¶ Tax Issues in the Bar Industry
Anytime we have an employee generate a tip , you know you guys are paying 7.65% on that money that the customer tipped the employee . So there's a provision in the tax code that as long as the wages that the employee gets are over $5.15 an hour from you , you get all that money back .
Hello and welcome to the Bar Business Podcast , where we help bar owners increase profits , attract loyal guests and simplify operations so you can avoid burnout and finally enjoy your life outside of your bar . I'm your host , chris Schneider , the Bar Business Coach .
Before we get started , a quick thank you to our sponsors , spot On , who provide a great modern POS solution for the bar and restaurant industry , and Starfish , who use AI to turn your books into actual steps to increase profits . Today we are joined by Mike Jamison of OnTargetCPA . Now on the podcast .
We've talked a lot about numbers and finances and a lot of times when we get into the nitty-gritty of finance , especially when we're talking about tax issues I say well , you know , here are some general guidance , but you need to talk to your CPA . Well , I figured I've said that 50 times over 85 episodes that I should probably actually invite a CPA on .
So Michael and I have known each other since we were really little kids . We were in Cub Scouts together .
But currently he is the owner of OnTarget CPA in Indianapolis and his firm focuses on small to medium-sized businesses and over the years he has had a large number of clients in bars , restaurants , he's done distilleries , breweries Essentially anything beverage gaming related .
He has dealt in that industry and understands the different sorts of taxes and issues that we face as an industry . His firm on target has been on the Inc 5000 list three times and he personally has been a top 10 finalist for accounting in Indy's best and brightest multiple times and was named as an emerging leader a few years ago by the Indiana CPA Society .
But , like I said , most importantly here , he knows bars , he knows restaurants , he knows the tax code and so a lot of these things that I always say hey , you need to talk to your CPA , we can get a better answer on today . So , michael , thanks for being on . Yeah , of course . So we're going to really talk through two things today .
We're going to start with where bars frequently go wrong on their taxes .
Because , in addition to just doing taxes for bars go wrong on their taxes , because in addition to just doing taxes for bars on target , mike's firm does a lot of tax resolution work and it turns out our industry are some of the best clients for him , because we go to him and he charges 20 or 30 grand of screw or to fix what we've screwed up for years ,
and so it's way easier . You know nobody wants a 30 000 cpa bill . It's easier if we prevent these rather than pay mike 30 grand to fix them .
Yeah , absolutely .
And then we're going to talk through end of year tax prep and some things you can do to make sure that you're setting your CPA or tax preparer up for success so that your bill's a little bit lower . So , mike , let's dive in right away to sort of our common issues . In right away to sort of our common issues .
And when you bring on new clients because I know with doing the tax resolution work , a lot of the problems you see are when a new client comes on board . What are those common issues that you see from your new client ?
Sure , the biggest one's payroll Bars and restaurants trying to do their own payroll . Typically it ends up being a mess . And when we say doing your own payroll , we're not talking about using , like , adp or paychecks or Gusto . That's what we recommend doing , because they're going to make sure all the taxes get paid appropriately .
They're going to make sure all the forms get filed Like in Indiana , there's between like 20 and 30 forms that get filed throughout the year , payments that have to be made throughout the year with payroll . So you just don't want to have to have that responsibility when you can outsource to somebody for , like , generally under a hundred dollars a month .
So there's just a lot of good options to be able to , you know , outsource that payroll .
Get that done correctly , get it calculated right , get all the forms appropriately filed , so that way you're not uh , you know you're not creating a mess that then is going to cost thousands of dollars with my team to fix , because we can fix it for you , but it's a hell of a lot cheaper just to do it correctly in the first place .
Well , and I think that's the big thing , right , because people , especially on payroll , for whatever reason , and I think it's across all small business , but bars are bad about this . They want to save a hundred bucks a month and then they create an issue that costs you $10,000 , $20,000 to fix because payroll .
Like you said , indiana , we have 30 or 40 forums doing a year and , let's be honest , we're a lot easier than a lot of states .
Yeah , right , you get .
New York , california , new Jersey , you end up in- .
Or if you do business in multiple states , I mean , then it even gets to be more of a mess . Yeah , I mean , in Ohio we've got plenty of jurisdictions , so even if you have three bars and 10 miles apart from each other , they could be in three different tax jurisdictions .
And that's true . Yeah , Because it's something everyone has to remember and I know I've said this on the podcast before . But when we're talking about particularly payroll in the United States , it's different county to county , state to state , hugely different .
But in places like Ohio , it can be different on one side of the street than the other for no apparent reason .
Yeah , these big payroll companies . You know your ADPs , your paychecks , your Gusto . You know none of us , none of them , pay me anything . You know we recommend those payroll companies because we know they're going to do it correctly and we know we're not going to mess to clean up .
So that's the first thing that we tell anybody when we're working with them hey , who are you using for payroll ?
And one of the things I know that when it comes to payroll and especially when we're talking about ADP paychecks , that they do that a lot of the other companies don't is filing the FICA tip credit report .
Yeah , so they both generate . There's a report that you get out of your package that shows what you're entitled to get for a credit for your Social Security and Medicare taxes that you pay on the tips that your employees generate .
Because anytime we have an employee generate a tip , you know you guys are paying 7.65% on that money that the customer tipped the employee . So there's a provision in the tax code that as long as the wages that the employee gets are over $5.15 an hour from you , you get all that money back .
If they're not over $5.15 an hour , so let's just say you're able to pay them $2.13 , and then the amount that goes from $2.13 to the $5.15 , you don't get that money back , but then the remainder amount you do get back . There's a calculation that goes into that . Those payroll providers like Chris mentioned those will you know . They'll calculate it for you .
They'll give us a nice report . So with their report I put two numbers in my software . If you don't use that , let's say , let's say you use QuickBooks to do your payroll . They don't give us that report , at least the versions that I've seen so like .
We end up having to create a manual calculation which can take two to three hours for a normal size establishment . You know you got a really big , you know establishment with 300 employees . It could take us eight , 10 hours and you know that's going to add three grand to your bill and that's just not something .
That's a good use of anybody's time when we can just outsource the payroll and have that provided to us .
Absolutely , and something you mentioned when we were talking before the show was that you actually have a lot of folks that come to your firm that have not been filing FICA tip credit reports , which blew me away .
Yeah , when we get a new client in the bar or restaurant business . I would say it's close to half of the new clients we get . The previous accountant did not claim the FICA tip credit . If you don't , you know , if you're operating at a bar or restaurant and you don't see that form 3800 general business credits , that's where that credit lives .
But I mean that credit gets rid of when you get a bar started . Let's just say you're making I don't know $100,000 , $200,000 , and you've got 15 employees . That's going to get rid of your federal tax .
Yeah , and it's hard to understate the amount of money you get back . For instance , I know me between the entirety of the time I owned a bar , I did not pay federal taxes due to that credit and then , after I was out of the business , I still didn't pay federal taxes for a year or two because of that credit .
So it's a very impactful thing and if half the industry isn't doing that , I mean it's the stupidest , simplest way to make a whole lot more money .
¶ Cash Flow and Tax Compliance Risks
Yeah , we see these credits . I mean our smallest one , I think this year , you're talking maybe a small restaurant that's got six employees , like three or four grand . The largest one we had this year was like over 60 grand . So I mean that's some good money . 60 grand is a lot of taxes .
I mean that lets you make a quarter million bucks or so and not have any federal tax . Now you will have state taxes it doesn't cover state tax and you will have taxes . It doesn't cover state tax and you will have , like Social Security and Medicare , taxes on the income . But so we're just talking about federal income tax .
But you know if we can wipe out a good portion of that , you know whatever money you're saving using somebody that doesn't know what they're doing is completely , you know , counteracted by them not claiming that credit and you can go back . So let's just say someone missed that . You can go back three years .
If you file your return April 15th , you got three years from that point to file an amended return . If you extend and file October , then it'll be three years from that October 15th date .
You know , take a look at that and I definitely encourage people to see if they have that form 3800 in their tax return and if they don't , that's something that they should look into For sure .
And so along those lines because essentially we're saying that a lot of people just are missing this , in your experience , what else are people just missing ?
so some problems we see that happen is when people just don't keep accurate books . So you know , instead they're not keeping a quickbooks file . A quickbooks is what we recommend people to use . I know the prices have gone up over the last year or two but you know all the alternates are not as efficient .
So I think you know paying them their extra 30 or 40 bucks a month or whatever they've jacked it up by , is certainly worth it , and the bank feeds have gotten a lot better too , so it makes it easier to be able to . You know , do that accounting . But if you know you don't do the accounting , you miss out on deductions that you have .
I think you sometimes you'd miss out on claiming the income that you have .
So then you get audited and it's a little bit of a mess because if you know , with bars and restaurants , pretty much all the income that we're getting is going to be subject to sales tax and some of the states are really good at cross-referencing how much you claimed in sales tax and how much you claimed in total sales on your income tax return and if there's
inconsistencies there they're looking into it You're much more likely these days to get audited by the state than you are the IRS just based on resources that are available .
And so thinking about sales taxes real quick , because I know , there are a huge number of bars and restaurants . I mean , you can pick up a paper from any city and in a month you'll find at least one of these stories where somebody had this big bar or restaurant , did not pay sales tax and now they're getting shut down .
Yeah absolutely , and I think a lot of times people see sales taxes as like something I should pay , or even payroll taxes . Sometimes don't get paid , which is legally a whole bigger issue than sales tax .
Well , sales tax is a big issue too . So I mean , in the state of Indiana , you know , collecting and not remitting sales tax is a felony .
So not only so , can you actually go to jail ?
for that ? Yeah , you can . I actually have a . I have a case going on right now where somebody was during COVID . They were operating when they shouldn't have been and there was some violence that went on and whatnot .
But anyway the state ended up looking into the sales tax and there was an arrest and a criminal conviction based on the sales tax not being paid . And you know , now they're doing further compliance and you know so this business owners happen to spend a lot of money with us and a lot of money with a criminal defense attorney getting through some problems .
You know , once you're on their radar as like a you know , tax avoider or whatnot , then you know you get repeat visits from every few years until you kind of shape up . So you know now we're dealing with an audit . So this happened like three years ago .
Now we're dealing with an audit for that same client and it just is something that you know nobody wants to go through . Focus your energy on running your business and at the end of the day you collect sales tax . You're collecting the government's money .
So there's a system called Davo that we've helped people set up , where it automatically collects and remits the sales tax to the agencies . I think it's 50 bucks a month . That's how much it was last time . So if you have problems with sales tax , I would just connect Davo and just kind of wash your hands of it .
Yeah , it's definitely required to be paid and it's never your money when you collect it . And same thing on the payroll tax front . That's money that if there weren't payroll taxes , that money wouldn't go to the employees . Right know , you get a check and let's just say that check is , you know , $800 . Well , if the taxes were taken out , it'd be $1,100 .
So that extra 300 bucks has to go to the government agencies For sure , and it's just you know .
I mean , I don't think it's possible to emphasize strongly enough that , something like thinking that you can save a little bit of money this month and just skip paying your sales taxes or not remitting your payroll taxes yeah , you might get a thousand bucks , and then you say , well , I'll just pay it next month , with the penalty if things don't go exactly right .
You are in just a world of pain where you end up with potentially license issues , even right , because absolutely indiana and other states .
The penalty is 10% . So you pay it two days late . It's 10% . You want to calculate the annual percentage rate on that ? It's a lot higher than 10% . So it's 10% first day you're late here in Indiana and there's states that charge more than that and then you pay interest on top of that .
Also , yeah , like you said , chris , if you don't pay your sales tax and you look your licenses up for renewal here in Indiana , they file a protest .
So that's the fun thing to deal with , because then you got to get somebody like me involved and we got to go and do one of two things either pay in full or that's the easiest way to get out of the protest , because they will clear the protest once you pay in full or we got to negotiate it , and it is became more and more of a pain to negotiate .
These Indiana does not like to negotiate renewals on , you know , on liquor licenses , when you have passed sales tax , they essentially say it's their policy not to . Now have we gotten some through ? Yes , but it does involve a substantial amount paid and then a payment plan , and you know it's a lot of hassle , a lot of money to deal with it .
So it's , you know just best to keep those taxes paid .
I mean , I would always tell people just that money's not yours , so just don't see it as your money and you probably won't have a problem and , among other things and we've talked about this in the podcast and Mike and I were talking about this before too one of the biggest traps in bars and restaurants and it is what causes these payroll issues and these sales
tax issues largely is we're a high cashflow business and that then generates a lot of cash into your bank account and people cannot . You cannot manage a business from a bank account , and that's just a common issue that we both see around the industry .
Yeah , the other common issue that we see with cashflow is people will struggle with cash flow and then they'll get one of these merchant cash advances where they're like taking money out of your bank account every day .
It is very rare for me to see a client get into that mess and get out of it successfully , like we're talking , less than 10% of people that take on those kind of things get out of it . So I mean , my advice to everybody is just stay away from those merchant cash advances . If you have one of them , the SBA financing is eligible to refinance those things .
Talking to your bank that you work with , having those conversations and trying to get yourself out of that problem and then just swear them off and never do them again . Out of that problem , and then just swear them off and never do them again . Because the other thing about bars and restaurants is , let's face it , these days , what is it ?
80% , 90% , chris , you probably know better than I do are paying credit card . So those credit card deposits , those are a stream of income that essentially give a level of comfort to a lender .
So that makes this industry a prime target for these merchant cash advance people , because they'll just take the money out of your account and they'll get their money daily . They're going to charge you an interest rate . They don't tell you the interest rate , but I calculate it and a lot of times it's 60% to like 200% APR .
By law credit cards only charge you , like in Indiana I think it's like twenty nine point nine nine percent . But these works advances they can .
They can charge you whatever , because they don't call it interest , they just call it we're going to buy , we're going to buy sixty thousand dollars of sales from you for forty five thousand and then they ACH your account till they get their sixty grand .
But if you look at the look at the terms and you use an amortization software like we have , that would let us back into that interest rate . It's over 60 .
Well , and the other thing , too , that I think bears mentioning with these guys is they front load Most of these loans that I've seen . They're front loading 10 to 20 grand worth of fees that are on top of whatever interest or whatever else is going on .
Yeah , and in my mind there are certain unique situations where it might make sense , but essentially these are the payday loan vultures of the business .
Yeah , absolutely .
So something else that we see a lot in this industry and it obviously is a little bit state-by-state dependent . But we see people say I should be an S-corporate or I should be that , and a lot of times when we're dealing with company formation people go on YouTube .
They watch some dude say well , you need a company in Montana that's owned by a trust in the Isle of man that does banking and Cayman and all this stuff , and oh my God , you're going to save so much in taxes and you end up spending 100 grand to save five bucks .
So when we're talking about company formation and especially here for you know , llc versus S-Corps , because those are what we're going to most likely see in this what are your thoughts on company formation and how people should approach ?
Absolutely so . To start an LLC can make an election to be taxed as a S corporation or a C corporation . So just because legally you're an LLC does not mean , like your tax is a partnership or tax is a disregarded entity . That would be the default . So if I set up an LLC and I make no tax election , if I own 100% of it , it's a disregarded entity .
I file that return as part of my personal return on my Schedule C If I have a partner . So if the two of us are partners in a bar and we don't make an election and we have an LLC , we're filing as a partnership on a Form 1065 .
If we make that election to be taxed as an S-Corporation , that's done on Form 2553 , that makes us an S corporation and that would make us file an 1120S
¶ Tax Strategies for Bar Industry
. Really , the benefit of the S corporation has to do with there's several things , but we're going to focus mostly on the biggest benefit for this industry , which is going to be the taxes on employment that you have . So whether you're paying self-employment tax or you're paying employment taxes on just your W-2 wages .
So let's just say you've got a successful bar and you're making $150,000 a year If you're set up as a single member LLC . This is a disregarded entity . You're going to pay 15.3% in Social Security and Medicare taxes on that full $150,000 of profits .
If you set yourself up as an S corporation , maybe you're paying yourself a reasonable salary for your role and maybe that reasonable salary after you look at what you know you're paying other people in the businesses and what you're doing , the time you're spending , maybe you determine that number $70,000 .
Well then we just , you know , escape paying 15.3% on you know $80,000 of additional money . So you know that's like 12 grand . So that's , that's a lot of times why people will do that . Now there are some traps to watch out for because , like , there's some states that ding you real bad on the S-corporation . So Tennessee is one of them .
So Tennessee doesn't have an individual income tax but they have a corporate income tax and they charge S-corporations that corporate income tax . So you essentially negate all your tax savings you're trying to achieve by Tennessee's corporate tax regime . I've heard that they're working on reforming that . I don't know .
I don't know what the status of that is , but the other one's , New York City that I know of New York City , has a nasty 8% tax that pretty much kills any tax savings you'd have there too . So that's not all-inclusive . I'm sure there's other jurisdictions . Those are just the two that I've run into lately .
But you always want to look at where you're doing business and you also want to look at your unique circumstances . There may be something you've got going on . Maybe you work full time and you make $200,000 a year and maybe an S-Corp is not the right reason for you there . Or maybe you're based on some investments you have or whatever else .
So there's not going to be a silver bullet where , oh yeah , you always want to be an S-Corp or you always don't want to be . It's just something to consider . And then you also have to consider the long-term effects of that stuff .
So we never recommend putting real estate in any corporations , and the reason for that is if you want to take it out of the corporation , it triggers sale or exchange treatment . So let's just say I buy it , it's a hundred grand . It goes up in value . Now it's worth 500 . And I think you know what .
I want to move it out of that corporation for any reason . You're going to trigger a $400,000 phantom gain . So that's the reason that we don't recommend that .
So yeah , it's , I would say for most bars and restaurants , either an llc tax as a uh , you know , disregard entity llc tax as a partnership if you have more than one partner or an llc taxes at s corporations , probably going to make the most sense .
There's an option to have b tax as a c corporation too , because the company pays tax and then you pay tax individually . That's not as attractive and also you can't get your FICA tip credit to then flow through to your personal return and offset your personal taxes In the case of the C corporation . So that's another reason we don't like it .
But you know , between the LLC with an S corporation election or without , it's probably one of those two , but you really need to seek some professional advice to tell you for your circumstance which one is best .
For sure and I think that's something that you know .
I say that a lot , but I think it's good to hear it coming from somebody with a CPA as well that you know not everybody's tax situation is a little bit different and just because , especially when we're dealing with entities where with an LLC or an S-corp , that's flowing through to our personal taxes it's not just about your bar that determines what is going to
be your best strategies , it's your whole financial picture .
It could include a spouse if you're married too .
And that's I mean . Obviously , if it was just the bar , if corporations and people were always separate , we could give a lot better generalized advice , but because they're not , there's no way to . So let's shift gears here a little bit and talk about .
You know we're getting towards the end of the year , we're a couple of weeks away , and a lot of people are getting ready to dive in to getting their taxes done , and so so the first thing I want to hit on here is for a lot of folks you know they picked an accountant based upon their brother knew somebody , or you know they went to school with this kid ,
or you know they found the guy down the street , or the person that's been doing their personal taxes from home for five years is now doing their business tax , and sometimes that's great right . I mean , you and I grew up together and I picked you as my accountant and it worked out perfectly .
So there are absolutely times when that can work , but sometimes it doesn't , and so if someone's thinking of switching accountants or looking to get a new firm , what should they look for ?
Yeah , they definitely should ask about if that accountant or that accounting firm has experience in the bar and restaurant space , because there's definitely differences between bars and restaurants and other types of businesses . So if they've never done one before they probably don't know about that FICA tip credit . So they're probably going to miss that on
¶ Choosing a Qualified Tax Professional
you . Also , there's some depreciation considerations that come into play that may benefit us or not benefit us . You know you want someone that has a little bit of industry experience . Now , they don't have to be an expert , they don't have to just do bar and restaurant taxes .
I mean , I don't just do bar and restaurant taxes but you know we do enough of them that we know the industry . So if you know , if they've never done one , that's definitely a red flag .
If they're not used to doing business taxes or someone like you know not to pick on any of the franchises , but like a Jackson Hewitt or an H&R Block or Liberty Tax or like really any of these corner tax places that are retail spots where they're trying to attract individuals to come and get their 1040s done , that's definitely not the place to do a business
return , because they're probably doing I don't know , maybe five business returns all season and they're doing hundreds or thousands of individual returns . So they're probably better at doing individual returns for probably the lower income people that are looking to get their money quickly as possible . So that's really what those kind of corner cash stores are for .
So how do you determine , you know , find somebody to work with you ? Obviously , talk to your colleagues , right ? So if you've got you know other bar owners that have an accountant that they're happy with , talk to them that have an accountant that they're happy with . Talking to them .
When you talk to an accountant about potentially working with them , ask them if they know , hey , what credits and benefits are available for bars and restaurants . If they don't tell you about the FICA tip credit , they probably don't know about it . I mean , because that's the I think , the biggest one that's there .
So you know , and with our history of half of the clients come to us and don't have that credit claim and keep in mind I can only go back three years . So if you've been in business for seven years and you missed this twenty thousand dollar credit for all seven years , you come to me .
I get you 60 grand of your money back , but that other , that other 80 grand is gone . So , uh , you know , just making sure that you're doing a little due diligence there . Uh , from a cost standpoint , if anybody's gonna do your business tax return for a thousand dollars000 , that should be really a red flag .
So , like TurboTax , like Intuit , they have a program to do business returns like through their . I would not recommend that , but they do offer that and $1,700 is like their minimum fee . So if we kind of look at that , so if everybody's going to charge you less than Intuit is to do that online , I would just kind of be a little weary .
Also , if you're talking to somebody who maybe doesn't have a fixed office , so they're meeting you at the coffee shop because they don't have an office , they don't have a phone number you can call and get answers to . I actually was talking to a client yesterday and they paid someone to do their taxes . Last year April 14th came around .
They haven't heard anything and they tried try to call , they try to show up at the place . They were never there and they didn't have to do their taxes around turbo and submit it to get it done because the person they gave everything to just kind of fell off the face of the earth . So you don't want to run into that .
So if you , if there's like a business location , that's obviously a good , good thing to see employees more than just one person , because obviously any of us could just get sick and then you know if there's not a team to be able to kind of keep things going for continuity's sake . That can also be a landmine for you .
Real quickly . When we're talking about picking people because there are when we talk about credentialing of tax preparers , it gets really freaking confusing , right , because we have tax preparers , we have EAs , we have CPAs , we have all these different things . So just to give folks some , clarity on that .
Could you dive in there a little bit ? Yeah , of course . So you're going to have certified public accountants . That's what I am . So in order to get a CPA license , you got to go to school for a five-year program in accounting . You can have a specific number of accounting classes .
You've got to take a four-part exam that's administered and then you've got to get licensed with the state . Every three years . You've got to do 120 hours of continuing professional education to keep that license up . So you have to stay up to date with the changes that are happening . There's also what's called an enrolled agent .
An enrolled agent is somebody that there's a required educational background but there is a test . So there's a three-part exam . You got one part on individual taxes , one on business taxes and one on ethics , and then they also have to do continued education . I want to say it's like 72 hours every two years or something like that .
So they've got to do continued education as well . So similar type of thing there . And then attorneys are also . There's some attorneys that prepare tax returns . Typically they're doing more on the trust and estate side than the business side . We don't see a whole lot of attorneys that do business taxes .
But theoretically it's possible and so those are the licensed professionals that are doing taxes . Then you delve into the non-licensed . So in America there is no legal requirement to have a license to do tax returns or bookkeeping or any of that stuff for a business .
Now in Indiana there is a legal requirement that if I say I'm going to offer you accounting services , I have to be part of a CPA firm that has a CPA firm permit , which we have , but not all states are like that . So some states they can even offer you accounting services and not have an accounting background .
So to be able to prepare a tax return there's something called a PTEN preparer tax identification number you have to get with the IRS . That number costs you $30 . It takes five minutes and there's no educational requirements whatsoever to get that number . So unfortunately the public doesn't really understand or know the differences there .
I would strongly recommend that anybody that you're working with some sort of a firm that is run by either a certified public accountant , enrolled agent , one of those types of individuals that actually license , because the second piece of this is , let's just say , down the road you get an irs notice , you owe all this money or you're being audited .
Those licensed people are the ones that are allowed to represent you . So like , if chris got audited never dead , but let's just say dead I would . I would represent him , they'd come into my office and that would be dealt with . Chris wouldn't have to talk to them , chris wouldn't have to deal with any of it .
Uh , so let's be honest would be really good , because I'd say some stupid shit right like it's good . That's why I've always paid you right , because I know what shit happens . I don't have to talk to anybody . You do it for me and you're smarter than me at this shit so that that's .
That's definitely a benefit of having somebody with a licensed professional . There too , also , they're going to be more educated because they are required . If you're a CPA , you're required to have that educational background .
If you're an EA , you're required to pass the test and then also you're required to continue to professionally learn in taxation related topics on an ongoing basis .
So you have kind of you have at least , I think , a foundation where they're going to probably be able to better serve you than just somebody who decided they want to pay 30 and start preparing tax returns .
If you actually look at like h&r block , they have like a tax course so you can like sign up with them and it might be 100 bucks or something and you it's like a six-week course and then all of a sudden you're a tax professional . So like if they say they're a tax professional , that doesn't mean anything .
Well , and let's , let's be real honest . I had an ex whose father took that course and we were talking about taxes one time and he's telling me all these things and I'm like , oh yeah , that's , you know . Just enough to screw everything up in a way . That's really bad , yeah .
And the other thing I'll tell you is you should always read your tax return before you sign it . That sounds like common sense . You should have the preparer explain it to you . I mean , we'll explain returns to anybody . Now , after COVID , it seems like 25% of people take us up on going through the return .
Everyone's just e-sign , I mean , which is fine if you understand everything , but if you don't understand like if you're new in the business and you've never filed an 1120s before you should go through that return with whoever prepared it and have them explain it to you .
I mean , that's just , that's just good and a side note , because we're talking to bar owners , right , and so I will give you one trick to get cheap tax advice Wait till your accountant does your return .
And then , if your accountant drinks at your bar which Mike did , some and some of the other folks that worked at his office were my regulars too when you have a question , you just take your return over to them while they're having a beer and you're like , hey , what does this mean ? Have a question ?
You just take your return over to them while they're having a beer and you're like , hey , what does this mean ? And it saves you 50 bucks . I'll answer yeah , absolutely . So you know , I mean it's , it's if your account is also a regular of yours , it can make , it can make life pretty easy . Now let's talk .
You had mentioned QuickBooks , and that's a good way to get your bookkeeping together , but let's talk a little bit about how do you set up your account for success , because there are a lot of people that spend a lot of extra money because they're not giving you the right of them that year , because I had to pay somebody in his office to go through a shoebox
and to put it all in QuickBooks , whereas mine , I just sent them a QuickBooks file and we were done so , short of using QuickBooks instead of a shoebox , what are other things folks can do to set their CPA or tax preparer up for success ?
So not commingling funds , so not using business funds for personal expenditures or personal funds for business expenditures . Those are , those are definitely a big area that the people you know waste our time and their money just by making us classify all their you know Meyer receipts for their home or whatever .
Or you know OnlyFans or God knows what you know , but you know put that stuff on a personal . Or you know OnlyFans or God knows what you know , but you know put that stuff on a personal card . Or you know , on the business side of things , let's just run business expenses through that . It makes it so
¶ Financial Tips for Business Owners
much cleaner . And if you don't use QuickBooks , you know somebody like let's just say you give us all your bank statements . It takes our team half the time to do that work if you don't commingle than if you do at work . If you don't commingle than if you do so you're keeping our bill down .
Because , let's face it , a lot of businesses don't either have the time , have the knowledge , have the want to use accounting software . We probably we do about 450 business returns every year and I'd say about 100 or 120 of those give us bank statements and we work off the bank statement so that you can do that .
So if you don't have quickbooks or whatever , just give them all the bank statements and all your business credit card statements and then they'll put together a quickbooks file for you and be able to be able to use that . It is going to be more expensive than if you have the quickbooks file and it's correct yourself .
But if you don't co-mingle , so you don't put the personal stuff through there , it will definitely keep you building well , and I you know .
One thing I would add there is is just that if you're not keeping track of your financials , it makes it really hard to do any forecasting , any projection , understand any of your kpis , your numbers , all that because last week's episode was just hey , here are cool kpis and all of those require that you actually do bookkeeping week to week .
So I mean wow , and I , I am mostly for you too .
So if you yeah , you know if bookkeeping is not your thing like we have , we have a little over 100 clients so we do account , we do accounting on a monthly basis . So by the 10th of the following month last month's all reconciled , entered correct you log into quickbooks online . Your stuff's there .
You know average cost for at our firm's going to be somewhere around 500500 a month . You've got a big operation . It might be a couple grand . You've got a small operation . Maybe it's a little less , but it's not a really expensive service because you think about it . If you don't do it monthly , then we've got to catch it up at the end of the year .
It might be a little cheaper to catch it up , sure , but you don't have any of that monthly data . So I'd say most good accounting firms would offer that service . So if it's something that you don't have now , you can certainly talk to whoever's working on your accounting about moving you over to a monthly basis , to doing your books on a monthly basis .
And I think , too , it's also worth mentioning , because you said you have a hundred clients that don't use QuickBooks and just give you bank statements . One of my businesses is one of those clients . Now , the only reason why I do that is because I think that business has 12 transactions a year on a busy year , right .
We get a couple of checks .
Right , I mean it's literally . I can do the whole thing in Excel and send you P&Ls and the whole thing in about 20 minutes . Right , it's such a small business . It's okay . When you think about a bar or a restaurant , you have thousands of transactions in a given month between all the vendors . You're paying all the different money coming in .
So it's much harder to get a bar or restaurant's taxes done from bank statements than a small company or professional services or something like that .
Yeah , absolutely like that ?
Yeah , absolutely . Is there anything else that you know if you own a bar or restaurant that you really should be ?
doing for your account . You know , give them a POS report at the end of the year . That helps them tie everything out . You know , make sure that they have access to your sales tax filings . You know what we do and what should be common practice is tying out your sales tax to your income tax . I mentioned about being audited because the state doesn't .
You know what we do and what should be common practice is tying out your sales tax to your income tax . I mentioned about being audited because the state doesn't . You know sees a different number and you know different boxes . They know one's wrong . So let's just avoid that by tying it all out . So that's something that your accountant should be doing .
But you know , if somebody didn't give that to me , I'd ask for it . But I'll tell you there's a lot of smaller firms , a lot of sole practitioners . They're so busy during busy season they just need to get that return out the door .
So if you don't give them that information , they may not ask for it and then it may be off $100,000 , which here in Indiana is enough to get somebody wondering what's going on .
Yeah , and it's always cheaper to avoid the issues . Yeah , absolutely , yeah , and that's uh , it's always cheaper to avoid the issues .
Yeah , absolutely we can spend 20 minutes tying it out and we avoid the issue versus . You know , we I mean we've got two audits going on now .
I mean I've got between like five and twenty grand of these things , so it's just something we want to avoid well , and even when , um , because I mean I've had tax resolution work with you guys right where we've had penalties and things to get evaded , and I pay you guys two or three grand to save myself 10 .
Great , yeah , sure , like that's wonderful as far as an ROI on my money , but at the same time , had I not used somebody else that screwed it up in the first place , I wouldn't have to pay you anything Right , exactly so it's cheaper to prevent problems . Anything Right , exactly so it's cheaper to prevent problems .
It's cheaper when your accountant has more information and can better serve your business . So we are basically up with our time for today , but is there anything else at all that you'd like to add ?
No , I think I think we've covered pretty much everything , everything that I think people should really be cognizant of , and I think if you take those , those couple tips , you know you'll be better than a lot of bars that have gotten into trouble before .
Well , for sure , and that's the whole goal is stay out of trouble , and so I'm sure we have some folks listening that are going , hey , my accountant isn't doing these things that you mentioned and Mike sounds like a cool guy . I'd like to talk to his firm . How can people get in touch with you and your firm ?
Sure . So ontargetcpacom is our website . Pretty easy to get a hold of us there . You can reach out , submit a web inquiry . You can also give us a call . We're Eastern time , so 8 to 5 , monday through Friday , we've always got people answering the phone .
Our numbers Fantastic , and we will have all that below in the show notes .
¶ Maximizing FICA Credit With OnTarget
So if you want to get a hold of OnTarget and see if they can help you out , you know especially say you haven't been claiming that FICA credit the last few years . They are very good at fixing that issue , so they can definitely get you straightened out there . But , mike , thanks so much for being here .
I think this has been a great and very valuable conversation . That about wraps it up for today . If you enjoyed today's insights , make sure you like , subscribe and leave a review . If you are ready to take your bar to the next level , schedule a strategy session with me by clicking the link in the show notes below .
Until next time , have a great day and we will talk again later .