This week, Kelsey joins me again to chat about the end of year strategies you need to know as an entrepreneur.
Kelsey and I share how you can set up a custom end of year strategy for your business and what you need to look at if you want to make sure your business is ready for the upcoming year.
Join us in this episode to learn how you can get a head start on your strategy before Christmas comes!
In this episode, Danielle also discusses:
- How to get things in order from the start 2:06
- Giving ourselves bonuses as business owners 5:23
- How to know if you’re profitable or at a loss 7:20
- What to do if you’re at a loss 9:42
- Becoming an S-Corp 12:06
- Retirement plans 13:34
- Donating to charity and taxes 14:48
Connect with Danielle:
Website | https://www.kickstartaccountinginc.net/
Facebook | https://www.facebook.com/kickstartaccountinginc/
Instagram | https://www.instagram.com/kickstartaccounting
Twitter | https://twitter.com/KickstartAcct
Things Mentioned in Today’s Episode:
Book your FREE Discovery call: https://kickstartaccountinginc.com/book-a-call/
Test your Financial Health: https://kickstartaccountinginc.com/checkmyfinancialhealth/
Learn how to pay yourself as a CEO – https://www.kickstartaccountinginc.com/getpaid
Full Episode Transcript:
Welcome to entrepreneur money stories, the podcast for women entrepreneurs who want to dig into their money stores so they can break free from limiting beliefs around money once and for all hosted by Daniel kickstart accounting. This podcast is a series of real conversations about money mindset with valuable action packed takeaways for entrepreneurs building Your abundant empire. Danielle is a reformed corporate CFO who is on a mission to help all rule breaking email entrepreneurs understand their numbers and gain the confidence to create sustainable profit. And now here's your host, Danielle Hayden,
for your business. So this is a really difficult topic for business owners, and we understand how difficult it can be. So we try to create a really safe space where there is no judgement. We're here having this difficult conversation, I am proud of you for listening, I am proud of you for showing up and being here. It is not easy, you are one of the brave ones to be here. And lastly, we end every episode with action steps. So during every episode, you will have very, very clear takeaways to be able to use in your business. So we're not talking about all things mindset, we're really talking about what strategies you can implement in your business right now. So that you can go and take action. Kelsey is our lead account manager at Kickstarter counting Inc. So she has tons of experience working with clients. And she has been through several of these years and processes with our team and our clients. And so we wanted to gather both of our experiences and everything that we've learned throughout the year to share with you the listeners so that you can learn from our mistakes and learn from our clients' mistakes, so that you don't have to go through it as well. So, Kelsey, where do we start with what's what's the first year on strategy that that listeners should start considering?
Well, first, let's look at what has already happened. So let's just get things in order from the get go and then kind of go from there. So we want to make sure that the information that we're basing our future year on decisions on are accurate data. So the first step is going to be to review all the categories in your quickbooks file or you know, in your bookkeeping system. So in your accounting system to make sure that all your business expenses are accounted for, that all of your personal expenses are correct, and that nothing is personal, it should be business or in business that should be personal. That way, all of the future, your decisions, like I said, are based on accurate data. So they'll be number one. And then number two, once you review all that below call with your accounting team, you can even go through all of that together, I always find it super helpful to walk through all of the categories together that way, you know, if something is in an incorrect category, it gives a business owner an opportunity to kind of verbally explain that way, you know, our team knows moving forward to make sure to put it in the correct place. But um, number one is review. And number two is a book that calls and has your goals for what you want to do for the rest of the year for the topics that we're going to discuss here in just a few minutes, kind of already in mind that we have something to work with, for that call to make sure it's accessible.
And the answer might be I have no idea. You'll have some ideas. By the end of this podcast, however, you don't wait for the last minute, you know, it's really important that we're looking at this information. Before you know Christmas. Yeah, you can't make up for a Christmas morning. I think I never talked to my bookkeeping team, we have to understand what is our profitability year to date? Do we have the cash to make any additional decisions? Should we book a call with our CPA and look at any tax strategies or any tax decisions that we need to make? But if we wait until the last minute, and we don't understand our profitability, we really lose out on the opportunity to make any of these Euro decisions.
That's right. It's important to keep in mind that once you make the decision, it doesn't just make it happen. There are moving parts in the actual execution. And there's time limits on that. So, you know, for paper purposes, for tax purposes, all of these have to be actually carried out by 1231. So we need to initiate those steps as soon as possible. Yeah, absolutely.
Next up is what decision Should we make right? So once we look at the numbers once we understand the profitability, what can we do from here and so there's several different strategies. We aired an episode on how to bonus your team. listen to that episode on how to determine if bonusing your team is right for you and your business. But that is one of the year end strategies is to look at your profitability and determine what the bonus would be, what's right for your business. And that's what's right for your cash position, and then make the moves actually make the decision to actually move to complete the bonus. So that's one of the number one years on tax strategies, what's available for the business owner, Kelsey? So we talked about bonusing out our team, but how do we handle our personal situation? How do we bonus ourselves out as business owners?
Yeah, so this is really going to depend on what type of entity you are, I don't want to get too much in the nitty gritty of you know, LLC versus S corp versus C Corp. But I will just kind of keep it surface level in that if you are not an escort, if you are a sole proprietor, so even if you don't even have an EIN yet, or an LLC, only, you can just bonus yourself, aka just transfer money straight from the accountant with really no other involvement, it's super simple, you just leave however much cash in the business that you feel comfortable with. And that's that, it does get a little bit more elevated and a little bit more complicated. When you are an S corp. There are certain realms, you have to stay with them when it comes to payroll versus drawers. So this is a good time to go to your accounting team and see how much you can afford to bonus yourself and how you should actually bonus yourself whether it's just through payroll, you know, if you're okay, doing it as just an owner's draw, or if you need to do some through payroll on some through owners drawers.
Yeah. So I think it's really important to know here that there are options available for you. So just like you were bonusing out your team, there are opportunities for you to do the same for yourself. But in order to decide what is going to be the best opportunity for you. It depends on how you're structured. And so please talk to your money team. But this is one of the years of strategies. We have to know that if you have not paid yourself all year long, but your business is profitable, and you're making money, we need to address why. So maybe it's just having that conversation with your money team as to why don't you feel comfortable taking this money out of your business? And what mindset shifts? What coaching do you need in order to make that shift so that you are paying yourself as a business owner? So don't wait, don't put yourself last?
What's another year end strategy Danielle, that business owners can do?
So I like to think about if I am profitable, like, first I need to determine Am I profitable? Or Or am I operating as a loss, if I am operating as a loss, then I really need to hold on to your own strategies, right? I want to take advantage of that loss and for my tax return. And so I don't need to create any additional expenses in this tax year. So any decisions that I'm going to make, I'm actually going to defer them until next year. So an example of this, I have a new business coach that I want to sign up with, and they also are doing a conference. The conference isn't actually until next summer, I know that I want to go, however, I could buy an early ticket now. However, I can also buy an early ticket in January and still get the discount for early ticketing. So I'm going to actually wait until January until the next tax year because I already have a loss this year. And I don't need to have any additional expenses in this tax year. So I'm going to defer those expenses until the following tax year. Now, if I'm profitable this year, that's going to change my business decision. If I'm profitable, I'm not looking for expenses, we do not want you spending money just to get a tax deduction. However, if that same business coach I want to sign up with and that same conference I want to go to if I'm really profitable, I might go ahead and sign up for that now and take advantage of that tax expense this year. Because of your cash basis, then you can still enjoy the tax expense this year, even though you're not going to the conference until next year. So again, most importantly, you have to know your number first, right. So I need to understand first and foremost, what one of my business finances looks like today. If I'm profitable, I can look into the future and determine if there are any equipment purchases, office improvements, conferences, training, or any other large project payments, branding, anything that is a large project that I might want to shift those payments into this tax year. You don't have to, there'll still be a tax deduction next year. But if you might not be as profitable next year, you might want to shut those large expenses to this year.
That's right. So if you are already operating at a loss, deferring or in other words, waiting until next year to take that expense either you already know you're operating at a loss this year, you very well might operate at a profit next year. So in that scenario you now have that expense towards that profit to help reduce it versus just digging a deeper loss this year. So I hope that makes sense. Yeah,
I know these topics are heavy so there's a lot in here. Don't Glaze over. I want to just recap what we talked about because these are some really actual strategies All right, First and foremost, we're not going to wait for the last minute, we're going to get with our bookkeeping team, make sure things are classified correctly, review our profitability and talk about any potential issues or strategies. Number two, we're going to think about bonusing. Our team listened to the episode on how to determine the right amount. Number three, we're going to look at is there any opportunity to create an owner's bonus or urine distribution that is right for both my tax strategy and my cash position. And then lastly, number four, make any necessary purchases. If we're profitable. If we are operating at a loss, then we're actually deferring any of those purchases. We have a few more strategies that we'll review. But I wanted to recap right there because there's a lot of gold nuggets. And I wanted to just summarize what's up next. This is a big time of year that we hear the buzzword S Corp. Kelsey, where should we go with this? What's next?
Yeah, so definitely talk to your accounting team. If you're unsure what S Corp is, what it means if you should be one. However, I know for our clients we're always on the lookout for when becoming an S Corp is a good a good one, it's a good time to become an S corp. So long story short, to keep it simple. At a certain point in your business becoming an S corp will save you lots of tax monies. Again, it has to be the right time in your business to make that switch. But during your end is a good time to kind of determine whether it is that time so that you can implement it for 2023.
The overall year and strategy here is to have a conversation with your tax accountant, with your money team to see if there is an opportunity to change your entity type. So that's really the strategy to take away. We also see a lot of our clients who have brought on health insurance into their business. What do we need to do around health insurance currently?
So if you are an S corp, the health insurance is a deduction to the business. So that's important to know if you are not an S corp. If you are an LLC or a sole proprietor, health insurance would then be a personal expense, not a not a business one. So that's one of the benefits of becoming an s corp. But if you are an S corp, those health insurance payments that come out of the business need to be correctly classified. And most importantly, they need to be on the W two. If they are not on your W two, then technically they are not a business deduction. So making sure that that is correct before year end is super important to make sure you don't miss out. And next
up, we have retirement plans. And this is a really important tax strategy. We are going to do a podcast episode on all things retirement planning. However, if you have a retirement plan available in your business, talk to your financial advisor, talk to your tax accountant and ensure that you are optimizing the contributions into your retirement plan. We don't want you to lose out on this opportunity. You might have all the way till April to make those contributions. However, you need to start having this conversation now. Your CPA does not want to hear from you and march about should I be making this contribution. They want to hear from you right now. This is how my business is doing. Here's the success of my business. Should I be thinking about these contributions? So, again, do not wait for the last minute. Talk to your CPA, understand if there's any retirement options for you, and are you maxing out those contributions?
All right now let's talk about a strategy that we see clients think they are doing to kind of offload some of their profit by the end of the year but doesn't exactly work how one might think it will, and that's donating to charity. So if you are a sole proprietor LLC or escort basically any activity other than something like a C Corp, charitable donations are actually not a business expense, they will go on your personal tax return. In addition to that, you're probably only going to get the standard deduction anyway. So that leaves you with really no tax benefit of charitable donations. So obviously, donating to charity is a wonderful thing to do. But I wouldn't do that with the sole purpose of saving as of the year end tax strategy.
Yeah. And that is not a urine strategy for your business. So understanding why you're making a charitable contribution. First of all, it's important that this is coming from the heart and from the right place, it should not be from a place of tax strategy and tax planning. It's not a year end strategy for your business, this would be a year end strategy for your personal return. So it is a myth that we see. It's something that we hear a lot of confusion around, and I don't want you to, I'm going to use the word like air quote, waste your money on charity, not a waste, right? But I don't want you to think that you're doing it for one reason, and then not be able to receive that benefit.
Very well said.
Alright, that's a wrap. There's a lot to do here. I know that this episode can be overwhelming. So press pause, you can go back and re listen, you could ask us any questions. DM us on Instagram at Kickstarter County, you can send us an email at support at Kickstarter counting inc.com. And please, please, please don't forget to schedule a call with your money team. So if you're not working with kickstart and you have another bookkeeper, they want to talk to you, I promise you, they want to talk to you, they want to ensure that your finances are right, they want to be a resource for you. If you are a client of kickstart accounting, please book a call with us. We want to talk to you. We want to make sure things aren't right. We want to plan this year on strategies. And if you need help, and you don't have a money team, we would love the opportunity to be that resource for you. So you can book a call with calcium or myself at kickstarted county inc.com. And there is a button to book a call and we part of your year on strategy could be getting your 2022 books in order and ready for 2023 I'll say thanks again for being here.
Thank you. It's a pleasure.
Transcribed by https://otter.ai