I have Amy Kutzkey with me today. She is the owner and proprietor of Oak Hill Tax, and she actually took an entrepreneurial leap of her own. She formerly worked for Perkins, which is a local CPA firm. Correct me if I’m getting anything wrong here, Amy, but now she’s actually helping a lot of really local business entrepreneurs to really optimize their tax situations. And since 2020 was such a weird year, I thought that it would be really great for us to talk about just how some tax considerations that have come out of 2020. So, Amy, I don’t want to steal too much of your thunder, but I know that one of the things that have come out has had to do with stimulus payments and other things that have come out have had to do with proposals in these new tax bills to potentially make some things like, say, unemployment payments non taxable. And so it’s actually kind of created a lot of what would you say? Tax planning chaos? Amy, please expand in more detail and intelligence than I possibly could.
Okay. Well, it is definitely an interesting year. So there have been outside of the whole COVID situation, there have been payments that have come out for various things throughout the year. And depending on the timing of those people qualified for them or they didn’t qualify for them. And so now on the 2020 tax return, they’re able to reconcile all of those payments. Should they have gotten one? And they didn’t? Did they get one? And they shouldn’t have all of that taken into consideration on the 2020 tax return. And one of the amazing thing is if you got one and you shouldn’t have, you don’t have to pay it back. So that’s one of the really nice things about it. But say you had a baby in between the two times and you’ve never got the stimulus payment for your child. You can reconcile that on a tax return and it comes up as a credit on your return. So a lot of people are getting pleasant surprises along the way. So that’s been nice. And some people don’t know they qualify for it now and maybe they didn’t before are really pushing to get their tax returns done early and get those in so they can get that money back because they need it right now.
What timing is of that or what that looks like or what the guidelines look like because this might motivate some people to hustle up and get their taxes in.
It’s true. So, no, you just have to file those timely. And then a lot of people are wondering now with this new one $1400 payment how does that play in if that passes? What does that look like? They haven’t released any guidance on that. If that will be included in that same reconciliation or if you missed this one, if you have to wait till 2021. I’m unsure right now. So currently all they’ve said is they’ll base it on the last return they processed for you. So it will be interesting.
You’re juggling a lot of balls and play them. So then in that case, then the question is going to be, okay, last return process as of what date? Because it’s last return processed as of say like three weeks ago. Then if you didn’t get it in already, you’re out of luck. If it’s last return process as of like say, April 30th, then it’s like, okay, if you get your return on time and now you qualify, that could make things different. There’s a lot of things up in the air. How do people keep all this stuff straight?
You don’t. You kind of just take it as it goes and you make the best decision you can for each person and try to do what you can. But they are saying that they expect it to pass on Tuesday. So we’ll see and they expect within the next three weeks that people might start seeing those checks. So it’ll be interesting to see how it pans out. They did mention in there that they’re asking the IRS to issue checks during their very busiest time. So it should be interesting to see what happens. So I know that if you call the IRS right now, it’s a little challenging to get through and there’s a lot of new options. Let’s say if you’re calling about the stimulus, please click here and get out of this queue. People have tax questions, so it is interesting. But another thing that’s coming out in that bill is whether or not some of the unemployment that you received last year and maybe up to $10,000 may not be taxable. And so that’s another wait and see game. A lot of people are like, yeah, do I file now and get my stimulus money that I am entitled to now, or do I wait and see if I can somehow exclude some of this income? Do I file now and amend it’ll be interesting. It’s also interesting to see if they are going to make that many changes. Are they going to extend the April 15th deadline? So I think all the tax repairs are on the edge of their seat, wondering if that’s going to happen less than fun last year.
Last year, the deadline was extended until, I think it was July 15. But then one of the things that I ended up doing that I may end up repeating this year is that I think it’s at the beginning of June, you can request a transcript of all your submitted income because I was thinking, okay, well, because I know that one of your top audit triggers is if you didn’t report all your income mega. What I did was I said, all right, let’s see what we’ve got here. And so because where all this came from was that I was helping my in-laws with their taxes. And I think I was pretty sure that I had all the forms, but I wanted to double check or what I did was I went and I requested their transcripts. I’m like, why don’t I just request mine, too? So now I’m thinking, just do this every year. Just make double sure that all the income that’s been submitted has been claimed so that I don’t pop a red flag. Unnecessarily.
That’s so true. You know, where that whole logic came in, too, is a lot of times when people pass away, maybe they have a couple of tax returns that hadn’t been filed, and we’re trying to figure out if there’s a tax liability or what. And whoever took over is like, I don’t know what my dad had, I don’t know what my mom had. And so we’ll pull transcripts and you can recreate based on whatever happened in the past. So that has definitely been a good feather in your cap to get something on the back side. You figure if they have it, step one on the audit is the computer matches what you’re reported and what they have. So it is definitely a good way to start off.
Sure. Yeah, exactly. That’s going to be that’s the easiest snare to make sure you don’t fall into true.
That’s what I say, too. Take the low hanging fruit off the table.
Just take that right off the tree from the get go. Share with us some of the other things that you’ve been seeing from just the people that you work with. Because I know one of the things that I really like about your practice is you work with a lot of local small businesses. And of course, we’re both Rotary members at the Newberg noon. And so we have a soft spot in our hearts for the local community, for local businesses. But just share with some of the folks in the audience. What are some of the things that entrepreneurs are really doing to plan and optimize their taxes? Because I think, well, not everybody, but as a number of authors have pointed out, that when you look over the course of your life, the taxes are your biggest expense and it’s not even close. A lot of people think about their mortgage, but that’s because your taxes get taken out of your paycheck before you see it. When you add it all up, taxes are number one, far and away. Nothing else is even remotely close. And so that means that if you can manage your taxes, you can actually free up quite a bit of capital to either invest or to do things that are fun with or in our case, to pay tuition for our kids school.
So true. So we’ve been doing a lot of planning this year. I think one of the main things that I’m trying to help most of my clients get on a good path with is having a good system. So a lot of times people and I always say this, I’ve never met somebody that says I’m going to go out and start my own company so I could do back end accounting. Nobody likes doing it. It’s just one of the evils that come along with following your passion. So finding out what kind of system that they’re using, because
if you wait until the end of the year and then gather all these receipts or try to recreate, you miss things. And so we just want to make sure that there is a system. It doesn’t have to be QuickBooks, it doesn’t have to be something sophisticated at all.
And that’s what I like to do with my clients is meet you where you’re at and then bring it to a section that, hey, this works for me. If you do X, Y, and Z, it will make this exponentially easier for me and less costly for you to do the tax return and then something that works for you, too. Because a lot of the times,
If you don’t have a plan, the company is not going to take off the way you want it to. And so just getting that system in place, you’re tracking everything because you don’t want to lose expenses, you don’t want to pay more than you need to. And so I find that that just in and of itself is probably some of the biggest tax savings.
that some of my clients at it’s, hey, oh, my gosh. When you look at it, I have a better picture of my company. I have a better picture of the financial standings. And I picked up a couple of deductions that I just didn’t remember. So just getting them on that path is awesome. And then I also like to meet with them at least quarterly or semiannually, and say, I find that if we have something on the books, it makes people get their stuff in order a little bit faster. So even if we push out the meeting, it’s like, oh, I have to meet with the account. I need something in order.
Yeah, exactly. If you have that quarterly meeting, you can only live in denial for about a month and a half or so. And then it’s like, all right, I better start getting some stuff together.
Exactly. Or she’s going to go in and look at my QuickBooks. And I haven’t reconciled in six months. You get in there and you start doing things a little bit more. So just knowing that we’re going to meet kind of keeps people on track a little bit more. But then that way we could monitor during the year, too, and say, oh, my goodness, you had a great first quarter. What’s going on? What can we do? But we have the rest of the year to tax plan as well. So it’s always very disheartening to me when I get things in April. And it is what it is at that point. You’re like, okay, I can’t do much now, but had we structured something slightly different before or whatnot, we could have saved some taxes. So again, just having that system in place, checking in, being a little bit more Proactive, helps greatly. So they’re not huge things. It’s just little things that you can kind of do slightly differently and then have a better outcome. So that’s been nice. We can also look and see how are you set up as a company? It doesn’t make sense to keep being an LLC or maybe should we make an S Corp election? We need to do a couple of other things, but where is the tax being generated and what can we do just from a structural standpoint on that? So that has been really helpful.
One thing that just amazes me, right, because of course I’ve listened to a lot of the promoters. I’ve read the people’s books. Everybody says Secret Strategies. The IRS doesn’t want you to know about Secrets of the Rich rich. Blah, blah, blah, blah, blah, blah, blah, wealthy, blah, blah, blah, blah, blah, blah, blah. All this nonsense. What it really kind of comes down to is basically, okay, are we talking about things that are personal or business related expenses? Because there’s a lot of fungibility between the two there it just has to be very well documented. And then it’s like, okay, are you talking about if you have something through an entity, it could be an LLC or an S Corp. But is it designed as a flow through entity or is there activity that happens at the entity level? Because like, for example, if you have an LLC with an Scorp election, you can pay yourself a salary and then flow through the remainder as dividends. Now all of this is subject to ordinary and kind of your reasonableness tests. And then, of course, you have things like real estate and property related, either deductions accounting flows, things that go through your schedule e. And then there could also be if you have say if you have investments that you get a K one or something like that. But if you really kind of boiled 99% of it down, it comes to a list of about ten things. And it’s really not that complicated. It’s really just basically deciding kind of figuring out how you want to flow it and then really just tracking it, which is really boring. And nobody likes to do it because everybody likes to think about the strategy. And it’s like the strategy is really not that complicated. It really isn’t. And there is absolutely no reason why you should be paying money to somebody for it. So if anybody listen to this is seeing some secrets the IRS doesn’t want you to know about it’s. Like, no, the IRS publishes all of this stuff. It’s they don’t care if you know about it. They care if you follow the rules. Don’t spend a nickel on any of it. Just talk with a competent CPA, because they all know all of it.
It’s true. I think that’s the fun part about being a CPA and being in public accounting in general is that we get to see the books for multiple different types of companies and then also in that same area. So real estate agents or Realtors, you start picking up the stuff that people do across the board and you’re like, oh, okay. So then you look and you’re like, oh, did you have any desk fees or did you have any this particular thing or whatever it is that you start learning more about their industry as well, and you have maybe 10 15 clients in that space. So you can compare that and say, hey, what else do we need to be thinking about here? So it helps you in that aspect and also just the variety of things that happen. But when you mention those books, it’s always funny. Not always, but there are a few clients that will go out and read those books, and then they call you with some crazy idea of how they’re going to set something up. And the one that I think has made the rounds the most often is hiring your children and company that’s like, okay, I’m going to hire them, I’m going to do this. I’m going to do that and all of this stuff. And you’re like, okay, if you can tell me that you can spin that tail in front of an IRS auditor while we’re sitting at the table, then bring it to me. But if there is no way you feel confident in your story in order to defend it, then let’s not talk about it. That’s usually my first barrier is if you can’t spin the tail, if you don’t know the tail, then we need to come up with a better plan on saving money. So it has been definitely interesting, and I’ve seen things really that I found maybe off the cuffs sounds ridiculous, but we’ve done research and it’s all qualified or whatever it is. Everybody has a different set of circumstances, too. So a one size fits all book is never going to be the right way to find the answer.
Well, the other thing, too, is that your guidelines for deductibility are ordinary and necessary to the business. That is a very large Gray area, and it is a Gray area that could be very significantly influenced by whatever is documented in either meeting minutes, operating agreements, addendums, et cetera, et cetera, et cetera. There’s a lot of leeway, but you can’t just make it up as you go along. You need to have some kind of paper trail or documentation.
That’s so true. It is very true. It keeps things interesting during taxi and for sure.
Bring me any good idea and we could definitely think about it. There are also some very bad ideas, and those are usually the ones that you read about in various magazines, the ones that want to ride.
Yeah, well, exactly. Let’s bring it home. Give people one to two good ideas in addition to contacting you, and I’ll make sure to put your email address in the Show Notes. Of course, that’s firstname.lastname@example.org. Don’t worry, you can click on it in the Show Notes. And if you’re watching this on YouTube, I’ll splash it up on the screen, too. But otherwise, just give people a couple of zingers for the ride home.
No pressure. No. I think quite honestly, just being in charge of what you have and what you are bringing in and what you’re expending is really important and then also having a good team in place. So if you have a great bookkeeper and you have a great CPA and you have a great financial advisor, make sure you’re introducing them to each other because we can tax plan until the cows come home. But if it doesn’t make sense with your financial plan, it’s not going to make sense for them. And so you don’t want to just make decisions solely to save act when you’re giving up something on another side. So that really is important for us. And retirement planning is huge. And so trying to figure out that part and how it works within the tax laws and coming up with the best answers. Like I said,
if you have a team in place, make sure they know each other
That’s really and then also just one thing that actually has been coming out and that we haven’t talked about yet is that if you are self employed and you had income in 2020 and maybe you had COVID or maybe you couldn’t work due to childcare, there’s a couple of credits out there that you can take advantage of this year. And hearing about them, you maybe don’t think they apply to you because they always are presented in large company formats. And you hear a lot about that side and you don’t hear how it benefits the self employed person. And we’ve done a couple here recently, and the credits on them have been fairly significant. So just looking at that and making sure that you’re keeping up on those laws and you know that’s another benefit to having a CPA or a tax preparer that know the rules because they can ask you a question or two and they might be annoying when they’re asking you all these questions, but knowing that it could generate money back for you is really impressive. So I think the last one we did ended up in a $5,000 credit. So the rules are pretty important.
All right. Well, hey, that is an excellent, excellent point to end on because for me, the idea of tax credits, it gets me a little bit excited, But I also have a definitive nerdy side to my personality.
There’s a reason why we’re friends.
Yeah, exactly. Well, Doug, you have a podcast and you have an accountant as your guest.
We’re not usually sought after for party animals.
Although in full disclosure, Amy is a pretty cool person in her own right.
You’re welcome, everybody. Thank you very much. And we will talk to you next week. Thank you
Talk to you.
Talk to you later, Amy.
Okay. So following up on that conversation with Amy, One of the things that I think is really important for a lot of people to bear in mind is the importance of tax planning. And if you’re running a business of good bookkeeping, Because what happens is a lot of people think about taxes as something you do after the end of the year. And the problem is that if you wait until after the year is done to do your taxes, you don’t have a chance to change any of the way that you say that you recognize expenses or that you structure your business to optimize for taxes.
A lot of people don’t know that when it comes to businesses, there’s actually a lot of leeway in the tax code. The tax code is pretty cut and dry if you have a W two paycheck. But if you own or operate a business, whether it’s a real estate type of business or an entrepreneurial business.
There are a lot of different ways you can structure it for tax efficiency. And I think that’s actually really important to think about, Especially just in the current environment that a lot of businesses are really struggling and you don’t want to add a big tax burden on top of that. And so, of course, I hope that everybody is just really taking action and that you have a really wonderful rest of your day. I’ll talk to you next week.