308 - 6 Steps to Stay on Top of Your Taxes (and Finances!) with Danielle Hayden

Summary

Episode 308 Summary: 6 Steps to Stay on Top of Your Taxes (and Finances!) with Danielle Hayden

In Episode 308 of "This Can't Be That Hard", host Annemie Tonken engages in a transformative conversation with Danielle Hayden from Kickstart Accounting Inc. Together, they delve into six essential steps tailored to help photographers master their taxes and overall financial health. Danielle's expertise provides actionable insights, demystifying the often daunting realm of business finances for creative professionals.

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1. Maintain Accurate and Organized Bookkeeping

Danielle Hayden emphasizes that accurate and organized bookkeeping is the cornerstone of financial stability. She states, “You really don’t need to be doing this. In fact, you shouldn’t be doing this. You should be getting someone who knows what they’re doing to help you with this” [06:37].

Annemie resonates with this by sharing personal challenges with deferred bookkeeping, highlighting the stress of reconciling expenses months later: “...you could end up with a huge job, hunting around in receipts and emails trying to figure everything out” [11:21].

Key Takeaways:

• Consistent Tracking: Bookkeeping should be a monthly, if not weekly, activity to ensure accuracy.
• Tax Reserve: Danielle advises setting aside 25% of net income as a tax reserve to prepare for tax obligations proactively [10:17].
• Professional Assistance: Leveraging professional bookkeepers can prevent errors and save time, ultimately benefiting the business financially [16:42].

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2. Separate Business and Personal Finances

Danielle underscores the necessity of keeping business and personal finances distinct: “If you are a sole proprietor or an LLC, you are taking money from your business account and transferring it to your personal account so that you have those owner’s draws that can then fund your personal life” [20:58].

Annemie adds that this separation not only simplifies financial management but also protects legal boundaries: “Having separate accounts makes it much easier, especially when dealing with your bookkeeper... it becomes so much cleaner” [20:58].

Key Takeaways:

• Dedicated Accounts: Maintain separate business checking accounts and credit cards to avoid commingling funds.
• Legal Protection: Proper separation helps preserve the corporate veil, safeguarding personal assets from business liabilities [20:58].
• Simplified Bookkeeping: Clear distinctions between accounts streamline financial tracking and reporting [21:23].

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3. Implement an Accountable Plan for S Corporations

For those operating as S Corporations, Danielle introduces the concept of an Accountable Plan: “The Accountable Plan allows us to move cash from our business account to our personal account throughout the year without paying taxes on it” [24:46].

Key Takeaways:

• Tax Efficiency: An Accountable Plan reduces overall taxes by allowing the transfer of funds without incurring additional tax liabilities.
• Documentation: Proper documentation is crucial to validate expenses and comply with IRS regulations [25:11].
• CPA Collaboration: Working with a CPA ensures that the Accountable Plan is correctly implemented and beneficial [26:34].

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4. Utilize Uniforms and Branded Equipment as Tax Deductions

Danielle offers creative strategies to maximize tax deductions through business-related apparel and equipment: “If you are going to purchase clothes that you are only wearing for, for work, you can simply add your logo to those pieces of clothing” [27:02].

Annemie seeks clarification on implementation: “Can it be something pretty subtle somewhere?” Danielle confirms the possibility of subtle branding while advising professionalism to ensure IRS compliance [28:05].

Key Takeaways:

• Branded Apparel: Adding company logos to work-specific clothing can qualify them as business expenses.
• Client and Employee Gifts: Transforming gifts into branded equipment like iPads can convert non-deductible gifts into allowable business expenses [30:58].
• IRS Compliance: Ensure that branding is professional to withstand potential IRS scrutiny [28:42].

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5. Equip Yourself with the Right Tax Team and Tools

The conversation highlights the importance of assembling a competent tax team. Danielle advocates for engaging with tax professionals who are willing to collaborate and communicate effectively: “You need to find someone that is willing to have a conversation with you... so that they can put those investigative goggles on” [34:42].

Annemie praises Danielle's approach of using visual tools like Loom videos to enhance understanding: “If you send them a two-minute video... that information will be received and retained 10 times better” [35:32].

Key Takeaways:

• Active Collaboration: Regular interactions with your tax team can uncover additional deductions and optimize financial strategies.
• Educational Tools: Utilizing multimedia tools can improve comprehension of complex tax information [35:20].
• Responsibility Ownership: While professionals handle the heavy lifting, business owners must engage actively to understand their financial standing [36:09].

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6. Engage in Ongoing Tax Strategy Conversations

Danielle recommends maintaining regular dialogues with tax professionals beyond the annual tax season. She introduces the concept of mid-year check-ins to reassess and adjust financial strategies: “Our mid-year tax check-in is really important to continue the conversation with our CPAs” [37:13].

Key Takeaways:

• Proactive Adjustments: Regular reviews allow businesses to adapt to growth and changing financial landscapes, preventing surprises during tax season.
• Strategic Planning: Mid-year evaluations help in making informed decisions about entity types, tax contributions, and retirement planning [37:27].
• Continuous Improvement: Ongoing conversations ensure that businesses stay aligned with their financial goals and tax obligations [38:49].

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Notable Quotes

• Danielle Hayden: “You really don’t need to be doing this. In fact, you shouldn’t be doing this. You should be getting someone who knows what they’re doing to help you with this” [06:37].

• Danielle Hayden: “The IRS doesn't care if you’re a creative. I know this is harsh, but your job is to know your numbers” [13:43].

• Danielle Hayden: “Can you really afford not to? Because we're paying that money one way or another” [19:21].

• Danielle Hayden: “You need someone that is willing to have a conversation with you so that they can put those investigative goggles on” [34:42].

• Annemie Tonken: “Running a photography business doesn't have to be that hard. You can do it, and I can show you how” [00:00].

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Conclusion

Episode 308 serves as an invaluable guide for photographers striving to achieve financial mastery within their businesses. Through Danielle Hayden's expert advice, listeners gain a clear roadmap on maintaining accurate bookkeeping, segregating finances, leveraging tax-efficient strategies, and collaborating effectively with tax professionals. Annemie Tonken's engaging hosting ensures that these complex topics are accessible and actionable, empowering creative entrepreneurs to build profitable and sustainable photography businesses they love.

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For more detailed strategies and resources, listeners are encouraged to visit Kickstart Accounting Inc. to download Danielle's Top 10 Tax Deductions and explore relevant podcast episodes.

Transcript

[Annemie Tonkin]

I took my older son to the dentist for the first time when he was three years old. And I was ready and waiting for the dentist to praise me up one side and down the other for starting his dental care early and for all the work that I had done to brush his little baby teeth and take care of his mouth. And that was not what I got. I showed up at that dentist's office, and after coming in and looking at his teeth and, you know, doing the little baby check that they do, I got what was basically a lecture about the fact that apparently my son had some, like, soft spots in his teeth that were genetic. Didn't have anything to do that with what I was or wasn't doing. But she was pretty aggressive about the fact that, like, I should have been there earlier with him, and now, you know, I was putting his teeth at risk and all this other stuff. And I walked out of that appointment almost in tears. Like, of course, I was sort of embarrassed to get called out by a professional in an office. That's just part of my personality. But more than anything, I felt horrible about having failed my son. Right? So I tell that story now with 15 years distance between when that happened and today, I can sort of laugh about it. It's still painful, but it was something that got called to mind after my conversation with Danielle Hayden today. And I should warn you, the conversation that you're about to listen to, and I really do want you to listen to it, even if it doesn't sound like your favorite topic, is about taxes and the overall financial health of your business. And again, I recognize and appreciate and acknowledge that this is not a conversation that many photographers are excited to have or a subject that we are dying to dig into. However, like taking your child to the dentist, it is a responsibility that you have as a business owner, right? So when we take on the responsibility of running a business, we have to acknowledge that the financial piece of it is part of the puzzle. And if we're not paying close attention to that and if we're not getting the help that we need from a professional, chances are something is going to get missed. And that something can cost you a lot of money, either in missed opportunity when it comes time to pay your taxes, or it can come at the expense of, like, you did something wrong and later on down the road you actually get charged for it. So every year, I do like to bring a tax professional on to talk about this very important subject. And I really enjoyed my conversation with Danielle today. I think you're going to enjoy it too. She had lots of practical tips, but she was also empowering in the way that I think is important when it comes to accounting and bookkeeping, which is to say, you really don't need to be doing this. In fact, you shouldn't be doing this. You should be getting someone who knows what they're doing to help you with this. And I don't care if you are at the very beginning of your business and your income is not what you believe that it will one day be. Starting early with professional deductible help in this area will help set you up for success in the long term. So listen to this episode. Grab Danielle's freebie when. When she talks about that at the end and that is linked in the show notes and put it into action. This is going to help you sleep better at night, not just during tax season, but all year round. Welcome to this Can't Be that Hard. My name is Annemie Tonkin, and I help photographers run profitable, sustainable businesses that they love. Each week on the podcast, I cover simple, actionable strategies and systems that photographers at every level of experience can use to earn more money in a more sustainable way. Running a photography business doesn't have to be that hard. You can do it, and I can show you how. Danielle, welcome to this Can't Be that Hard. I'm so excited to chat with you today. How are you?

[Danielle Hayden]

I'm doing fabulous. How are you?

[Annemie Tonkin]

I'm well. We were just, before hitting record, talking about our. Our weather wells. It is that time of year. It is crappy outside. Sounds like even worse for you than it is for me.

[Danielle Hayden]

You know what it's like tax season and winter. They purposely put those two together so we're.

[Annemie Tonkin]

I know.

[Danielle Hayden]

Ultimate pain mod.

[Annemie Tonkin]

I know. Although, you know, in some ways, it's like the weather forces you to just be like, you know what? I guess I have nothing better to do than to sit at my desk and, like, get this stuff taken care of. So. Yeah, no, it's good. Well, before we dive into all things taxes, which, as we were also saying, I know this feels like vegetables to a lot of you listening out there, but we're going to make this as fun and actionable as possible. But I would love for you to sort of do an introduction. This is your first time on the podcast. Let everybody know who you are and what. What you're all about.

[Danielle Hayden]

Yeah. Thank you. So Danielle Hayden with Kickstart Accounting Inc. Started the business 10 years ago, which is absolutely insane. Isn't it funny? You know, I started My entrepreneurship journey, really, as a creative. So when I. When I come and talk on. On shows like this, I'm really coming at this from. From both angles. I actually used to work as a hairdresser, so. So I spent my time as a hairdresser. Yes. Behind the chair and that creative mindset. But I found that I really enjoyed using the numbers to help myself and the other girls within the salon use it to hit our goals, to be able to make more money.

[Annemie Tonkin]

Right.

[Danielle Hayden]

And it felt like I was playing a game with money, and I was teaching the other women in the salon with me how to play this game of money. I went back to school, ended up in corporate, and I was doing the same thing. I was working as a chief financial officer, helping the CEO, the board of directors, private equity firm play this game of money. Let's use the numbers to understand what's working, what's not working, how we can run this business differently so that we can hit our goals and realize I had this knack for let's take the numbers, let's learn from them, and let's use them to grow businesses that we're passionate about. And being ready, prepared, and confident for tax season is like an added bonus.

[Annemie Tonkin]

Right.

[Danielle Hayden]

Because what I really want for all business owners is that we feel confident and empowered with our. Our financial statements, with our numbers, with making business decisions throughout the year, that when we get to tax season, it doesn't feel like a burden.

[Annemie Tonkin]

Right, Right. Totally. I love that, and I love the. Your sort of history as somebody who was doing it and then saw that, you know, it was. It was a game. And I'm going to kind of. I hate the word gamify. I feel like it's overused in a big way. But when it comes to business, that's the way that I feel about the business side of photography. It's like I got into it kicking and screaming. Like, I was like, oh, no, I don't know anything about sales and business and da, da, da. I came from a medical background, and I was like, that's the. This is like the dirty word in, you know, this career I want as an artist. But the more that I got into it more I was like, actually, it's kind of fun. And actually I can be just as creative in this space as I can be with my camera in hand. And so, yeah, it's what I love communicating to other creatives is this sense of, like, it doesn't have to be terrible all the time. And especially when you're using it to achieve your own goals. Like it really is a, it's a rewarding path to go down and it's a tool.

[Danielle Hayden]

So the reframe that I like to use is that these are all tools in our toolbox. And the more tools that we can arm ourselves with, the easier. Maybe easier isn't the right word, but the, the longer, more sustainable we can become in entrepreneurship. It's a long game, really long game. So we need to be adding tools to our toolbox to make sure that we can be sustainable in this industry.

[Annemie Tonkin]

Amazing. Sustainable is one of the three key principles behind this show. So I'm all for it.

[Danielle Hayden]

Good.

[Annemie Tonkin]

And we are, as I said, sort of here in Q1. It is that time of year. I always try and bring somebody on the show who is an expert in all things like tax prep and all that sort of stuff. So that is what our focus is going to be today. But if you happen to be listening to this show sometime else throughout the year, the other piece of this that Danielle, Danielle and I were talking about prior to recording is the fact that really this is, you know, it's like tax season. We have to like dot all our eyes and cross all our teas. But ideally these are things that we are sort of keeping in mind year round so that when this time comes, it isn't a big hill to climb. So I've got down here that we're going to be talking about overlooked write offs and things like that. And I, I think I'm going to just let you dictate where we dive in on that, on that list and where we start.

[Danielle Hayden]

Perfect. Well, I want to start at the beginning.

[Annemie Tonkin]

Okay. Sounds like a good place to start.

[Danielle Hayden]

I want to start at the fundamentals. So I know, I know we want like the quick wins and in, in these steps. Right. The step one is that we have bookkeeping that is accurate and organized throughout the year so that when we arrive at tax season, we've already looked at our numbers. So when we work with our clients at Kickstart, we are sending our clients their financial statements and their snapshot every single month so that they know they have accurate bookkeeping. They're able to do their job as a business owner, which means look at the numbers, understand the numbers, and then use that information to get prepared for tax season. I know tax season feels transactional. It feels like this one time eventually, but it really shouldn't be. It should be something that's happening every single month in your business.

[Annemie Tonkin]

Right.

[Danielle Hayden]

So when our clients get their snapshot, we have something in there, that's called a tax reserve. And this number is 25 of your net income. So it's no big secret, like, anybody can go pull this number. It's 25 of your net income. And what I want you to do with that number is to start saving for your taxes.

[Annemie Tonkin]

Now.

[Danielle Hayden]

You're going to pay your estimated taxes throughout the year. You're still going to take that, that amount from your cpa. That's the amount that the IRS says you're required to pay for your estimated taxes. You're going to pay that. But the real gold is getting prepared for next year. Because if you're listening to this podcast, I would guess that you're continuing to grow. So your profit this year is going to be bigger than your profit last year, and you're still going to be caught off guard. So that's why client, why people are caught off guard every single year. They're like, I paid my estimated taxes. Why do I have more in taxes? And this right here is why. Because your profit has grown, your business has grown. And so we need to take that tax reserve and save those additional dollars over our estimated taxes. But how do you do that if you don't have accurate bookkeeping?

[Annemie Tonkin]

Right. That is for sure a big thing for a lot of people. And I feel like looking at your numbers on, you know, everybody has to set it up for a schedule that works for them. But the schedule has to be weekly or monthly. It cannot be. You know, I'm going to wait for six months and then try and catch up with reconciliation and all that sort of stuff. I have done that before. I have been there before. And it becomes this horrible, like, specter hanging over your head. And then you sit down to do it and you don't remember what you bought on Amazon six months ago. And so you're hunting around in your receipts and your email trying to figure everything out. And it just, you know, it becomes this huge job. Whereas if you're looking at it every week or every month, then, you know, it's an hour tops that, you know, you're dealing with, going through it. And I, I just, I feel like that can't be overstated. The importance of keeping up, you have.

[Danielle Hayden]

To be doing, you have to be checking in with your numbers monthly. So for, for bookkeeping, we, we do transactions weekly. So all of our clients, their transactions are processed weekly. And then your job as the business owner is to review the numbers. So I just want to clarify if you are the bookkeeping one, there's a better Use of your time. But agreed, do. That's actually not your job. Your job hasn't actually started as a business owner. Your job's not to do the bookkeeping. And I. I would argue that when you're doing your own bookkeeping, you actually can't attest to the accuracy of. Of your bookkeeping. And we can go into. Go into that a little bit further, but your job as the business owner is to come in at the high level. You are the CEO of your business. And here's what I hear a lot of. A lot of people say in this industry. I own a business. I'm not the CEO. I. I'm not that. I'm not that sophisticated. I'm a creative. I. I just don't own that title. Right. There's not an ownership of that title. And that's fine. You don't have to call yourself that. You can call yourself business owner. You can call yourself a sole proprietor. You can call yourself an entrepreneur. I don't really care. The minute that you decided to take money from a client, the minute that you started signing contracts with vendors, and really, in those relationships, you now have the responsibility. The responsibility to know your numbers. The IRS doesn't care if you're not a numbers person.

[Annemie Tonkin]

Right.

[Danielle Hayden]

The IRS doesn't care if you're a creative. I know this is harsh, but your job is true.

[Annemie Tonkin]

Yeah.

[Danielle Hayden]

Right. Like, your job is to know the numbers. And, and so if you do the bookkeeping, don't forget that your job is to come in afterwards and actually look at the information.

[Annemie Tonkin]

Right. Yeah. And digest it. Which is the other piece that I feel like gets really overwhelming for people.

[Danielle Hayden]

Yes. I want to go into step two, but I want to hang on the accuracy of bookkeeping for a second, because I mentioned this to you before. We hit record. You know, one thing that we're seeing specifically in this industry now, we work with a lot of photographers, but we also work with other industries. But one thing that we see over and over and over again in this industry is clients will come to us. And we had a client last. Last year who came to us, and it was the. One of the hardest, difficult calls that my onboarding team has ever had, because this woman was so positive. She was so confident that her bookkeeping was accurate. She's like, I know I'm doing a really good job. I'm just finally ready to get this off my plate because I have better things to do with my life, and I'm ready to get rid of it. We went through everything, and she had been overstating her income for like three years. Oh, she was overpaying in taxes for three years.

[Annemie Tonkin]

Wow.

[Danielle Hayden]

Because the, the sync issue from her point of sale System took to QuickBooks and she didn't know how to do bookkeeping, so she didn't know how to catch that information. So it was a really difficult call. But we. I just say that because I want everyone to have the, the ability and the opportunity to double check before we file our taxes. That money's gone.

[Annemie Tonkin]

Right.

[Danielle Hayden]

She paid that money to the irs. You have in places she could have invested that money.

[Annemie Tonkin]

Right, Right.

[Danielle Hayden]

Such a lost opportunity. Number two is.

[Annemie Tonkin]

No, like, I'll just skip mic drop, I guess.

[Danielle Hayden]

Any questions on that? I don't know.

[Annemie Tonkin]

Well, no. I mean, so you were saying it's a sink issue with her point of sale system, like her CRM, like her Dubsado or.

[Danielle Hayden]

We see it with, we see it with HoneyBook and Dubsado over and over again in this industry. There's plenty of other examples across different, different industries, but those are the two main ones.

[Annemie Tonkin]

Yeah.

[Danielle Hayden]

And it's an example. Right? Yeah. We had one woman who, her bank feed had broken, and when she reinitiated her bank feed, it brought in all of her expenses twice. She wasn't reconciling anything.

[Annemie Tonkin]

Yikes.

[Danielle Hayden]

So she didn't see that the expenses were duplicated.

[Annemie Tonkin]

Right.

[Danielle Hayden]

So when she went, when she filed her tax return, she actually took double the expenses.

[Annemie Tonkin]

Too many. Yeah. So too much came off her top line.

[Danielle Hayden]

Yeah. QuickBooks is tough. And I just want to say, like, I'm not saying this to be judgy or like, shameful, because I'm really not. QuickBooks is really difficult to use. And look, I can't do what you guys do. There's not a chance in the world I could do you guys do.

[Annemie Tonkin]

Yeah.

[Danielle Hayden]

So I just, I say that from a place of. Of love because QuickBooks is very difficult to use. And like, I went to school for a very long time, my team went to school for a very long time to know how to do this. Right. And so I'm not sitting here saying, like, you should know how to use QuickBooks and be a bookkeeper. Like, I'm not saying that. I'm saying you actually shouldn't. And therefore, I want you to be aware of some of the issues that happens so that you're not over or underpaying in taxes.

[Annemie Tonkin]

Right.

[Danielle Hayden]

Or open yourself up to an IRS audit and then you have bigger, bigger issues.

[Annemie Tonkin]

I mean, it's the difference between looking up your symptoms on Google and being like, this is what my problem is versus going to see a doctor. And you can use Google. We all do to a certain degree and to a certain extent. But if you wait too long, you can get yourself into real trouble. And yeah, I always feel like photographers do tend to do the whole thing where it's like, oh, it's so expensive to hire somebody else to do this. And I could just save that money and do it myself. When I released that in my own life and in my own business and it was the first outsourcing that I did in my business, we back when I was amazed that not only did was it like a huge weight off my shoulders, but it was also something where I ended up overall making or having more money in my bank account at the end of the day, even though I was paying a bookkeeper because they were finding ways to save me money that I didn't know about before. So it, I feel like it's one of those, like, it pays for itself. You just kind of have to get over the initial mental hump of like, you know, paying to get it started. Hang on guys, I have a quick message for you. Hey, friends. Just a quick interruption. I wanted to take a minute to thank you as always for listening. If you're a new listener, I have a special welcome basket that I've put together just for you that includes three of my most popular, actionable resources to help you build a more profitable, sustainable photography business. You can grab [e-mail] welcome. But if you've been a longtime listener, if you've been here for a while, I would really appreciate it if you could take a second to leave a review on Spotify or Apple or wherever it is that you're tuning in. Your support helps the show grow, reach more photographers like you, and elevates the industry as a whole, no matter who you are or how long you've been listening. Thank you so much. And now back to the show.

[Danielle Hayden]

And I always argue, can you really afford not to.

[Annemie Tonkin]

Right, right, right.

[Danielle Hayden]

Because we're paying that money one way or another. You know, in those two examples, we have people who paid real dollars to the irs.

[Annemie Tonkin]

Sure.

[Danielle Hayden]

That didn't that they didn't need to pay. So next is is another fundamental is separating your business and your personal finances. And this is going to lend ourselves to be able to continue to talk about how we pay ourselves and, and how we are able to enjoy those other tax write offs. We have to have our business and personal accounts 100% separate. So when you go and pay for the daycare bill, that has to come out of your personal account. When you pay your mortgage, when you pay, like anything that's truly personal, it has to come out of your personal account. We have to have a separate business checking account and separate business credit card that all of our business expenses are coming from each month. If you are a sole proprietor or an llc, you are taking money from your business account and transferring it to your personal account so that you have those owner's draws that can then fund your personal life. The United States gives us a opportunity for legal protection with our llc. And when we commingle business and personal, we're piercing the corporate veil. So we are then taking that protection we were just given and literally piercing holes. Right. From an IRS perspective, we're opening ourselves up to a IRS audit by commingling. So it's really, really important that we're keeping that business and personal separate.

[Annemie Tonkin]

Yep. And honestly, this is another place where, yeah, it requires a little bit of legwork up front, but it becomes so much easier, especially when it comes to dealing with your bookkeeper or if you're still trying to look at your own things. Like if you know everything on this one credit card is business only and everything on this other credit card is personal only, then it's much easier. It's much cleaner.

[Danielle Hayden]

It is much cleaner. And here's the, the counter that I hear from people is that, well, it's my business, so it's my money.

[Annemie Tonkin]

Right.

[Danielle Hayden]

Can't I just take it or. Well, I've already put five things on my personal account, so I'm just going to put everything on my personal account or I already commingled, so I'm just going to keep commingling. Oh, that auto charge is just already hitting my business card. I'm just going to leave it there. It, it's just having that personal responsibility.

[Annemie Tonkin]

Right.

[Danielle Hayden]

Because here's what happens. A lot of people will come to us and say, I, I just don't think this business thing's working for me. Like, I don't, I don't know why I don't have any money. It doesn't feel like I ever like the, I'm bringing in sales, but it never feels like I have enough cash. And when we actually do the bookkeeping, we, we do a lot of catch ups for clients around this time of year. So means for 2024 they didn't do any bookkeeping. No shame. All good. We go back in time, pull all those transactions into quickbooks we have a snapshot of where everything was and is. So when we do that exercise, we're able to see how healthy is the business. And a lot of times what happens is our owner's draws, our personal expenses and our equipment is the reason why we feel like we don't have any cash. The business is actually super profitable and doing great. And once we're able to understand the health of the business, it like totally shifts your mindset about where you can take this business.

[Annemie Tonkin]

I love that. All right, number three.

[Danielle Hayden]

Number three. All right, next is our Accountable plan. And this is a tool for my S Corp friends out there. Real quick. Just a little bit of background and then we'll go into, we'll go into it. An S corp is a tax filing status. So as an llc, you can be taxed as an S Corp. When you are an S Corp, you are then on payroll as a business owner. So you become a business expense to your business. You are paying yourself through payroll. The benefit is that you are reducing the amount of overall taxes paid because you are not paying that self employment tax. The other benefit of becoming an S corp is that you can then go for funding. You can buy a home, a car, you, you'll be able to get personal financing because you are on payroll. You have a paycheck, you are no longer self employed. So as an S Corp, generally we suggest becoming an S Corp after you have two years of about 75 to $100,000 a year in net income, not gross. Does all that make sense?

[Annemie Tonkin]

Yep.

[Danielle Hayden]

Okay. Once. Once we have become an S Corp, there's this really cool tool called the Accountable Plan. And the Accountable Plan allows us to move cash from our business account to our personal account throughout the year without paying taxes on it. You're going to refund your personal account for things like the. Your personal home office. My home office. I pay myself a market rate for the use of my home office by my, my business. Kickstart does not get free use of these four walls.

[Annemie Tonkin]

Right.

[Danielle Hayden]

Without paying for it.

[Annemie Tonkin]

You're there space in your home or. Yeah, exactly.

[Danielle Hayden]

Yes. Now as an llc, you still get a home office write off, but it's a write off on your tax return. It's just. Have you seen that meme where it's like write off? Like who. What is a write.

[Annemie Tonkin]

Right.

[Danielle Hayden]

What is a write off?

[Annemie Tonkin]

It's just out of cash in my pocket.

[Danielle Hayden]

Right?

[Annemie Tonkin]

Yeah.

[Danielle Hayden]

So as an llc, you get, you can get a home office right off, but it's not cash. The Accountable Plan allows you to take money from your business account, move it to your personal account without paying taxes on it. It's the coolest part. That is really a business expense. And you're actually lowering the net income of your business and paying less money in taxes.

[Annemie Tonkin]

Nice. Okay, I don't know that I knew that. That's fantastic. I mean, maybe that's happening because maybe my bookkeeping slash accounting team is dealing with that. But I'm going to double check for sure. That's a good one.

[Danielle Hayden]

You should know about it. So you should definitely know about it. If it is, if it is happening, you want to make sure that you know that it's happening. You should have an accountable plan on record. So if you were ever audited that that accountable plan, your corporate records, not your CPAs, yours. And, and you want to have that, that documented. So talk to your CPA about an accountable plan. I just want to clarify the roles between a bookkeeper and account and a tax accountant. Your tax accountant should be the one doing the accountable plan for you. Ultimately, they are the CPA who is signing off on your tax return. And they have to be comfortable with the accountable plan and anything else that you're taking as a write off. So it's really not a bookkeeper function. It's really that, that CPA function. So we do accountable plans for our tax clients, not our bookkeeping clients.

[Annemie Tonkin]

Got it. Love it.

[Danielle Hayden]

Next, we have uniforms. This is something I hear in this industry a lot is I'm, I'm gonna go, I'm gonna go shopping. I'm buying myself some new clothes. The only place I'm wearing these clothes is for the photo shoots that I, that I complete or the events that I attend. The IRS says absolutely not. You cannot write off regular clothes that you can wear other places. But I want you to be able to take the tax deduction.

[Annemie Tonkin]

Okay?

[Danielle Hayden]

So if you are going to purchase clothes that you are only wearing for, for work, you can simply add your logo to those pieces of clothing. And we've now made our clothing a true tax deduction. So we recently did coats. I wanted, I wanted hats, but gloves and coats for, for Kickstart, put our nice little logo on, on the side. And now that has become a business expense for both myself and for the employees that I purchased that for.

[Annemie Tonkin]

So. All right, let me clarify that. Let's say that I'm a wedding photographer, which I'm not, but let's say that I am. And I wear, you know, like a black jumpsuit when I go photograph weddings. And I don't particularly want a big, splashy logo on my clothing. I want it to look, you know, to have a particular sort of sleek look, whatever. Not noticeable. Is this, like, it has to be a legit, like, corporate logo on the front breast pocket or could it be something pretty subtle somewhere?

[Danielle Hayden]

I think it can be totally subtle. And do you do.

[Annemie Tonkin]

Yeah. Can you do that? Let's say that I want to buy that at a store, you know, that is not a uniform store. Can I purchase iron on patches or take that somewhere to have it, like, embroidered? Or is it something that I need to, like, purchase somewhere where they will add that officially?

[Danielle Hayden]

So ultimately, if you are ever audited, it's going to be up to the IRS agent and their mood on whether. On whether or not they allow it. Our rule followers who are like, I do not want to leave this up to chance.

[Annemie Tonkin]

Sure.

[Danielle Hayden]

You're most likely going to want to purchase it with the logo from a company who does that so that there's no questions.

[Annemie Tonkin]

Yep.

[Danielle Hayden]

If you're somebody who's a little more comfortable with risk, you're like, I'll take my chances, then by all means, go purchase the clothing. You can then have it embroidered on and. And maybe it's in a more subtle location or you do it in a way that actually looks very sleek and. And professional. Sounds like a great business idea.

[Annemie Tonkin]

It does, doesn't it?

[Danielle Hayden]

You know, if. If something ever happens that you were audited and the IRS agent says, no, this is an allowable expense, you'll just pay interest. You'll just pay the tax interest and penalties on that. That. That expense. So you're not going to IRS prison.

[Annemie Tonkin]

Well, and hopefully you're not buying, you know, $10,000 worth of clothing for work every year either. So. So we are talking about a relatively small thing. But I do love that I have never, ever created or purchased clothing with a logo on it for my business. I did for many years. My. My photography business is called Megapixie because I have always had short hair like this. And for years I battled with my accountant about like, come on, I should be able to write off my haircuts. And she was like, nope.

[Danielle Hayden]

But I'm glad she was saying no.

[Annemie Tonkin]

Yeah.

[Danielle Hayden]

Because we have too many tax accounts who are allowing these. These things, especially as we move into this content creator economy. Right.

[Annemie Tonkin]

Of course.

[Danielle Hayden]

How CPAs are advising around the content creator economy. And I don't think we have enough IRS cases yet that have been been kind of tried to see how we're actually landing on. On the Content creators. So we are part of the experiment as we unfolding. But this is a great way where traditionally CPAs who are more by the book are saying, hey, that's really not a uniform. This is a way of making that uniform truly a business deduction.

[Annemie Tonkin]

Yeah, love that.

[Danielle Hayden]

All right, next I'm gonna talk about equipment and gifts. So technically the IRS has like, they're very stingy on what they allow for you to give in gifts. It's $25. It's ridiculous.

[Annemie Tonkin]

Oh, wow.

[Danielle Hayden]

They want you to give gifts through payroll so that they get their payroll tax on it. I understand why they're doing that. So when you are gifting your employees at the end of the year, they want those gifts to be really given as bonuses through, through payroll. One way that we have seen clients change a gift into a business expense is by taking a like iPad or remarkable or a tool like that that we want to give as a gift and adding our, our company branding or loading it with company tools. Now you can allow in your policies for personal use of the iPads and maybe you also let them load Kindle or other apps onto the iPad as well as, you know, data secure programs as well onto the iPad so that it can be a business use as well. And now we've just turned what is a not allowable taxable gift right into a piece of equipment that is a 100% tax write off.

[Annemie Tonkin]

So what about the difference between that and gifts that you are giving to clients? Since a lot of people listening probably don't do employee gifts every year because they're, you know, they don't have employees.

[Danielle Hayden]

So same thing with the, the client gifts. The amount is very low, low for, for client gifts. I would still recommend getting creative and how you can give those, those gifts. And I know you're not going to be giving that type of equipment because it's not an equipment cost, but when you're giving gifts, watch for the amounts and how you can be creative in.

[Annemie Tonkin]

In that, that gift giving and adding branding to it or something along those lines. Yeah, well, and that's totally a doable thing. I think it's a, you know, it's a good idea.

[Danielle Hayden]

Yeah, yeah. All right. Lastly, I want to talk about tax and I mentioned it previously a little bit, is the difference between your bookkeeper and your tax accountant and kind of what the expectations are from both roles so that when you are arriving in tax season, you are maximizing your tax deductions. And this isn't, you know, I don't have a hundred Ways of, you know, capitalizing on the tax laws, because in reality, most of us aren't in real estate.

[Annemie Tonkin]

Right.

[Danielle Hayden]

Really what this is about is looking at our business expenses month over month and truly taking what's a business expense in our business account and truly treating what's personal as a. As personal expenses. And how we are maximizing our tax deductions are through the small ways throughout the year. But we need to be having our conversation with our tax accountant more than one time per year. And I would argue that a lot of people we hear don't even have a conversation with their tax accountant. They're sending in the forms, they get a tax return, a completed tax return back. We need to break that wall down, and we need to have a conversation. So just want to walk you through the process that we use with our clients. And, and I'm only doing this so that you can take pieces of this and ask your tax accountant to have this experience with you. When we kick off our. Our client's tax tax return, we do a tax prep call. And on this call, we are talking about what happened in the business and in their personal life so that we can hear and listen and put our investigative goggles on to make sure that we're maximizing all those deductions. You can't do that as a CPA when all you're looking at is last year's return.

[Annemie Tonkin]

Sure.

[Danielle Hayden]

You need to have a conversation. And look, tax accountants, we're not known for our personalities.

[Annemie Tonkin]

I don't know what you're talking about.

[Danielle Hayden]

So you need to find someone that is willing to have a conversation with you and that you want to have a conversation with them so that they can put those investigative goggles on, look at your return, and make sure that you're maximizing those deductions. At the end of your return. Every single one of our clients gets a loom video walking them through the return. Did you know that it's really your responsibility to verify the accuracy of your return?

[Annemie Tonkin]

I do, and it stresses me out, even though I've been good for several years about, like having other people do the work. And then I just go through it, but I'm like, oh, God, if it comes down to it, this is on me.

[Danielle Hayden]

Yes.

[Annemie Tonkin]

Yeah.

[Danielle Hayden]

But there's so many business owners who that reviewing the return feels like a foreign language, and they're giving away all their trust to this preparer they haven't even had a conversation with. They just sent in their forms and believe that it was magic that came back all completed. And beautiful and gold.

[Annemie Tonkin]

Right.

[Danielle Hayden]

We need to work with teams who will give us the tools to understand the information and help us ask questions so that we can feel comfortable with that tax return because it's ultimately your, your responsibility.

[Annemie Tonkin]

Yeah, I love. Oh, sorry, I was going to say I love, love, love that you're using loom or you know, a video tool of some sort. Because this is something that I teach to photographers too. You can send like a long PDF to your clients all day long to be like, hey, this is how I think you should get rid. 1 in 10 maybe will read it and they're skimming it. Like if you send them a two minute video where you're either, you know, they're looking over your shoulder at the screen if you're trying to teach them something there, or if you're just talking to the camera, even if it's like super low tech, whatever, that information will be received and retained 10 times better. And I, you know, take that and multiply it by a thousand. When it comes to financial information, as opposed to like this is what I think you should aware for your session or whatever the case may be because it's just, it is so much more like a foreign language. So the fact that you're walking people through that, man, that is, I hope every CPA out there is listening to you and being like, yep, I'm gonna roll that into my business model.

[Danielle Hayden]

Yeah, they don't want to. Yeah, it's really hard. Okay. And then we, we need to continue the conversation. Okay, so you followed your return. You're like, ah, it's over. Talk to them again until next year. Not true.

[Annemie Tonkin]

Right?

[Danielle Hayden]

We need to have, we call it a mid year check in. It's technically like quarter three, quarter four where we meet with every single one of our tax clients and the purpose of that meeting is to go over their tax snapshot. We're looking at, are you in the right entity type? Should you become an S Corp, should you dissolve your S corp status? Have you paid enough in estimated taxes? Are you contributing to your 401k, your IRA, your HSA, looking at those tax strategies? So that mid year tax check in is really important to continue the conversation with our, with our, with our CPAs to make sure that we are checking those boxes throughout the, the year. The last thing I'll say is the reasonable compensation. So if you have become an S corp, you are required to pay yourself a reasonable salary. Every single one of our tax clients receives a reasonable compensation at the beginning of every year. So they know exactly how much to pay themselves. You should not feel like you are in the dark on how to manage your finances. You should have both in your bookkeeping and your tax team, the money team, to support those key decisions, especially around how much to pay yourself so that you are maximizing your tax deductions. There.

[Annemie Tonkin]

That piece of it, again, is so important. And running payroll and all these different things, if you get to that point, or if you are at that point where you're an llc, filing as an S corp, that stuff. I mean, whatever. Even saying that, I've been in business for 15 years, and I have been at that tax bracket for most. Well, I don't know, at least more than half of that. And it still feels like I'm, you know, putting on somebody else's uniform and being like, oh, yeah, I know what I'm talking about. I don't. Yeah, playing, you know, role playing, I guess, is what I'm trying to say. But anyway, that it. This is all. It's so important. It does feel overwhelming. I feel like having the right guide to help you through that process is just. It's like the best way to reduce the stress around it.

[Danielle Hayden]

You're not supposed to know it all.

[Annemie Tonkin]

Yeah.

[Danielle Hayden]

Like, literally, when I was working in corporate, I. When I worked with my CEOs, they didn't know it all, right? They had a team of people in marketing. They had coaches, they had a cfo, they had a tax count. Right. Like, I think what. What we can learn from that is that, for God's sakes, take the superhero cape off.

[Annemie Tonkin]

Yeah.

[Danielle Hayden]

You. You have to go out and do what only you can do. And there's pieces where you can ask for help and find a team that you actually want to talk to and let them help you. Let them serve.

[Annemie Tonkin]

So good. All right, Danielle, let everybody know where they can. Oh, and you've got. You've got something juicy for everybody, too.

[Danielle Hayden]

Yeah. Go to kickstartaccountyinc.com gift and there you can download the top 10 tax deductions. We have our podcast business by the books, and we come out every single week with an episode around how to use your numbers to. How to use your numbers to grow your business and all of these tax tools. I think I have an episode of every single one of these things in depth, so you can go find more. But go to kickstartaccounting.com gift Download that, and it'll also take you to some applicable podcast episodes.

[Annemie Tonkin]

Fantastic. Wonderful. Well, this has been a pleasure. I really do appreciate your expertise here and and I will look forward to talking to you next time.

[Danielle Hayden]

Thank you very much for having me.

[Annemie Tonkin]

That's it for this week's episode of this Can't Be that Hard. I'll be back same time, same place next week. If you like the show, be sure to check out thiscan'tbethathard.com to explore all the resources we have for photographers. And of course, it would mean the world to me if you would leave a review of the show on itunes or Spotify. As always, thanks so much for joining me. I hope you have a fantastic week.