Welcome to the profitable painter podcast . The mission of this podcast is simple To help you navigate the financial and tax aspects of starting , running and scaling a professional painting business , from the brushes and ladders to the spreadsheets and balance sheets . We've got you covered . But before we dive in , a quick word of caution .
While we strive to provide accurate and up-to-date financial and tax information , nothing you hear on this podcast should be considered as financial advice specifically for you or your business . We're here to share general knowledge and experiences , not to replace the tailored advice you get from a professional financial advisor or tax consultant .
We strongly recommend you seeking individualized advice before making any significant financial decision .
This is Daniel , the founder of Bookkeeping for Painters .
And this is Richard , tax director , with Bookkeeping for Painters . How's it going , richard ? It's going great as always . How are you , daniel ?
Doing well , doing well , little rainy , cloudy today , but it's all good . I'm super excited about this topic we have today , which is tax planning , which most people would immediately start to yawn and maybe nod off . But this is actually .
I love tax planning and I love what we can do for folks with tax planning , because I talk to so many people every day where they might be working with a CPA or an accountant or a tax professional , but they never hear from them throughout the year . They only hear from them to get their tax returned on . They don't get any advice .
They basically are told oh yeah , you owe $60,000 , write a check to the IRS , and they don't have any idea what tax planning is and they don't realize that taxes are not just something that happens to you . You actually have a level of control over what happens in regards to taxes .
Yeah , no , you're absolutely right , and a lot of tax professionals are focused on what we call compliance , which is filing the return , writing the check , and that is good . Every tax professional has to be concerned about compliance , but we also want to be concerned about advising and planning .
It's like two sides of the same coin , but so many of us just kind of look at the one side . Unfortunately , there's a real shortage of CPAs and tax professionals right now , and so a lot of accountants are just overwhelmed with the compliance side and they don't offer those advisory services , that tax planning that you're talking about .
But that's kind of where the magic happens , right ? That's where we get to exercise that level of control over what we pay .
Yeah , and so today we'll cover what is tax planning , why it matters , when should you do it and what can you do now to get started . So I guess , richard , can you just give us a sense of what tax spending actually is . What does that even mean ?
Sure , sure , I kind of jumped into this a little earlier , but yeah , so you have the compliance , you have the preparing of tax forms and the filings and whatnot .
But tax planning is understanding your financial situation , understanding what your taxes are going to be , who's getting paid those taxes , and then empowering you to make decisions to control how you're going to be taxed . There's that famous line , I think is credited to Benjamin Franklin , that the only certainty in life is death and taxes .
Yes , taxes are certain , but how much you pay when you pay them , who you pay them to . There is a , you have a measure of control there . You know kind of just that . Oh , I'm sorry , go ahead .
I was going to say in that level of control can be pretty big . I just talked to somebody today and he's doing he has a great painting business he's doing like almost $3 million and he is paying .
He's still taxed as a sole proprietor and he's paying , you know , $45,000 in self-employment taxes per year , which could be cut by tens of thousands of dollars by just being in the right tax entity . And so this can make a huge difference . Doing some tax planning make sure you're in the right tax status can save you tens of thousands of dollars pretty quickly .
Absolutely huge return on investments when it comes to tax planning , and it's a shame that it tends to get overlooked for the compliance side of it . So I think one of the most basic aspect of tax planning is understanding what you're going to pay , and the way we do that is through projections .
We understand how much income the company is bringing in , how much it's putting out in expenses , and we project what the profit is going to be at the end of the year .
We take that profit , we combine it with other factors other jobs you might have , rental income , capital gains from stocks and securities and we determine what we think your tax liability is going to be . And that gives us a foundation to start from .
And once we know that , then we can start talking about how can we reduce that tax liability to a number that you're more comfortable with . There's usually not a magic bullet , right . There's not this one neat trick . The IRS doesn't want you to know , so you don't have to pay taxes . Sovereign Citizen does not work . I don't recommend it , but there are .
You have options and it puts you in the driver's seat so you can make decisions on how you want to spend your money . You know it helps too when you start to think about what you could do with that money if you weren't spending it on taxes . If you had an extra $10,000 a year , what would you do with that ?
You know , would you put that in your retirement fund for a more comfortable retirement later on ? Would you put that in your daughter's college education fund ?
Maybe you would take a really nice and well-deserved vacation with the family , Because numbers can be kind of dry sometimes , but numbers translate into real things that matter to us , and if a little bit of tax playing is the difference between going to Hawaii with the family or not being able to afford to do that , it kind of helps us understand the benefit
behind it .
Yeah , and sometimes you know you do have a level of degree with tax planning . You can figure out how much taxes you want to pay . Sometimes it comes down to do you want to take the pain of paying the taxes or you want to take the pain of implementing the tax strategy ?
Sometimes some tax strategies are super easy , like you just oh , I just need to file this one form and now I save tens of thousands of dollars in taxes . That can be a thing . Some of them are . There's some work involved on implementing it , but it can save you money .
It's one of those things where you can take the pain of paying the IRS or take the pain of the tax planning strategy . There's a little bit of it's not just all magic that happens in paperwork .
There are things you would have to do to actually make some of this stuff happen , but depending on how motivated you are to save on taxes , it can definitely be worth it .
Yeah , that's a really good point and when we think about , like , how hard we work to make money in our businesses , we should be willing to work at least as hard to save money in our businesses . You know , $10,000 that we don't pay in taxes is just as valuable as $10,000 in profit we make from performing work .
So if we're willing to put forth effort to bring another $10,000 in revenue , it makes sense that we'd be willing to put forth that effort to save $10,000 from leaving the company .
Right , and if you're going to hit any level of success in your painting , business taxes are going to be the biggest expense that you have throughout your business career , so it definitely helps to pay attention to them and see how you can get that expense down as much as you can .
Yeah , absolutely . Just like you'd be looking at your advertising costs or your labor costs and saying you know , is this the most effective use of my money ? Could I tighten things up ? We should be looking at our taxes and say am I only paying what I need to ? Are there things I could be doing to reduce this expense ?
I think it's important to know when to start tax planning . We pay taxes every year and we tend to not think about it unless it's February or March . Once we get that 1040 filed , it's off our mind until we start seeing the advertisements come up during the Super Bowl or something like that .
But if we wait until we're filing to worry about tax planning , it is unfortunately too late . Right , daniel ? You have a great illustration about a person who is having a heart attack and he's in the ER having a heart attack . At that point it's too late to talk about fixing his diet and his exercise . So we need to be proactive with it .
We need to be thinking about tax planning in the spring , in the summer . We need to be thinking about it in the late fall , before the year ends and that window closes . What moves do I need to make now so that my tax liability is less next spring .
Yeah , absolutely yeah . You can't wait until March or April to start worrying about the taxes . I mean , you can worry about them but it's not going to do anything . You can still owe a bunch of money . So you definitely got to start the year prior and start looking at okay , what can I do ? What moves can I make ? Do I need to change tax entities ?
Do I need to start a retirement program ? Whatever the case may be , those moves need to happen , in most cases , before the end of the year .
Right . Right , if we're going to be spending money on something and that's the thing to think about when we file our taxes . Like , when we file our taxes last spring , we were filing 2022's taxes , so we're kind of a year behind when we do it .
So that's why we need to think about it now , beforehand , and timing is everything when it comes to taxes , and that's why it's so important to know what our tax liability is and what our tax bracket is going to be , to determine if we want to make moves now .
For example , maybe you are thinking of buying an electric vehicle because you really want one and you want to get that $7,500 tax credits that makes them so attractive right now . If you don't have $7,500 worth of taxable or a tax liability , then you won't be able to fully benefit from that credit .
So if you're having kind of a smaller year now but you're expecting a bigger year next year , maybe we want to wait until next year to buy that electric vehicle .
Conversely , if we're having a huge year now and we think this is kind of a one-off thing , maybe we came into some money that we're not going to have in future years and we're going to be in a really high tax bracket . Well then , this is the time to ramp up those pre-tax retirement savings accounts .
Maybe this is the time to buy equipment for the business that we can accelerate depreciation on . We want to think about how can we take our tax deductions and tax credits and get the most efficient use out of them . A $10,000 tax deduction is more valuable to us in a 35% tax bracket than it is in a 10% tax bracket , so there's a lot to consider .
Yeah , definitely . So we talked about what tax planning is , why it matters . When should you do it ? Basically before the end of the year . Now , what kind of things can folks do now if they're listening , if they are interested in tax planning or they want to get started in some way . What are some of the things they can do ?
Well , I mean definitely talk to your tax professional , see if tax planning is something they offer . It's something that I am doing with our clients almost every single day . Well , I'm not working with the same client every single day , but I'm doing tax planning every single day .
I recommend with our clients I like to have at least two formal tax planning meetings , one in the summer and one in the fall , so that we can see where their business is and understand what moves we want to make before the end of the year .
And , like I said , one of the first things we want to do is we want to project , we want to figure out what their taxes are going to be , and is this the right time to make moves . And then we talk about what strategies are available , and , like you said , daniel , some are going to be easier to implement than others .
I try to pick things that are going to move the needle the most , so that we get the most bang for our buck right out of the gate , but some of our clients who've been doing this for a while may be moving on to the more advanced , esoteric strategies . Yes , they require more effort , but they're still usually worth that effort .
I think , though , like the biggest benefit for a business owner is that it puts you in the driver's seat . It gives you control over your money , so that you are deciding what you're going to pay in taxes and not have the IRS tell you what you're going to pay . There isn't necessarily a right or a wrong decision on some of these strategies .
It's what you're comfortable with , what you want to spend your money with and do you feel that it's worth the effort , and then you get to be in control , and I think I come from a viewpoint of empowering our clients to make decisions for themselves , and I think tax planning is one of the most important ways you can do that when it comes to paying your taxes
.
Yeah , absolutely All right . Well , I think we got this one covered pretty well . If you have any questions , definitely go to Facebook . Look up Grow , your Painting Business , and you can join that private group . Ask your questions .
If you have any questions about tax planning , what it is , why it matters , how you can get started , let us know your questions on that topic or ideas for future episodes . I would love to hear from you .
Yeah , absolutely , and thank you for listening and we will see you on the next episode .