeting to discuss
project.
Take a picture of the receiptand then that will go up into
DAX, store Hubdoc and store thatdigitally to have that
(22:40):
justification that, that proofof of that meal so you can
deduct it on your taxes.
Meals are scrutinized.
Travel if you're traveling tothe Painter Contractor
Association, which Richard and Iwill be at in February in
Colorado Springs, if you'regoing, definitely find us.
If you're going to that, makesure you document that, get
those receipts for that event.
(23:02):
And also vehicle use mileagehaving a mileage log for your
vehicle is super important.
Getting something like MileIQmakes the record keeping for
tracking miles a lot easier.
Using something like MileIQ,which basically tracks the miles
(23:23):
as you drive and then you swipeleft or right for business or
personal it remembers yourroutes makes the record keeping
for a mileage log a lot easieryeah, and I know tracking miles
is like the bane of everyone'sexistence, like I get asked all
the time like is there any way Ican avoid tracking miles?
Speaker 2 (23:43):
unfortunately, the answer is usually no.
If you get audited and they askabout your auto expenses, the
first thing they're going to sayis we want to see your mileage
log and if you don't have one,there goes the deduction.
So yes, I know it sucks.
I completely agree with you,daniel.
(24:04):
Mile IQ makes it suck a littlebit less, but I would say the
value of those deductions are sogreat.
The IRS just announced that in2025, the amount will be 70
cents per mile.
It's the highest it's ever been.
It is worth the extra effort tokeep the log and protect those
(24:27):
deductions.
Speaker 1 (24:31):
Yep.
And the last one is reallygetting a good CPA or bookkeeper
to help you with this time ofthe year and really throughout
the year with your bookkeepingand your tax situation.
With your bookkeeping and yourtax situation, a good bookkeeper
, cpa, accountant should pay forthemselves.
It should actually be a returnon your investment.
(24:53):
You should be making money byhiring a bookkeeper or CPA.
They should be helping you savemore money on taxes than what
you've paid them or helping youincrease your bottom line net
profit because of therecommendations that they've
made to improve your business.
So find one of those and holdon to them.
Speaker 2 (25:14):
Yeah, and find one who doesn't go out of business
on a moment's notice.
Speaker 1 (25:18):
Yeah, that's always a plus Right, All right.
Well, hopefully that washelpful on giving you some
guidance on how to prepare fortax season.
If you have any thoughts forfuture episodes, definitely
reach out to us on Facebook.
If you go to Facebook type inGrow your Painting Business,
join the conversation.
Love to hear from you and withthat, we will see you next week.
This is Daniel, the founder of Bookkeeping for
Painters.
Speaker 2 (00:04):
And this is Richard, the advising director with
Bookkeeping for Painters.
You all right?
Yeah, I am.
I'm just figuring out.
Start the podcast with a goodcough so they can't edit it out.
No, just cold weather.
Upper Midwest fourth grader andmy son's a fourth graderer and
(00:25):
he brings home all sorts ofstuff from school, so just
typical cold wow.
Speaker 1 (00:31):
Yeah, fortunately we haven't experienced too much
sickness, which I'm surprisedbecause it, uh, it might hit in
january february time frame, butuh, so far we haven't had too
much sickness in the house yet.
But I say that I should knockon some wood.
But today we're going to talkabout how you can get your books
(00:55):
ready for tax season, and thisis probably on a lot of folks'
minds.
So I figured I'd do a podcaston how you can get yourself
ready.
So I figured I'd do a podcaston how you can get yourself
ready and as we're putting thispodcast together, we just found
out some pretty startling newsthat Bench, which is a
bookkeeping accounting firmthat's pretty big, they have 450
(01:19):
employees and I know a lot ofpainting businesses use Bench.
They just put out a notice ofservice closure and it's posted
on their website right now andit says I'm just going to read
it we regret to inform you thatas of December 24th, the Bench
platform will no longer beaccessible.
(01:39):
We know this news is abrupt andmay cause disruption, so we're
committed to helping Benchcustomers navigate through the
transition.
From the entire team at Bench.
It's been an absolute privilegeto serve small businesses for
13 years.
Thank you for being part of thejourney.
So I don't know exactly whenthis came out, but I think it's
pretty abrupt because I did postit on social media and some of
(02:00):
the folks that use Bench arejust founding up from my
Facebook post, so I think it'shappened pretty recently.
It's kind of crazy.
Speaker 2 (02:11):
Yeah, and terrible timing too, because here we are
at the end of the year, peopleare trying to close their books
for the year and get ready fortax prep and their accountants
have kind of vaporized into thinair, and so I imagine a lot of
people, unfortunately, are goingto be left out to dry, not
having a you know accountingservice that can help them get
(02:35):
themselves closed up for 2024and get their taxes done for
2024.
Speaker 1 (02:43):
Yeah, it's definitely pretty crazy.
Well, so if you use Bench,definitely reach out and try to
get that handled as soon aspossible.
Hopefully you're not findingout from this podcast.
Hopefully you found out already.
So today I was hoping to gothrough some items on what you
(03:04):
should do to prepare for taxseason.
So we'll go through why beingtax ready matters, some steps to
prepare for tax season, somepitfalls to avoid and some
resources to increase your taxreadiness.
So, first of all, why should wecare about getting ready for
(03:27):
tax season?
It can definitely be in yourinterest to be ready for tax
season because we're talkingabout your money, right?
The IRS allows you to takedeductions against your income
and as long as you cansubstantiate it, it will hold up
and you'll be able to reduceyour taxable income.
Just by deducting, keepingproper records and deducting
(03:50):
those expenses, those purchasesyou made in the course of
business that are ordinary andnecessary.
Those will reduce your taxableincome and save you thousands of
dollars.
So that's a pretty good reasonto be tax ready.
Speaker 2 (04:08):
That's why I've got my big shoebox that I put my
receipts in throughout the yearand they're a little stained
with, like the hamburger greasefrom my fast food lunches, but I
just take my whole shoebox andhand it to my CPA and that takes
care of me right it to my CPAand then that takes care of me,
(04:29):
right?
Speaker 1 (04:29):
Well, not really, hopefully, uh, you're no.
Now that can be a process.
It's maybe more of an oldfashioned process that these
days there's a lot bettertechnology that you can use and
um a more robust, a robustsystem you can use and a more
robust system.
So I would say having somethinglike QuickBooks Online which
would pull in your transactionsfrom your bank accounts, your
(04:51):
credit accounts, and gettingthose categorized.
Maybe having a receiptmanagement software like Dext or
something where you're takingpictures of those receipts
instead of just putting them inthe shoebox.
You can keep them in theshoebox, but it's not really
great for organization where youcan just digitize them and then
they can be organizedautomatically.
(05:12):
So there's a few more stepsthan just putting in the shoebox
.
But this gets you thosedeductions.
It helps you protect yourselffrom an audit.
So if and when the IRS doesaudit your business, you'll be
prepared because you'll havebooks, you'll have those
(05:34):
receipts saved and this can be ahuge relief on stress and it
might Some business owners havetrouble really thinking am I
going to really get audited?
It doesn't seem like it happensthat often and we can tell you.
We work with a couple ofhundred painting businesses.
You know, at any one timethere's at least one painting
(05:59):
business that's being audited ineither by the state or by the
federal IRS in some manner.
Would you agree like one to twoat any point in time?
Speaker 2 (06:10):
You know it's funny.
You mentioned that, daniel.
I picked up my mail today.
In some of my clients I have apower of attorney filed on and
so I get copies of the noticesthat they receive from the IRS
and I actually received fiveenvelopes from an IRS auditor
today who is examining one ofour clients.
(06:32):
So a little serendipitous there.
It's an unfortunate serendipity, but yes, especially now that
the IRS has more budget thanthey used to.
And we've heard those stories ofthe IRS hiring 83,000 agents.
That's overblown.
(06:52):
But have they been hiring agood number of agents?
Yes, they have.
Has the current IRScommissioner publicly stated
that they are going to increaseaudits?
Yes, he has.
We have seen that they areexamining people more frequently
.
And I'm not saying this toscare anybody, because if you've
(07:15):
got your books and your recordsand your receipts, you've got
nothing to worry about.
But if you've been a little bitlax in that area, and
especially if your tax returnstend to throw up some red flags
because you've got higher thanaverage auto deductions or meal
expenses or just those thingsthat irritate the IRS algorithm,
(07:36):
you would want to make surethat you really have your your
source documents and your proof,because not everybody's getting
audited, but we are definitelyseeing an uptick in those who
are.
Speaker 1 (07:51):
Yeah.
So plenty of reasons why youshould be ready for taxes.
Maximize your tax savings,peace of mind, for when an audit
comes around you'll be readyand just having a good financial
foundation for your business.
All right, so what are somesteps that we can prepare for
tax season?
(08:11):
So, first of all, having yourbooks and when we say books we
really mean your bookkeepingright.
You're some sort of system tocapture the income and expenses.
Most folks these days are usingQuickBooks Online.
Hopefully you're not usingBench.
If you're using Bench, reachout to someone to switch over
(08:32):
and get that handled.
But QuickBooks Online is oftenthe choice there, and so the
whole process with this would beconnecting your bank account,
your credit accounts, toQuickBooks Online.
It will pull in thosetransactions, those expenses,
those deposits, money coming infrom customers.
(08:53):
Then you'll need to categorizeeach of those transactions and
reconcile those transactionswith your bank statements and
your credit statements.
And reconcile all that means isjust you're comparing what's in
your books to what it says onyour bank statement or your
credit statement from AmericanExpress or from Chase Bank, and
(09:15):
you're making sure that theymatch up.
So that's what it means toreconcile.
So there's a reconciliationtool in QuickBooks Online that
you would use to compare what'sin QuickBooks Online with what
the bank statement says or thecredit statement says and to
check off those transactions tomake sure everything is captured
and everything is accurate andprecise.
So that's kind of the big thing.
(09:39):
There is categorization ofthose transactions and then
reconciling those transactionswith your credit and bank
statements.
Speaker 2 (10:08):
Then from there, yeah , go ahead, stuff gets charged
back.
So, comparing what the banksays to your books and records,
making sure everything lines up,that's how you avoid those
missed deductions and thoseannoying little balances that
don't match and that driveaccountants crazy, that's how
you avoid those.
Speaker 1 (10:30):
Yeah, absolutely so.
Reconcile those accounts.
Also going through, if you haveemployees or subcontractors,
making sure that you've properlycategorized those payments,
especially for subcontractors,because we're coming up on the
(10:51):
due date for 1099s to besubmitted, which is January 31st
, and so when you havesubcontractors you have to
submit a 1099 to the IRS and acopy to the subcontractor that
you use.
If you pay them over $600throughout the year and they're
(11:13):
not taxed as a corporation andyou didn't pay them via credit
card, which probably most subsare, you're paying them with
Zelle or with a check or withsomething like that, you have to
send them a 1099 to the IRS aswell.
So making sure that they'recategorized properly in your
books will help you generatethose 1099s.
(11:35):
So in QuickBooks Online there'sa little box you check to say
track this as a 1099subcontractor or 1099 contractor
and from there, quickbooksOnline, you can actually submit
1099s through QuickBooks Online.
There's other tools you can useas well.
Maybe you're paying yourcontractors through Gusto, for
(11:56):
example.
They'll actually do your 1099sfor you, but just making sure
that, especially if you may havepaid contractors through a
different system like maybe youpaid through Gusto half of the
year but then the other half ofthe year you paid them with a
check.
Well, you got to make sure that, if gusto is aware of those
(12:16):
outside payments, so that the1099s are correct.
So going through making surethose subcontractor payments are
properly recorded so that those1099s can be generated
accurately yeah, and I, like you, mentioned contractors, um, but
also employees.
Speaker 2 (12:34):
If you have employees , making sure that their payroll
is up to speed, that you're notmissing any payrolls, because
those W-2s are going to getissued.
We want them to accuratelyreflect what the employees have
been paid and how much taxeshave been withheld.
And when you're looking atemployees, don't forget yourself
(12:54):
.
If you are an S-corp owner,especially if you're the only
employee in your company, makesure that you've run your own
payroll for 2024.
Maybe you're a new S-corp andyou did an election towards the
end of the year.
You've got about, you know,just a couple days before the
end of the year.
You've got about, you know,just a couple of days before the
end of the year.
(13:14):
Make sure you get that payrollin there so that you can show
those wages on your tax return.
We don't want to file an S-corptax return and not have any
owner's compensation or I shouldsay shareholder compensation on
there.
Speaker 1 (13:30):
That's one of those red flags that upsets the irs
computers, yeah so to avoid thatkind of brings us to our next
section, which is kind of commonpitfall, pitfalls to avoid.
So the common one that I see,especially for the, the smaller
business, newer business ownerswho are just kind of getting
(13:51):
started.
They are oftentimes mixingpersonal and business finances
together.
They have a credit card thatthey're making personal
purchases with and businesspurchases with, and this is not
good from a bookkeepingperspective but also just from a
liability perspective.
You want to keep your businessand your personal separate.
(14:12):
So having a separate creditcard for business, separate
credit card for personal, a bankaccount that is solely for
business transactions, you wantto keep everything separate.
One reason would be from just aliability perspective.
I'm not a lawyer but from myunderstanding the lawyers say
(14:46):
you don't want the courts to beable to pierce the corporate
veil yourself separate from theentity, the business.
That will hopefully build thecase that if someone sues a
business, the course won't alsoallow them to go after your
personal assets.
So having things separated canbuild that wall between yourself
(15:09):
and your business to protectyourself.
So that's the legal reasoningin your business, to protect
yourself.
So that's the legal kind ofreasoning.
And then, just from abookkeeping or accounting
perspective.
Keeping things separate justmakes it easier to understand
what's going on in the businessfor tracking purposes.
So we know when you made apurchase at Walmart, on your
(15:30):
business card it was forbusiness purpose, as opposed to
you just wanted to buy someHalloween candy or something.
So keeping that personal andbusiness separate is paramount.
Another, oh, go ahead.
Speaker 2 (15:47):
Oh, I was going to say they have a term for that I
think they call it co-minglingwhen you mix your business and
your personal together, that Ithink they call it co-mingling
when you mix your business andyour personal together.
And if you ever do get audited,you want to make sure that you
don't have any personal expenseson there, because those would
get disallowed.
And if it's severe enough, likeif you're trying to write off a
significant amount of personalexpenses, you could face
(16:11):
accuracy-related penalties, andthat kicks things up quite a bit
.
I think that's 20% is theaccuracy related penalty.
So just you know, be carefulthat we're not double dipping
and that you know we're keepingour business away from our
personal stuff.
Speaker 1 (16:29):
So yeah, absolutely, yeah, absolutely.
Another common pitfall is justmissing some common deductions,
like not tracking your miles foryour vehicle so you can do or
or not electing S Corp youmentioned earlier.
You know, in not properlyrunning your officer salary
(17:02):
there's a lot of pitfalls, likejust little things, that if you
kind of take advantage of thoselow hanging fruit, those low
hanging fruit tax strategies andimplement them before the end
of the year, it can really helpout with your tax bill and save
you thousands of dollars.
Speaker 2 (17:19):
Yeah, and if you have a corporation or a business
taxed as a corporation and youfind that you do have a bunch of
little tiny transactions thatmaybe you paid for with your own
personal money or like a homeoffice deduction or a personal
vehicle that you're using forbusiness, you're not out of luck
(17:39):
.
That's why we have accountableplans.
We can get you reimbursed forthose things and have the
business still take that taxdeduction.
But we do need to track it.
We need to know about it.
So the end of the year is agreat time to review that and
make sure that you getreimbursed for those things so
the business can write them offyep all right, oh, go ahead.
(18:06):
Oh, I was going to mention sowe've got one more pitfall, and
I think this is actually myfavorite, and that is the.
Uh.
Nobody likes last minutebookkeeping, nobody likes the
the shoebox full of receipts.
It's stressful on you, thetaxpayer, because you don't know
what's in there and you have noidea what your taxes are going
to be because you haven't,because you don't know what's in
there and you have no idea whatyour taxes are going to be
(18:26):
because you haven't tracked yourexpenses all year.
And I can say from experienceit's stressful for your tax
preparer and they're probablygoing to charge you more than
you should have to pay becausethey have to do a bunch of
bookkeeping, and not justbookkeeping but unfolding
receipts.
Let's change a little industrysecret Pain in the butt charges
(18:50):
are a thing for accountants.
If you irritate them, if youmake their life hard, there are
some accountants who will chargeyou extra for that.
I guess the appropriateness ofthat is debatable, but I get
where they're coming from.
So not leaving these things tothe last minute, having a system
where you are dealing with itthroughout the year so you can
(19:13):
know your numbers, have a goodidea of what your taxes are
going to be not be freaking outon April 12th because your
shoebox hasn't been gone throughyet.
Man, the peace of mind is, Ithink, it's worth its weight in
gold.
So, of all the common pitfalls,I personally find that one to
be the one I want to avoid themost.
Speaker 1 (19:37):
Yes, yeah, I just spoke with someone yesterday on
this one, really frustrated.
He's working with an accountantand nothing's done.
It's end of the year and he'sjust scrambling to get
everything together and stressedabout not really getting that
tax, understanding how much taxliability they're going to have,
(20:00):
not understanding how well theydid during the year.
So it's best to be doing itthroughout the year, not waiting
to the last second for sure.
Speaker 2 (20:09):
Right.
I mean the fourth quarterestimated payment is due on
January 15.
You won't know if you're payingin enough if you don't know
what your expenses are, and soyou'll probably not make the
payment or you'll make it toolow, and then you'll have
underpayment penalty orestimated tax penalty to go
along with that.
(20:29):
And so you know, when we thinkabout bookkeeping, we kind of
think of it as like oh, that'san extra expense.
Well, it is true, there is somecost involved, but it's also
saving you money because you'renot paying unnecessary penalties
or you're holding onto yourcash longer because you're not
paying unnecessary penalties, oryou're holding onto your cash
longer because you're notoverpaying the IRS.
(20:50):
So it's not all expense.
There is a financial benefit toit as well.
Yeah, and think of all themoney you'll save on Tylenol,
because, okay tylenol becauseyou, okay, exactly, um, all
(21:12):
right.
Speaker 1 (21:12):
So last section here is the tools and resources for
being ready for tax season.
So we mentioned quickbooksonline.
It's it's kind of the go-to formaintaining your books.
Creating those books I don'tnecessarily recommend unless
you're pretty savvy withbookkeeping, like you've had
some accounting classes or somefamiliarity with accounting.
(21:33):
Quickbooks Online is not reallya tool for everyone.
They have some useful featuresnow to make it more
user-friendly, but it's reallyan accountant's tool or
bookkeeper's tool to manage yourbook.
So I do recommend getting abookkeeper to manage QuickBooks
Online for you, because gettingit done right the first time is
(21:55):
always the best way to go aboutit.
The next tool would be somethinglike Dext or HubDoc.
These are receipt managementsoftwares where you can download
an app on your phone, take apicture of those receipts,
especially paying attention tomeals, because meals are
scrutinized more closely.
So whenever you have a mealwith a client or an employee or
(22:20):
a contractor, subcontractor,just get the receipt, write on
the receipts the reason for themeal, like meeting to discuss
project.
Take a picture of the receiptand then that will go up into
DAX, store Hubdoc and store thatdigitally to have that
(22:40):
justification that, that proofof of that meal so you can
deduct it on your taxes.
Meals are scrutinized.
Travel if you're traveling tothe Painter Contractor
Association, which Richard and Iwill be at in February in
Colorado Springs, if you'regoing, definitely find us.
If you're going to that, makesure you document that, get
those receipts for that event.
(23:02):
And also vehicle use mileagehaving a mileage log for your
vehicle is super important.
Getting something like MileIQmakes the record keeping for
tracking miles a lot easier.
Using something like MileIQ,which basically tracks the miles
(23:23):
as you drive and then you swipeleft or right for business or
personal it remembers yourroutes makes the record keeping
for a mileage log a lot easieryeah, and I know tracking miles
is like the bane of everyone'sexistence, like I get asked all
the time like is there any way Ican avoid tracking miles?
Speaker 2 (23:43):
unfortunately, the answer is usually no.
If you get audited and they askabout your auto expenses, the
first thing they're going to sayis we want to see your mileage
log and if you don't have one,there goes the deduction.
So yes, I know it sucks.
I completely agree with you,daniel.
(24:04):
Mile IQ makes it suck a littlebit less, but I would say the
value of those deductions are sogreat.
The IRS just announced that in2025, the amount will be 70
cents per mile.
It's the highest it's ever been.
It is worth the extra effort tokeep the log and protect those
(24:27):
deductions.
Speaker 1 (24:31):
Yep.
And the last one is reallygetting a good CPA or bookkeeper
to help you with this time ofthe year and really throughout
the year with your bookkeepingand your tax situation.
With your bookkeeping and yourtax situation, a good bookkeeper
, cpa, accountant should pay forthemselves.
It should actually be a returnon your investment.
(24:53):
You should be making money byhiring a bookkeeper or CPA.
They should be helping you savemore money on taxes than what
you've paid them or helping youincrease your bottom line net
profit because of therecommendations that they've
made to improve your business.
So find one of those and holdon to them.
Speaker 2 (25:14):
Yeah, and find one who doesn't go out of business
on a moment's notice.
Speaker 1 (25:18):
Yeah, that's always a plus Right, All right.
Well, hopefully that washelpful on giving you some
guidance on how to prepare fortax season.
If you have any thoughts forfuture episodes, definitely
reach out to us on Facebook.
If you go to Facebook type inGrow your Painting Business,
join the conversation.
Love to hear from you and withthat, we will see you next week.
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