So I know a big thing in the hair extensions industry, especially when people are just getting started is paying for like samples of hair bundles. Are All of those samples tax deductible?
Yes. Hardest guy. She didn’t say if, no. Yes.
Okay. Well I’m trying to show you guys how everything that I’m doing is too. This is the police here for you. Whatever we need. We’ve literally got
warning money gang. Give me one second so I can share this conversation. We’re actually going to be fielding all of the questions from this conversation to my group care business headquarters. Um, you should see it like right there on my Facebook page, home page. Um, but let me go ahead and make sure that this is shared out so that the group I’m doing this live stream for has complete access. Now today we’re going to be talking with a tax professional. Um, I’m paying her for her time. Um, she’s agreed to speak openly and freely about any and every question that you have about your hair business. I guess if you have another question about any other business, go ahead and throw that out there. One second. And while I’m doing this, go ahead and chime in on the conversation. Let all of us know where you’re watching from. This isn’t just a one way stream. This is the, the point of all of this is to build a community of go getters, community of people that are really out there to change their lives this year.
No, that’s not the page. Come on. See
then she should be calling on my secondary line.
There she is.
So let me know if you guys can’t hear it. Let me know if you need me to lift the speaker up or anything like that. Um,
Hey there. How are you today? Sure. I’m good. How are you? I’m doing really well. Thank you so much for agreeing to be a part of this conversation. Thank you for taking time out of what I know is your busy season to help educate all of these here and beauty entrepreneurs.
Oh absolutely. It’s my pleasure. Thank you for having me.
Of course. So to get started, can you do me a favor and give our group a little background on your experience and what makes you a trusted source of information?
Oh, of course. Of course. So I’ve been in the text cranny and compliant industry for about 11 years. After Grad school. I went and I worked as an a revenue agent for the IRS for eight years. Um, and so with them of course, um, I’m sure you guys know that we that went around in an audit businesses for eight years. That wasn’t really out of the person. People wanted to see coming into their business. They had to deal with me and trusts me. I was always fair. Uh, so I think that for eight years everything really enjoyed it. It gave me a lot of perspective as to, um, what the IRS is interested in looking at when they, uh, when they’re looking at people and small businesses tax returns. Um, as well as the, gave me some insight into how small businesses were operating from an accounting and taxation perspective as well, what their challenges were, what their misunderstandings were.
Um, and kind of educating them on, um, Kinda how to pass an audit. Um, after that though, it kind of, um, I kind of wanted to be able to help inside. I didn’t want people to cringe every time they saw me. I wanted to kind of give that from moderate counter attacks, the knowledge that I’ve gained. But I let the IRS and I went to work for public accounting just so I can get a lot of, uh, more exposure it to the business side of things. And I’m wanting to, to help clients out in this, this complicated area of text, um, at their public accounting. Uh, went and got some fortune 100 experience. So I worked for a corporate tax department, um, and the corporate tax planning, Dick Appliance area. And then I started my own firm. I said, well, I’m gonna, I’m to sell my own small business and I’m kind of direct and, and specialized with this small businesses that I kid the most about. Um, so, um, I have my own farm. It’s called Med tags. It’s a virtual tax and accounting fan. So we are, um, we’re virtuals or everywhere, but I myself, I’m located in Illinois. Um, and I don’t even think I mentioned this word, but I’m Kenesha Coleman of Copa Tech. So, uh, there you have it. That’s my background in a nutshell.
Well, I appreciate you giving us that background and that depth into where you came from. I think your journey is really similar to a lot of women that we are helping out to start their first businesses in that you saw a need, you knew that your skills could be utilized if you put them into play for yourself as opposed to helping to build someone else’s dream or someone else’s company. So I really appreciate the fact that you first and foremost of course, specialize in beauty and small businesses and by start up taxes and then secondarily, I appreciate the fact that you are sitting in the same position as the majority of the women that we serve who are black women that are out there first time entrepreneurs that know that they have something to offer but just don’t know how to put all of the pieces into place. So again, thank you so much for taking the time out of your day to have this conversation.
Well, absolutely. Absolutely.
So let’s, um, I think we should start with where you started, which was auditing. Um, when you get a note in the mail that you are being audited, that’s usually something that’ll get you shaking in your boots immediately and for good reason. Um, but that’s when something has raised a red flag. That’s when you are like kind of not kind of, but you’re being invest. Like what are mistakes that small business owners make, especially in the beauty space that might lead to trouble. Let’s start there.
Okay. So I’m going to say this, and I’m gonna say this from the perspective of a former IRS agent, not the vicious statement from the IRS. Cover my butt there for a second. But, um, there is an internal, just a red flag against, um, cash intensive businesses, right? So does it just, you could think of it as odd, just their perspective, right? They think of, um, the average consumer off the street goes to a store, um, to buy this type of product or a salon or a barber or are most, um, establishment and the beauty and wellness industry just didn’t just think cash, cash intensive. And when you have so much cash flow around you, um, it’s really easy not to track it up, right? So if it doesn’t hit, uh, like a fake or something like that, then there’s no way to track it.
So then the IRS has the, you know, do a lot more work on their and chat to figure out what, um, income was actually made versus what was reported. So I would say the burst and aspect that that happens, it could happen maliciously, right? It could be the head of the business owner to say, okay, on that reporting as money, you gotta just get in cash or it can just be an inadvertent, they didn’t need to do that. Or maybe they just don’t have certain accounting controls in place to track every single penny like the IRS would expect them to. So the person stay, guys, be small business owners. Make is, um, just
their record keeping their accounting system, the tracking of all the income and expenses for their business. It was a lot of times where I started audits then I would look at the in common, I’ll look at the expenses and I’m interested in knowing, okay, um, you’ve just, you know, you just started this year so I could see that you made a lot cause you’re just starting. But if you’ve been in business for a little bit now, you know, and you’re still running a loss after a number of years, then I’m kind of getting skeptical. Like, you know, you’re not making any money but you’re still in business after, you know, two or three years. I don’t understand that even though it could be true. Um, or if they have a lot of expensive, which is from a business perspective, that’s comment that have a ton of expenses on there.
You know, first one or two years cause you’re starting everything up, you’re building your infrastructure. Well that’s fine. But I still be proof of those expenses. And a lot of new small business owners, um, they’re not savvy with the record keeping yet. You know, they know they spent $500 before the LLC, but they don’t have, they didn’t keep the invoice or the receipt or the kids who check or the, you know, the charging from the credit card, they can’t find it anywhere. Um, so you know, how do I know that that’s really how much that costs.
So when it comes to you just getting started out, what are the types of things that you need to track and hold on to?
So I would say, and I know there’s going to be that what you guys want to hear, but every, every day when it comes to accounting and tax, there is a presumption that you will be checking everything. Now we get it, you know, things happen and things get lost. And so while in general there’s a rule that everything needs to be contemporized initially kept. So let’s say you go and you buy inventory for you to keep that invoice. It will be nice if you made a note on the invoice or maybe created an internal memo as to what it was for, who the vendor was, um, and all of that and how it relates to your business and you know, electronically keep that. I would never advise that to keep paper at all. It just does, it is just not feasible in today’s world and it just too much private.
Keep track the business. Anyway, we’ll snap a picture of it, but I will say track everything and there are lots of apps for you to keep track of this stuff now. So I’m just going to assume that we’re all are very tech savvy and that, you know, we have smart phones and have maybe a Google drive or Dropbox, I would say, you know, you’re buying stuff and you’re using your credit card or debit card or whatever online and they’re emailing you back invoices. Go ahead and move that email with that invoice right over to that receipt folder. Um, to keep track of that. Or if you’re, you know, you’re out and about on town and you’re buying supplies and stuff, you know there are apps, like quickbooks has an app and I know there’s zero and say shows our account really, really low cost accounting system where you would just take off your phones and have a picture that it was make it note of what it was for and it’s done.
So I love the fact that you touched on we are living in a digital age and for the most part when it comes to like my company personally, there is an approaches made in cash because we are like there’s, I just don’t think that there is a need for it. We process all of our payments through paint, Powell and then tie all of our recurring bills through that system. Would those receipts and invoices and the tracking that we get from the platforms that are just put out there for us to use like paypal, would that suffice in the place of us like printing out in storing a bunch of receipts or do we need to go any further than that?
No, that’s all fair game. But I arrived that that care, like how you keep it and worked for Miss Kempton is just that if you are ever asked, you know, hey show me the source document for this purchase. As long as you can show that to them, they’re fun. You can write it on a Napkin and half the vendors sign it and date it. If you want to take a picture that that’s your receipt as long as you have it and that’s your consumer Aeneas substantiating document that is all fair game and an IRS audit.
Okay, so I think something I like to make sure I do when I’m putting out content is give the people that are watching a really contextual view of the topics. So can we understand like worst case scenario, my understanding is you get audited, they find something that doesn’t work and you end up going to prison. Like DMX, like that’s worst case. Like am I on the right like prison is what you end up with. Worst case scenario, if you are not doing what you need to do with tracking and paying your taxes,
I would say, I would say for an IRS audit, it’s really built on intent. Right? So that’s just remember that. But I don’t think audit is conducted by like a person, a real human that understand that it can be tough tracking like every single penny. Like we get that. And then sometimes, sometimes maybe you kept track it, but it wasn’t the contemporaneous, I’ve seen situations where I’ve started in audit and um, they didn’t have, you know, support for something. So they had two options. Number one, they can go and they could ask them, you know, guesstimate, you know, based on roots, really good, like information of you know, what they’re doing now. We’ve always done the same things. I’m sure I can estimate how I did it, you know, from a year or two ago. It’s called the Cohain rule. And you can’t, you can’t guesstimate. I say guesstimate because I mean obviously it’s not going to be, you know, very specific and truths effect.
Cause you’re doing it after the fact, but yet you can’t guesstimate. Um, based on today’s knowledge what you would have done a year or two ago when it actually happened to, I have had situations where, okay, they don’t have the suspicious documentation from the year that I’m auditing, however, they’re still using this vendors. So today. So they’ll show me substantiating documentations from the current year because it was the same as the prior year and that has been used to sufficiently prove out that expense. And so, and then, and then again, you could always, always explain yourself through an audit if you don’t, if you have not been proven to have a criminal intent, people that go to jail, um, are people that like, it was their malicious intent to hide money or file false tax returns from the government, right? They intended to evade tax. You don’t go to jail for um, being speak sloppy with your business, right? Or just not knowing accounting. You may have to pay, obviously you got to pay back the money you own. You’re going to pay back interest. But you can even explain your way out of a penalty.
Oh Wow. So then when we think about those situations where people have had to go away for years and years, it’s because what it came down to wasn’t a lack of knowledge in this area. It was the intent to actually get out of paying the taxes that were due to the government.
Yes. Okay. Yes. Yes.
Speaker 1: (17:13)
I think that’s reassuring for like all of us non criminals.
No, no. For sure. No, for sure. For sure. We even have like you could always say like, hey accounting is in my face. I didn’t know what I was doing, you know, but but you and the agent are working together to figure it out.
But if there’s a paper trail that shows that you were trying to add this over here and then cover it up with this and that you were just doing the absolute most knowing what you are doing. Okay. I think that like, I think that the idea of being audited it, it’s like the Boogie man lurking in every business person’s closet or under, it’s just like, wait, what does that even mean? And so I guess what you’re explaining is it means that you guys are just looking in a little bit more. Um, there might be something that just doesn’t add up or maybe you’re in a cash intensive industry where there needs to be a little extra scrutiny, but the audit doesn’t auto automatically mean that there’s wrongdoing. That just means we’re going to go ahead and take a closer look.
Very, yes. Very correct. Yep.
Okay. And so one of the big things in the beauty industry, especially like, like I have a lot of questions about deductions. And so right now in this conversation it goes, you’re filing your taxes, everything is good. If they have a question about anything you’re doing, then you get audited and that’s when your finances are basically under an investigation and then if they find wrongdoing, you end up in jail. So that’s correct.
Okay. Just trying to keep it really, um, general for my audience to understand everything that we’re trying to put out there. So when it comes to the first like read or audit thing, what, um, can we not deduct? Like when it comes to here, a lot of people want to know, so can I buy a bunch of wigs and wear the myself since I’m the owner of the business and I’m the face of the business? Is that something that I can write off on my taxes? Am I going to get all of this money back because it’s being put toward my business that along with makeup and clothing and trips to Bali to launch the Bali hair collection? Like how does that stuff work?
Okay. So this is very, very broadly, right? In the end, the IRS tax code is code section one 62 not that I ever wants you to go read the code, cause the other better publications out there. But causation one 62 is it states that you can do Doug, any a space do, incur in your business that is ordinary and necessary. And that’s a fact and circumstances, um, determination there. So every, every expense ordinary investors is going to be obviously different for every industry. So for example, for the beauty and wellness industry from us, from my tax professional perspective, if, if you say to me, okay, I’m going to go buy, um, this, this way, this unit, I’m going to wear this too to this networking event, um, where I want to, you know, call me and go in me, you know, vendors of wigs in, in head distribution or something like that. Right? Um, in my mind, that ordinary necessary because that is enabling you to network more effectively. You’re not saying I’m going to go with this wig to the club.
Or let’s say you, okay and then we take this, let me, let me flip this. Let’s say you do wear to the carbonite. What for purposes of meeting other women to fail then very unit, right? That what, that’s an ordinary and necessary business expense, business expense, you know, enabling you to sale merchandise that you sell. Now, what I would say is how do you now, so put that in your business and ready to be sufficient if you’re auditing in question. And I would literally just keep notes of that. Like when your business planning you, you’re going to have some notes or memos or plan or somewhere to say, hey, I’m going to, I dunno, club x, Y andZ , and now I’m going to wear it for purposes of networking, a woman’s to sale. You know, that’s called the week Angela, and you wore Angela that night.
You’re gonna sell Angela cause we’re gonna see we’re gonna like it. That wasn’t ordinary and necessary business expense versus like me, I’m a CPA. If I go by Angela, I can’t say, well I’m going to look good because I want to go network with the mother. You know, it was the mothers people, they’re good. They’re going to say what CPAs don’t ordinarily do that, you know, business and wellness professionals like yourself and your audience, you all do do that. So I would just make sure you substantiate and note in document those things. And Amy, reasonable agent will say, okay, yeah, that makes sense. Like for instance, will you go to, um, I don’t know if you’ve ever been to like the Brunner brother’s hair show in Atlanta. When people go there, the professionals that exhibit, they are awaring their product. There may go, they hear that they just did or they hear that they’re selling, they’re wearing that stuff. So then people can approach them and they can demonstrate how beautiful is, how well the product is. That’s all ordinary necessary. So when you’re thinking about specific thing, whether it’s hair and makeup, jewelry, whatever is, you know, you know your intent, right? And so I would say just know you’re a intent and adequately documented, you know, real time in a plant, not even at the fancy in your planner, you know, and that should be, you know, on that,
what I extra appreciate about that response is the fact that I know that you’re a part of the way community because you knew to call her by her name. [inaudible] I just like had to throw it out there. But I love the fact you brought up the broader brothers here show, I know that that’s coming up in like a month or two. Would that be a deduction for a hair extensions business owner to go with the flight and the hotel and like the, would that be a deduction for them or is that not typical?
I’m going to say typical, but from my experience it’s always been has it ever been allowed? Yes, but it’s a harder sale, right? Because you would have, I think the key to it is it’s really bifurcating again in your records, what’s business and what’s personal. Right. And we all know that when you go to conferences, um, you know, there’s going to be a business aspect that there’ll be a business aspect of it, but also there’s a fair amount of, of, of personal as well. So in your record, let’s say you go and you get your young, of course, the flight of course, the hotel of course, my conference, registration fees, even exhibitor fees. Um, but then we use that adding like meals, meals will be limited to 50%. Given that you had a business conversation before, after or during, um, you cannot, you cannot deduct entertainment of any sorts anymore. And just any other miscellaneous things you’re incurring, just make sure it relates to, you know, what you’re doing as a professional at the conference. Right. But you, you decide to have a massage at the hotel. You remember just the car, that car that extends out of the Bu, you know, before you record it as a it as a business expense. You see what I’m saying?
Definitely. So like the turnip after hours with all the business owners, you might be like, I guess mentioning the name of your brand, but if you’re out there networking, don’t, don’t do that.
Yeah. And that’ll raise the red flag. Yeah. Okay. Yeah, exactly. That makes, yeah, exactly.
Very clear sense. So the broader brothers here show is typically an expense as long as you make sure that you’re documenting everything. And at the end of the day it comes down to you having a conversation with another human person and talking about the intent and explaining the thought behind it in that you weren’t trying to deceive the government.
Right, right. And so let’s say you, you’re gonna meet somebody, you’re gonna probably get their car and pregnenolone link up for some meal. What I would do, like since you’re in, since you’re face to face in that like you’re going to have an email floating around or something. So I was just making a note of, you know, this is why I meant when, where, and what we talked about. But like let’s say, you know, you and I are talking right now, we know we’re both going and we send the email saying, hey, let’s meet on this day to talk about x, Y, Z, same email. They said email. That email’s going to be key. But yet this was a conversation about the business at the conference. So this meal I can take at 50% for good purpose.
That’s like the power in just keeping records. I didn’t know that. That sort of note in your planner would make that much of a difference in case of an audit or a look into what you’ve been doing.
Yep. Yep. We, we don’t care how you keep it. Like you don’t have to have some fancy, you know, format or anything. We just know that you kept it and it’s just super, it’s way, the most powerful thing is what is kept, you know, contemporaneously. So like, you know, you get auditing two or three years after the fact, so you present them with something that you just created last night when you guys, okay. But if you, they see that you may is no in a planner or something three years ago, they’re like, okay, we don’t have any further questions. We see that you did where here’s box to do.
Right. Okay. That makes so, so, so much sense. So I know a big thing in the hair extensions industry, especially when people are just getting started, is paying for like samples of here. Bundles are all of those samples tax deductible.
Yes. Hardness. Gosh, she didn’t say if,
no. Yes, we’re gonna. We were gonna call that like you know those are like job supplies. So like if you were to, if those different for work, you’re trying to pick out your business card and, and so you buy samples from Vista print or you buy the Promo Bundle from Vista print that cost like $25 a month. There’s no different from that. It’s just you know, here.
Perfect. And then one thing that I really try and push people to do, it’s why we’re livestreaming this conversation and I’m showing people that we’re having the talk on an iPhone and live streaming on another iPhone and, and it’s just like $100. I just try and tell people how easy it is to produce content for their brands because I know that content has a great impact, but along with the content comes like the look. So is the makeup that I’m wearing, are the clothes that I’m wearing as part of this marketing strategy tax deductible or is that another thing that might raise a red flag if, if I try and mark that down as a tax write off?
Well, what else? Say, well, first off you’re going to buy all of this. Well you on the back of a bit. So let’s say you are thinking about, you know, what do you do, do day in and day out for your business? And you’re saying, okay, what do I need? And if makeup and you know, whatever else is what you need to do your job, which is producing content, being on video, those are jobs applied in jobs, surprise are deductible. Now if you get an agent that really digs into your accounting records, I mean they, they, they would have to dig to see a line out of that that says makeup. Um, and then you would have to explain that to him or her. You have to explain that to the agent. Now what I will say it is tax deductible because of the job supply is something that you use to do your job, which are part of that job is producing content.
You know, video and meeting people. But I will say that what they’ll try to do is they’ll try to limit it so they won’t allow it or let you not take it completely. What they’ll say is, well, and I’m just quoting an agent here. They’ll say, well, will you stop livestreaming? You’re still wearing them. Okay, so you may go out somewhere, you may go to Starbucks, you, you know what I’m saying? They’ll get that petty. They will get, they will get that petty to be like, well, you went to Starbucks and you know they may, they may, they may limited, right. They may say, okay, I’ll give you 50% of that, and you say, fine, it’s better than nothing, but that’s totally different though. If you went, you know like privately, previous example when you are wearing Angela, now you go to the club and you in the club from 10 to 2:00 AM and then you went home.
That’s the whole entire night. That was like a work shift and so that is everything. Now, I hope, I hope you never get audited, but if you do, I hope y’all get an agent that petty that they will go that far because the price of makeup I would think will be a nominal expense compared to other expense line items. And so then she can get that pay. But makeup is a job to, I will put it in the job supply category and love it with all your other jobs applied like pen, paper, business cards, things like that. And if they dig that far and find it, you have a reasonable explanation and grounds for taking that as a tax deduction. But we hope they don’t get, that doesn’t go that far. But that’s the worst that could happen is that those, this bill does allow a portion of it.
Okay. But as long as you can demonstrate that it was actually used for the purpose of the business, um, and have that documented before the, before the audit takes place.
You had an hour and then like I say, I remember say everything would audit. It’s very gay. It, the code does not specify how you prove out anything. As long as you prove it out, you can literally, if you want to send them your youtube late, say look at these videos. You know, and they can see, you know, cause when you get an agent, when I was an agent, I did my due diligence and I, I taught myself the background of the person I was auditing. So one can know what the norms, where every agent is not going to be like that. They’ll, they’ll come into the beauty company blind not knowing what’s normal, what’s not. And so you may have to play the role of educating them about your industry. Okay. But then it’s on the person to understand that you have to educate them and be patient with them and understanding otherwise you have to pay up.
Okay. Yeah. So one question from one of our live viewers is, is there a large difference between filing as a contractor and having to pay that small business income tax or an LLC? If we were to launch as a startup, I know that the majority of people use paypal as their payment processor, which doesn’t require them to input an LLC. So those funds are generally just considered am or independent contractor income. Is that, am I correct with that?
Well, you know, okay. So you are corrected and differentiated between the two. But I think a think I want, I want everybody to think of the difference between sole proprietor or we’ll we’ll call it independent contractor, um, versus having, uh, like a legit LLC. The only difference is that the LLC person has went and paid a fee to their state to be, you know, incorporated and regarded under the steady state statue as another LLC. So they benefit from having the protection, um, from being to, you know, for anything with the exception of like malpractice. Right? So if anybody came to you and sued you for whatever, they only can go after your business and whatever money you’ve is that is a visit business as an LLC versus if you’re just a sole proprietor to that and that they can go after any and everything including like your home when your car. That’s the only difference between the assault, the independent contractor and the LLC is the statue protection, right? As far from an income tax perspective is exactly the same. The money that you earn is going to flow right through your schedule C to your form 10 40 and you have any texts on it, on the profits of your business as well as self-employment texts. Those are exactly the same.
So then another question from someone in our group is how much should we set aside for taxes?
Lot of the cases again,
how much should business owners set aside for taxes?
Okay. So the rule is you have to pay in text and it changed with the new tax law, but you have to pay estimated taxes quarterly throughout the year exceeding or equal to 90% of what you made the prior year. So you know how to give a year. So 2019 just started, you’re not sure what you’re going to make and neither does the IRS, but go to last year and say and say, okay, what did I make last year? And take 90% of that, divide that by four and pay that in. Now if you does, don’t make that much this year, you’ll get a huge refund. But if you make way more, at least you have covered your base and you won’t get penalized by the IRS.
no, I was just going to say that it’s really interesting that you would just take what you made last year and allocate like a quarter of those tax funds per quarter to pay it. That’s, it’s an interesting concept to me.
Yeah, just pay that in as your estimated tax payments. They’ll post it to your tax account. And then so you get to the next, um, tax filing season. Like the prior e’s the previous year, not the previous year, but the subsequent year. They, the way they figure whether you have, um, a penalty or not is like, hey, has this person paid at least so you know, this 85 or 90% of last year. And if you have, you all get paid alive, you just pay the rest of what you owe if you owe or you will say, okay, you didn’t make that much. So here’s your refund. Thank you for giving him alone.
Okay, so Tila asks, do I have to make a, Oh, did you have a question? Okay. So Joe, my producer in case you guys didn’t hear him, he was just asking for a little more clarity on the difference between last year’s taxes and like you predicated what you responded with. You said this is a new tax here. There are recent changes. What are those changes that we should be aware or conscious as business owners?
Oh, it show much and the reason why, okay. It’s okay. So the new tax law eight heavily affected corporate individuals but it more so affected individuals. And now I have to log the individuals with small business because most small businesses are LLC, single member LLC, um, partnership s corp and they just had the right through to the individual anyway, right? So now I look at it all holistically. So for individuals the standard deduction has changed in nearly double for every filing status. Um, personal exemptions, they went away. Um, from a schedule a perspective, the itemized deduction schedule stayed in local income tax and they’re capped captain 10,000. Now, um, mortgage interest, you can only pay interest up to a mortgage of 750 k. Um, what else? As far as the, if you have children, the child tax credit is double ill from 1000 to 2000.
Um, then there’s a new other dependent deduction is $500. In case you’re taking care of like, you know, someone employed cousin, there’s things in your couch. Um, a lot has changed specifically from a business, a small business perspective. And I love this deduction. It’s called the M QPI is section one 90 98 called the qualified business income deduction. If though, because Congress, they decrease the tax rate for corporations, they said, okay, we gotta do something for Schwab business too. So they said, okay, we will allow small businesses to have a deduction for 20% of their small business profit. Now there are some exceptions and phase out rules like can you make over a certain large amount, your, your deduction is lowered. Um, but broadly the QBI deduction of 20% of your profits that as pretty good. Um, another very specific, really good deduction for responsiveness is the 100% bonus depreciation. So whenever you bought last year, normally when you buy big items with asset life greater than a year, you have to, uh, get the capitalize and take that as a deduction pro-rata over a number of years. Like for example, if you bought a piece of machinery and it was five years and it cost you $20,000, you could only do so much over five years. But now if you bought something that was ten thousand twenty thousand you get to that all.
Okay. It sounds like there were in fact a lot of really major changes.
They were all all good changes. And I’ll tell you now, the only thing that’s getting people hung up, and I’m sure you all have seen it in the new cause I’ve been seeing in the news, is that when the tax law changed, they changed the withholding tables. And so people got bigger paychecks throughout the year, right? Yeah. So now they’re not seeing big enough free funds and they’re like, yeah, cause again throughout the year, but I’m sure that that’s not on this call.
Okay, that makes sense. So another question from our audience from Tila, do I have to make a certain amount of money to need to file business taxes or does everyone across the board if your business is registered and it should be, do we all need to file this? This taxes,
the magic number is $400
just for an angle.
solid teapots. It’s house. However, however, and this is where I, I met a young lady at the same project. The same question you gotta remember, it’s not about the money you made. You get the take expensive, right? You the money, let’s say you made $0 million but you spent two grand, you can take the two grant as a loss from your business. That is the ducted it from any other income you may have. I don’t know if you still working full time, you can take it against that income, you know? Or if you’re not, you can carry forward that loss. Right? So maybe next year you make five grand, but you lost two grand last year. But, but we can deduct that five grand from Trump next year by the two grand that we lost before. Do you still want to file?
Okay, that makes sense. And I was going to ask when we would need a tax professional, but to me it sounds like I just need one.
Okay. And I would say, you know, only because you pass by was such a big major thing. Like nothing happened. Nothing like this happened for like 30
Okay. So I would say, you know, get one just that this year make sense of their return. But if, you know, after this year, if you’re the person that you know, you have your accounting together, you’re tracking your income, you’re tracking your expenses, you know, you got a good grip for your inventory. Um, and you, you got a good understanding I would say, you know, give it a shot, doing it on your own and just pay for a CPA to repeal it. You know, you do all the leg work but they just reveal it. Okay. Um, but I will say for this first year just to learn that new tech role, how it all flows. I would say for the first year, um, you know, I would make the investment to partner with the CPA.
And if you could do me a favor, go ahead and shout out the name of your tax and accounting firm just for all of those. Appreciate the fact that she’s keeping in so real with all of us.
Oh, absolutely. So I am Canadian Coleman. My farm name is Coleman techs and we’re at Coleman Tech, llc.com and even also such as on Facebook.
Perfect. Okay. So, um, t la has a follow up question. My Shopify is set to charge South Carolina tax. Do I put that aside when the customer pays or is federal tax a whole different beast?
It’s a Ho. So is the person she said she said aside South Carolina, is she honest doctor? I don’t know.
I would assume it’s out of South Carolina. And I know that’s going to tie us to like my next big question, which is about the ecommerce tax confusion where some people hear that you don’t need to tax anyone that’s buying from your state and other people are aware of these new tax laws being put up in states that say if you make at least this certain amount, then we expect you to. So it’s a whole big thing. But right now let’s assume that South Carolina is the state that she’s in, um, and that she’s charging taxed for.
Okay. So South Carolina, that’s your state tech that you are, that’s your state income tax. Okay. Let me back up. Three buckets. You’re going to have as an ECOMMERCE business, right? You’re going to have your federal income tax, and that’s the text that you’re gonna be paying to the federal government for the Texas from the profits your business. Then you’re gonna have state income taxes, which will be what your paid, you know, the state that you’re in from the prostate, your businesses may now, then you’re going to have a third bucket, which is huge this year because it was just like history making legislation in the text area. You’re going to have a third bucket. They text they sales tech. And that is when someone buys something from you online, you have to collect your, the state text in remitted to the state taxing authorities. Because what happened this year was it says, okay, we don’t care if you’re physically here and now we don’t care if you have a brick and mortar physical location or state assesses that you are conducting business and our state, you know, be in the web and we want a piece of that.
So, you know, collect our state tax and remit that to us. Um, every year. And so you have to look at Europe, look at your State Department of revenue. And I would also look at, you know, you know, where your sales are. I will look at actually all the states that you have had deals in and of, you know, get to view your with those rules to see when the state tax is due. And they may have an exemption. Like I know I’m originally from Wisconsin, there’s an exemption there. Like if you have under this many transactions or under this dollar amount, you don’t have to collect the state. So effects that may be the situation and some of the states you’re operating in.
And so this is the new thing. Like before it was the wild wild west. And I mean it makes sense that the businesses that are on the ground that don’t feel like it’s fear that the people they’re competing with don’t have to charge this extra tax went through lobbying and putting forth, um, different legislation to make sure that it leveled the playing field. But for business owners it’s so freaking important that you understand the shift is slash has happened to you having to be conscious of the states that you’re selling to and the tax liabilities that come with each one. So is it a good idea for like most shops online shops have it programs so that it, it automatically taxes people buying from within their state because that’s, that comes with the shipping information, blah blah blah. But should every business owner now be taxing every single state just to make sure that they are in line with, what is the tax law at the time?
I would say, I would say, yeah, I know it’s so, cause I don’t want to discourage anybody, you know?
No, I get it because it’s like
that’s where we are
when we talk about small businesses. Um, I know that different states have like a $10,000 sales limit and then we have to go and pay taxes on everything that’s been told and sold in that state. And then other places, like you just said, a $400. I know that I looked up a state and it had like a $200 sales limit and then they were going to tax it. So knowing that there are 50 states and DC and then like a bunch of different properties, what is the best way to go about handling this if you don’t want to monitor like your seals in every single state every day and then mark off when you need to start filing tech. I mean it’s, it’s a lot, right? It,
it, it’s a lot but I’ll say this again, I’m going to go back to, you know we have a technology tool for everything there is, there are lots of apps out there that you gave keep track of this stuff. And, and when I say app, I mean like these are apps that can be seamlessly integrated into whatever accounting system you’re using. But then it’s quickbooks or zero or sage. You can go, there are specifically, I think I want to say the name of the business Avalera and they specifically specialize in sales that yes, it’s Avalara. They specifically specialize in sales text, keeping track of all of that. For you integrate into other accounting systems. So all you gotta do is what you’ve been doing normally and this app that you have integrated, we’ll keep track of all that for you and all you have to do every year is submit the one to two page sales and use tax return to the state. And then it may be, and if you really don’t want to deal with this, you know, you have CPAs out there that are willing to do it for you.
Okay. So another question from our group and I know that we were planning on like having 30 minutes one on one, but I just, the conversation is, is thumping right now. So let’s just keep it rolling and then I’ll just schedule a whole separate consultation with you. Um, but Samantha asks, what are the five things you can tell us about federal income tax for small business? If you were just getting a five bullet point presentation to small business owners or potential small business owners about federal taxes, what would you want to include?
Okay. Um, first thing, record keeping, worker keeping, record keeping, keep track of everything from an accounting perspective, all of your income, all of your expenses. Do not try to do this all your own with with excel, get an app, quickbooks age zero, one of those apps, they’re very cheap. I mean as cheap as like $5 a month. Um, the use of technology out there. Um, second thing is I would say do NASA gate your estimated tax payments throughout the year and those that you’re working,
sorry, that’s based on last year’s taxes, 90% up of that, right?
Yes, yes. That’s state this based on that now and again and again, that’s, that’s the IRS is um, that’s the IRS is rule for like not being penalized in the case that your income is consistent and you’re making the same thing. But let’s say, you know, you just quit your full time job and you wouldn’t go newly make what you may last year and you, and you want to get to make all your own. You are, you know, you are, I’m free to do that. You just have to watch your money throughout the year. So you know, if you see your money going up throughout the year and you know, you only pay, you know, Xyz and taxes, you can pay more or less as you see your money going up or down. So keep track of the income and paying quarterly estimated taxes just so that you’re not surprised at the end of the year.
Um, number three, a big thing, uh, the sales tax just because that module has changed as well and they’re really cracking down on it, especially for people that selling online do don’t want to get a big surprise at the end of the year from a state and we’re talking not even just, they would talk about more than once you’re selling across the entire country potentially. And I’ve had a client do that, literally didn’t know what a sales tax deterrent was and we’re getting all that, get it to get it now. Number three, taken advantage of the bonus depreciation. That’s not going to be around forever. So this any big purchases that you want to make doing, you know, within the next five years because when the law changes you won’t nearly be able to do that. You’ll have to take those smaller expenses over a number of years. Um, and then I think when I’ve been before number four, um, even if you’ve made no money cause you’re just starting, you still file a tax return because you can take the loss against other income.
You have like maybe your w two job or you can carry the nol forward for when your business stuff start making money. And then five, if you’re just starting out, let’s say you haven’t like officially made the decision yet, you’re going to be an entrepreneur but you are researching your, you’re going to Webinars, the you’re paying for like you know, events just to check it out and research. You can take up to $5,000 of startup cost. She didn’t before your business has started. You could take that against your w two income or you know, whatever income that you may, you may have anything over $5,000. You can advertise over 180 months.
And then I guess we’ll wrap it up with one last one. I know that we’re right on the um, the end of the hour, but are there different liabilities if you were in a brick and mortar versus just a virtual business with a Home Office?
All the, yeah, so like for example, um, if you are in a brick and mortar, you would have more expenses. Of course you would have what ranked, you would have utilities, you could deduct it off the steel, it would add big time to the overhead. So I think the costs, you know, outweighed the benefit. We’re brick and mortar. Um, let me see. Well you have like what property tax to pay. I’m sure you would have other like local ordinance ordinance that you would have to follow. It’s just more regulatory things, not even just tax stuff, more regulatory things that you would have to deal with or being physically present somewhere first year in your Home Office. So it’s not necessarily a big texting because everything related to the duty, you know, you can take one thing, I’ll go out there and let’s say you do get a building, um, and that’s, say you buy the building. That’s all that the building when you have like an LLC. Um, and the benefit to that however is you ever converted to like an s corp in the business was the escorts name. It will be harder to get that land and that building back in your name without a paying the major like textable gain on that event.
but there’s something very specific about having land and building ownership and certain types of entities for tech reason.
So, um, no, everything you’ve said has been so valuable. I know that we’re going to have to go ahead and lock you in for another one of these live streams because the hour is up. But, uh, the questions are still rolling in right now. But thank you so much for being so helpful and so transparent and so honest about where you come from, what your experience means when you’re talking to a business owner that wants to do the right thing and make sure that they aren’t making any missteps. Um, again, um, people are asking how they can get a one on one with you. So if you can shout yourself out and I’m also gonna drop your website in the comment section. Um, and hopefully you see a spike because of this, but go ahead and shout yourself out.
Oh for sure. I am Kanisha Coleman, that k e n e s h a Coleman, c o l e m a n and I firstname.lastname@example.org. And you can also search coma text on Facebook.
And if there was one thing you wanted to leave our audience with until the next time that we have you on and I’m just letting you know you’re, you are our resident tax expert from like now on. You were just phenomenal. You exceeded my expectations. I love that you’re a part of the culture and know to call Angela by her name.
But if there was one thing you wanted to leave with this audience of hungry small business owners in new entrepreneurs, what would that be?
What I would say is, I know you’re going to expect me to say something accounting attached related, but I’m not, I’m going to say, do not let any of this intimidate you so the IRS intimidate you or the state tax authorities intimidate you. Um, keep following dreams. Don’t let any of the regulatory stuff discouraged you because there are so many easy to use, low cost tools out there and people out there that are here to help you get through, you know, then that’s so fun though. Um, so like I said, you know, you hook me up with Angela. I have her deal with tax Avaya. I get do this together.
We’re going to get through it together. Thank you so freaking much. I’m going to message you as soon as I get a minute after wrapping all of this stuff up. But thank you. Thank you. Thank you. Kenesha
oh no problem. Everybody take care and I am here if you need me.
Have a great day.
Thanks. You too. Bye Bye.
I was so freaking good. That was fucking fire day.
I love that. I love when I know that our mission is just giving you guys as much usable information as possible, but when we can over deliver like that, when we can really like connect to a person and have them speak from personal experience and explain the why and the bigger picture of things so that you can appreciate the information they’re sharing that I’m not, no, I’m not going to see anything nasty, but it excites me. So I’m guessing six figures, side hustle,
death. She was with every answer. Like not only did she answer the question, but there was like other angles and avenues that she was answering.
Right. Think about that. Absolutely.
It’s pretty incredible just to hear all that, that information. That’s a lot to take care of.
So much. Yeah, you’re going to have to chop it down. This is like a couple of days, few days with fin for me. But and then also the fact that she was talking to us, not like a attorney client sort of thing, but it was like she was our bigger sister that just wants the absolute best for us. Like that is, I’m just so appreciative. She you guys better hit her up. Cut Eat or Coleman tax llc.com. I am going like, she’s our resident tax experts so we will have a conversation with her in the future. Uh, I love Charlotte. She says fuck just as much as me. Hello Mahogany. Welcome. Welcome to the show. Um, but yeah, I love, love, love that stuff. That makes me so, so, so happy that I know we came through with the promise that we made to all of you. Um, so our guy over here, that’s Cho, he is going to chop this up and it’s going to be on youtube.
I know this conversation has gone on for 57 minutes now. Oh Wow. These lashes. I know for those of you that are going to be watching this conversation after the live stream, understand that I’m having a whole conversation with a whole community of people. But yes, Lisa, these will be available on whole sale after we drop. I’m like this crazy marketing campaign it’s we’re all super excited about, but we’re just making sure everything is stable with the hair extensions branch of what we’re doing so that we can see a lab and build up and still deliver on what you, the level of professionalism that all of you are expecting. So thank you all so much for being a part of this conversation. I know that it is a Tuesday in the middle of the day and somehow all of you have stuck around this entire hour. I don’t know where your boss is at, but, but you’re focused on getting to your own bag, which is so much more important and for being honest.
Um, I’ve got quite a bit of business to do and I am just really freaking thrilled that this conversation went so, so, so well. So if you have suggestions on what you’d like to see and the next conversation, I always say what makes me a great entrepreneur is that I acknowledge the fact that I do not have all of the answers period, point blank, but I understand that and I know where to find the people with the answers. So I was more than happy to pay Kenesha her consulting fee for an hour of her time. I’m going to be buying as, uh, several hours of her time for my one-on-one stuff because she’s so dope. And you know, I live for black owned businesses, but also I want you guys to let me know which other professionals you would like me to pay to bring on to this conversation so I can deliver the value that you should be getting as a part of white legal extensions here. Business in a box program or just one of my followers. So I know it’s still tax season. If you guys want to extend the hour with Kamisha, let me know in the comments section. Happy to do that conversation was lit. Um, but yeah, let me know. I’m gonna see you guys.