okay guys thank you guys for being here really excited to talk with you and help you all navigate some of your personal finances uh in your business finances if you're a solopreneur like me uh i've had the pleasure of knowing christine now for a couple of years and she's been super helpful in helping me understand my finances and uh recently she's been really geeking out on the profit first framework so if you're interested in uh asking some questions around profit first if you've heard about it i'm sure christine will bring it up in the presentation here today but i am here as your host my name is jay and co-hosting this with christine on behalf of freelancing school christine's business is avant tax works which provides individual and business tax preparation and accounting services with the personalization that software packages cannot do and i can attest to that so excited to have christine here if you have questions all along the way feel free to put them into the chat i will bring them up wherever is most convenient as christine goes through this uh presentation i do want to be a little bit of a real-time conversation so if you have questions in real time put them in the chat i will pop in and interrupt christine when i feel like something needs a little bit more explanation or when a question comes in so all throughout this feel free to put your questions into the chat um we're planning to go through about 30 minutes of planned presentation here that christine has but then we really want to get into some of your situations and what we can do to help you so also welcome rosie i believe uh great to have you here as well i'm going to hand it over to you christine you can go ahead and share your your screen and kick things off and i'll mute myself and pop back in whenever it's most useful all right sounds great thank you jay thanks for everyone for taking time out of your day i'm so glad that you're thinking about this we want to take the stress away of tax time and to do that we need to start thinking about it now so i just wanted to go through what we're going to be chatting about today we're going to go through your accounting toolkit the who what when where and why of filing taxes calculating and paying your estimated taxes the magic of write-offs and what they are and the common mistakes that you won't make so to start with the accounting toolkit the first thing i discuss is banking it is so important to keep your personal and business bank accounts and your credit card separate along with your business payment processor especially if you are an llc you don't want to pierce the corporate veil so that protection that that llc is providing you it needs to be cont um be separate so if they look at your business they will not look at your personal finances either if you're not an llc and you're just maybe operating under your name you can always get an ein which is like a social security number for your business and it's free so that way you can open up these business bank accounts so two banks that i really like are chase i love chase for the ease their app is super easy one downfall with them is you do have to maintain a minimum balance which is typically 1500 to avoid any fees a new bank that's on the scene that i'm really enjoying is relay financial they allow you to open up to 20 bank accounts with zero minimums to avoid fees and i like that as jay mentioned uh profit first so in profit first we utilize five different bank accounts they are great from a technology and a collaboration standpoint however if you needed to deposit cash or if you handle a lot of cash they wouldn't be a right fit for you i'm gonna jump in here because i already have a question yeah um i also use js because i like i like that they basically created one dashboard for me for both my business accounts and my personal accounts which is super nice just to be transferring things back and forth but i i have an ally account which i think you have some experience with and the the uh benefits you're describing with relay financial sound similar to ally do you have any uh points of differentiation between the two i'm actually not familiar with ally i don't have any clients on that now with relay financial they're taking it from a standpoint of if you're collaborating with like an accountant there's a lot of different permission levels and things that we can see more than a typical bank usually allows you to do and they integrate automatically um with like intuit quickbooks and xero cool cool headline here being keep your personal and business accounts separate yes so important uh so that leads us into bookkeeping so we have our separate bank accounts which is also going to make the bookkeeping so much easier uh spreadsheets work i love spreadsheets i love excel um but cloud-based software can save you a lot of time it automatically connects to those bank feeds or the banking which they call bank feeds to allow you to categorize those expenses another thing is to keep those receipts you need those to substantiate your expenses and then mining the balance sheet so what i mean by this is as entrepreneurs or solopreneurs typically you're just looking at your balance or your profit and loss want to know what your net income is that's what you're utilizing to create your tax return or what you're handing to your tax accountant but the balance sheet's really important to see your liabilities so if you have a credit card or maybe you got the ppp loan what those outstanding liabilities are if you have money that's due to you and another thing that keeps track are those owner's draws that you're going to be taking so how much money are you taking out of the business to pay yourself that's going to be on the balance sheet so two softwares that are really popular is qbo in xero um we are qbo firm but zero works great as well and like i said spreadsheets can just be as good as long as you're keeping up with it and being consistent and accurate how you get the information there's a lot of different ways to do that qbo is quickbooks online correct and does that include um their self-employed product or is that like the full stack like quickbooks that you recommend i'm so glad you asked so i am not a fan of self-employed at all so self-employed you get first of all you can never upgrade from self-employed so once you're in there you can never move on to any of their other packages or their other offerings and there is no like reconciliation i don't even think there's a balance sheet so it was kind of more for those people maybe they have like a side hustle that they're not really operating maybe as a business like they should be um that's more for who self-employed is geared towards um and that's why i ask because i don't think i've seen i use i use it but i don't think i've ever seen a balance sheet um and i was like oh that's kind of nice that would be nice like i can see within one of my investing software is that it has basically a balance sheet for me there and i'm always looking at it like oh this is really nice that's showing me my liabilities versus my cash why doesn't my accounting software do that so maybe i should upgrade to time to upgrade yeah so yeah and like unfortunately like that it's not an easy transition you kind of have to start over so i always say start at the lowest one um they're usually running specials or you can work with a pro advisor to get you discounts so there's a lot of ways to save on the software too um so next one is mileage so keeping track of mileage again with that you just need to have the date the starting point the ending point the purpose of the trip and then of course the actual mileage amount and you can do that in a spreadsheet very easily if you do have quickbooks online there is an app that's connected that you can track the mileage the other app that's really popular is mile iq so typically these apps they'll basically just follow your car and you go in and you say if the trip was for personal or for business if most of your trips are for personal then i recommend just kind of keeping track only when you're doing a business mileage and lastly is integration so if you're going to utilize a cloud-based software program i love integrations it provides more richer data faster i just say proceed with caution even with the bookkeeping software you're learning you're trying to educate yourself on bookkeeping as well as the software and same thing with the integrations making sure they're being hooked up correctly and not kind of making a mess of your books but when they're hooked up and you're utilizing them they're great to have so i like to hook up like payment processors so if you're using paypal or stripe you can get some richer data doing that um honeybook really does a great job with syncing client information if you have clients that have like a payment program you'll actually see how much of outstanding payments you have when you're looking at that balance sheet and dubsado does a similar thing as hud as honeybook with their integration so if i can kind of recap this slide and the most important parts here uh have a separate bank account for your business it's much easier to track your finances that way have some sort of bookkeeping software like quickbooks or xero so that you can reconcile that bank account track your mileage because that's a big point of expense that i was missing for the first two years when i was freelancing and i did it last year and thought my gosh this was so easy to do why didn't i do this for two years and integrations being like if you are processing payments or invoices in another software connect that to your quickbooks your zero whatever your bookkeeping software is yup you got it all right so we have our accounting toolkit so we have our information so now we gotta start thinking about the tax returns so who's filing anyone that operates a business meaning that if you materially participate and there's a profit motive so you could be a sole proprietorship a single member llc a partnership multi-member llc an s corporation or a c corporation and even if you just i i get a lot i'll ask somebody like oh do you have a small business like no i'm a freelancer okay but we need to kind of operate and get in the mindset of hey we're we're a business you know even if it's just the business of ourselves and we need to operate as one as well um so the purpose of this we're going to be talking about um sole proprietorships and single member llc's so what are we filing we are filing our federal individual income tax return with a schedule c so the schedule c is all our business income and expenses then there's additional forms and worksheets that go along with that then we're also going to be filing our state and local income tax returns just to let you know there's also other possible tax obligations you know sales tax franchise tax property tax excise tax so depending on your state and locality you may have some of these additional tax obligations that you need to check in with i'm gonna say something obvious because it took me a couple years to learn i think maybe somebody listening might benefit from this too i didn't realize like in the beginning when i was trying to do my own taxes and i was screwing around with like um uh what are those like quick uh no no what's into its tax turbo tax turbo tax when i screw around like turbo tax i didn't realize that the questions it was asking me was basically so it could fill out a schedule c for me like at the end of the day it all files the information you're putting into software like that into a schedule c which you can do yourself if you know how it works or that's what your accountant is doing based on the numbers you provide i don't know why it took me so long to realize that i thought that like it was its own interface it was its own reporting system but no it's a schedule c is what gets filed yeah and that's where it can be it can be great especially if you have some knowledge at the end that you can kind of review what it does but sometimes if you answer just one question incorrectly it's kind of going through that tree of other questions and that's where we kind of see some mistakes come up um another important thing if you have a state that has local taxes a lot of times turbo tax does not inform you that you need to be filing local taxes for your business so you always want to check that as well because i see that happen a lot and we're in ohio and we have tons of local taxes all right so when are we going to file so we're talking about that individual income tax return on a normal year not 2020 it is april 15th and then you can extend and that gives you until october 15th to file but as a reminder this isn't an extension to pay the taxes only an extension to file the taxes so you need to have an estimate of what's going to be due and that payment needs to be made with your extension by the april 15th to avoid any additional penalties or interest i'm going to double click on that too because that's something i didn't realize like i thought extension meant oh i have until october 15th to pay this that's not true it's it's filing like your final figures for the year if you extend to october 15th and you don't actually pay what what is possible to have happen uh penalties and interests will accrue so failure to failure to pay penalty will be assessed gross yep that's what we're avoiding here so where are we filing these these tax returns so we're definitely filing with the irs but we need to consider the following um for your state and local taxes and that's where is your business registered where is your business conducted and also what is your residence so there is a lot of different rules for different states different localities so it's important to either review these individually and see what your filing obligations may be or of course to work with a tax advisor making sure that you're providing this information to them so they can make the determination if there needs to be additional states or local taxes to be filed if i'm in columbus ohio which i am um and my business is registered in columbus ohio but i do a lot of online work let's say i do only online work am i still needing to worry about local taxes you do so your business is operating out of columbus so you'd have to pay those to columbus all right and the why pretty self-explanatory we're avoiding penalties and interests there's also used for income validation for personal loan purposes so if you're gonna go mortgage your home and if the income that you have is primarily self-employment we want to be able to show this on a schedule c and then we're also paying into social security and medicare because we're playing that self-employment tax which we'll get to a little bit so like i said with these returns it's part of your individual income tax return but there's actually two taxes that are being assessed on this income from your business first it's the self-employment tax so when you're employed you pay half of medicare and social security well now that you're self-employed you get to pay both sides of it so now you're paying 15.3 percent and then that's in addition of your individual income tax rate so we're going to try to see how can we reduce this right so we want to bring in money we want to be profitable but we don't want to lose out on any expenses because these write-offs they are these expenses that you're using regularly and exclusively for business which then reduces your taxable income so i just took some very arbitrary numbers over here for someone who is single no dependents and let's say they make a hundred thousand dollars and they didn't keep track of their expenses this is a breakdown of how much they be paying in income tax which is under 10 self-employment tax is just under 15 for a combination of just under 25 000 and tax only on a hundred thousand dollars so with expenses and i put it down to seventy thousand dollars you can see how it drops now our income tax our self-employment tax or a total tax of about fifteen thousand dollars so we dropped off about a third which is pretty typical you know if we we reduced the net and the gross income by thirty thousand we saved ten thousand dollars in taxes i want to stay on here because i think this is a really useful graphic and i want to get i want to make this really really clear so this graph is for somebody who is earning a hundred thousand dollars and that's what they know they know i grossed 100 000 this year yeah um income tax you said is just below ten thousand dollars how did you how did you figure that out i have software that figures that out but i mean it's about that temp we're about the 10 effective rate so that's about ten percent okay and self-employment tax is what you're just talking about this like fifteen point three percent mm-hmm okay so why is that how is that not fifty a little bit more than fifteen 000 is it because it's less the income tax because we also take out you get a credit for the self and self-employment tax that you're going to be paying this didn't this also included the standard deduction so it kind of lowered it so it's it hovers got it so the net result of this for someone making a hundred thousand dollars their total taxable income is uh wait well actually the seventy thousand dollars that that total at the far right is that total taxable income or is that after income is taxed taxable income so the the hundred thousand is just like hey we grow standard thousand and we didn't take any expenses this is just what we you know and then we could take it as well we actually took about thirty thousand dollars in expenses and this is how it's reducing our taxes this makes some sense because i've always i've heard some like uh recommendations of basically like earmarking 30 of your income as going to be taxed how does how does that track with you obviously like when you do the final math you do your return it's not going to be exactly 30 but is that a figure that you use as well it's a really safe figure i think sometimes it can be a little a little much but it's a safe figure cool all right so we know how important these write-offs are we can see how it's reducing our taxable income making us pay less taxes so what are we tracking what are these write-offs that we can take so the first one i want to discuss is like operating expenses so examples of that are advertising office supplies travel meals rent if you have subcontractors it's anything that is keeping the business running obviously nothing too luxurious but what we need to do for the day-to-day operations it's also important when it comes to meals and entertainment to really track that information especially meals are only 50 deductible on your tax return and you should keep track of who you had the business meal with and the purpose entertainment such as let's say you have a prospective client and you take them to a show that is actually not deductible currently so you want to keep track of these things but notate the purpose and so you can make that assessment or your tax advisor can make that assessment during preparing your returns on how much we get to deduct of the um meals and entertainment travel is another one that i like to put a little asterisks by so if you are traveling but maybe it's a little mix of business and pleasure there may need to be some additional calculations that need to be done so we're only calculating the business portion of travel the next one is capital assets so capital assets are when you're making a purchase for something that's going to be used in your business for longer than one year they should be depreciated there's a lot of different things that go into depreciation so to make it easy there is an election that you can make and it's called the de minimis safe harbor election and this allows you to automatically expense anything that's under 2 500 and that would be even just like a line item in an invoice so let's say you're a photographer and you bought a new camera and that was 2300 and you bought some lenses and let's say those were 500 so the whole invoice was 28 but since each item was underneath that 2500 thrush mark you can expense both the only thing that i like to keep in mind with that though is maybe you're just starting out so you're buying all these assets yes it can be nice to show a big loss in the first year it's reducing that taxable income but we're going to assume you're going to be real profitable the next few years and maybe you're primarily services and your expenses are really low it might be nice to have that depreciation kind of spread out and that depreciation is just taking an ex an expense for that camera per se for the next like five years so there is some kind of planning that can be helpful when dealing with capital assets um and um depreciation something i want to add here when you're talking about these operating expenses this is why a bookkeeping software like quickbooks is so useful because nobody wants to get to tax season after never paying much attention to their transactions and then having to classify in in like through history retroactively oh this was a meal that i had with this client for this reason that's so hard to do even if you have like a flawless calendar that talks about that stuff nobody wants to do that exercise once a year doing it once a month or even weekly or bi-weekly is so much easier to go in and say yep i remember this meal it was last week this is why we did it stuff like that yep absolutely and quickbooks is great too because you can attach receipts so it's a lot easier just to like snap a picture real quick of that receipt and attach it into quickbooks instead of maybe piling up the receipts um that way it's always there it's a great way to have an audit set proof of books if you have receipts attached to properly categorized expenses it's reconciled you are golden um let me ask you something about that then too yeah i've been bad historically about keeping receipts because i think well transactions in quickbooks like i can speak to what that is the the real reason to keep those things is in case you get audited it's easy to go through and really point to all these things right substantiating what it was for it's not something that you file that year necessarily it's just protecting yourself because audits can go back multiple years right correct cool um the next one is home office so a home office must be used regularly and exclusively for business but i always like tell people you know when we're speaking about home office it doesn't have to be necessarily a dedicated room so even if you just have like a dedicated space in the corner and it's your desk and you can imagine like an imaginary wall then that can be a home office as long as you're using it regularly and exclusively and there's two ways to calculate the home office expense one is the actual method so that's when you're taking the square footage of your office and the square footage of your entire home and getting a percent so let's say it's five percent and then you get to take expenses such as your utilities if you're a renter you get to do rent if you're a homeowner it's property tax and interest like mortgage interest and then you also depreciate your home if you're a homeowner that one can get a little tricky especially if you go to sell the other option is the safe harbor method and that is five dollars per square foot and that's all you have to do if you're a renter i really suggest typically the actual method because that's the higher expense usually yeah so you get to expensive part of your rent you don't have to worry about the depreciation um you know if you have a security system if you have a cleaner there's a lot of different things that you can utilize and you you would recommend like the safe harbor quick math method as something to do if if otherwise you're not going to do the calculation or there are times when it actually is more beneficial from a pure numbers perspective a lot of times i do see the actual method being more beneficial even there not to go down the road but when you go sell your home you have to recapture depreciation which can lead to some additional tax during the time of selling but typically the amount of taxes you've saved along the way is more beneficial in the long run so i would say just for people watching the the takeaway here is know how many square feet your home office is before tax time so you can share that with your accountant but is there anything else that you are there any like gotchas where you need to not be doing this in your home office space to be able to like make sure it's usable for this line item i think just making sure it's regularly and exclusive you can even have like maybe you do co-working once in a while or maybe you have an office you need clients but as long as you're doing like managerial activities at this home office you can have both so if i'm doing some client work or if i do my scheduling and my billing at my home office even though i may go meet a client at a co-working space i can still deduct the home office but it is a place that i'm using only for business all the equipment things like that um our business so the next one is mileage and this is kind of going back to the home office if we can establish a home office it can be really important when we're talking about mileage because we need to con see if it's considered a commute or if it's a business expense so if you do not have a home office established and you go to a client or you go to the office that's a commute and you do not get to track that mileage however if you have that home office we can now take mileage anytime you leave your house for business purposes so other than tracking it like we talked about with your accounting toolkit i also recommend doing an annual odometer reading so just like take a quick pick with your phone of your odometer because that gets us your beginning and ending mileage for the entire year which we use for calculating and you can calculate mileage two ways one being actual costs this includes everything to keep your vehicle operational or standard mileage typically we do standard mileage the actual is just a lot to keep track of and i don't ever see it really happening the standard mileage rate as jd alluded to earlier is such a great expense um so to keep track of that the standard can you know help you get that taxable income down i think i think last year standard standard mileage rate was like 58 cents per mile and you can very easily rack up like hundreds of miles from some of these meetings and that's that's an awesome expense but you can't double dip right when you're talking about actual like you couldn't take standard mileage plus your cost for gas or can you you cannot uh the next one is the cell phone just because we typically now use our cell phone for business as well you want to take the business percentage of your personal cell phone as an expense so you run take your portion of the bill so if you're on a plane with somebody else you just want to take your portion of it and then put a business percentage against that so think about how you're utilizing your phone maybe you're posting on social media you're responding to emails clients still may call that personal cell phone number and assign a business percentage i just say never go over 80 and home office mileage cell phone these three things are my fav these are my favorite expenses because you're already paying for these things personally so now we can use it for our business and reduce our taxable income so we're going to jump to calculating and paying our estimated taxes so there's two ways to do this the first version is what we call safe harbor and it's probably what you guys would be most familiar with whether you're going through turbo tax or maybe working with a tax accountant because it uses the previous year's tax obligation and makes you pay in either 100 or 110 percent and it divides it by four so that's when you get those little vouchers that you have to send in so that just allows you not to be subject to an underpayment penalty as long as you make those timely estimated payments the actual projection is more you know checking in with somebody and using the projected business income as well as any changes to your personal tax situation so if you got married or you moved or you had a child maybe the business is booming maybe it's not doing so well all of these would fluctuate what we're gonna calculate your estimated taxes to be so when doing the actual projections we're trying to get you know as close to zero maybe a little bit of a refund as possible safe harbor you could be severely underpaid and have a big bill or maybe you get too large of a refund you could have kept that money in your pocket throughout the year in case someone's not familiar what are estimated taxes yeah so the irs and any other taxing authority it is a pay-as-you-go system so that's why they're taking if you're on a w-2 they're taking money out and we have to do the same thing for our business we should be paying our taxes as we go and they ask us to do that by submitting quarterly estimated tax payments so as a business owner once per quarter every three months you should be sending both federal state and maybe local taxes estimates of what you think you know for your return if you are this person earning a hundred thousand dollars and you think that's about going to be your your year total you should have an estimate that you're paying quarterly towards that total so that you don't have to pay all your taxes at the end of the year um which some people when they're just getting into freelancing or self-employment they don't realize that and they they file their return they realize oh i haven't paid taxes all year i have to pay all this and it becomes a really big headache so paying quarterly taxes not only is it like what you need to do legally it also protects you from having a really nasty bill and surprise at tax time yeah absolutely i hate surprises so i'm glad we're doing this so there's no surprises but i'm going to correct you jay because it does get tricky it's not every three months so here's the estimated due date because they're april 15 june 15th september 15th and january 15th and like jay said not wanting to have that huge tax bill at the end of the year is so important because as you can see the same day we're filing taxes for last year they want our q1 estimated tax payment the same day so making sure we're planning ahead so we're not getting you know double whammy basically with these surprises um on the 15th what if i didn't know this is a thing and we're sitting here it's august as we were recording this and i forgot didn't know that q1 q2 taxes were a thing am i going to jail you're not going to jail i would make up what you can as soon as possible um it really comes down to if you're going to be subject to any penalties and then there's different ways to calculate that potential penalty and you know the failure to make those timely payments but you're not going to jail i would just try to rectify as soon as possible all right so lastly or kind of overview and then also make sure that you don't make any of these mistakes that i see very common um and because you're here you're wanting not to be disorganized which is great because it really does just cause so much stress it causes the uncertainty we don't know how our business is doing we can't look at our business and it's profitability we can't look at taxes and what we think are going to happen so it's really important to know how your business is performing throughout the year i hate to see when people are like during tax time like oh yeah i'll give you your numbers in like a week or two i have to compile everything like that is just so stressful and trying to dig every you know dig deep and remember everything so you know don't be disorganized not taking deductions so you may not know all the ins and outs and that's something you can continue to educate yourself on or work with you know a tax advisor but whatever you do don't be afraid to take these deductions i hear that all the time um with like the home office expense like if you rightfully can take home office it's not a red flag if you can substantiate this home office do not be afraid to take it the key is to document it just as we're talking about with estimated taxes not paying your taxes so be proactive and paying them with the estimated tax payments because i do unfortunately see this happen is especially for new business owners they were unaware they didn't think about it we have this huge tax bill maybe they can't don't have the cash set aside that q1 payments do and it just becomes a snowball effect that we're just trying to get ahead of and get caught up on so be proactive as you can obviously everybody's situation is different so you won't have perfect advice on this and also this is not advice uh what is the process like how does the irs determine when they're going to do an audit or why they may audit not on an individual level but like do they do they just kind of do it at random sometimes they have certain things that are red flags do you have any insights yeah it's a lot of algorithms so you know one of the things they asked i'm sure with turbo tax they tell you to tell you um you know what is your n a what is it in a ics code so what type of business are you all right i am an accounting business okay well maybe for accounting my meals entertainment are like crazy why is that so maybe the algorithm on that would flag me um but a lot of it is just random selection unfortunately but there's also algorithms that we're working between yeah but there's no need to worry as long as you can substantiate it other common mistakes that i see um from like a bookkeeping side is recording tax payments as expenses so as a single member llc or a sole proprietor when you're paying your income taxes whether they're the estimates your end those are not business expenses they are personal expenses there are other business taxes um that are allowable expenses such as the sales tax of franchise and excise tax but your personal income tax is not a business expense another thing is incorrectly paying yourself so as a sole proprietor in a single member llc you do not put yourself on payroll unless you've been elected to be taxed as an s corp you're also not a subcontractor of your business so you cannot be like cannot make yourself an expense on your books you are taking draws like we talked about and those draws are not expenses and they're recorded on the balance sheet and last one is becoming an escort because google said this is such popular advice whether you have an attorney maybe forming your llc another business you googled some things on how to save on taxes like s corp but this is not for everyone and this is something i would say you should definitely consult with a tax advisor with before you make the election there's a lot you have to consider such as making taking reasonable compensation as well as it may actually not be beneficial to your own personal tax situation so there's a lot of projections and things that we do to make sure it makes sense because it is a lot of work just to put yourself on payroll too just to give some context to folks um this wasn't christine's advice this is advice that someone else uh gave me at one time but she said i probably shouldn't think about an s corp unless i'm clearing like 150 000 annually in gross which is a long way to go for something getting started and i'm sure that's like its own calculation that's very subjective to how you might do it but the point is like it's a it's a high number to be financially worthwhile at this point to be your own employee in an escort that's correct and there was you know probably a few years ago before the tax cuts and jobs act you know we were taking 75 000 and so that's drastically changed with the new small business income deduction and that's why you're seeing it higher and it's going to be more scrutinized too because people there's like a sweet spot that you can kind of take both and so they're really going to be scrutinizing that reasonable compensation that's all i have guys here's my contact information you can follow you know online if you have questions of course we're gonna go through questions here i'll throw it over to jay um but if they pop up after this you can feel free to either email me or give me a ring do you wanna start with a really hard question oh really yeah let's get it out of there what do you know this is all like evolving in real time right now what do you know about um i'm i'm self-employed and say i got a ppp loan from this year's stuff how should i be filing that because you brought up that it's not an expense it's not payroll even though they made this explicitly available to people who are single member llcs and you have to prove it as paying yourself but it's a draw so what are you thinking as far as bookkeeping goes how we should be thinking about that yeah so first current and the vice it's always changing with the ppp loan but currently what they're doing is they're looking at your 2019 net income because if you recall when you applied for the ppp loan they gave you two and a half months of your net income so for self-employed individuals they are looking now at eight weeks of your net income so you would take your net income divide it by 52 times that by eight and then that would be the amount that's going to be automatically forgiven so there's nothing that you really need to show as a self-employed person you would just have that's gonna be that um there is a rumor that they're just going to automatically forgive any ppp loan under 150 000 and that's what i'm hoping for and it's it's not something that you should be thinking about as business income either no not necessarily but currently the way it stands is you're unable to take the expense so if for the ppp loan you don't have to worry about it on the on the payroll side like we talked about but if you're going let's say there's still additional ppp loan that you want forgiven and you're going to utilize rent for that well that rent is no longer going to be expensed either we're still waiting for more guidance um on that but that's currently how it's written so although it's not income you're not able to take that expense so it's kind of the same something that i i began learning from you and we just got a question from brittany so actually let's start with that when should a new freelancing business start a bank account or get an ein is her question as soon as possible as soon as possible and i'll be honest so i start i actually started freelancing as accountant like i went to different accounting firms as a freelancer for accounting and was kind of tip-toeing my way towards this and even when i first started i did like a dba and didn't get an ein and it was much more of a pain for me to go back and figure and redo it cost me more money to to file these this paperwork so as soon as possible especially as a freelancer i'm getting the ein because you're going to get requests to turn into w9 so they can 1099 you so you don't want your social security number floating around either so you'd want to get that ein that's that's the exact same advice that i give so i'm glad you're uh validating that because literally the first thing i did when i quit my job and started was like okay let me file an llc so i can get an ein so i can get a bank account because it's so useful to keep these things separate so easy then to reconcile later later like what was a business expense what wasn't and like you said i hated the idea of having my social security number just floating around on all these w9s yep uh rosie asks my and and rosie tell me if i'm not pronouncing your full name is it rozil uh i'm not sure she says my fiance is interviewing for a company outside of the u.s and we can potentially be moving abroad do you have any tips on how to prepare for tax season and dealing with financials earned in the u.s while living abroad big one that's a big one and international taxation is not my specialty but i do have great resources and colleagues and um that if you want to shoot me an email or whatever i can definitely connect you with someone who does more in the international space razil i am sorry that should have been obvious i should have i should have figured that out and adam says he lives in uk for nine years so find an accountant in the country or moving to who can help um christine i wanted to ask you something that i've learned from you partially and look forward to learning more about that's been really helpful for me this year i've been putting my tax payments away in a separate bank account so i can't touch them which is like along the lines of profit first so for people who aren't familiar with a profit first framework can you give us kind of a high level of what the benefit of profit first accounting is yeah so profit first is i don't know if you're familiar with the old financial envelope system but it's basically the envelope system for your business utilizing multiple bank accounts so we get to save for taxes we get to pay ourselves we get to have operating expenses and then we also get to keep the profit from our business and we also have an income account so basically what it does it gives us allocations or these target allocations which are percentages that we utilize um against our income so if we get paid ten thousand dollars typically we should be paying ourselves fifty percent of that and we're going to move five thousand dollars to this owner's comp account so it's a great way as jay said um to look at your bank and see how your money is distributed and to feel comfortable knowing that your taxes are saved up and you have money in your owner's comp account you're going to be paying yourself in the future yeah really nice basically instead of just looking at your balance at any given time and wondering like do i have enough money to pay myself or like should i just pull this out in rent now every month you're taking money out of what you earn that month allocating it towards things like taxes and here's how much i want to be earning in owner's comp and here's how much i need to operate my business such a smart system what would people need to do if they want to learn more about that or get started doing something like that they could start by reading the book it's mike mccowetts in profit first just launching a new facebook group which is called empowered in numbers and we'll be discussing that further as well i love this system for entrepreneurs even as an accountant i can run ratios look at my balance sheet my profit loss i can do all those things but just opening up all my bank accounts and seeing exactly how my money is distributed is such an amazing feeling and just feeling empowered and knowing how your business is doing and where it's going i was like hoarding money like i was afraid to pay myself i would just keep money in the business because i was scared to take it out so i am now paying myself you know twice a month the same salary and being able to look at that account say hey i've got the next three months covered or whatever too is a really great feeling we have a couple minutes here um anybody else have any questions of either clarification of what we covered or didn't cover here anything else that's particular to your situation we have a couple minutes so let's take advantage of it and while we're doing that i'm pulling up uh christine's facebook group which is literally launching today yeah literally launching today so if you have more questions this is a really great place to go because you're going to have access to christine in some of these questions that you have i'll put that in the chat uh britney the name is called profit first and if you're like me you're gonna read through the first chapter or so and be like i love this and you're gonna get to the chapter where it asks you to okay now stop reading and create multiple bank accounts to do this and you're gonna feel a little bit of friction you're getting a little bit stuck so working with somebody who's gone through the system and worked through some of those hurdles can be really really beneficial here is the facebook group in the chat it's facebook.com groups slash empowered in numbers um so yeah i just joined that group this morning i'm gonna abuse it and ask christine questions about my numbers in my accounting um obviously we'll have a replay of this i will probably put in that group and i'll send out to everyone else who registered for this as well um but christine we're out of questions so i'll give people 30 more seconds to add anything they'd like in the chat and if not we'll give you 10 minutes back into your day and move along yeah thank you guys so much for taking the time and hopefully this helps so less stress less mess right not hot mess express come tax time that's my goal totally everything everything you can do to keep track of this as you go through the year like i do this monthly the the other thing about prop the first i liked is for me to do the allocations it kind of forces me to do my monthly reconciliation and i'm not perfect at the system yet as you know but at least it's pushing me to do monthly calculations and reconciliations which makes it a lot easier when tax time comes it's as soon as the year is over i start talking to an accountant and i say please help me file this asap because i want to return i feel like i'm going to get actual money back on the return because i'm saving yeah everybody things monthly allocations with profit first or those month you know the monthly reconciliations it just gets you so and you know how your business is doing as well so it's great all right everybody thanks for joining thank you christine for putting time into the presentation and going through all of it super super helpful um if you guys have any questions for christine go to the empowered numbers facebook group you can also go to avanttaxworks.com and get a hold of her there my name is jay you can find me at jclouse.com or at freelancing.school and i guess i'll be talking next time christine awesome thanks everyone thanks jay yep