Diane Gardner is a tax superhero. Since rebranding her business during the Great Recession, she’s saved her clients over $3,070,374 in taxes by helping them strategically plan their way to lower tax liability.
She’s also the author of seven books, including 10 Most Expensive Tax Mistakes That Cost You Thousands, Stop Overpaying Your Taxes, and Stand Apart. She teaches people how to save money, avoid audits, and create the best businesses they possibly can, and speaks on proactive tax planning, utilizing proper business entity types, and changes in tax law.
Today, Diane joins the podcast to share the story of how she made her own practice stand apart. We then dig deep into higher level tax procedures and investments that can save you thousands, if not tens of thousands of dollars, down the road. If you own a business and have questions about your own tax planning, it’s a must-listen.
In this podcast interview, you’ll learn:
If you enjoyed this podcast, be sure to rate and review, and send us all your questions at firstname.lastname@example.org – it may become the topic of an upcoming episode!
And we are back for another episode of Your Wealth and Beyond. I’m your host Andrew Rafal and today’s topic is going to affect all of us. Not it’s not death. It’s taxes and having worked with clients for almost two decades whether they are individuals or business owners, we’ve never yet had a client tell us they want to pay more in taxes and that’s why we have on today Diane Gardner. She is an expert tax planning coach, having helped her clients save well over $3M by utilizing strategies that you may be missing.
So we had a great conversation today talking through on why you need to be proactive in your tax planning, mistakes that business owners make and how to tell if you’ve outgrown your relationship with your current CPA and tax planning team. So without further ado, my episode with Diane Gardner on how to put more money in your pocket and minimize the amount of money that you pay in taxes.
[00:01:38] Andrew: Welcome everybody to another episode of Your Wealth and Beyond. And today I am super excited we are going to talk about a very sexy topic, taxes and how to keep more money in your pocket. The one thing we know for sure, death and taxes and today we’ve got a tax coach, a tax expert Diane Gardner. Welcome to the show. How are you today?
[00:02:18] Diane: I’m doing wonderful. Thanks so much for having me on your program Andrew.
[00:02:20] Andrew: You are very, very welcome. So when we look at taxes and we think about those that have gotten into the industry. There’s good CPAs, there’s ones that we see that need a little bit of work though. Walk the listener through before we jump in. How did you get where you are today in regards to being an expert in working with entrepreneurs and business owners on how to mitigate taxes?
[00:0228] Diane: Well I became a tax superhero when I had to reinvent my business during the recessionary years. I had clients that were going out of business just right and left and knew if I didn’t so something I was going to be in line right along with them at some point. Didn’t want to let any of my staff go. I just bought a building at the top of the market. Life was really scary back then so I knew I needed to become something other than just a vanilla flavored accountant. And during the recession there were many successful entrepreneurs out there who were making a ton of money and paying a really high-income tax bills. And so I thought if I could just somehow get to them, life would be good.
But I didn’t know how to do it. So I hooked up with a business coach and we decided I needed to write a book, I needed to find my voice and I needed to do this whole laundry list of items which we now do and over a period of a few years we started turning our business around. And so now I get to work on the fun side of taxes which is strategically planning, helping people plan the way to a lower tax liability and get to be a superhero in the process.
[00:04:10] Andrew: And it looks like over that ten, eleven years you’ve only written seven books. Why are you slacking? What’s going on there?
[00:04:11] Diane: It’s actually up to eleven.
[00:04:14] Andrew: Oh my goodness, eleven. It’s neither about the way you write the books, and we’ll have this on the show notes, it’s that you get really specific based off of who that individual is, what type of business they are in, whether they are a corporation or they are a partnership. I think that’s really smart you being able to niche that to disseminate the right information to the right people.
[00:04:33] Diane: I try really hard because even though all businesses are basically alike, they are still a business but there’s a lot of different nuances depending on the size of the business, how long they’ve been in business, how many employees they have, how much their revenues are. So there’s a lot of things to take into consideration when I’m working with a client and developing a plan for them.
[00:04:55] Andrew: So as a tax coach, and this number may be higher but over that timeframe it looks like you’ve helped your clients, business owners, real estate investors save over $3,151,006 to date. Is that number accurate?
[00:05:10] Diane: That number is accurate except I have a couple plans that are in the process right now which are going to push that another couple of hundred thousand.
[00:05:18] Andrew: Alright, boom I love it. Walk us through … Because we have a lot of entrepreneurs on and we’ve been working with clients for me almost 20 years and so we see a lot of bad tax planning.
Or not say bad but just maybe not the proactive type of planning. So as a tax coach what have you seen from your standpoint somebody did as a business owner who’s successful, what they should be looking for in a CPA or accountant or in your case helping to coach them through all the different ins and outs of how they can save and put more money in their pocket?
[00:05:55] Diane: Well I’m glad you asked that question. I’m going to give you a real-life example on a project that I’m working on right now. One of my clients owns several businesses and I have been involved in just a couple of them. Not in the others. And we got this surprise huge amount dropped on K1 on his income tax return last year and I went, “We’ve got to do some planning on this. We can’t have these kinds of surprises happening.” So I started gathering some information from the accountant that handles the other businesses and that accountant was quick to assure me that he does tax planning with him every year.
He maximizes their depreciation, he takes a look at their inventory and makes sure that it looks reasonable and he does some other minor little things like that. And he calls that tax planning. And unfortunately so many accountants think that that is tax planning. Maybe they’ve run a projection for their client not realizing that true tax planning is looking outside the box.
And this particular client, can we potentially make a change on their retirement plan? Are they using one that’s going to give them the biggest bang for their buck? Should we look at maybe changing their entity structure? Maybe the entity that they are in is not giving them the best tax liability, the best asset protection or the best ability to make a deduction under the new QBI rules?
Looking at those kinds of things, maybe there’s something that we could look at over in the higher end strategies like the captive insurance company or those kinds of things. Thinking outside the box will make hundreds of thousands of dollars’ difference for this particular client and his ending tax liability.
[00:07:17] Andrew: We see it a lot on the tax planning side, if we are not bringing our team in or our partners on that then it’s a lot of this I would call fast food planning where we are waiting to the 23rd hour. And it’s not just individuals, it’s business owners that they are meeting potentially with their CPA once a year if that and it’s usually towards the end of the cycle meaning maybe it’s not even in that same year so they missed out on some of the things that can be brought on the table to help minimize those taxes.
Is that something that you see on the clients that you end up working with, that type of 23rd hour type planning where they really can’t be efficient in getting things done?
[00:07:58] Diane: I see it probably 95% of the time. It’s really sad and the biggest comment that I hear from prospects that I talk to all over the US is that they may only speak to their accountant once during tax season not even at the end of the year, during tax season. And I’m thinking what is wrong? It makes me almost ashamed to call myself an accountant because the bar is so low in our industry.
There are so many accountants out there that are not so actively working with their clients and clients don’t even know that the accountant should be doing this stuff until somebody tells them because we go back to the whole saying of, ‘You don’t know what you don’t know’.
[00:08:41] Andrew: Why is that with CPAs, accountants and their type of education and licensing and everything of that nature, what do you think the reason is? Is it just complacency? Is it, “I’ve got my book of business and the revenue is coming in?” Why do you think that we don’t have people stepping up to the plate like you are and some of the firms that we work with here in Scottsdale?
[00:09:02] Diane: I think a lot of it has to do with most people who go into the accounting field are not real entrepreneurial. They are almost looking to create themselves a job and so they get their little book of business, they are happy to do the repeat work that comes in every year but it never enters their mind to go above and beyond, to think outside the box.
They are probably not using a business coach or involved in a mastermind group, any of those kinds of things. And that makes the huge difference for those of us who are doing those things. We are being exposed to all kinds of thoughts and ideas outside of our industry with the whole idea of how can we bring them into our industry?
And I’ll give you an example on that. Last week I was in Savanna for a conference and while we were there we got to go see the Savanna-Bananas baseball game. Their whole model is, ‘We are here to provide entertainment interrupted by baseball.’ So they took the position of, “What can we do that is the exact opposite of what our competition is doing?”
Whereas an accounting role can do the same thing. How can we identify the things that clients hate, turn those around and change them and not do those in our business or do them in a completely different way so the clients love it?
[00:10:19] Andrew: Yeah that’s great and on the financial planning side we look at us as being the quarterback and it’s our job to make sure we are providing the client not the tax advice but what the potential partnership with the CPA firms are and the options that are available. I’ll give you an example. We saw this about two weeks ago. A successful business owner, 30 years and 11/12 employees filing correctly as an S Corp but the type of plan they had first and foremost he was not taking the reasonable salary. It was all salary so he didn’t take any distributions and he had a big income and the only thing they had setup was a simple IRA.
[00:10:58] Diane: Oh no.
[00:10:58] Andrew: Exactly it’s like oh no and there’s simple IRAs. There’s nothing we can do this year and he’s actually going to be exiting the business selling it to some of the actual employees. So I think there’s some things we are going to be able to do jump in there and look at depending upon … We’ll talk a little bit later but cash balance plans things of that nature.
But it’s just even if they had a basic 401K with profit sharing based on his age, just the amount of money that he would have been able to save over the years and have it not all in the business but had a diversification strategy in these retirement accounts that he would have been able to save on taxes. And I’m sure you see that all the time.
[00:11:35] Diane: Unfortunately, I have to say I see it constantly and it’s so sad because you look at down the road what they could have had with some planning. And if they would have known that by hooking up with somebody who is proactive forward thinking, what a difference that would make 10/20/30 years down the road.
[00:11:54] Andrew: So let’s dig in to an actual example in here on a structure. We see a lot of structures where the business, small businesses, entrepreneurs they have set up as an LLC. You probably see that as well?
[00:12:04] Diane: I do yes.
[00:12:04] Andrew: Okay so we talked a little bit about, just prior about this S-Corp and filing as an S-Corp. Can you walk the entrepreneur, the business owner who’s in this path where they’re an LLC and perhaps they are making good income but they are showing it all a salary and not taking any K1 distributions? Walk through what the problem there is and some of the things that they can look at and maybe ask their CPA, ask their tax accountant.
[00:12:30] Diane: You bet. I’m going to back up just one step before I answer that question. An LLC is one of my favorite entity types because it can act like a sole proprietor, it can act like an S-corporation, it can act like a C-corporation or if you’ve got a friend or somebody doing business with you it can act like a general partnership with liability protection. So because of its flexibility in the states that allow it, it is one of my favorite planning tools because we can change its type for tax purposes but still keep it in LLC for legal purposes. And so just a little caveat there.
In your example of this LLC, S-Corp where the owner is taking 100% wages and no distributions, he is overpaying his taxes probably by many thousands of dollars because of the self-employment tax. When you are an employee, you have 7.65%t of your wages with health, social security and Medicare and your employer matches the other half. When you are self-employed, you pay the whole 15.3% on your net profit of your business. So going back to our example of somebody taking everything out in wages not only is he overpaying his payroll taxes by at least the 7.65% but probably 15.3% then depending on how high that salary is he is also paying some Medicare tax on top of it.
Usually that results in many thousands of dollars in overpaid tax. Tax that you didn’t have to pay money on because had he taken a reasonable salary, and we use the IRS as a definition on that reasonable salary, he could have taken the rest of it as a distribution which becomes a return of capital. And that’s not taxed at the payroll tax level. He is only taxed on the profit of the business. So it’s a great planning tool to be able to go in and do a reasonable comp analysis for somebody like that.
[00:14:32] Andrew: Right, and that key is a reasonable salary. We’ve seen the other side, the pendulum swinging the other way. We work with a lot of doctors that are contractors, anaesthesiologists and they make a lot of them $300,000 to $500,000 in a year they don’t have a lot of expenses.
And I remember one client years ago that we’ve fixed it but she was making $350 and showing $20,000 of “reasonable salary”. So that was a red flag in the scope of the other way where you’ve got to have this happy median. When you say reasonable salary, how does somebody determine that? I know there’s language within the IRS code but how do we stay in that position where we are not going to cause a red flag and potentially have an audit?
[00:15:15] Diane: The IRS says we have to pay a salary that is similar to what you would pay somebody else to do your basics and duties. And that’s gets really tough when you are an entrepreneur small business owner because we don’t just wear one hat. We wear probably 15 or 20 hats in the course of a month of running our business and so we use some software to help us where we can go down and we can have this long laundry list of things that the owner is potentially doing.
And we can allocate how much of our time is spent in all these various different areas, and then based on the time and the skill level and some things like that, we can then come up with a report that gives us a reasonable salary that we’ll stand up in court with the IRS.
[00:16:02] Andrew: I love it, yeah that’s something that I think most people maybe they’ll go online and try to see the median of what that salary would be but overall just having backup and the type of ammunition and arsenal that you could provide to the IRS that’s really smart. Quick question on partnerships and sole proprietorships, are there any reasons to have that versus the LLC formation?
[00:16:26] Diane: In my opinion no but there are some states that do not like LLCs. So I’ll give you examples; the State of California. If you want to be an LLC in the state of California, they pay a gross revenues tax and so in California, you have very few LLCs because it’s just not worth it. So it depends on what state people are in where they state where you are, where I am we are very LLC friendly states. And so most everybody is probably an LLC at least in Idaho where I’m at just because it’s such a nice flexible entity to work with. But not all states are that way.
[00:17:04] Andrew: And then the C Corp, what high level, what would a business an entrepreneur, owner, partners, what would they look at in forming the C Corp versus the LLC and filing as the S Corp?
[00:17:18] Diane: In my experience I see very few C Corps out there that are small businesses. Most of them are either an S Corp or the LLC-S Corp combo that you were speaking of. And I think it’s mainly because you have more flexibility in the S Corp situation. In the C Corp the rules used to almost force you to take a higher salary. And so in that case the IRS is looking to make sure that you are not taking too high of a salary versus on the S Corp they are looking to make sure that you are taking enough salary. So there’s just a lot of different nuances and I see very few C Corps out there.
A year and a half ago when the new tax law rolled out it looked like maybe a C Corp was going to offer some wonderful perks compared to the other entity types but once we started running numbers we were able to advice all of our existing clients to just stay with the entity type that they were in. And they still came out the same or even better than if they were to move over to becoming a C Corp.
[00:18:27] Andrew: Right and when you think about the Tax Cuts and Jobs Act. It’s supposed to, in a sense I don’t if it’s all going to go away but in 2025 we know the tax laws are never permanent. So to go change an entity and then all of a sudden the power shifts in Washington and they take away, they taketh and giveth and burry, they taketh away and all of a sudden you stop with an entity and then you may have to switch back. And so think of all the costs and the time that is associated with that. You agree on that?
[00:18:51] Diane: You bet plus there’s a whole bunch of rules and stuff out there. If you’ve accumulated a decent amount of profit while you were in that C Corp and you switch to an S Corp there’s certain things that have happen tax-wise and it just gets very complicated.
[00:19:06] Andrew: Yeah but its job security for you though, all these changes each and every time that they go and they make it.
[00:19:10] Diane: Yes, you bet.
[00:19:11] Andrew: Okay so on this Tax Cuts and Jobs Act I know a lot of the business owners we work with there’s some confusion as disqualified business deduction whether it be an LLC filing as an S Corp or not versus the C Corp. So at high level what are some of the things that the business owner should be asking again their CPA so that they can take advantage of what’s out there right now in regards to taking a bigger deduction than they could prior to the Tax Cuts and Jobs Act?
[00:19:42] Diane: Can they do the same thing on this question back up and give just a little bit of background information. Under the new Tax Cuts and Jobs Act congress wanted to bring our C Corporation tax rates from 35% down so that we could compete in a better global market. Now most small C Corps that I have seen in the past were never at the 35% tax rate but the bigger ones were, the ones that are publicly traded and that type of thing. So they lowered their tax rate to 21%.
When they did that, they knew if they didn’t do something else for all the rest of the businesses that every single business out there would become a C Corp and they would have all these C Corps out there and nothing else. And so they came up with this idea of what they called a Qualified Business Income Deduction, you’ll hear it called the QBI and what that does, and I’m really oversimplifying it, what it does is it allows that pass through money that comes through and shows up on your personal return whether it’s via a K1 or its on your schedule C if you are a single member LLC or a sole proprietor.
In oversimplified terms you are able to take that net profit, multiply it times 20% and take a new deduction on your income tax returns something we’ve never had in the past. Now I really oversimplified that. We do have certain industries that are not able to take full advantage of that and those are the professional service kinds of industries. Myself as an accountant, yourself as a financial advisor, the medical community, some of those kinds of industries are very limited and then at a certain income rate they totally phase out and they are not able to take advantage of that. But that’s a whole other discussion because that gets really technical.
[00:21:33] Andrew: Right, gets real technical but that’s an area where again if you are being proactive and you know what those thresholds are and you potentially are able to add in some deductions or put some money away into retirement, there’s lots of different ways in how you potentially could lower that income to stay under that phase out level. We are not going to get into that today but these are the types of things I mean the tax codes, be proactive, having a good financial team, a trusted team can help you take advantage of all that.
And sometimes Diane we are paying a little bit more for that type of planning but we’ve got to look at the long-term benefits of the tax savings, the cost savings. So guys, listeners, don’t be foolish in spending some money for the right team if they are going to save you.
[00:22:16] Diane: We always like to say, spending money in these kinds of areas is an investment in your business future, in your financial future. It’s not the same kind of an expense as when you pay a bookkeeper to just do your bookkeeping. These are those higher level investments that can save you thousands and thousands and thousands down the road because you were willing to make the investment today and then put together a plan and then keep it correct.
[00:22:43] Andrew: So as a business owner that’s growing their business lot of entrepreneurs they started as a person shop, they’ve got the bookkeeper, they are just trying to keep their head above the water by carrying every single hat. But now we get a business that’s starting to boom, we’ve got employees, we may have income that’s reaching over $1m plus. What are some of the areas that you see that these types of business- the mistakes they make as they grow their business on the tax planning side?
[00:23:13] Diane: Andrew one of the biggest mistakes of all is that they don’t plan. So even realizing that they should be planning and after listening to this episode they know they need to do a plan of some sort, after we get past that I think another thing I see all the time is people are almost terrified of the IRS. And so because they have this fear, they are afraid to even make some of these strategic moves that are completely legal, they are completely blessed by the IRS but they are afraid to make those moves because they are so afraid of the IRS.
And so if we can help them change their mindset and know that the IRS isn’t out to get you as long as you play by their rules. And so as long as you play by their rules, we are blessed to put these strategies in place. They reward us for doing these types of things because small business is what keeps America healthy and without small business we would be in dire trouble because of all the people that wouldn’t have jobs.
So we look at things like a business who’s grown to $1M, maybe they’ve outgrown that entity type that they started with. And if they are an LLC maybe we can do some shifting and move them into something that works a little better. Or they’ve outgrown that retirement plan like you mentioned your guy that just had a simple.
Some of that kind of stuff are some of the first go to places that we look and then after that I start fine tuning and looking for things like, “Do they have kids that are getting ready to go to college? Is there some way we can hire those kids and put them to work in the business thereby funding some of the college expenses through an after-tax deduction by having that child work in the business?”
Under the new tax law that kid can earn up to about $12,000 before its taxable. That’s a lot of money to push down the pipeline towards a college education. And so I have my clients have been doing that and it’s working wonderfully for them.
[00:25:14] Andrew: The other is, and my daughter comes to work in the summer time and sometimes after school, is by her working and us paying her that salary minimizing the taxes on that but then from our standpoint we are then funding a Roth for her and helping her as thirteen-year-old get that mindset of investing and what that means and obviously if I just had her work probono she wouldn’t have that ability to put money into the Roth so that’s something that’s been really effective. And I can have real conversations with her since I actually do ask … We walk through about what she’d like to buy or something in that nature so she can be part of that discussion and say, “Hey, I want to own Mattel, this is years ago when she was into American Girls because I know that company. And ultimately that turned out to be a bad investment so far but that’s okay because it’s a learning curve that we are teaching.
[00:26:04] Diane: That’s a big thing you are doing that with her that way and I commend you highly because so many people don’t. They don’t teach their kids how to handle money and the value of money and how to think for the future. And putting that money in a Roth IRA is amazing because when she pulls it out down the road it’s going to be tax free and all of its earnings for the next 50 years or whatever are going to be tax free.
[00:26:28] Andrew: I’m glad you brought that up because with the Tax Cuts and Jobs Act we can’t guarantee anything but I think we can be pretty confident that tax rates and everything in regards to the system right now are going to be maybe as low as we are going to see in the next generation right?
[00:26:40] Diane: Potentially as low yeah. I can’t imagine them going up because they did take a nice dip so they’ll probably only go higher. And anytime we can pay a kid and put the money into a Roth, it has wonderful compounding effect because over their lifetime, they are so young and they have a lot of years for it to grow. Flip it around the other side, I have several clients who are supporting parents or aunts and uncles and those types of people. They didn’t plan well for their retirement and now the next generation is supporting them. What if we could put them to work in a business?
I did it myself for years with my mom. She worked for me for about 30 years and during that time I would have had to help her out financially because she wasn’t able to during her retirement years. Now, all those weren’t all retirement years but by keeping her working in my business I was able to take what would have been an after tax deduction, keep it as a pre-tax deduction, it was a charity on … She didn’t feel like she was taking charity because she was earning it and it made a win-win for both of us.
[00:27:48] Andrew: The other thing too is by having her paying her income it helped with potentially her social security benefits as well that she may not have had as high of a benefit because she didn’t have that work income coming in.
[00:27:58] Diane: You bet. So there was several different wins in that small of a strategy and people sometimes don’t think about those kinds of things.
[00:28:06] Andrew: One of the things without getting too detailed whether you are an individual or a business owner we look at the Roth IRA or we’ve seen a lot more of the Roth 401K putting the money in after tax. With as low as rates are right not, it’s not a bad idea to look at two things. One is if your company plan or your business owner is incorporating the Roth 401k into it, and ultimately yes you are going to pay more taxes today just because you are not putting that money away pre-tax.
But down the road when we are looking at paying taxes a little less than we had previously, and then down the road you are growing that money tax deferred and its actually later and it’s ultimately where a lot of high earnings can’t put money into a regular Roth IRA.
So that’s something to look at and I don’t know if you are doing this with your clients that are maybe lower income or have a year where they are not going to make as much whether it’s the business. Maybe they are in growth mode or they just retired and their income went way down. What are your thoughts and your team’s thoughts about looking at systematically doing some Roth conversions and taking advantage of these low rates so that it doesn’t become a ticking tax time bomb inside of that tax deferred account?
[00:29:15] Diane: You bet. Yes especially if they’ve got a year where their income dips down, a lot of times we’ll maybe have a business loss of some sort or a real low business amount and that’s a great time to do some of those kinds of conversions and not pay out the nose for the effective, throw that added income or your income tax return.
[00:29:35] Andrew: So going back to the business owners and we look at deductions and I know it’s going to vary based on what industry they are in but at a high level what are some of the mistakes you see business owners make in leaving what you call buried treasure hidden in the business in regards to legal tax deductions? Let’s walk the listener through so that they can get an idea of maybe things they are missing.
[00:29:58] Diane: A conversation I have on a very regular basis centers around something as simple as the auto expense. I can’t count the number of times I’ve been talking to a new prospect and they are in the type of industry where they are in their car quite a bit whether they have a territory that they take care of or they have a business that requires that they are out and around doing a lot of running up miles on. Might even be a personal vehicle, may not be a business vehicle but a personal one even. And nobody told them about something as simple as keeping a mileage log and being able to deduct those miles as a business expense.
And I’m thinking, “What is wrong with your accountant if they didn’t even ask you that question? Do you use your vehicle for your business?” And so every time I come across that I just shake my head because doesn’t everybody know that? Obviously not.
[00:30:55] Andrew: The other, and I think that’s great, a lot of our business owner clients are like doctors for instance. They’ll do speaking, they’ll have a separate entity setup an LLC. What are some of the things that that person can do if they’ve got maybe W2 income from one side but then they’ve got 1099 income from a completely different business? What can they do if they are a high earner to minimize taxes by looking at whether it be deductions and or retirement type planning?
[00:31:23] Diane: I love working with those kinds of doctors. I have quite a few that are working locums type of work where they are maybe working for a hospital with a W2 and then on the side they are doing some locums work or something or there are speaking opportunities, those types of things. A lot of times they have maxed out their 401K at the hospital and so they are limited on what they can do that side but maybe they could look at doing something with a [inaudible 00:31:48] or something along those lines where it’s totally on their business. And so then they don’t run into some of the phase outs and requirements, and limitations and stuff that they run into on the other type of traditional plans.
But then we also want to look at things like do we have a home office we can deduct? Here again we have some mileage. Are they taking up all their travel cost if they are out traveling to do these speaking engagements or to work at these other hospitals or other locations? Are they picking up just a lot of their smaller costs because they generally don’t have a high overhead. Things like website, their internet and just a lot of the basic type things that you and I more in a traditional business would just be a given but they are not always thinking about that because they may not have been in business before because they’ve been that W2 doctor up until this point.
[00:32:40] Andrew: Excellent advice and again that just comes to having a plan, being proactive, meeting and discussing these initiatives with somebody that knows the ins and outs of it. So you talk about the proactive planning, you are a tax coach. Let’s think of your average client or not even just you but other tax planners that are worth their weight in gold. What does that look like over the course of a year that a business owner may be missing out on? Take us through a step by step of how you work with, again high level not going into specifics but how you work with some of your clients and what people should be looking to do.
[00:33:15] Diane: Well, when I first have somebody reach out to me because they heard me on a podcast or at a seminar or a conference or something along those lines is I like to get the copy of their last year’s tax returns personal and business. Just so I can starting wrapping my head around what’s going on in their life a little bit on the financial side. And then we hop on a call whether its Zoom or a phone call. I like Zoom because we can talk face to face.
We hop on a call and just start asking a bunch of questions and finding out a little bit more about them and what are their goals and what are they hoping to accomplish because if I don’t know that information I can’t begin to put together a decent plan for them.
Once we decide that yes we are a good fit to work together, then I start crunching some numbers and start coming up with various strategies and things. We’ll have another meeting, we’ll go over those strategies and then at that point we decide do they want me to implement everything, do they want to do some of it themselves? And then at that point, depending on the outcome of that meeting, we move forward and most of the time they want me to take over some more of their financial activities whether it’s their bookkeeping or income tax taxes, those kinds of things.
And then we have ongoing meetings to make sure this plan stays in a form that is current and working with the direction that their business is going. So it’s long-term ongoing relationship and give some really great return on investment for these clients.
[00:34:50] Andrew: And so what happens? Let’s say that they have a bookkeeper that they’re feeling confident with and comfortable but they are not giving the strategic plan and advise. You as the tax coach and working with them you would be okay with keeping that system in place just more of just the order taker, entering the numbers?
[00:35:11] Diane: You bet, I love it when they have a bookkeeper who is doing a pretty good job because that means my team doesn’t have to take on the bookkeeping. We become what we call accounting oversight where we’ll pop in there monthly, quarterly, whatever they want and just take a look and basically give a blessing. “Yes this is working really good or maybe you should do this or this.” And then I have these ongoing meetings with my clients and so then the owners have some sort of idea of knowing that, “Yes your bookkeeper is doing a really good job or we made these couple of little changes and now you are going to get a better set of reports.”
Yeah we love being part of the financial team but we don’t have to have 100% of it.
[00:35:53] Andrew: Right, and I assume probably doing the tax returns on at least on the business side is something that a client of yours would probably have a better advantage of working with you than having to take it back having somebody do the tax return.
[00:36:06] Diane: Yes, and over the years I’ve noticed the clients that we have the best success with were able to do all that because what happens unfortunately is when they take it back to the other accountant, the other accountant gets nervous because they don’t know anything about these strategies and they don’t want to look like maybe they are dumb or something or haven’t been keeping up with what’s going on. And so they’ll tend to downplay what we’ve done and they start planting seeds of doubt in the client’s mind. And they usually have had a longer time relationship with that person than with me. And so it can really cause some challenges in our relationship and then it has various outcomes.
So the best, most successful thing is when we are able to pull it in-house and be able to stay on top of it and handle it in the way that it needs to be handled to keep them in great shape with the IRS.
[00:37:02] Andrew: Excellent advice. And I talked about this on some previous episode, we switched over with our bookkeeping and CPA. They brought in Xero instead of quick books and that has been for me a just game changer, being able to more so than ever keep track of my numbers and hold them accountable and then we added in Gusto and Receipt Banks. So we are really utilizing technology and that’s helping out not just on the CPA from just doing the bookkeeping but also their tax planner that they brought in. Is that something that you are a firm believer of, of harnessing and leveraging some of this technology that’s out there and making sure that it’s more cloud-based than the old way of having systems on the computer.
[00:37:43] Diane: You bet, yeah, we have lots of different software that we use and different apps and things like that to make it run smoother for everybody.
[00:37:52] Andrew: So healthcare it’s a big cost especially for business owners and whether they are offering it within their company. I’m a big firm believer of HSAs if somebody qualifies. I think it’s the Cadillac of retirement planning. So what somebody on the HSA side health savings account, what should they be looking at and why is it such an important piece of the puzzle?
[00:38:16] Diane: HSAs are amazing. The only thing better would be maybe a single owner business with no employees who could use a medical expense reimbursement plan because then we can get up to 100% everything written off. But then HSA fills that gap when we can’t make the other one work. So we love using those because they allow us to be able to take a pre-tax deduction on something that is potentially an after-tax deduction and people go, “Wait a minute, I deduct my medical cost on schedule A.”
But under the new tax law the standard deduction has pretty much doubled from where it was before. So married couples are right about that twenty-four thousand mark and by the time you take your medical expenses, subtract 2% or subtract 10% of your adjusted gross income, there is really nothing left. And so people really are leaving money on the table by trying to deduct their health cost that way. And so if we can pull them into a HSA through business it gives us a nice pre-tax deduction on something that now has become an after-tax expense. So we love HSAs.
[00:39:36] Andrew: Yeah and when you think about the limit for 19 is it as a family, is it seven thousand?
[00:39:41] Diane: Yeah it’s up in that range yeah.
[00:39:43] Andrew: So when you think about listeners, if you’ve got the HSA if you qualify for it it’s a deductible plan you can literary put $7,000 in, get a straight deduction and then for qualifying whether it be surgery or prescription take it right back and pay no taxes on it. That’s how I used to use it slush fund but we’ve changed our mindset with the HSA and now we are trying to educate our clients, we are doing it for it for myself. It’s looking at it more of a long term investment and growing it tax deferred and then having it there what I believe is my medical cost and my family’s will be greater when my wife and I are a little bit older.
So guys don’t just use it as a slush fund, think of it long term and make sure what we see a lot of the HSAs are not investing it. It’s just in a money market within the plan even though there’s investment choices and options, it’s just with most of these HSAs are a little convoluted and it’s difficult to know what you can invest in. That’s important is to make sure you have that money working for your over the long haul.
[00:40:40] Diane: And I see that all the time. They just have it in the traditional checking account or something and not even realizing that as that money builds up they should be investing it in something.
[00:40:52] Andrew: We are hoping that the government or congress, the IRS they push for HSA and they keep increasing the maximum that somebody can put in. I think that would be smart on all points just to take some of that pressure off the government and the medicare program and putting more onus on people.
So we think over the next ten years the HSA is going to continue to get that sentiment that we as planners have been lobbying for all these years. So we are real big believers of educating and getting the message out there and helping the clients. It’s like little wins. It’s not going to be a game changer right away but little wins and if you can put $7,000 in and save $2,000 or $2,500 I mean it’s a no brainer.
[00:41:32] Diane: Andrew when you add up all these little wins, let’s say you save $2,500 with the HSA and let’s say you hired your kids and you saved another $2,000 even and then you did one of the other smaller strategies and you wrote off your home office. That combination right there you are saving probably upwards of $5,000 and all you did was set these little wins. We didn’t hit it out of the park with something huge but how hard is it to do these little wins and let them add up?
[00:42:02] Andrew: Right, and that’s again having a plan and being proactive on it and meeting your team whether it’s virtually or face to face or on the phone but not waiting till that 23rd hour to do those things. One question we are getting a lot with the Tax Cuts and Jobs Act we’ve got meals and entertainment. So can you walk a business owner, entrepreneur through that what’s allowable in regards to writing off meals and entertainment in this new world that we are in?
[00:42:30] Diane: You bet. There’s been so much confusion in this area because when the new tax law came out they said that basically business meals were not going to be deductible and everybody panicked. And then they came back and said, “Just kidding.” And then they’ve clarified it two or three times since then so there is so much confusion in this area. But as of today we do know that entertainment is not deductible at all in a business. So entertainment is things like taking somebody out golfing, taking them to a sports event of some sort.
I have clients that used to take their customers up to Alaska on a fishing type trip. Those kinds of things are entertainment and they are not deductible. Business meals has in the past-was always deductible at the 50% rate. So congress came back, I guess it was actually IRS, they came back and they said, “Okay, we are going to leave the business meals alone at the 50% rate.” So that the whole business community breathed a sigh of relief that, “We know that rule, we are comfortable with that and we can work within those guidelines.”
So just keeping a good record on what’s a business meal versus what’s maybe an employee meal because there are certain types of meals that are 100% deductible. And those kinds of meals are if you have a function … in my case I’ve always done a large client appreciation event and we would bring our clients to a particular location, we would feed them, we would have some speakers throughout the evening in the educational type thing about different parts of the law and then we would give out our client awards.
When your food is incidental to that type of an environment, you get deduct at 100%. So knowing the rules of which meals are deductible and how to deduct them can be very big in the way of a tax deduction for you.
[00:44:36] Andrew: And on that point with receipts and tracking and keeping proper logs with most people and business owners using credit cards, what is your team’s thoughts in regards to receipts and invoices and all that? Do you recommend that your clients when they go out for a business lunch or dinner something like that, I know there’s all of other kinds of ways, but do you recommend they keep that receipt or in regards to an audit would the statement on American Express card be efficient?
[00:45:07] Diane: According to the IRS they must keep the receipt because they have to prove to them the date where you were so the location of the restaurant, how much you spent, who was with you and what was your topic of business conversation. So there’s so many apps anymore that you can just snap a picture with your phone and you have your receipt and the reason I’m so adamant on this, I went through an audit with a client a few years ago and he was under the impression as long he had his credit card statement he was good.
He didn’t need any of his receipts. So he did not keep any of his credit card receipts. So we were reaching out to vendors, we were reaching out to whatever we could to try to recreate receipts and anything that we could not recreate a receipt for he lost in that audit. It was brutal.
[00:45:56] Andrew: Wow so listeners if there’s one thing you take away today hopefully it’s not just this but make sure you keep track of those receipts. What technology do you recommend out of those that are out there?
[00:46:07] Diane: I have clients that use several of them. You mentioned Receipt Bank earlier, I know Hubdoc, any of those have the ability where you can snap a picture and it just syncs it right up and dumps it into your accounting software. So some great apps like that out there.
[00:46:23] Andrew: Yeah, I think we are going to start looking at Xero within, I think they have an internal version, so I think we are going to test it out and sync even better with Xero. The other thing we did with technology is we incorporated bill.com which helped my team and the bookkeeping team stay on track when bills came in because we still want to be …
I don’t want to lose control of what bills are coming in and put that all to the bookkeeper so for us that was a conscious decision but having bill.com just enables us to do that quick review and make sure everybody is on track.
[00:46:53] Diane: And that’s important to business owners to stay on top of it and know what’s coming in, what’s going out and not give 100% of that control off to a bookkeeper or somebody and then they have no idea what’s going on in the business. That’s really scary.
[00:47:08] Andrew: So you’re big proponent of getting good information out there the eleven books that you mentioned, how would somebody go ahead and be able to buy one of these bestselling books and get it in their hands so that they can start educating themselves and learning?
[00:47:22] Diane: Actually they don’t even have to buy the books because we are happy to give them away which my husband is always saying, “You continue to give all your books away.”
I’m like, “Yes I do.”
If they go out to my website http://www.taxcoach4you.com click on any of my book tabs we are happy to let them have the book and we just ask that they pay some shipping and handling on it so we can get it in the mail out to them because I’m a firm believer in paper books not just eBooks. Because that paper book will sit in your shelf and they may not read it today but down the road they are going to pick that book up.
And I’ve had people reach out to me two and three and four year later that now they are ready to talk or now they are at a place in the business where they know they need some planning. So we love to give away books. In addition to that I have a nice little tax planning guide that I’d love to offer to your listeners and to do that they just need to go to www.taxcoach4you.com/yourwealthandbeyond
[00:48:29] Andrew: Beautiful, and all of this will be in the show notes as well. So listeners you don’t have to write that down you are going to have the links in there. I highly recommend especially on some of the books, finding what industry you are in and then having the ability to take all of the expertise, experience that Diane has had over the years in working with hundreds of clients. And she’s disseminated into an easy to read book that you can then get the different tips and strategies that then you can take to your CPA and even potentially have a conversation with Diane because I’m sure for you having a complimentary phone call to see if you are potentially a fit, that’s something that your team is open to doing?
[00:49:11] Diane: All the time.
[00:49:11] Andrew: Wonderful, I know listeners this isn’t sexy, this isn’t the most fun stuff, you are running your business you are going but we covered a lot today. We did a lot of it high level. I think the one key takeaway, be proactive in planning, make sure your CPA, your financial advisor they are working for you and coordinating that attack. You can’t have the CPA working on one end and then the so called financial team on the other end and nobody is talking. So you want to make sure CPA, state planning attorney, financial team, let’s get it coordinated so that you can put more money in your pocket.
Diane I think you are doing some great stuff and those of you listeners that want to talk to her there’s going to be links to get in there and hopefully we can get from $3,100,000 let’s get it up to $4M as fast as possible.
[00:50:05] Diane: My goal is $4M by the end of the year.
[00:50:08] Andrew: Alright, you heard that we are going to make it happen. So Diane, thank you for being on the show, really, really enjoyed the conversation. You know your stuff. I actually may offline talk with you on some of these things. I appreciate you being on the show.
[00:50:22] Diane: Thank you so much for having me, it’s been a real pleasure and very enjoyable getting to speak with you.
[00:50:27] Andrew: Alright, thank you and listeners, tune in later this month for a brand new episode of the Your Wealth and Beyond Podcast. We are here to help each of you dream for what retirement looks like but help you plan along the way to get there. Enjoy the day everybody we’ll talk real soon.
Thank you for joining me for today’s episode of Your Wealth and Beyond. To get access to all the resources mentioned during today’s podcast please visit bayntree.com/podcast and be sure to tune in later this month for another episode of Your Wealth and Beyond.