Kim Padgitt and Julie Pesek of The TAX Advantage answer a whole pile of tax questions! What mileage counts as business mileage? How does it work to write off a portion of your living space for your business? What software should I be using to keep track of everything? All this and so much more, packed into one episode.
This episode is sponsored by The Tax Advantage
The TAX Advantage offers accounting and bookkeeping services as well as Income tax preparation, payroll and all sorts of services a business owner might need. Kim Padgitt has over 30 years of experience in the fields of taxes, accounting, payroll and helping startups. Julie Pesek has been in accounting for over 15 years and joined The Tax Advantage when she saw that smaller businesses were not being served at the larger firms.
The Tax Advantage is offering a month bookkeeping special starting at $95.00/month, through 2019. But don’t worry! Even if you’re missing that timing, they’ll have the most competitive pricing. Learn more and reach out at massagebusinessblueprint.com/taxadvantage
Sponsor message This episode is sponsored by The Tax Advantage. The Tax Advantage offers accounting and bookkeeping services as well as income tax prep, payroll, and all sorts of services a business owner might need. Kim Padgitt has over 30 years’ experience in the field of taxes, accounting, payroll, and helping startups. Julie Pesek has been in accounting for over 15 years and joined The Tax Advantage when she saw that small businesses were not being served at the larger firms. The Tax Advantage keeps their overhead low to offer competitive pricing for very small businesses like ours. Their staff are certified QuickBooks experts and fluent in plenty of other bookkeeping systems, and they can help teach you that software so you can stay in control of your business. The Tax Advantage is offering a monthly bookkeeping special, starting at $95 a month, to our listeners. This offer is good through 2019, but if you’ve missed the deadline, don’t stress. Even if you’re missing that timing, they’ll still have the most competitive pricing. Again, our listeners can get a monthly bookkeeping special starting at $95 a month. You can reach out by going to massagebusinessblueprint.com/taxadvantage. You can use their website contact form or phone number to contact them and get this $95 a month bookkeeping special just for our listeners. Again, go to massagebusinessblueprint.com/taxadvantage.
Michael Reynolds Hey, everyone. Welcome to the Massage Business Blueprint podcast, where we discuss the business side of massage therapy. I am Michael Reynolds.
Allissa Haines And I’m Allissa Haines.
MR We’re your hosts today. Welcome, welcome. We’re glad to have you with us. Allissa, I don’t know who’s more excited about this episode, you or me.
AH I am more excited to the point where we are not bantering, Michael.
MR Let’s skip it.
AH Just jump in.
MR Let’s just skip it. Let’s go straight to the meat of this episode because we have a special — two special guests with us for our interview episode today, and that is Kim Padgitt and Julie Pesek from The Tax Advantage. Julie and Kim, welcome.
Julie Pesek Hi.
Kim Padgitt Hi, thank you for having us.
MR We are so excited to have you here and thrilled that you’ve joined us because — well, many reasons. One is you are the official accounting firm of Massage Business Blueprint, so you’re our accountants. I also work with you in other businesses I have. And I know that you’re already starting to kind of work with some of our listeners and premium members as well. So you’re already making great inroads into our community here, and everyone loves you, and we’re thrilled to have you. So thank you, thank you for being here. We really appreciate that.
So we have prepared a great show for you today, and our plan is to propose a ton of questions to Julie and Kim that our listeners in our premium community have submitted to us. They sent us a ton of tax questions. I feel like this has been four- or five-years’ worth of tax questions all coming to fruition here because these are questions that people ask over and over and over in our premium community, that just kind of bring up over and over as challenges for them. And it’s kind of — it’s hard stuff that we have to wrestle with when it comes to small business taxes. And so we are really looking forward to having a great discussion and addressing some of those questions today on the episode.
So we’re going to start with kind of a background on Kim and Julie — on the two of you, kind of what your journey has been. We’re going to briefly kind of talk about your — like I said, your paths to getting to this business, what the business has been doing, little bios and profiles on each of you, kind of briefly give us some background story on who you are. And I think we’re going to start with Julie. So Julie, take it away. What’s your background?
JP Thank you, Michael. I — actually I started at — back in the early 2000s, I graduated from Purdue with a retail management and a sociology degree and thought I was going to do retail for my career. And some unforeseen things happened, and I actually was a — I was a single mother right out of college and couldn’t do retail anymore. So I actually switched over to real estate. And then I was a closer at a title company. I did property management, so I was doing commercial residential property management, and I even got my real estate license. Then when the recession hit around 2008, 2009, I had to make some choices and said okay, I need to get a different career. So I figured that I like numbers, and I thought I was — I could teach myself accounting, and I decided, hey, why not. I’m going to go for an MBA in accounting and take upper-level accounting courses and teach myself. And I actually got tutors through college and — to learn everything because I didn’t have an undergrad.
So after I got that, I — or actually when I was in college for about two and a half years, I ended up working at a bank. I worked at a financial planning office. I even did one tax season at a CPA firm. And so that really got me through college. So I was working part time and studying part time and — well, and taking classes and raising a child. So then after I graduated, I actually was using TurboTax on my tax returns every year, and TurboTax didn’t understand that I was getting the earned income credit and that I was (indiscernible) with my ex — with the child tax credit. So I actually ended up having to amend three years and one of my good friends said, hey, I need you to meet Kim Padgitt, who is now my partner. And so I actually met her back in 2011 when I was going through all this.
So getting back to my career path here, after I did that, graduated, I actually did a couple things. In 2011, I actually figured out, hey, I’m actually good at film production and writing and actually taught myself how to do screenwriting. So now I have a screenwriting company that I started. And I continuously write, even to this day, on the side. After I did that, in 2012, I actually went into hospitality staffing and did accounting and payroll and HR over there for three years. And then in 2015, got into — I wanted to refine my accounting and do more accrual accounting, so I got — I worked at a pharmaceutical company and I did home healthcare as well — (indiscernible) with them — and learned how to do more accounting.
Then in 2015, I actually joined — my last employer, which was a medium-sized CPA firm, and I actually became an expert in cloud-based accounting and technology and found that was like — my wheelhouse was QuickBooks online and all these different platforms and trying to figure out the next evolution of accounting and doing consulting that way. And then also I found out I had a knack for networking and growing a firm, so I actually found a firm to acquire this past year and we brought that on. And then also I got involved with networking. And Michael, that’s how you and I met.
JP You were president of Tipclub.
MR Good old Tipclub.
JP (Indiscernible) — yes. So I started attending there a couple years ago, and you and I got to know each other really well, and that was a big turning point for me knowing that there was a community out there that I could help and really tap into. And it’s really all about paying it forward and helping the next person. So I was very blessed when I met you, Michael, because you shared the same mindset I did with helping others.
So after that, I was getting a little frustrated at the firm I was as, just because the owner and I didn’t see eye to eye. My passion was more with working with the smaller clients. The people that were like me, you know, that were emerging entrepreneurs, the people that didn’t even know they were entrepreneurs. I didn’t even know I was an entrepreneur until somebody actually sat down and told me, hey, there’s nothing wrong with you with having all these different jobs; this is the way you’re built and be proud of it. And I was embarrassed most of my life because I just couldn’t keep a job because I would get bored easily or just circumstances worked out where it just wasn’t a good fit for me or I outgrew pretty fast. But when Kim came to me and she saw my passion for helping those smaller clients — because I actually was referring a lot of clients — a lot of prospects over to Kim that our owner didn’t want because he was like, okay, I’m not going to make enough money off of them. And I said, but these are the people that need our help. And I just went to bat for these people and Kim’s like, you know what, she’s like, you’re — why don’t you come over and grow my firm and become a partner? And I was so — I just — I thought she was joking when she first said this because I was like, why would she want me? I remember sitting in her office seven years ago with her and Stephanie, who’s with our firm, and she was teaching me how to make journal entries into QuickBooks desktop. And I’m like, why would she want a partner with someone who didn’t know what they were doing seven years ago? But she told me, she said, you know, I believe in you, I’ve seen your journey, I’ve seen that you’ve figured out who you were, and you embraced that, and that you go to bat for the people that really need help. This is who I want to partner with and be able to help more people. And that was really the turning point with me, and I just said this is going to work. I’m able to pay it forward and help the people like me that really need the help.
MR Oh, my gosh. I’m mentally fist pumping right now just because I’m on such on a “stay small” mission right now. You know, stay small, high profit, small business, even solopreneur, don’t buy into the whole “you have to be a huge business to be successful.” No, the backbone of our economy, I think, is these solopreneurs and small businesses that are throughout the country, running a great business, and staying small doing it, and they need help. And so I just — I love that. I’m so excited to hear you say that. And I’m with you. I have this — a lot of our listeners also have kind of a career path full of twists and turns and different types of things, and so its — I think this really resonates to a lot of our listeners also.
JP Yeah, and that’s what I’m saying, like, I mean, if anybody who’s out there thinks that, hey, I’m in a money jam right now or there’s just something that’s very unforeseen that’s happening to them right now that’s holding them down — because I went through all that and there is a light at the end of the tunnel. There’s a reason for you going through all this right now, and if you learn from it and embrace it and see the good and move forward in life, then you’re going to accomplish what you were created for. And I just — I love hearing any story from anybody that I meet. And I will tell all the listeners out there I love going to — getting massages. I get them because I lift four days a week, and I — one of the things is I don’t really relax on it. I actually sit there and I talk to them and I listen to their story. I’m like I want to know how you got to where you are now and how I can help you be more successful in what you’re looking for.
JP And that — yeah, that’s just something I live for. So but I just kind of wanted to share that with you, Michael. I know I haven’t really shared my background with you, and I’m glad that I’m able to let everybody else know out there right now why Kim and I are doing this and just a little bit about me and hopefully it inspires somebody out there.
MR Well, that’s great. Well, we could probably end right there and help a lot of people already. Lucking we’re not. We have more. [Laughing]
MR So Kim, what would you like to add? Anything you want to add, Kim, about your background?
KP I’m your typical bean counter. I started this firm in ’85, and so I’ve always been small, low overhead, help the people that other people don’t want to help. I have a degree in accounting and a degree in business management from Indiana Wesleyan. I’ve been an enrolled agent since 1992, which is the IRS’ licensing for tax accountants. I can represent clients in all 50 states before the IRS. So that is my background. That’s what I do and what I’ve been doing for 30-plus years now is helping people that other people don’t want to take the time to help.
JP And I wanted to mention something to all the listeners. I’m actually — my new endeavor right now is getting my CPA, which I’m sitting for currently. And Kim’s going to go into some differences between the CPA and the enrolled agent. But I will tell you, Michael, I said I — sitting with her in one office and hearing about how she goes to bat for the people that really need help that get screwed over by the people out there like the tax preparers that are trying to get fees and trying to make a livelihood out of that at the cost of the people they’re helping, I’m just amazed by her passion. And I’ve learned more from her than I did at the four years I was at the last CPA firm. And that’s only in the last few months. I just — I’m amazed by the wealth of knowledge she has and the on-the-spot customer service that I think everybody should have privilege to have. If they need something, we’re there. And I just —
MR Well, it sounds like the two of you make a great team. And I can vouch for that being on the client end of receiving Kim’s service, I absolutely second that.
JP Thank you.
MR Wonderful. Well, let’s — we’re going to go ahead and get to our questions pretty soon, but first we’re going to — we actually asked Kim and Julie if they would like to sponsor this episode because we want them to basically sell themselves. We want them to tell people what they do and how to find them because we really want to encourage people to reach out to them and consider working with The Tax Advantage and Kim and Julie. So let’s — I know Allissa’s going to give us a little overview of The Tax Advantage, what they do, and ask a few questions from Kim and Julie about what they do as well. So we’ll go ahead and to that first. So let’s go ahead and jump to that.
AH Hey, so yeah, thank you Tax Advantage for sponsoring this episode. And like you have heard The Tax Advantage offers accounting and bookkeeping services as well as income tax prep, payroll, and all sorts of services that a business owner might need. They keep their overhead low to offer competitive pricing to very small businesses. Their staff are certified in QuickBooks. And this is what I’m super loving about them is that they are willing to help teach you the software that you’re going to use to handle your business’s money so that you can stay in control of your business, which is really, really important especially with very small businesses like ours. And they serve very small businesses like ours. You all have heard me complain before that nobody’s really serving businesses that gross less than $100,000 a year. And they really do. And they also serve larger massage businesses. So if you’ve got employees or a couple of locations or even if you happen to be listening to this because you, like, manage a branch of a franchise, they can help you too. But that focus on very small businesses is something that I really, really adore.
And our podcast listeners may get a special, starting at $95 a month, monthly bookkeeping services. And that offer is definitely going to be good through 2019. Don’t be sad if you’re listening to this way in the future because they’re still going to have the most competitive pricing. So you can go to massagebusinessblueprint.com/taxadvantage, and you can get their special monthly bookkeeping services starting at $95 a month and 90% of us are going to fall into that $95 a month range. We say “starting,” because if your business is a little bit bigger, we might have to talk about a little bit higher rate than that. But it’s likely going to be in that $95 a month range. So reach out via their phone number or contact form on their website that you can access at massagebusinessblueprint.com/taxadvantage.
And Kim and Julie, anything I missed there?
JP We do offer a special with tax returns. So we actually have a separate rate for that, and we would love to do your — a lot of you guys are probably reporting on a Schedule C directly on your individual tax returns. Some of you might be corps. But we do both, and we’re happy to help with that. We do give special low pricing for those as well.
AH Sweet. All right, Michael? Bring in the questions. There are so many. I want to hit them hard. Do it.
MR Let’s bring them. All right. So we’re going to do these just rapid fire here. We’re going to take our time as we need to, but we’re going to go top to bottom with all these questions here, starting with —
First question, can the massages we get as part of our self-care to keep us healthy professionally qualify as a write-off or expense for taxes? I have heard differing answers to this with my own CPA saying no.
KP Answer: If you get a prescription from your doctor and your doctor says that it is for the aid of a disease, the treatment of a disease, the answer would be yes. If it is just to make you feel better and there’s no prescription but your doctor said it was a good idea, the answer is no.
MR Okay, wonderful. All right, next. I know this came up recently. What items count as equipment? For instance, I bought two sets of tapotement devices called Bongers and a motorized massage device. Each item was equal to or less than $20.
KP Well, in this office, I normally would just list those in supplies. If it’s over $100 worth of equipment and it’s going to last longer than a year, the IRS would — does want you to write it off under depreciation. But you’d still would write it off in the same year because you would use Section 179, which is the code section that you would just — up to 25,000. You could still write it off.
MR Okay, thank you. This next one — oh, I’m sorry. Go ahead. Was there anything —
AH Yeah, I just want to jump in and clarify. So if it’s less than $100 and it’s going to last you less than five years, it’s more of a supply. And if it’ smore than $100 or it’s going to last you more than five years, it’s equipment? Is that right?
KP That’s pretty much. In this case, that would be a good answer.
AH Okay. And it’s of course, something you should discuss with your individual tax preparer. But okay, I just like making that clear. Someone made that clear to me a couple years ago and it was so illuminating for me and made my recordkeeping so much better. So thank you.
KP Your welcome.
AH On to the next, Michael.
MR The next one — we had actually a couple questions on mileage, so I combined them into one question here. It says, can mileage expenses be claimed or has that deduction been eliminated, and I have an office and do outcalls as well as contract at a yoga studio, so what counts as legal mileage?
KP Okay, the IRS’ position is that everyone — almost everyone in the US drives to work. So if you have a yoga studio or a massage therapist studio in your own home and you drive to clients as well, then that mileage would be deductible. If all of your calls are outcalls, only the mileage that is over 35 miles one way would be deductible unless you have two calls in one day and then you go from job A to job B. From Job A to job B would be deductible. I know it’s very convoluted, but that is the answer.
AH So as an example, I am — I drove from home to my office today and that’s part of my commute, so that’s not deductible.
AH But I’m — let’s say I’m at my massage office, which is totally going to happen, I see a couple clients, and then I leave to go pick up my laundry and make a bank deposit and have coffee with a local business networking referral partner, and then I drive back to my office. Are all of those errands part of my deductible mileage?
AH Awesome. And if I was to, like, go do a home visit massage somewhere, now — and this happens to me. Oh, once — I hope it’s okay I’m doing examples here. So once a month on a Sunday night, I do a home visit for a client. So if I’m at home that day and I drive directly to the client’s house, is that typically deductible — going from home to the client’s house? Or is it only deductible if I’m going from my office to the client’s house?
KP The answer would be if you’re at home, you have to drive to work. If that work is less than 35 miles, that would not be deductible. If you drove to your office, which is a half mile down the road and did something and then went to your client’s appointment, the answer would be yes.
JP So your commute from the office to your client would be deductible.
AH Got it. Awesome. Thank you for that. Carry on.
MR All right. Lots of nuances here. All right, next one. Why do some business owners file quarterly and some don’t? How do we determine if we should be filing taxes quarterly or annually?
KP Okay, I want to make sure — I believe that question is referring to estimated tax payments. Is that what you —
MR Yeah, I believe so. That’s how I interpret it, but yeah. That’s how it’s worded.
KP Okay, so if you are self-employed and you are not doing estimated tax payments quarterly and you get to the end of the year and you owe taxes, the IRS will assess a penalty and interest and not paying those taxes timely. So everyone that has profit should be filing quarterly estimates. There could be situations where you don’t need to: you’re married, your spouse has lots of money withheld, you have multiple children. But almost everyone that is self-employed should be filing estimated tax payments to prevent penalty and interest at the end of the year.
MR I want to clarify something here. So just nuances in word choice here. So this person said “file,” but really what they mean is pay quarterly because you don’t necessarily file a tax return quarterly, you pay your estimated taxes quarterly.
MR You can go online to irs.gov/payment, for example, and you submit a payment or you send a check in, but you’re not filing taxes.
KP Correct. And that’s why I wanted to ask if we were discussing estimated payments. Correct. And you should talk to someone like our office or your accountant and ask them for the forms to do that quarterly — to pay your taxes quarterly.
MR Yeah, I do mine online through irs.gov and just pay them online.
KP Absolutely. That way you get an instant confirmation.
MR Okay, cool. Next question. What are the main differences between a bookkeeper and an accountant?
KP If you look at the definition in a dictionary, they’re pretty much the same definition. I’m wondering if the question should be what is the difference between a CPA and a bookkeeper or an enrolled agent and a bookkeeper. Both a bookkeeper and an accountant, you know, if you look up the definitions, they just do accounting. They keep books and records. The difference between an enrolled agent, which is what my firm is, an enrolled agency firm, and a CPA firm are I do managerial and income tax accounting for businesses that are not publicly traded on a stock exchange, whereas a CPA firm, the bigger people, they can do compilations and things for larger clients that — most of the clients listening to this podcast do not need.
So bookkeeping, accounting, it’s just keeping books and records in order if that’s the question between an accountant and a bookkeeper. Both do the same thing in that category.
MR Interesting, so —
JP (Indiscernible), Michael I did want to chime in. The — a CPA and an enrolled agent have the same — it’s the exact same authority in front of the IRS. So if you have any kind of tax issues or anything, don’t feel like you have to go to a CPA. An enrolled agent has the same unlimited authority. And again, I mentioned earlier, I feel like Kim’s knowledge is a lot more in depth than any other CPA I’ve ever met. But she’s an enrolled agent, but it’s just — it really just comes down to what the — just the credential difference is just really the financial aspect with reviews, audits, and compilations.
MR So it really sounds like the only difference is a CPA can work with publicly-traded companies. That’s really the main difference.
JP Yeah, that’s really it, yeah.
MR Okay, wonderful. So a dumb question here. So I’ve seen in my payroll software, for example, they differentiate bookkeeper and accountant. They say oh, are you inviting a bookkeeper or an accountant, and they are actually two different choices. Is there ever a situation where there really is a difference, or are they literally just the same thing?
KP Literally, the definition for accountant and bookkeeper are the same thing. A person whose job is to keep and inspect financial accounts.
MR Okay. So our listeners, for all practical purposes, should just be looking for an accountant.
MR Okay. Or a bookkeeper. [Laughing] Okay. So next question: Pros and cons of LLC, S corp, et cetera — different business entities here — and what size business could or should be filing as which type? Does it matter revenue-wise?
KP The revenue does not matter. I think what matters is the following. Self-employment tax. If — I mean, I could go on all day for this, so you should stop me whenever.
MR [Laughing] We have a lot of time, go for it.
KP There are the following differences. I’m just going to use 50,000; it’s a good number. If you’re a new company and your gross revenue is $50,000, a one-member LLC is a fine thing to be. You will file a Schedule C. It will be a little less complicated from an accounting, bookkeeping, and income tax perspective. But as you grow, at some point I would recommend that that one-member LLC become an S corp because then they could put themselves on a payroll and split some of their company earnings between wages and what would be called ordinary income or dividends, saving themselves that 15.3 cents on the dollar of self-employment tax.
MR So can you put yourself on payroll as an LLC?
KP Not a one-member LLC, you — no. You would have to be a one-member LLC that opted to be treated as an S corp.
MR So you have to opt to be treated as S corp before you can pay yourself payroll as a one-member LLC. Got it.
MR Okay, great.
JP But that doesn’t mean that you can’t take money out and pay yourself —
JP That would just be considered a draw. It’s just, there’s no —
MR Yeah, you write yourself a check.
JP — federal or state taxes coming out. Yeah.
MR Okay. Awesome, thank you. Next question. If you sell the business, what’s the best thing to do with the money to save on taxes?
KP That one, you know, I could give you ten examples that would have ten different answers. So I’m going to answer this question as generically as possible. And if there’s someone out there listening that has or is getting ready to sell a business, they should talk to our firm or another firm beforehand to make that decision. It’s harder to fix afterwards.
But normally that are two things that happen when you sell a small business. You’re either going to be taxed on the gains as capital gains or as ordinary income unless you’ve structured it in some other manner like an employment contract or some other way that they are buying you out. And so there’s no way that you can sell a business — say I sell a business today and I made a $50,000 profit, there’s nothing you can do with that $50,000 immediately that would reduce the taxes on that 50,000. There are things you could have done in the contract that would structure it that would maybe be called capital gains, which could be a lower rate than ordinary income dependent upon your tax bracket. So those decisions need to be talked about before you sell a business because afterwards, there’s little you can do other than look at what was sold and then you have to put it on the tax return the way it was sold.
MR So moral of the story, talk to your accountant before you sell a business. [Laughing]
KP Absolutely, absolutely.
MR Got it, thank you. Next question. How does it work to write off a portion of your living space for your business? I’m in an apartment and don’t feel comfortable admitting I’m taking clients here, but even if I didn’t, I still need the extra room to do computer work and practice new modalities.
KP Okay, there are two — as always with taxes, there are several ways to answer this question that could be true. I’m going to start with a rented apartment because that would be the easiest. If you are a person who rented an apartment and you rented an extra room — an extra bedroom in your apartment because that is where your therapy room is, then you would take the square footage of the apartment and then the square footage of the room you’re using for the therapy room, and then that portion of your rent could be written off. You can do the same thing with the second part of that example where she talks about — or he — using that room for their business part of their business. As long as you don’t have a studio offsite that has an office in it. In other words, you can’t — the IRS won’t let you rent a studio a mile down the road and you have an office there and still claim an office in the home right down the street. So that’s the first part of that answer.
The second part of that answer would be as follows. If you own your home and you are wanting to claim an office in the home, there are two ways to do that. One is called a safe harbor rule where they just do, okay, 200 square feet times $5 and you put it on the return. You just need to understand, then, if you sell that home, a portion of your profits that might not would have been taxable because it’s your home, could be taxable because you’ve used a portion of it for a business.
MR The IRS always gets their money somehow.
KP Absolutely. They always figure out a way. So once again, it’s a question that you should talk over with your accountant and ask okay, are you going to be in that home more than a couple — you know, there are things that would help to decide whether it was a good decision to do or not do.
MR That’s very insightful, thank you. All right, next question. How does one get a business credit card and what are the benefits?
KP Okay, this one, the business credit card, I — almost all the businesses that I have — and I have some that, you know, have over a million dollars a year. If they are a one- or two-owned business — one or two people own them, almost all their credit cards will say, like — I’ll use mine, Kim West Padgitt, The Tax Advantage. And so it takes a long time to be an established business to actually get a credit card just using the company credit and the company ID number. So most small business owners just get a credit card in their own name, and they just only use that credit card for the business because you can’t open up shop today in almost any situation and call a credit card company and go, I’ve just opened ABC Shop and ABC Shop would like for you to give us a credit card. So it’s almost always going to be somehow connected to the owner’s credit.
MR All right. Thank you.
KP And the benefits of having a business credit card, even if it’s just in your name, is that all your expenses are in one place, and if you are audited, the IRS doesn’t get to see you other five credit cards because you’ve been using them here, there, and everywhere. One credit card for a business is definitely the way to go.
MR Thank you. All right, next question. What software should I be using to keep track of everything? An Excel template or something else? Are there accountant — oh, sorry. Let me actually — I’m going to split these into two questions here. I should have done that before. So we’ll stop at that one question.
What software should I be using to keep track of everything?
JP Well, as far as, like, if you’re starting up and you only have maybe like ten transactions or so a year, I would just keep track of it on Excel, and then just keep it organized and give it to your accountant at the end of the year. Now, if you have somebody that has — somebody out there that has maybe 50 transactions a month or something, then yeah, I would definitely invest in either QuickBooks online or QuickBooks desktop. I know we’ve — I’ve heard about Wave and Xero and a few other platforms that are out there that people are using. I know here at The Tax Advantage we work with all of them. We’re more certified in the QuickBooks desktop and QuickBooks online, but you know, we’re open to working with Sage and some of these other softwares that are out there. But yeah, if you’re starting off, I mean, I would just maybe save the money and just use Excel, and then as you grow, then look at investing in a software.
The other thing is, like, here, if we got — if somebody wanted to take advantage of our special and said, hey, I’m not going to make an Excel spreadsheet but can you keep track of all my bookkeeping? If they wanted to take advantage of that, then we’d put them on, QuickBooks, maybe, desktop for now because there’s not a subscription rate with that. If you go to QuickBooks online, there is a subscription. So once that’s active, you’re locked in with paying a fee every month. So that’s why we’re just trying to make sure that we’re saving money to our clients for clients and having their best interest in mind. And I mean, again, we have clients that, you know, that are all over the board, that use Excel, and then there are some on desktop, there’s some online, and then — so we’re used to working with all different sorts and how they want to keep track of it.
AH So I want to push you a little bit further on this question.
AH Say for someone who hates QuickBooks, and that someone would be me. I tried way back in the day with the desktop version. I tried QuickBooks online, which worked really well, but I had to pay a bookkeeper to manage it for me because it was just a little too complex for my brain. And also, it was just more than I needed for my little business. What is your next online, web-based software preference for bookkeeping that is not QuickBooks? What is your favorite? When you have a client who is like, hey, I really hate QuickBooks but I’m using this one, what is your dream option outside of QuickBooks?
JP Well, I will say this. All of the softwares that are out there, they’re all the same. Like, honestly, they’re all intuitively the same meaning that they all do the same thing — credits and debits. They all have the same functionality, same reports. It’s just the only thing that — like you’re saying — is frustrating is maybe the bells and whistles on it and how it interacts like — one thing about QuickBooks online, I know it does pull in the bank feed, and so you can actually use a download instead of hand-keying everything, which is a benefit. But there’s other software like desktop where, I mean, you can upload a statement, but a lot of it’s just hand-keyed. So again, it’s all the same.
Some of — like you’re asking about what would be my dream one. I actually have extensive training on Sage. Sage is more robust, but I know they have an online platform now. But I — Sage desktop, what used to be Peachtree, is pretty much the same thing as QuickBooks desktop. And I’ve gotten into FreshBooks a little bit, and that’s very similar to QuickBooks online. I’m trying to think of some other ones. I mean, I know there’s a lot more that are — that’s kind of — like Wave is one of them. I know there’s just a — just so many cloud-based ones that are up and coming that maybe aren’t in the CPA and enrolled agent world yet, but I know a lot of the consumers out there are using it because maybe — I know Wave and FreshBooks may be more of a discounted rate than QuickBooks online. So its just whatever you feel that’s going to be a good fit for you. But yeah, I guess in a roundabout way, I don’t know if I would say I have a dream one. I can tell you what I’m comfortable with doing versus things that I know I probably have to get in and learn the bells and whistles and figure out how it kind of flows.
But the other benefit of, you know, if you do reach out to us and say, hey, can — I don’t know anything about accounting. I don’t know about QBO, which is QuickBooks online, or QuickBooks desktop. I don’t know how to make a journal entry — like me. I didn’t know how to make a journal entry. But we provide training and will train you on it and get your more comfortable with it if that’s the one that you want to go with.
AH Cool, thank you. I was — I’m glad to hear you mention Wave in that list because it has tended to be the one I most recommend and it’s the one I use now since I left QuickBooks last year. And it’s just so reminiscent to me of the old-school personal Quicken, that is essentially just an electronic check register, and it auto-imports stuff, and it just is so much more intuitive to me than the larger QuickBooks, which was just so much more than I needed. And I know you can ignore the features you don’t need, but it makes me really happy to hear that you’re totally willing to slum it with me on either a spreadsheet or Wave or —
AH — something like that. So thank you. Thank you for answering that.
JP Yeah, you’re welcome.
MR All right, this next question’s interesting. It says, are there accountants that work pro bono like lawyers or what would be a good way to find one willing to barter?
KP I’ll start with the pro bono. Usually you’ll find one or two cases on my desk that are indeed pro bono; it’s someone that really needs help and can’t afford the help. As far as bartering goes, I’m required to tell you that bartering can be income. So if I barter — say I barter with a client for a massage, that it still supposed to go on my tax return as income or vice versa. So I’m sure there are people out there that will do it, but you can’t — I mean, there’s a form called bartering income that must go on the tax return, you know. So no, there’s not really people that should be bartering services in that fashion. Unless of course, you’re going to go, okay, my fee is 100 a month, your fee is 100, and then we just both do an entry in our accounting system that goes ahead and accounts for that income. You can do that, but I don’t really think that for the most part I would be in many bartering situations.
MR So I want to add a little something here and get your opinion on it. So I have been a part of and am familiar with an organization called ITEX, I-T-E-X. And there are other similar organizations like it. And what they do is it’s a bartering organization where you join, and you pay a small fee to join, and then you can basically get credits in the organization once you do business with other members, and you can use those credits to purchase things within the network as well. And what they do is at the end of the year, they give you a tax statement that does record all those transactions that you just described so everything is legal and detailed for your taxes. What is your opinion on those sorts of organizations?
KP That sounds like exactly what I was describing but in an organized manner where you get a form at the end of the year that tells you what your bartering services totaled and then you report it on your return as income. I mean, that sounds exactly — that would be a great organization. That, I could get behind 100%.
MR Okay, great.
AH I’m just going to jump in here with this answer to this question are there accountants that work pro bono? Like, yeah, that’s great, but you get — I’m not going to say you get what you pay for, but really? You want to start your business in the most ethical and clear and boundary-conscious way. And I feel like people, we already have a struggle with boundaries and dual relationships, and it can be such a struggle with boundaries and money. I feel like bringing in boundaries, money, and dual relationships into the same situation is just begging for problems. Begging for it.
AH So find the money and write the check for a bookkeeper or tax prep or accountant or whatever. Find the money. You can find a massage or two’s worth of money. Or work with an accountant who will help you with a payment plan if needed. But find the money, people. Don’t expect professionals like this to work for free. Okay, that’s my rant done.
MR Yeah, I’m not a fan of bartering, personally. It always gets messy. I’d rather just pay people for stuff. [Laughing]
All right, last question on our list is are work uniforms, as a sole proprietor, tax deductible?
KP The answer is it a true uniform? In other words, does it list your logo somewhere on the — on it? If it does, then that would be yes. If you are just wearing black slacks and a black top, the answer is no.
MR Okay, so the log is the key factor here or the name of your company.
KP Yes, that makes it a true uniform.
AH So I want to freestyle for one more question. And everybody, I’m throwing this at them unprepared. What are one or two — or maybe one from each of you — the biggest mistakes or foul-ups that people — that small business owners, maybe very small business owners, maybe first-time business owners — tend to make and come to you with?
KP There are a couple that I see repeatedly. Comingling of funds is a big one, where they’re running their business and their household out of the same account. That’s a very bad idea because then if there’s an audit, the IRS gets to see your entire life because you’ve comingled everything; and therefore, they get to go through everything to verify your business expenses.
Waiting to long to see an accountant and you’ve got two or three years of tax returns to file and pay. And I mean, I could go on with the list. But the biggest one is that you should start with an accounting system of some kind as soon as you start a business. And hang in there with it and don’t get busy with the day-to-day running of the business and assume that the business part of your business isn’t equally as important because it is the part that will end up closing you if you don’t keep it addressed.
MR Great advice.
MR What else would you add? Anything like just general words of wisdom for our listeners who are typically solo massage therapists running very small businesses, just general advice that maybe we haven’t covered today?
JP Yeah, actually we talked to one of your — one of the members yesterday, who happens to be one of our clients that you, Michael, had referred to us. And I told them, hey, we’re going to be on this podcast tomorrow, and she got really excited. She’s like — I was like, is there anything that you feel we need to cover for listeners out there? And she said, oh, yeah. So she started rattling off some of these, and she said that — she said the biggest thing is — she’s like, you need to let them know what a good accountant can do for massage therapists. And she said that’s the biggest question on everybody’s mind is why do they need an accountant.
Kim works with this individual member, and she can kind of attest to some of the things that they had talked about —
KP Well, some of the things would be is that the hours a month she was spending doing sub-par accounting — her word, not mine — she can now spend doing what she does to make a living. And so it is worth paying a professional to do what they do so you can do more of what you do as a massage therapist. That was one thing.
JP And then she also —
MR I agree. I want to — sorry, I want to interrupt because I want to underscore that with like 1000 exclamation points and bells and lightbulbs because I think one of the first things you should outsource is accounting. I want to just second that with great emphasis.
JP Yes, and then also she said that — she said one of the things that everybody in the community kind of wants in the forefront is they want an accountant that understands how the industry works. And Kim can kind of elaborate a little bit more on that because — with her years of experience with all different kinds of companies.
KP She just said that prior to using us, she had a couple accountants, and they just absolutely had no understanding of her business. And she felt like those returns cost her money because the person doing the returns, although they were probably good at what they did, were not good at understanding her business. So make sure who you’re working with has some understanding of how your business operates.
JP And that was another thing I mentioned earlier. When I go get a massage, I want to get to know my massage therapist. I want to know their story and some of their struggles, and I want to see how I can help because that’s really what it comes down to is you’re going to a professional. And even just a friend or somebody you meet in networking, the biggest thing is, okay, you’re telling them something, it’s like, okay, well, there’s a reason you’re meeting, and you need to kind of put it on your own heart and say, okay, how can I help this person? Do they need an introduction to maybe an attorney or if they have — if they’re trying to find a house, you know. Just different things. And that’s one of the things I love about networking is that I can connect those people.
But really, most industries, a business is a business. You’re going to have your legal issues, you’re going to have your accounting and tax issues, and then operational issues. So there’s different things that you need to address as a business owner that an accountant can help you with in that aspect with the accounting and the tax portion. I don’t know if we can help you on operations because we’re not there trying to — if we owned like a franchise or something and we had several massage therapists under us, I wouldn’t know how to run that. You would know how to run that. But we can at least help you enough with the tax and the accounting part and contribute that to helping you be more successful as a business owner.
MR Yeah. And I want to reiterate that you work in all 50 states, so if you’re a listener listening from New York, California, Oregon, Indiana, wherever, you can work with Kim and Julie.
KP That’s correct.
MR By phone, by email, by video conference by — I mean, everything’s digital. Everything’s electronic in the cloud, so location is not that important. So you can serve clients very well all across the country, so that’s really cool.
Anything else you would add before we wrap up?
KP I would just say thank you for having us, and if you’re out there listening and you have a question that wasn’t covered, feel free to let us know what that question is.
JP Yeah, we’d be happy to help. Any questions that you guys have out there or — that’s what I’m saying, like a quick question or something that we can help you with, just give us a call or email.
AH And you can find their email, their contact form, and their phone number at massagebusinessblueprint.com/taxadvantage, and we’ll have the link all over the show notes for this.
All right, take it away, Michael.
MR Wonderful. All right. Kim and Julie, thank you so much. It’s been a real pleasure, a wealth of knowledge, wonderful insights, and especially thanks for sharing your backgrounds and stories, and Julie, your interesting career path as well. I think a lot of our listeners got a lot out of this episode, and it’s rich with information. So thank you very much to you both.
JP Thank you.
KP Thank you.
MR All right, well, we will wrap it up there. Thank you, everyone, for joining us today. Reminder you can visit us online at massagebusinessblueprint.com. Our premium member community information is there if you want to consider joining our community. And if you’d like to give us a review, please do so on iTunes or Google or wherever you listen. We’re pretty much everywhere. And if you have questions or topics or things you want to give us feedback on, you can email that to us at firstname.lastname@example.org. So thanks again for joining us today, and we’ll see you next time.