WEBVTT 00:00:06.030 --> 00:00:09.250 Hi, everyone. This is the How to Lower Your Tax 00:00:09.250 --> 00:00:12.429 Bill podcast. I'm your host, Terrence Hutchins. 00:00:12.929 --> 00:00:15.410 I'm a financial and tax advisor in the Dallas 00:00:15.410 --> 00:00:18.190 -Fort Worth area. And the goal of this podcast 00:00:18.190 --> 00:00:20.809 is to help you listeners get educated on different 00:00:20.809 --> 00:00:23.589 tax strategies that you can implement to improve 00:00:23.589 --> 00:00:26.750 your tax situation immediately. Each episode 00:00:26.750 --> 00:00:29.769 will break down useful tax tips you can use to 00:00:29.769 --> 00:00:32.350 save money, no matter what your personal or business 00:00:32.350 --> 00:00:35.950 income situation. Cause our motto is keep more 00:00:35.950 --> 00:00:39.490 of what you earn. So let's get into today's episode. 00:00:44.909 --> 00:00:47.890 All right. So welcome back to the how to lawyer 00:00:47.890 --> 00:00:52.530 tax bill podcast. I am back after a brief hiatus, 00:00:52.530 --> 00:00:55.369 but we are getting into a very important concept 00:00:55.369 --> 00:00:59.549 today, thinking through business owners and the 00:00:59.549 --> 00:01:01.530 decision, whether to start a business or not. 00:01:01.710 --> 00:01:04.579 So I'm with my esteemed cohost, Miss Kelly, say 00:01:04.579 --> 00:01:06.659 hi to the people. Hey, great people. How y 'all 00:01:06.659 --> 00:01:09.760 doing out there? And so this is going to actually 00:01:09.760 --> 00:01:12.079 be a three different parts. So you have to come 00:01:12.079 --> 00:01:14.680 back and listen to the other two. And the third 00:01:14.680 --> 00:01:16.200 was actually going to be a counseling session. 00:01:16.719 --> 00:01:19.939 So if you are interested in understanding the 00:01:19.939 --> 00:01:22.319 dynamic, the mental hurdles it takes to become 00:01:22.319 --> 00:01:24.359 an entrepreneur, make sure you come back for 00:01:24.359 --> 00:01:27.329 the third part. Today, we're actually gonna walk 00:01:27.329 --> 00:01:29.129 through kind of a checklist that I've talked 00:01:29.129 --> 00:01:31.010 to clients about in relation to whether they 00:01:31.010 --> 00:01:34.209 should start a business. And number one, I've 00:01:34.209 --> 00:01:36.569 talked in the past about our president, he paid 00:01:36.569 --> 00:01:40.230 $750 in taxes. How can I do that? As we've mentioned 00:01:40.230 --> 00:01:43.290 before, your taxes are a representation of your 00:01:43.290 --> 00:01:46.189 actions and the facts of your circumstance. And 00:01:46.189 --> 00:01:49.209 many times people know the tax code rewards people 00:01:49.209 --> 00:01:51.450 who start businesses because those people who 00:01:51.450 --> 00:01:53.969 start businesses are people who create jobs for 00:01:53.969 --> 00:01:56.290 other people. So when you create jobs for other 00:01:56.290 --> 00:01:58.609 people that stimulates the economy, the government 00:01:58.609 --> 00:02:01.109 is able to collect taxes on those people as well. 00:02:01.349 --> 00:02:03.530 And so they give you tax breaks as a result. 00:02:03.790 --> 00:02:05.769 So a lot of people think, let me start a business 00:02:05.769 --> 00:02:09.009 to save on taxes. However, the goal of a business 00:02:09.009 --> 00:02:12.469 is to make money. Right. And so we have to keep 00:02:12.469 --> 00:02:15.849 that in mind, number one, so that even if it 00:02:15.849 --> 00:02:19.210 gives you an avenue to maybe save on taxes based 00:02:19.210 --> 00:02:21.110 on the amount of money you make, we still got 00:02:21.110 --> 00:02:23.289 to think, is this business going to help me make 00:02:23.289 --> 00:02:26.060 money? Okay. So tell me to me, have you ever 00:02:26.060 --> 00:02:28.699 heard that concept or what was your perspective 00:02:28.699 --> 00:02:30.960 as you kind of started getting into the tax game 00:02:30.960 --> 00:02:33.879 on the impact or benefits of owning a business 00:02:33.879 --> 00:02:37.539 from a tax standpoint? So actually, I'm thinking 00:02:37.539 --> 00:02:39.639 about it now, Terrence, we probably should have 00:02:39.639 --> 00:02:42.300 put this under one of those myths that we talked 00:02:42.300 --> 00:02:46.240 about a few podcasts ago. And that is to start 00:02:46.240 --> 00:02:49.560 a shell of a business to really save on taxes. 00:02:49.900 --> 00:02:53.379 Right. If you're going to start a business or 00:02:53.379 --> 00:02:56.020 pursue a business or ask the question to yourself, 00:02:56.080 --> 00:02:58.819 is it worth pursuing? You really got to say, 00:02:59.000 --> 00:03:01.539 am I in this to make money? That's a valid question, 00:03:01.539 --> 00:03:03.979 right? Or are you really in it to save taxes 00:03:03.979 --> 00:03:07.000 or whatever scheme you're trying to get at, right? 00:03:07.080 --> 00:03:09.900 It really is to make money. And so for me, what 00:03:09.900 --> 00:03:12.819 I've heard is you start a business when your 00:03:12.819 --> 00:03:15.479 passion, your greatest, your greatest purpose 00:03:15.479 --> 00:03:17.919 on life is what you're passionate about, right? 00:03:18.909 --> 00:03:22.550 That sounds good. And I actually started a nonprofit 00:03:22.550 --> 00:03:26.030 because I was so passionate about it and still 00:03:26.030 --> 00:03:28.569 needed a full -time job because clearly it did 00:03:28.569 --> 00:03:33.370 make me money. It did not make me money. So those 00:03:33.370 --> 00:03:35.409 are some of the things I've heard about starting 00:03:35.409 --> 00:03:38.090 a business is that there was no structure around 00:03:38.090 --> 00:03:40.870 it. There was no financial wisdom around it. 00:03:41.129 --> 00:03:43.870 It was simply, are you passionate about this? 00:03:44.009 --> 00:03:48.860 And let's get going. Gotcha. Gotcha. Well, non 00:03:48.860 --> 00:03:52.180 preceded profit. We want to make sure that everyone 00:03:52.180 --> 00:03:55.419 is pursuing profit, number one. And I always 00:03:55.419 --> 00:03:57.300 think about passion. It's funny because you hear 00:03:57.300 --> 00:03:59.360 that with a lot of younger kids, you know, pursue 00:03:59.360 --> 00:04:01.960 your passion. But I found, hey, you know what 00:04:01.960 --> 00:04:04.060 I'm passionate about? Things that I'm good at. 00:04:05.080 --> 00:04:07.419 And part of it is, are you going to put the work 00:04:07.419 --> 00:04:09.580 in to be good enough to where you start liking 00:04:09.580 --> 00:04:12.300 it more? Right. Because every business, whether 00:04:12.300 --> 00:04:15.000 you're passionate or not in the beginning, has 00:04:15.000 --> 00:04:16.360 challenges you're going to have to overcome. 00:04:16.490 --> 00:04:18.829 And just because those challenges come doesn't 00:04:18.829 --> 00:04:21.290 mean that it's not something you want to stick 00:04:21.290 --> 00:04:24.290 with. In our case, we're helping people financially 00:04:24.290 --> 00:04:26.689 determine, is it actually worth your time? Because 00:04:26.689 --> 00:04:29.490 the time is the only asset we can't get back. 00:04:29.850 --> 00:04:32.209 And so when we think about the business, I always 00:04:32.209 --> 00:04:33.970 want to think through, is this actually worth 00:04:33.970 --> 00:04:36.930 pursuing? And so I have to think about, is it 00:04:36.930 --> 00:04:39.509 worth my time? And I got one value. What is my 00:04:39.509 --> 00:04:42.019 time worth at the moment? And so one of the things 00:04:42.019 --> 00:04:44.060 I would do is think about, well, what am I getting 00:04:44.060 --> 00:04:47.100 paid to do currently? So if I go to a W -2 job, 00:04:47.279 --> 00:04:49.939 my employer is paying me, and that's effectively 00:04:49.939 --> 00:04:53.660 what the market is valuing my time at. Now, you 00:04:53.660 --> 00:04:55.699 might think you're worth way more than that. 00:04:55.959 --> 00:04:58.360 And hopefully you will get that money, all right? 00:04:58.620 --> 00:05:01.220 But ultimately, you're worth what the market 00:05:01.220 --> 00:05:03.360 is paying you. So when you go to your employer, 00:05:03.540 --> 00:05:06.879 I think about, all right, my salary is X, my 00:05:06.879 --> 00:05:09.750 benefits are X. and the taxes that they pay on 00:05:09.750 --> 00:05:12.790 my behalf are why. So hey, what does that work? 00:05:12.930 --> 00:05:14.829 So let's just say, hypothetically for EasyMath, 00:05:15.310 --> 00:05:17.509 you make $100 ,000 once we do all that calculation. 00:05:17.949 --> 00:05:21.470 A normal working 40 hour a week W -2 job is about 00:05:21.470 --> 00:05:24.810 2 ,000 hours. So it's 2 ,080 to be exact, but 00:05:24.810 --> 00:05:26.970 let's just say we just did the EasyMath. So if 00:05:26.970 --> 00:05:29.050 you make 100 ,000 and you work 2 ,000 hours, 00:05:29.350 --> 00:05:32.050 you're worth $50 an hour, all right? So now I 00:05:32.050 --> 00:05:35.180 have a baseline to determine. If I go start a 00:05:35.180 --> 00:05:38.160 business, can this business pay me at least $50 00:05:38.160 --> 00:05:40.480 an hour based on the profitability of it? Right. 00:05:40.579 --> 00:05:41.779 All right. So you've followed this so far to 00:05:41.779 --> 00:05:45.660 me. Okay. Now that I have that, I need to think 00:05:45.660 --> 00:05:47.720 about what am I going to do in order to make 00:05:47.720 --> 00:05:50.500 this money? So is the business I'm going in, 00:05:50.519 --> 00:05:53.680 does it solve a problem? Is there a market? You 00:05:53.680 --> 00:05:55.120 know, are people already paying for something? 00:05:55.339 --> 00:05:58.439 Do I have the resources to see it through? And 00:05:58.439 --> 00:06:01.439 so many times you can do something either faster, 00:06:01.439 --> 00:06:04.720 cheaper or better. So I take what someone else 00:06:04.720 --> 00:06:06.920 is already doing. I do it faster. People will 00:06:06.920 --> 00:06:09.720 pay you to do it faster. Amazon, instead of it 00:06:09.720 --> 00:06:11.779 taking seven days to ship, I go to Amazon and 00:06:11.779 --> 00:06:13.939 it takes a day or two. I'll be willing to pay 00:06:13.939 --> 00:06:16.720 for that value. I could do it better, right? 00:06:16.939 --> 00:06:19.459 Someone is doing X amount of work. I do it better 00:06:19.459 --> 00:06:21.740 than they did. They'll be willing to pay me either 00:06:21.740 --> 00:06:24.259 more for the same type of work that just does 00:06:24.259 --> 00:06:27.180 better, or they'll pay me the same. I'll just 00:06:27.180 --> 00:06:29.100 replace whoever they're getting it done before 00:06:29.100 --> 00:06:31.319 if it's better. And then cheaper. Now I do not 00:06:31.319 --> 00:06:33.579 recommend you go the cheaper route. Okay. So 00:06:33.579 --> 00:06:36.139 to me, you probably learned this in the tax season, 00:06:36.500 --> 00:06:39.379 right? Cheaper is not always valuable in your 00:06:39.379 --> 00:06:43.339 business. Okay. Now, because the thing is, when 00:06:43.339 --> 00:06:46.439 you are providing a service, I always go with 00:06:46.439 --> 00:06:48.720 the mindset of can someone else provide this 00:06:48.720 --> 00:06:51.959 service? So if I have to pay someone else to 00:06:51.959 --> 00:06:54.279 eventually do it, cause if I own a business, 00:06:54.740 --> 00:06:56.740 I ideally have tried to create a job for someone 00:06:56.740 --> 00:06:58.800 else. So I don't have to do all the work myself 00:06:58.800 --> 00:07:01.839 because ultimately I get paid and we'll talk 00:07:01.839 --> 00:07:03.920 about this in a second. I get paid to do the 00:07:03.920 --> 00:07:06.160 work, but if I own the business, I get paid to 00:07:06.160 --> 00:07:08.480 own the business. Those are two separate functions. 00:07:09.079 --> 00:07:11.459 So I had to value my time for the work I do. 00:07:11.600 --> 00:07:14.240 That's where that $50 an hour comes in. But then 00:07:14.240 --> 00:07:16.500 if I own the business, I get the actual profits. 00:07:16.879 --> 00:07:19.420 So that means if I'm only valuing my time at 00:07:19.420 --> 00:07:22.519 the work level. I don't value my business ownership 00:07:22.519 --> 00:07:24.720 in the risk I'm taking in the actual time and 00:07:24.720 --> 00:07:26.500 mental capacity. Listen, I'm going to tell you 00:07:26.500 --> 00:07:28.680 guys, this is so, and I know Tense is going to 00:07:28.680 --> 00:07:31.279 get into the math here in a second, but certainly 00:07:31.279 --> 00:07:34.259 I want you to really hear what he's saying about 00:07:34.259 --> 00:07:37.899 value your time because this is work you have 00:07:37.899 --> 00:07:40.939 got to do upfront. If you're thinking about starting 00:07:40.939 --> 00:07:43.660 that business, you've got to know what your time 00:07:43.660 --> 00:07:46.319 is worth. And I say that because if you don't 00:07:46.319 --> 00:07:49.639 know and you just start. What will happen is 00:07:49.639 --> 00:07:52.540 if they don't value your time, you will get burned 00:07:52.540 --> 00:07:54.560 out. You will feel unappreciated. You will get 00:07:54.560 --> 00:07:57.019 burned out. And then the people won't get the 00:07:57.019 --> 00:08:00.699 service from you because you're feeling undervalued. 00:08:00.839 --> 00:08:03.139 When, if you would have done the math at the 00:08:03.139 --> 00:08:05.180 beginning, before you started the business, you 00:08:05.180 --> 00:08:08.019 could have priced accordingly. And this happened 00:08:08.019 --> 00:08:11.480 to me in the tax, and Terrence will tell you. 00:08:11.689 --> 00:08:14.569 When you start doing escorps, when you start 00:08:14.569 --> 00:08:16.850 doing schedules, when you start doing so many, 00:08:16.970 --> 00:08:20.689 that takes time and a lot of time, especially 00:08:20.689 --> 00:08:23.290 when you want to do it right. You know, the reading, 00:08:23.589 --> 00:08:26.870 the updates, you know, the questions, when people 00:08:26.870 --> 00:08:29.910 bring those shoe boxes of receipts, that takes 00:08:29.910 --> 00:08:32.769 time. And you want to make sure you're valued 00:08:32.769 --> 00:08:35.649 accordingly, because if not, you will get frustrated. 00:08:36.110 --> 00:08:39.149 So hear him clearly, guys. When you were thinking 00:08:39.149 --> 00:08:41.590 about starting a business, not only is it does 00:08:41.590 --> 00:08:44.629 it solve a problem, that type of thing, but what 00:08:44.629 --> 00:08:47.110 are you worth and what are you bringing to the 00:08:47.110 --> 00:08:50.009 table and how do you stand apart from the rest 00:08:50.009 --> 00:08:53.830 is so important. And part of the challenge and 00:08:53.830 --> 00:08:55.870 this is why you also value your time, but you 00:08:55.870 --> 00:08:58.590 also want to be confident as the owner because 00:08:58.590 --> 00:09:02.149 it is going to take a lot of mental strength 00:09:02.149 --> 00:09:05.169 to overcome the challenges, but also to think 00:09:05.169 --> 00:09:07.909 about the idea that If you're not valuing your 00:09:07.909 --> 00:09:10.269 time, other people probably won't. Right. OK. 00:09:10.529 --> 00:09:12.970 And they won't because they want a deal. They 00:09:12.970 --> 00:09:16.429 want a discount. They want a deal. They won't. 00:09:16.830 --> 00:09:19.529 But you have to kind of get out of this lack 00:09:19.529 --> 00:09:22.610 of abundance mentality where, hey, if I provide 00:09:22.610 --> 00:09:24.950 a service that's valuable, other people are going 00:09:24.950 --> 00:09:28.230 to want that service. And so I can't be chasing 00:09:28.230 --> 00:09:30.870 every customer. And I just try to price myself 00:09:30.870 --> 00:09:33.750 so low to get someone to say yes, because that 00:09:33.750 --> 00:09:35.879 lack of abundance, that's just saying, hey, What 00:09:35.879 --> 00:09:38.179 I'm doing isn't very valuable. And if you don't 00:09:38.179 --> 00:09:40.500 value it, other people won't. Okay. So I get 00:09:40.500 --> 00:09:42.600 off my soapbox on that. And let's kind of go, 00:09:42.600 --> 00:09:45.019 let's go through some numbers here. So if we're 00:09:45.019 --> 00:09:46.799 now valuing our time, let's say our time is worth 00:09:46.799 --> 00:09:49.659 $50. Well, then generally with any business, 00:09:49.720 --> 00:09:51.539 there's going to be some type of upfront costs 00:09:51.539 --> 00:09:53.820 that are associated with it. So it could be, 00:09:53.820 --> 00:09:56.139 you know, your initial website, whatever it is. 00:09:56.360 --> 00:09:59.179 Now the IRS, they give you two things you could 00:09:59.179 --> 00:10:02.360 deduct upfront when they're talking about organizing 00:10:02.360 --> 00:10:04.759 the business and starting the business. So if 00:10:04.759 --> 00:10:07.460 I'm starting the business, I might be doing research 00:10:07.460 --> 00:10:10.460 on the business. I might actually go and travel 00:10:10.460 --> 00:10:13.120 somewhere to do that. I might have to get organizational 00:10:13.120 --> 00:10:15.759 documents. I might have to train people on how 00:10:15.759 --> 00:10:17.320 to do what I'm doing, depending on the type of 00:10:17.320 --> 00:10:19.159 business I'm at. So the IRS says, hey, look, 00:10:19.159 --> 00:10:22.220 we will let you deduct up to $5 ,000 of what 00:10:22.220 --> 00:10:24.919 are called organizational expenses and $5 ,000 00:10:24.919 --> 00:10:29.120 of startup expenses. All right. That is a deduction 00:10:29.120 --> 00:10:31.820 that you can just take upfront. So theoretically, 00:10:32.080 --> 00:10:34.179 I could just take, if I spent $5 ,000 to start 00:10:34.179 --> 00:10:36.539 my business, I could just take $5 ,000 as a deduction, 00:10:37.500 --> 00:10:39.980 assuming that that business was going to lead 00:10:39.980 --> 00:10:43.480 me to a profit motive. Now, if I start the business 00:10:43.480 --> 00:10:45.779 and I don't make money, then the IRS says, hey, 00:10:45.980 --> 00:10:47.860 if you don't make money, then you eventually 00:10:47.860 --> 00:10:50.950 will have a hobby. unless you were showing us 00:10:50.950 --> 00:10:52.610 that you have a profit motive and there's a kind 00:10:52.610 --> 00:10:55.309 of nine things that they do to show that. So 00:10:55.309 --> 00:10:57.769 we won't get into that, but as it relates to 00:10:57.769 --> 00:10:59.610 you started the business, that's what I could 00:10:59.610 --> 00:11:01.529 do up front. I could write that off on a schedule 00:11:01.529 --> 00:11:04.629 C, so I was thinking to image it. And I just 00:11:04.629 --> 00:11:07.409 want to document that. Then I get into, okay, 00:11:07.610 --> 00:11:09.809 what are the actual costs to deliver the service 00:11:09.809 --> 00:11:12.970 itself? Those are my direct cost or my cost of 00:11:12.970 --> 00:11:15.639 goods or cost of service. So I wanna think, all 00:11:15.639 --> 00:11:18.320 right, if it, and in the early stages, I would 00:11:18.320 --> 00:11:20.519 encourage you to include your time in this. So 00:11:20.519 --> 00:11:22.659 if I say, hey, here's the service I provide, 00:11:22.779 --> 00:11:25.059 it's gonna take me two hours. Well, if my time 00:11:25.059 --> 00:11:28.559 is worth $50, I wanna put that $100 as the cost 00:11:28.559 --> 00:11:32.100 of the service, plus whatever other items are 00:11:32.100 --> 00:11:34.710 involved. If I sell shirts, what's it cost to 00:11:34.710 --> 00:11:36.769 make a shirt? If it costs, you know, if I need 00:11:36.769 --> 00:11:38.669 supplies, I need something else, I need to build 00:11:38.669 --> 00:11:41.330 that cost in as my direct cost. Then I got to 00:11:41.330 --> 00:11:43.110 think, okay, what are the other expenses it takes 00:11:43.110 --> 00:11:46.210 me to operate the business? To me, what are some 00:11:46.210 --> 00:11:48.070 of the things that you found? Hey, actually, 00:11:48.090 --> 00:11:50.610 when I start on this tech side, I actually got 00:11:50.610 --> 00:11:52.269 to incur this extra cost. What are some examples 00:11:52.269 --> 00:11:55.830 you remember from this past season? So the incurred 00:11:55.830 --> 00:11:59.490 the extra cost, I would say now don't laugh at 00:11:59.490 --> 00:12:02.649 me, people. I like to print because I like to 00:12:02.649 --> 00:12:05.049 highlight and I like to really... She's an old 00:12:05.049 --> 00:12:09.690 soul. And so just really when you think about 00:12:09.690 --> 00:12:14.149 your testing, right, I like the AFSP. So you 00:12:14.149 --> 00:12:17.220 got to pay for that testing. You gotta pay for, 00:12:17.320 --> 00:12:19.759 you know, to be a part of different organizations 00:12:19.759 --> 00:12:21.940 to make sure you stay in the notes and make sure 00:12:21.940 --> 00:12:25.259 you're up to date. You want to make sure you 00:12:25.259 --> 00:12:28.139 have resources available for your customers to 00:12:28.139 --> 00:12:30.120 go through those questionnaires or check marks. 00:12:30.600 --> 00:12:33.039 All of those things, you may think, okay, that 00:12:33.039 --> 00:12:36.899 was like $30 to print a whole book, or $40 to 00:12:36.899 --> 00:12:39.740 print a whole book. One test can cost, or one 00:12:39.740 --> 00:12:43.200 CE course can cost maybe $60. The other one can 00:12:43.200 --> 00:12:46.299 cost 20. But you, I... I wanted to have all of 00:12:46.299 --> 00:12:49.740 that complete before the tax season started in 00:12:49.740 --> 00:12:53.019 January. And so even though it wasn't the crazy 00:12:53.019 --> 00:12:55.240 amount, it was still unaccounted for because 00:12:55.240 --> 00:12:57.720 I didn't know, okay, well, to take the CEA is 00:12:57.720 --> 00:13:00.419 going to be like $60 for this course, or I'm 00:13:00.419 --> 00:13:02.340 trying to get a free course or something. So 00:13:02.340 --> 00:13:05.700 that's the cost. Not to mention the time, the 00:13:05.700 --> 00:13:09.840 time, my time of just studying and creating my 00:13:09.840 --> 00:13:12.580 own systems to be able to take their first customer. 00:13:13.149 --> 00:13:15.669 Yeah, those were some costs you incurred. But 00:13:15.669 --> 00:13:18.610 shout out to my boss who helped with some of 00:13:18.610 --> 00:13:21.429 it. So shout out to my boss for that. We appreciate 00:13:21.429 --> 00:13:25.409 it. You know, cost of actually delivering the 00:13:25.409 --> 00:13:27.789 service. Yes. And then we have just the operating 00:13:27.789 --> 00:13:29.669 expenses of the business. Oh, yes. That's what 00:13:29.669 --> 00:13:32.330 you call it. So you need to determine, hey, do 00:13:32.330 --> 00:13:34.509 I need insurance? Do I need supplies? Do I need 00:13:34.509 --> 00:13:36.269 software? Because I might be paying some of those 00:13:36.269 --> 00:13:38.450 things on a monthly basis. And I need to say, 00:13:38.529 --> 00:13:40.529 OK. What are my direct costs? What are my operating 00:13:40.529 --> 00:13:43.929 costs? And then that off the top is just you 00:13:43.929 --> 00:13:45.549 think about, OK, how many man hours do I need 00:13:45.549 --> 00:13:49.970 to do just to pay for that stuff? Right. And 00:13:49.970 --> 00:13:52.309 so that helps us kind of back into what I would 00:13:52.309 --> 00:13:55.009 say is your minimum revenue requirement. And 00:13:55.009 --> 00:13:57.009 I really want to be able to hit that after the 00:13:57.009 --> 00:13:59.389 first year. So let me give you an example. So 00:13:59.389 --> 00:14:02.009 let's just say that you have a business and your 00:14:02.009 --> 00:14:05.059 direct cost. If you factor in your time, materials 00:14:05.059 --> 00:14:07.940 is $10 ,000. All right. You say, okay, it's $10 00:14:07.940 --> 00:14:10.000 ,000, but in order to keep the business going, 00:14:10.559 --> 00:14:14.960 I got to pay $5 ,000 a year. All right. So that's 00:14:14.960 --> 00:14:16.259 my operating costs. Is that what you're telling 00:14:16.259 --> 00:14:20.200 me? Correct. Exactly. Yeah. So that's $15 ,000 00:14:20.200 --> 00:14:23.429 to basically deliver the service. plus to operate 00:14:23.429 --> 00:14:25.909 the business. And so now I got to think because 00:14:25.909 --> 00:14:27.629 sometimes this might be a side hustle, let's 00:14:27.629 --> 00:14:29.549 say. So you think, you know, I can devote 10 00:14:29.549 --> 00:14:32.690 hours a month to this activity or 10 hours a 00:14:32.690 --> 00:14:35.009 week or whatever the case is. So you got to think, 00:14:35.049 --> 00:14:37.610 all right, if I'm devoting 10 hours a week, that 00:14:37.610 --> 00:14:41.230 essentially is 10 times 50. That's five hundred 00:14:41.230 --> 00:14:44.490 dollars. So ideally, I'd be making two thousand 00:14:44.490 --> 00:14:47.200 dollars a month on this side hustle. But in order 00:14:47.200 --> 00:14:50.019 to make that, I gotta add in the direct cost 00:14:50.019 --> 00:14:51.740 and I gotta add in the operating expense, all 00:14:51.740 --> 00:14:55.000 right? So for me to make that $50 an hour at 00:14:55.000 --> 00:14:58.320 the $2 ,000 a month or $24 ,000 a year, all right? 00:14:58.600 --> 00:15:01.059 I gotta add that extra layer in to say, okay, 00:15:01.419 --> 00:15:04.100 if 15 ,000 is my expense, that means I gotta 00:15:04.100 --> 00:15:07.740 have $39 ,000 of revenue to back into my 24 ,000, 00:15:08.080 --> 00:15:10.620 okay? So that would be, hey, that's my minimum 00:15:10.620 --> 00:15:13.259 revenue target after a year. So if you're thinking 00:15:13.259 --> 00:15:16.299 about what you provide, that will help you determine, 00:15:16.519 --> 00:15:18.519 well, how many customers do I need to make $39 00:15:18.519 --> 00:15:22.740 ,000? What do I need to price what I offer? Because 00:15:22.740 --> 00:15:25.360 you've got to think, well, that could be 10 customers. 00:15:25.379 --> 00:15:28.320 That could be 100, right? Depending on what you're 00:15:28.320 --> 00:15:30.120 doing. So that might help you determine. Each 00:15:30.120 --> 00:15:32.840 customer takes X amount of time to deliver. I'm 00:15:32.840 --> 00:15:34.820 going to have X amount of time to do it. So that 00:15:34.820 --> 00:15:37.419 kind of gives me a good feel for how many customers 00:15:37.419 --> 00:15:39.860 can I take on? And then how much do I need to 00:15:39.860 --> 00:15:41.779 price that based on what I offer? Okay. So that 00:15:41.779 --> 00:15:44.879 I can back into my revenue number. Okay. So you 00:15:44.879 --> 00:15:48.840 follow me. So what I hear you saying, okay. Cause 00:15:48.840 --> 00:15:51.100 listen y 'all that third podcast we doing is 00:15:51.100 --> 00:15:54.139 going to be about me. But what I hear you saying 00:15:54.139 --> 00:15:57.179 is, basically, we really got to take time, right? 00:15:57.279 --> 00:16:00.639 So don't be reckless with just going after spending, 00:16:00.820 --> 00:16:03.279 right? Once you figure out your idea, once you 00:16:03.279 --> 00:16:05.840 figure out, you do those questions that he mentioned 00:16:05.840 --> 00:16:08.740 about, is this even worth starting, right? Does 00:16:08.740 --> 00:16:11.220 it solve a problem? Is it clear market? Are people 00:16:11.220 --> 00:16:13.820 paying for this? Once you do those questions 00:16:13.820 --> 00:16:15.500 and you figure out, okay, yeah, this is something 00:16:15.500 --> 00:16:18.299 I want to pursue. That I would say also take 00:16:18.299 --> 00:16:20.639 time to do the math because as as Terrence is 00:16:20.639 --> 00:16:22.700 talking y 'all, I don't think I've done the math 00:16:22.700 --> 00:16:27.179 Oh my gosh, because those direct costs are Serious 00:16:27.179 --> 00:16:29.500 that that materials those equipment that software 00:16:29.500 --> 00:16:33.440 that costs money and I think what is the misconception? 00:16:33.840 --> 00:16:37.139 Is that when a new business owner sometimes when 00:16:37.139 --> 00:16:39.179 they're setting their budget They're setting 00:16:39.179 --> 00:16:41.620 it from the standpoint of what do I have to pay 00:16:41.620 --> 00:16:46.220 now? and separating that from The direct cost 00:16:46.220 --> 00:16:48.899 which is yours seems like your startup versus 00:16:48.899 --> 00:16:50.600 your operating which you're going to have to 00:16:50.600 --> 00:16:53.120 pay monthly those insurance those licensing that 00:16:53.120 --> 00:16:55.700 marketing that's real I think it's going to be 00:16:55.700 --> 00:16:57.500 beneficial what i'm hearing you saying is to 00:16:57.500 --> 00:17:00.620 have a degree of separation between the two First 00:17:00.620 --> 00:17:03.200 just having this overall budget. You really need 00:17:03.200 --> 00:17:06.960 to do the math to start up because What can be 00:17:06.960 --> 00:17:08.960 your direct cost is not going to be your operating 00:17:08.960 --> 00:17:11.599 expense going forward? And so that's going to 00:17:11.599 --> 00:17:13.900 help with the math going forward. So This is 00:17:13.900 --> 00:17:18.079 good. Continue. Continue. Help me out. So now 00:17:18.079 --> 00:17:21.359 you think about, okay, what do I price? And you, 00:17:21.400 --> 00:17:23.559 so I always tell people there's kind of six things 00:17:23.559 --> 00:17:25.640 why people will pay you. They'll pay you to make 00:17:25.640 --> 00:17:27.700 them money. They'll pay you to save them money. 00:17:28.019 --> 00:17:30.980 They'll pay to save them time. They'll pay for 00:17:30.980 --> 00:17:33.140 you to provide them convenience. They'll pay 00:17:33.140 --> 00:17:35.579 for you to offer an experience of some kind or 00:17:35.579 --> 00:17:38.079 for you to make them feel important. So if I'm 00:17:38.079 --> 00:17:40.539 looking at the lens of what I do, I got to think 00:17:40.539 --> 00:17:44.359 about what are the value drivers that people 00:17:44.359 --> 00:17:47.480 were willing to pay for, that I provide to them, 00:17:47.859 --> 00:17:50.119 and then I need to be able to communicate that 00:17:50.119 --> 00:17:52.880 to them that justifies the price that I sell 00:17:52.880 --> 00:17:55.480 at, okay? So it's like, hey, some people can 00:17:55.480 --> 00:17:57.559 do their taxes. I mean, some people's taxes are 00:17:57.559 --> 00:17:59.720 fairly straightforward and simple, but it does 00:17:59.720 --> 00:18:03.279 take time and it's inconvenient. All right, so. 00:18:04.120 --> 00:18:06.319 you know if it's something that you hate doing 00:18:06.319 --> 00:18:08.500 it might be easier just to outsource it to someone 00:18:08.500 --> 00:18:10.259 else and say you know what I'll pay a couple 00:18:10.259 --> 00:18:12.660 hundred dollars whatnot for someone else to do 00:18:12.660 --> 00:18:14.140 this so because it's a function I don't want 00:18:14.140 --> 00:18:16.319 to have to deal with right same thing why you 00:18:16.319 --> 00:18:18.200 might pay someone to change your oil if you know 00:18:18.200 --> 00:18:21.220 how to do it yourself Now, some people don't 00:18:21.220 --> 00:18:23.259 have the expertise on how to do it. So that's 00:18:23.259 --> 00:18:25.720 where you're not only charging for the time savings 00:18:25.720 --> 00:18:27.480 plus the convenience, you're also charging for 00:18:27.480 --> 00:18:29.819 your expertise. So you gotta think, hey, how 00:18:29.819 --> 00:18:31.740 am I justifying what I charge? Well, I gotta 00:18:31.740 --> 00:18:33.740 think about the value levers that I'm providing 00:18:33.740 --> 00:18:36.079 to the client. And that might help you mentally 00:18:36.079 --> 00:18:39.200 process through increasing what you charge and 00:18:39.200 --> 00:18:41.460 hopefully being able to make more and less time. 00:18:41.819 --> 00:18:45.789 Now, this is a tax podcast, I think. So. If we 00:18:45.789 --> 00:18:48.549 do have profits, we got to factor in the tax 00:18:48.549 --> 00:18:51.569 component. So generally, when I start a business, 00:18:51.829 --> 00:18:54.630 the iris considers me self -employed. And so 00:18:54.630 --> 00:18:57.589 as a self -employed person, I have to pay taxes 00:18:57.589 --> 00:19:00.369 in actually three different buckets. I have to 00:19:00.369 --> 00:19:03.789 pay taxes as an employee, which is tied to Social 00:19:03.789 --> 00:19:06.269 Security Medicare. I have to pay taxes as an 00:19:06.269 --> 00:19:08.349 employer that's also tied to Social Security 00:19:08.349 --> 00:19:10.910 Medicare. And then I have to pay federal taxes. 00:19:11.069 --> 00:19:13.309 And depending on the state you're in, if you 00:19:13.309 --> 00:19:15.720 relocated to Oklahoma, Now you got to pay state 00:19:15.720 --> 00:19:17.619 taxes versus if you're in the great state of 00:19:17.619 --> 00:19:20.339 Texas, you don't pay any state taxes, all right? 00:19:20.619 --> 00:19:23.019 So you may have four buckets in that case as 00:19:23.019 --> 00:19:25.019 far as the taxes you pay. So if I have a $10 00:19:25.019 --> 00:19:27.380 ,000 profit and I'm self -employed and I make 00:19:27.380 --> 00:19:29.579 that $100 ,000 I mentioned earlier, depending 00:19:29.579 --> 00:19:31.859 on my being single or married, let's say I'm 00:19:31.859 --> 00:19:35.440 in a 22 % tax bracket. If I did zero tax planning 00:19:35.440 --> 00:19:37.980 and I have a $10 ,000 profit, I'm going to owe 00:19:37.980 --> 00:19:42.309 22 % tax on that $10 ,000 that I just made. Plus 00:19:42.309 --> 00:19:45.710 I'm going to owe another 14 % on the employee 00:19:45.710 --> 00:19:48.430 and employer taxes. So think about that. That's 00:19:48.430 --> 00:19:51.109 36 % not counting the state, which could be another 00:19:51.109 --> 00:19:53.930 three to 6 % generally on top of that. So you 00:19:53.930 --> 00:19:57.390 could be at 40 % taxes on this $10 ,000 that 00:19:57.390 --> 00:20:00.849 you make. So that probably should reshape. Man, 00:20:01.089 --> 00:20:03.609 is this really worth it? Right. I'm out here. 00:20:04.390 --> 00:20:06.529 If you're out here hustling, doing this side 00:20:06.529 --> 00:20:10.089 hustle to make an extra $6 ,000, let's say on 00:20:10.089 --> 00:20:13.369 that $10 ,000 profit. after taxes, then that 00:20:13.369 --> 00:20:15.809 also should go into the equation. Right. Okay. 00:20:16.069 --> 00:20:19.269 And your value too, cause clearly. So now when 00:20:19.269 --> 00:20:21.809 it comes to the business itself, just a few housekeeping 00:20:21.809 --> 00:20:26.130 things, and this is partly myths. So it may make 00:20:26.130 --> 00:20:28.450 sense for you to set up an LLC. So we'll get 00:20:28.450 --> 00:20:31.250 into that more so in our next episode, but it's 00:20:31.250 --> 00:20:34.789 not required. Right. If you do owe taxes and 00:20:34.789 --> 00:20:36.430 you owe more than a thousand dollars, as we talked 00:20:36.430 --> 00:20:38.869 about in a previous episode, you do need to factor 00:20:38.869 --> 00:20:42.220 in, I got to actually pay in. the taxes before 00:20:42.220 --> 00:20:45.240 I file. A lot of people, they'll wait to the 00:20:45.240 --> 00:20:47.220 end of the year or when they file to figure out 00:20:47.220 --> 00:20:49.140 how much they owe. Well, I'm telling you, look, 00:20:49.720 --> 00:20:53.000 you need to set aside taxes as an expense. That's 00:20:53.000 --> 00:20:54.940 almost an operating expense and you need to tie 00:20:54.940 --> 00:20:56.880 it to your tax bracket or work with someone directly 00:20:56.880 --> 00:20:59.339 to help you determine what that exact percentage 00:20:59.339 --> 00:21:02.240 should be so that when you do file and you owe 00:21:02.240 --> 00:21:04.579 money, you're not scrambling to try to write 00:21:04.579 --> 00:21:06.960 stuff off, which is normally what happens. to 00:21:06.960 --> 00:21:09.000 try to reduce this tax bill that you just got 00:21:09.000 --> 00:21:11.359 that you were unexpected. And I would say this 00:21:11.359 --> 00:21:13.019 too, Terrence, hopefully one day you'll do a 00:21:13.019 --> 00:21:16.420 podcast specifically for self -employed people 00:21:16.420 --> 00:21:19.480 who don't have an LLC. Because another thing 00:21:19.480 --> 00:21:22.640 that I've seen is that self -employed people 00:21:22.640 --> 00:21:25.779 who don't have an LLC, that they can just take 00:21:25.779 --> 00:21:29.960 cash and just pocket the cash, not pay taxes, 00:21:30.220 --> 00:21:34.000 just, you know, just make the money and that 00:21:34.000 --> 00:21:37.519 type of thing. Now, if it's under $400, that's 00:21:37.519 --> 00:21:39.299 the IRS standard. It's like, hey, if you made 00:21:39.299 --> 00:21:41.619 less than $400, then you don't have to report 00:21:41.619 --> 00:21:44.980 it. But most people in that case, they're making 00:21:44.980 --> 00:21:48.380 a lot more than that. And even if it's in cash, 00:21:48.619 --> 00:21:50.700 the IRS may not know about it, but that doesn't 00:21:50.700 --> 00:21:52.819 mean you're not supposed to report it, okay? 00:21:53.200 --> 00:21:55.859 So that's a whole nother thought there. But just 00:21:55.859 --> 00:21:58.299 a few other housekeeping things, and we'll get 00:21:58.299 --> 00:22:00.140 into, like I said, more in a future episode. 00:22:00.480 --> 00:22:02.180 As far as the expenses, you have the startup, 00:22:02.240 --> 00:22:04.269 which you talked about was the 5 ,000. And then 00:22:04.269 --> 00:22:06.730 we have the operating, which is going to be considered 00:22:06.730 --> 00:22:09.890 ordinary, necessary or reasonable. So you think 00:22:09.890 --> 00:22:12.930 if I have an expense that would be in that category, 00:22:13.150 --> 00:22:16.309 then I can write that off on my taxes. So the 00:22:16.309 --> 00:22:19.349 revenue I bring in, I can reduce that by the 00:22:19.349 --> 00:22:22.049 exact cost. Now, the best expenses are things 00:22:22.049 --> 00:22:25.369 that you already would be paying for. OK, so 00:22:25.369 --> 00:22:26.970 for example, that's why it's important to say, 00:22:26.970 --> 00:22:29.990 hey, if I use my car for work, I use my cell 00:22:29.990 --> 00:22:32.920 phone. If I use my internet, if I have a home 00:22:32.920 --> 00:22:35.460 office, let me set up the proper things in place 00:22:35.460 --> 00:22:38.240 because those are extra expenses that you can 00:22:38.240 --> 00:22:40.819 write off or now going to tax benefit for that 00:22:40.819 --> 00:22:43.039 really didn't cost extra money out of your pocket. 00:22:43.039 --> 00:22:45.819 True. Okay. So we will do a future episode on 00:22:45.819 --> 00:22:48.359 that relating to business owners because that's 00:22:48.359 --> 00:22:50.400 normally one of the biggest things that a value 00:22:50.400 --> 00:22:51.940 add or why you would want to work with someone 00:22:51.940 --> 00:22:55.140 who has the expertise to say, Hey, Can I actually 00:22:55.140 --> 00:22:57.539 reduce my tax bill without spending more money? 00:22:57.539 --> 00:23:00.259 Which is the goal versus, hey, let me go spend 00:23:00.259 --> 00:23:02.859 money to reduce the amount of taxes I owe. And 00:23:02.859 --> 00:23:05.119 then I end up basically losing money in the process, 00:23:05.119 --> 00:23:06.920 right? Like I said, don't pay a dollar to save 00:23:06.920 --> 00:23:09.539 30 cents. The math still doesn't work out from 00:23:09.539 --> 00:23:12.799 that standpoint. Okay. So give me your takeaways 00:23:12.799 --> 00:23:15.019 from our episode. And then next time we're going 00:23:15.019 --> 00:23:17.960 to talk about more on the granular part of the 00:23:17.960 --> 00:23:19.859 LLC. What are some of the other things you need 00:23:19.859 --> 00:23:21.359 to consider when you start the business? And 00:23:21.359 --> 00:23:23.579 then we'll have our counseling session for part 00:23:23.579 --> 00:23:27.240 three. So for me, I would say this was so helpful 00:23:27.240 --> 00:23:29.380 for me and I want to start backwards, meaning. 00:23:29.660 --> 00:23:33.140 when you got into the tax piece of it or the 00:23:33.140 --> 00:23:36.079 taxes that I would have to pay that really kind 00:23:36.079 --> 00:23:38.279 of sparked my interest in terms of like the self 00:23:38.279 --> 00:23:40.859 -employment, the federal income tax, the estimated 00:23:40.859 --> 00:23:43.099 tax, all these different tax things that I have 00:23:43.099 --> 00:23:45.740 to pay as a business owner. And so that led me 00:23:45.740 --> 00:23:48.309 to thinking. okay, Tamia, you really need to 00:23:48.309 --> 00:23:51.589 take the time to evaluate your worth in your 00:23:51.589 --> 00:23:54.390 time and you know what you're selling your product 00:23:54.390 --> 00:23:57.890 for, if you will, to make sure that you are at 00:23:57.890 --> 00:24:00.890 least breaking even and not taking a loss. I 00:24:00.890 --> 00:24:03.210 would also say for the person who is thinking 00:24:03.210 --> 00:24:05.450 about starting a business or even if you've already 00:24:05.450 --> 00:24:07.970 started a business, right, it's never too late 00:24:07.970 --> 00:24:11.390 to evaluate your expenses and your budgets. It's 00:24:11.390 --> 00:24:14.420 never too late. to really take a step back and 00:24:14.420 --> 00:24:17.339 look at your overall picture. And even when you 00:24:17.339 --> 00:24:19.359 were talking about the direct costs and the operating 00:24:19.359 --> 00:24:22.539 costs, I've put those things in one bucket. So 00:24:22.539 --> 00:24:27.059 now I need to go back and look at it from a separate 00:24:27.059 --> 00:24:29.640 standpoint. What did I have to pay upfront that 00:24:29.640 --> 00:24:32.079 I'm no longer paying for? And what am I paying 00:24:32.079 --> 00:24:36.000 on a monthly basis? And to make sure I'm making 00:24:36.000 --> 00:24:38.000 a profit, because it don't seem like it based 00:24:38.000 --> 00:24:40.859 on what you just said. So those are some things 00:24:40.859 --> 00:24:44.339 that I've taken away. It's one, always consider 00:24:44.339 --> 00:24:47.900 your taxes. Two, always consider your profit. 00:24:48.480 --> 00:24:50.500 I'm not in this for fun. I need to pay bills, 00:24:50.500 --> 00:24:54.099 right? And maybe save some money. So I think 00:24:54.099 --> 00:24:55.980 those are the things. And then the third thing 00:24:55.980 --> 00:24:59.920 is really make sure that you are valuing your 00:24:59.920 --> 00:25:04.440 worth because if you don't, they won't and you'll 00:25:04.440 --> 00:25:07.720 be frustrated. and that will impact the longevity 00:25:07.720 --> 00:25:11.500 and quality of your business. All right. Well, 00:25:11.500 --> 00:25:14.920 that was a great summary. So I look forward to 00:25:14.920 --> 00:25:17.039 getting into the future episode, but we'll talk 00:25:17.039 --> 00:25:20.579 more on after you start the business, other considerations. 00:25:21.380 --> 00:25:24.059 We'll talk about just maybe some rules of thumb 00:25:24.059 --> 00:25:27.140 you should think about as far as what you charge 00:25:27.140 --> 00:25:29.299 and things like that. And then some of the tax 00:25:29.299 --> 00:25:32.079 impacts of the decisions you make. And I know 00:25:32.079 --> 00:25:34.119 we're teasing the counseling session, but you 00:25:34.119 --> 00:25:37.460 want to make sure you see that. And as we say, 00:25:37.619 --> 00:25:39.500 keep more of what you earn and we will talk to 00:25:39.500 --> 00:25:40.119 you in the future.