Business Taxes 101 for Houston Texas Business Owners

Speaker 1: Okay. So it looks like we have a decent amount of people coming in. So I’m going to just start by introducing, session for today. We are focusing on business taxes, 1 0 1. we are very excited to have, Kunal Mishra who will be presenting the session today. he is a tax attorney based out of the Houston area. well, I’ll wait a few more minutes or a couple more minutes just to make sure. before we get started that we have enough time for everyone to settle in. if you have any beginning questions, feel free to put them in the chat. I will be assisting Kunal Mishra throughout the presentation. letting him go through the presentation, I’ll go through the slides and then if there are any questions along the way, we’ll integrate those as well.

Speaker 2: And before I started the presentation, I just want to make sure everybody can hear me clearly.

Speaker 1: Yes, we can hear you. Okay, so we’ll get started. again, as I mentioned, this session four is focused on business taxes and we have Kunal Mishra here who will be hosting the session. I had the pleasure of working with communal back in 2018 when I was at south by Southwest, Kunal Mishra hosted an awesome session on business taxes for, entrepreneurs. And it was an awesome, workshop. And so I was very happy to been able to include him this time around with the equal fund, small business accelerator. So without further ado, take it away, you know,

Speaker 2: Thank you, Chloe. What I want to start off with is the fact that I am a tax attorney and I’ve actually been a tax attorney for over 16 years. And what I want to focus on today in regards to this is the issues that I frequently come across as an attorney who works with small businesses. you know, primarily I handle a lot of resolution issues and those resolutions and the fact that I’m working with small business owners who were never guided on taxes and frequently, what ends up happening is they end up receiving notices from the IRS that informs them that they have unpaid taxes or unfollowed returns. And most of the time we’re actually able to rescue these small business owners, but sometimes it’s too late. And that’s why I can’t emphasize enough to, to everybody who’s listening, how important it is to focus on certain key points when you’re starting a business. and just, you know, to get back to the whole thing about not knowing as a small business owner with a great business idea or a great business plan, but not knowing where to start when it comes to taxes. It’s usually it’s one of two things and then small business owners, just assuming that it’s something that they’d be able to figure out along the way, or they rely on someone who’s inexperienced to handle the taxes for their business.

Speaker 2: I’m hoping that this session will just prevent you from ending up in trouble with the IRS and, or alert you of how important it is for you to start doing things the right way. the purpose of this session is to guide you in a concise manner on business taxes. And that’s why I named it business taxes. One-on-one So can we please go to the next line and then the one action, the introduction, there we go. Okay. So I’m going to start off with the business entity and what type of entity is Ryan for me, I’m going to answer this question. You will need to determine your long-term plans as a business owner. If you’re not embarking upon this journey alone, then you will need to have a direct and honest conversation with your business partners to ensure that everyone is truly on the same page about the structure of the business,

Speaker 2: One type of business entity that’s out there that I’m sure you’ve heard quite a bit about as the LLC and especially over the past decade, the popularity is setting up. The limited liability company has skyrocketed for many business owners. This is the first step in providing additional legal protection against liability claims. However, one thing I do want to emphasize is that a business owner who has an LLC is not 100% protected by having this entity. It just provides that additional, protection to your business. The next step, after that, after you set up an LLC is potentially you could do, what’s known as an S corporation election with the IRS. And I only recommend doing the S Corp election

Speaker 2: With the IRS. If you will be doing the following one is you have long-term plans for the business. It’s not a situation where you’re unsure about whether or not in a year or two, you still want to be a business owner. it’s, it’s more of, okay, you do plan on growing your business and you do plan on being committed. and what goes hand in hand with that is bookkeeping, because you’re going to have to stay on top of the bookkeeping if you do the S-corp election. And the reason why is due to the fact that the owner needs to apportion their compensation by paying themselves as a W2 employee and also taking a distribution. And from a tax standpoint, the owner is saving on not paying self-employment taxes for that distribution portion of the income.

Speaker 2: Okay, we’re going to go to the next slide and that’s the Texas filing requirements. this part of it’s really important because I know there’s a lot of new business owners who overlooked the Texas side of things. They just are caught up with this notion that, okay, I’m here in Texas and I don’t have to worry about state taxes. yeah, it’s not as simple as that. there’s the Texas franchise tax report, and this is an annual report that needs to be filed with the Texas comptroller’s office. And it’s due by May 15th. And if your total revenue for the previous year is under one point $18 million, then you will need to follow. What’s known as the no tax due report. And then also, if you’re going to have employees, you will need to set up an account with the Texas workforce commission as a registered business, you will be following quarterly reports and they’ll be somewhat similar to how you’re falling for quarter or most businesses are filing for liberal towards the IRS, which are known as the forms 9 41. Now we’re going to go to the next slide, which has to do with payroll.

Speaker 2: The first part of payroll is the EFT PS. And this is your payroll tax deposit schedule is going to depend on when and how often your business has payroll. the IRS requires that you use the electronic federal tax payment system, also known as ETPs to make your federal tax deposits.

Speaker 2: And then with the quarterly payroll reports or the nine 40 ones and the annual unemployment return room, which is the nine 40, unless you’re notified by the IRS that you’re required to follow and we’ll pay report, which is the 9 44, you will be filing quarterly payroll reports now known as the form 9 41 is that at the end of the year, you’ll be filing that annual unemployment Richmond, which is the form nine 40 issuing employee contract or tax documents. At the end of the year, you will be responsible for issuing W2’s chair, employees, and 10 90 nines. Your contractors for hiring employees, you will need a completed I nine, which is the employment honorability verification form and a completed form w four, that identifies the employees withholding information. When hiring a contractor, you will need to complete a form w nine that has a contractor’s tax and financial information.

Speaker 2: And prior to hiring an employee or a contractor, you will need to review and make copies of valid identity verification documents. That’s items such as social security cards, driver’s license passports. And this will prevent you from ending up in a situation with the IRS where the agency deems that you did not hire an employee or a contract you’ve has a right to work. this part is really important just due to the fact that I have come across situations where there have been business owners who have ended up hiring, especially contractors. You just didn’t have a valid ID, and especially, you know, when they’re being audited by the IRS, and you’re not able to prove that they’re a valid contractor, it is a major issue. And then getting into IRS red flags, you timely have to make your payroll tax deposits and file your payroll tax returns.

Speaker 2: And this takes precedence in order to avoid being under the scrutiny of the IRS, the payroll component of running your business is critical in determining the longevity of your business. And if a business fails or falls behind with its deposits and filings, then the IRS will take, take it to the next step. By assessing what’s known as a trust fund penalty against the owners of the business and numerous businesses fall into the trap of playing catch up on payroll and end up in situations where the business has to close its stores closed. We’re going to go to the next slide. So this is the annual federal tax returns and audits section. And I want to focus on some Poplar audit items and what you need to do in regards to making sure that you have the right kind of paper trail to support your

Speaker 1: Real quick know, we have a question in the chat. If we haven’t been categorized as an S-corp, where do we start

Speaker 2: Okay, Chloe, if you don’t mind, could I cover that topic as soon as we’ve covered everything and I’ll tell you,

Speaker 2: So let’s start with the current shrug expenses, whether your business is claiming actual versus mileage expenses, you will need to maintain an accurate mileage log that could be cross-referenced with repairing and maintenance receipts for mileage verification purposes. There are mileage tracking apps out there. I’m not promoting a app, but mileage IQ for example, is one that’s really popular and that’s just, it will make your life easier as opposed to carrying a journal in your car. That’s tracking your mileage meals. just take the time to clearly identify the business purpose of your meal on each receipt. after you have that meal, just identify the purpose of the meal at the top of the receipt. one thing I also want to go ahead and just mention, just because I know a lot of these restaurant receipts are on paper that tends to fade in about roughly within a year to two years, where if you were ever to be audited, you run into a situation where you might not even be able to read that receipt.

Speaker 2: So I do emphasize that you go ahead and photocopy those receipts to preserve it travel. If you’re attending a conference or a meeting and save the documentation associated with the event. And you know, what an auditor is typically looking for is, you know, a printed schedule and agenda or minutes, something that verifies that you were actually traveling for business purposes. getting back to the topic of contractors, there is a 20 part test out there that determines whether a particular individual is working through your business as an employee or a contractor. in a nutshell, there are three key factors to consider. One is behavioral. Two is financial and three is the type of the relationship. I mean, in summary, do you, do you have a set schedule for this individual or do they have the flexibility of, completing tasks in regards to the hours where they’re doing these tasks or when they’re actually providing you with reports on the status of whatever has been assigned to them

Speaker 2: Let’s look at the employee benefit programs. That’s something that’s become a, a Poplar audit topic with IRS agents, just because there’s a lot of scans out there. specifically with wellness programs, there are certain wellness programs out there approach business owners, and they claim that these wellness programs are legitimate employee benefit programs. And they, it turns out that they’re not. So before signing up for any employee benefit programs, beyond the traditional medical disability, life insurance retirement plans, it is really important that you check to see that this is a legitimate plan that would be recognized by the IRS as a valid employee benefit. Finally, I want to talk about the home office deduction, especially during the era of COVID and as we’re kind of entering this post lockdown, period, there are still a lot of business owners that are working remotely and this home office deduction can be a sizable deduction on your tax return, an area.

Speaker 2: And so there’s two ways to claim the home office deduction. There’s a simplified method, and then there’s the regular method. what the, the simplified method it’s, you know, you’re using the area of your home. That’s regularly used for business purpose. Well, it’s the area of your home. That’s regularly and exclusively used for business purposes, and you’re taking the square footage of that area, and you’re comparing it to the total square footage of your home to get the ratio of, of what percentage of your home is used for business purposes. Just keep in mind with the simplified method. There is a limit and it cannot exceed 300 square feet. So if your home office has say 500 square feet, it’s actually going to be capped at 300. if you do decide to use the regular method, then you’ll also still need the ratio of the square footage of your home office and the total square footage of your home. you will then need to proceed to use that percentage to multiply it with your home’s total allowable expenses, to determine the amount that you’re allowed to claim for each category of allowable expenses.

Speaker 2: Now, we’re going to go to the next side, which is IRS resolution. The first part of it is correspondence. If you are doing something incorrectly or failing to meet your following requirements, the IRS will send you letters, letting you know that a particular tax issue needs to be addressed by her business. I mean, if you choose to ignore the letters, then the IRS will move to the next step with issuing lovies and file reads. And eventually the IRS has the ability to shut down your business if you refuse to be in communication with the agency. so it’s really important that early on, when you do receive any letters from the IRS that you respond to it as soon as possible, as far as the resolution side of things, if you’re not able to pay the outstanding balance in full, then there are resolution options such as settlements or payment plans.

Speaker 2: I’m a current financial analysis will need to be completed to determine if your businesses are good candidates as a former or the latter. And then I’m going to go to the final slide, which is the conclusion. And it’s easy for a business owner to be overwhelmed by the amount of tax information that is out there online. I’m wanting you to use these business tax topics as a primary checklist to determine if you have what you need. And, and or if you need to ask additional questions to ensure that you’re doing things the right way, I definitely didn’t want to just bombard you with a bunch of tax topics. I just wanted to make sure that at the end of the day, if you need to, you can use these slides as that checklist, just to make sure that every key point that I’ve referenced on the, on these slides, are things that have been addressed by you. Or if it doesn’t apply to you, then you can just Ignore it. But most of the stuff on these slides do pertain to an overwhelming majority of the business owners. So with that being said, I do want to open it to questions. And I know, so you mentioned about a question from one of the attendees about not being an escort, and if you don’t mind, could you just,

Speaker 1: The question is if we haven’t been categorized as an escort, where do we start

Speaker 2: Okay. if you have not been categorized as an Corp, first off you do need to be a business entity. So for example, you do need to be an LLC. Is this, do you, is this particular individual right now, just a sole proprietorship or just solely using their social security number

Speaker 1: She’s an LLC.

Speaker 2: Okay. So with you being an LLC, the next step would be to follow S-corp election with the IRS. And there’s a form that needs to be filed with the IRS to actually be officially recognized as an S Corp. And there’s also a certain requirements if you’ve just set up the LLC, there, shit, I mean, there shouldn’t be an issue in regards to filing that form, which is the 25 53. however, if you’ve been around for a while, you are going to have to explain to the IRS why you’re actually doing the S-corp election now, as opposed to not filing it earlier, but that is the next step. I mean, the fact that you already have the LLC is the first step. And at this point, if you want to now be treated as an S-corp, you would just need to follow that form.

Speaker 6: I hope you can hear me. This is Jeremy Clark.

Speaker 1: Sorry about that. I’m I was needed. if Jeremy, you’re able to share your question in the chat, that would be probably a little bit easier to hear you. but our next question that we have is if we use ADP for payroll, would they be handling all the taxes for the business owner

Speaker 2: So with a company like ADP, you need to make sure that you’re signing up for the right plan that suits your needs because ADP can actually follow the payroll reports for you, or they can actually prepare it for you, but have you file it, or they can also just handle the payroll portion of it. And you are completely responsible for the payroll reports. So you definitely need to talk to your ADP rep to confirm what plan you’re in, because I know sometimes just confusion in regards to what exactly ADP’s handling for your account, because it’s not just because they’re handling your payroll does not guarantee that they’re actually filing the reports with the IRS.

Speaker 2: And there’s also, and I just want to add, there’s also business owners out there who actually, I mean, there’s every sort of set up that ADP is willing to do for a business owner, but there’s even certain business owners out there they’ll have ADP process the payroll, but then the actual deposits are even still being made by the business center. So you would just really need to get the specifics, just find out who’s actually processing the payroll, making the payroll deposits to the IRS. Who’s also handling the Texas workforce commission, quarterly reports, and then he’s actually, preparing and following the IRS quarterly nine 40 ones and the annual nine 40.

Speaker 1: And our next question, back on the topic of going from LLC to escort, are there any stipulations that need to be, integrated or met to make that change besides filling out the form

Speaker 2: Yeah, I mean, there is that requirement that you’re, you’re following this form within a reasonable timeframe, just because of the fact that if you’re not a brand new business, the IRS definitely wants to know why you were electing to be an escort, say a few years and having your business. if you’re in a situation where you had an LLC that was dormant in the first few years, I mean, that’s also a legitimate reason, but yeah, that’s, that is a stipulation that they, if you’re not a brand new business, they’ll want to know the reason why you’re requesting to be an S Corp.

Speaker 1: And the next question is, is there, what is the difference between two, the 25 53 and 88, 22 forms

Speaker 2: So you use the 25 53 for an S Corp election, and then the, you use the other form to let the IRS know you want to be treated like a C corporation or a specific business entity. And primarily those don’t want to be treated as a C Corp we’ll file the ADA 21 while the, those don’t want to be treated as an S Corp will follow the 25 53.

Speaker 1: All right. Any other questions from, participants

Speaker 7: I have a question.

Speaker 1: Sure. Marjorie,

Speaker 7: What would be considered a good reason to file for escort after two years

Speaker 2: So, you know, the really the good thing about the S-corp election is potentially saving on the self-employment taxes. ’cause, you know, when you’re a sole proprietorship and say, you’re filing a schedule C on your form, 10 40, you having to pay the self-employment taxes on that net income. But what happens is that when you’re an S-corp, there is an expectation that part of the income you’re paying yourself as a W2 employee, but then there’s another part of it where you’re just taking a distribution and that’s where you’re actually seeing tax savings, because that portion of it, you’re not being taxed, the self-employment taxes, you’re just being taxed at your regular tax rate. but, but truly, again, it goes back to what I covered in the presentation. I definitely don’t recommend for you to do the S-corp election, unless you do have long-term plans for your business, because that bookkeeping part’s really important because the IRS frequently audits as corporations, because there’s way too many business owners out there who solely do the S-corp election because they’re, they have this notion that, okay, this, this helps me avoid paying self-employment taxes and they don’t bother to, to split it up between paying themselves as a W2 employee and taking a distribution and they solely take a distribution.

Speaker 2: And this is where that’s going to be an immediate red flag to the IRS. That that particular business owner is doing things the long way. And they tend to get audited granted. One thing I do want to note that, you know, if you’re a brand new business, there is always that possibility during the early years, you’re operating at a loss. So that, that changes things. But if you’re in the positive and you’ve been around for a few years, you definitely need to make sure that you’re doing things the right way in regards to partially paying herself as a W2 employee. And then also taking that distribution

Speaker 1: Demetrius, would you like to unmute and share your question,

Speaker 9: But for some reason, like the Texas franchise report and the Texas franchise report, which deals with the Texas comptroller, is there a company that you can hire to sort of deal with that for you

Speaker 2: Yeah. I mean, I’ll tell you what most tax law firms and CPAs, if they’re preparing their, the, annual tax business tax returns, the federal tax returns for their clients, they’ll go ahead and prepare and follow that franchise tax report just because they already have the information. And they’ll just tack on a CD to, to go ahead and do that. I know, I mean, our firm does that for our clients, because for our business tax return clients, you know, we remind them that, you know, there’s also that annual Texas franchise tax report that needs to be followed. And so most of them just have us go ahead and do it. So you would have, if you’re using a tax preparer, you’d have to check and see whether or not they’d be willing to follow that report for you,

Speaker 9: The date that you said that needs to be done because I get every year and they always in up,

Speaker 2: Yeah, not a problem. It’s it’s on May 15th of every year.

Speaker 9: Another question, okay. I have two barbershops, one of my barbershops guys located in Dallas county and it’s Ceratin ISD school district, but for some reason they are always get like texts letters from them, like our own, the entire building. And I communicate with them that I just rent a space. So,

Speaker 2: Yeah, so this is actually a property tax issue, but I can also answer it because how it works with those ISD is even if you’re renting the space, as long as the information that’s listed on that bill is correct as far as how much they’re claiming that you owe and, and I guess anything having to do with the square footage of what you’re renting, you do have to pay ISD taxes because our firm, for example, here in Houston, you know, we’re, we’re going to Aly feisty. And every year we do have to pay, an invoice that they send to us. So it is normal

Speaker 9: County, the county, because my other shop is located in, in county. And I don’t have if receiving.

Speaker 2: Yeah. I mean, and it could be, I mean, yeah, it is a county to CA or ISD to ISD thing, but I mean, also you never know, sometimes with these eyes, these, they don’t have all of the information that they need. I mean, have you been in that second location for awhile

Speaker 9: Going on two years, the first location I’ve been in for a mail going on for years, but like after the first year I received two different notices, one from the ISD and also one from the Dallas county, because I even talked to my test guy, but I didn’t, he didn’t understand what it was either because if I’m in the shop is located at Carrollton ISD, but Dallas county. So I got a letter from Dallas county and characterize the,

Speaker 2: Yeah, I mean, that actually based off of what you’re telling me, that sounds normal. but again, you have to make sure that you fall within that jurisdiction. And as far as the information that’s listed on there as accurate, that’s really what it comes down to. But yeah, I mean, specifically, specifically, as far as the ISD bill just don’t be surprised by it.

Speaker 1: okay. We have a couple questions about LLCs. the first one is, does the distribution part work the same for an LLC I think that was a continuation of a previous question.

Speaker 2: Sure. So the distribution portion of it only applies to, if you do the S Corp election, if you’re an LLC, if you’re the sole owner of that, LLC, your default classification with the IRS, unless you indicate otherwise will be, you’re going to be treated as a sole proprietorship. And so what that means is that every year you’re going to be following this schedule C with your personal tax return and on that schedule C whatever that net income amount is about your business expenses, you’re going to be paying taxes on it. And that’s, you’re not going to be paying yourself as a W2 employee. You’re not going to be taking a distribution. It’s solely whatever that net income amount, that’s what you’re paying taxes on. You have partners, your default classification will be your a 10 65 partnership. So again, it really, being an LLC and taking a distribution are two separate things. The distribution specifically applies to doing the S-corp election.

Speaker 1: The next question is, as an LLC, can one pay themselves

Speaker 2: Yeah. So you’re not going to pay yourself as a W2 employee. And again, I’m assuming you’re an LLC, that’s a sole proprietorship. what, what you’re going to need to do is you’re going to need to make estimated tax payments. So what I recommend to most of my small business clients that are single member LLCs that are sole proprietorships, is as opposed to making those estimated tax payments every quarter, right. She had to make an every month, just so that they’re in the habit of sending in their tax payments and that when they follow their tax return at the end of the year, they just don’t have a large tax bill that they owe the IRS and their personal tax return. so if you can set up a system where you’re compensating yourself every month, maybe, you know, pay yourself once a month at the end of the month, you know, send in a percentage to cover your, your estimated taxes for it. And you’ll be, you’ll be, you’ll be appreciative of the fact that, you know, when you follow your 10 40 at the end of the year, and you don’t have a large tax bill, because again, it goes back to there’s a lot of business owners out there who wait until they actually get their 10 40 prepared and fall to pay that large tax bill. And sometimes they can’t afford to pay that really large amount. And this is where the problems can potentially start with the IRS.

Speaker 1: And the next question is, I’ve had an LLC, but just created a DBA for a new daycare since the LLCs for consulting, would the daycare be safe under the LLC

Speaker 2: So I would highly recommend that you have a separate entity for the daycare, just because of the consulting business and the daycare business are not related to each other in any way. you, it, it doesn’t make sense for you to combine it. And the reason I’m saying this is especially from a legal standpoint, if there are any liability claims down the line against something that you do from a consultant standpoint or something having to do with the daycare, you definitely don’t want to drag in your other sources of income, into the issues that are being faced by, you know, one or the other. So, yeah, I mean, in a nutshell, again, I, I don’t recommend that you mix the two together and you actually have a separate LLC for it is my recommendation

Speaker 1: To Neil. I, I saw that your hand had been raised earlier. Do you have a question still

Speaker 10: Oh yeah. Thank you. I think somebody had answered it, but I still am not clear because one of the things that I wanted to do, I’m an LLC I’ve been in business for about, about three years, but I just became a sole proprietor. So I had two partners, but now I’m the sole owner and say, LLC, but I wanted to pay myself on a W2, but I’m just trying, now that I’m hearing this, I’m trying to see as an LLC, you’re saying you pay yourself, but is that considered like a distribution Like what does that, what category does that fall under any under your bookkeeping If I pay myself under the, and do the tax and then pay the taxes monthly,

Speaker 2: Well, let me ask you this. So with your LLC, are you in, are you an S Corp or are you now just the sole owner of this business And so you’re now back to being a sole proprietorship.

Speaker 10: Yeah. So owner of the business, I haven’t filed any escort

Speaker 2: Under

Speaker 10: Investigation.

Speaker 2: And so you’re going to be falling at the end of the year, a schedule Sade. So what you need to be doing, you can’t pay your, because you’re the sole owner of this business. You’re not going to pay yourself W2 wages, which you’re going to be doing is you’re going to be paying taxes on your net income. And so how, let me ask you this. How often are you looking to pay yourself

Speaker 10: Monthly,

Speaker 2: Monthly Okay. So at the end of every month after you’ve subtracted your business expenses, you’re going to have your net and can amount for that month. And you need to determine, okay, if I’m going to take this as my income for the month, then you’re going to have to send in a percentage of that to the IRS as an estimated tax payment. So what you could do is you, you can go online and make that payment, or you can also even use those payment vouchers that are known as the form 10 40 dash E S payment vouchers to cover your estimated taxes. But that’s how you’re going to pay taxes on it is you’re going to make estimated tax payments. Is that clear as far as what you need to do

Speaker 10: Yeah, that’s clear, but how do I document it on my books I guess it’s the question What does it cause What does it fall under Because, you know, once you have your profits from like, say monthly, it either goes back into the business as an expense. How does that, how do I expense it to myself Like, what does it fall under

Speaker 2: So the thing is that it’s solely after you’ve got your net income and you’re taking that all as, as your income, the taxes for it is going to be accounted for you on the personal side, not on the business side.

Speaker 10: Okay. Okay. So do I just say as a withdrawal I mean, cause it’s, cause normally my profits just sit in the business, they just sit there for, you know, for, for whatever comes up. It’s not coming out anywhere. So because I’ll be withdrawing it, what is it You see what I’m saying I’m trying to understand what does it fall under.

Speaker 2: So what I’d recommend that you classified as is an income withdrawal, Just so it’s clear if anybody were to look at your books, that you were compensating yourself.

Speaker 10: Okay. Thank you.

Speaker 2: Your,

Speaker 11: add to that. Would it also be like, owner’s draw, would that be the same or

Speaker 2: That would be the same thing. So you can, you can label it as an owner’s draw ink. I mean, just as long as it’s accounted for, and you can clearly understand that you’re yourself and it’s it’s income for yourself and that’s all that matters just from a paper trail standpoint. Sure.

Speaker 1: Another follow-up question we have, so F we’re an S-corp then do we need to make sure that we are paying ourselves as a W2 and we still have the ability to take a draw

Speaker 2: So what it’s. So here’s the thing from it, from an audit standpoint, the IRS has never committed to an exact percentage as to how you need to split paint. That’d be tuned and taking a distribution. I mean, roughly if you’re playing it safe, roughly a 50 50 split

Speaker 2: Is, is recommended. However, with me saying a 50 50 split, I do want to emphasize that there are certain industries where there’s an expectation that you’re actually paying yourself a little bit more as a W2 employee and not taking as much as a, as a, in a distribution. so you do want to, depending on your industry, you do want to make sure that you’re not in one of those industries where the IRS will expect you to, to compensate self more as an employee. but yeah, typically again, there has, hasn’t been an overall commitment by the IRS as to how it should be done, but a solid starting off point is a 50 50 split. And that 50 50 split is 50% W2 wages, 50% distribution

Speaker 1: And next, for an LLC with partners, if somebody is a managing partner and operator of the business, will this person pay themselves on a W2 for monthly checks and take a distribution with their partner

Speaker 2: So if they’re a partnership, so they’re an LLC with partners and they haven’t done an asphalt election and their default classification would be a 10 65 partnership. If they’re a partnership, they should not be paying themselves W2 wages. So what that managing partner will need to do in regards to compensating themselves something different is coming to an agreement with the other partners as to how that should be done. And that’s, that’s where there could be an adjustment on the ownership percentage, or there could be just an additional income distribution that’s provided to that managing partner. The managing partner definitely should not be compensating themselves as a W2 employee.

Speaker 12: I have a question.

Speaker 14: Hello Yeah. Yes. This is, I’ll tell it from Houston. So if, NL, LLC, and I want to pay myself, so is it going to be on net or gross I heard you said nurse, but I wanted to confirm that

Speaker 2: So correct. It’s going to be the net amount.

Speaker 14: Okay. The net amount. Okay.

Speaker 1: Demetrius, do you want to unmute,

Speaker 9: Okay. Yeah, me again. I was listening to when the lady was asking about, if you are escort, then you pay yourself, but you can always, you can also take a draw. Is it like, is it A certain amount that I gave you like a maximum out, as far as the drugs you can take per week

Speaker 2: So here’s the thing you definitely, as far as taking a draw, you definitely want to make sure you’re not putting your business in a tough position where you can’t cover your business expenses. So this is where you’re going to have to, to make a judgment call as to how much you can actually compensate yourself. Because I know again, I mean, there is a net income amount, but then you’re also going to have upcoming business expenses. So you need to make sure that you have revenue coming in to cover those upcoming businesses. And so this is where you’re just going to have to be diligent about it, just making sure that, okay, you can actually take a higher amount of a draw, but you know, your upcoming business expenses will be accounted for.

Speaker 9: well, I’ll ask in this for us, for the IRS purposes. Like, let’s say for instance, like if I pay myself a small amount, like I own a barbershop, I pay myself like $500 a week, which is not a lot, but I still take a draw because of course the 500, I mean, I don’t get texts a lot, but I still take a drop my busy. So on our risk on the IRS side, would that be an issue

Speaker 2: Yeah, because the thing is that it needs to be accounted for when you file your tax return. That the fact, yeah. I mean, cause again, I, and just remind me, you’re an LLC wide, a single member, LLC. Okay. You’re an S Corp. with you being an S you just need to make sure that you were accounting for it on your tax return,

Speaker 9: Correct

Speaker 2: Correct. Yeah. It’s definitely presenting

Speaker 9: One more question. Okay. Because like I said, I have two barbershops, but now since I’m an escort, Bernie and I’m in the process of opening up a school. So what I Totally different escort for that Or could I follow up on my side

Speaker 2: So this school that you’re opening up, is it a nonprofit or a for-profit school Again Yeah. I would set up a separate entity for the school. And it goes back to my response to your previous question about two different businesses coming under the same LLC. I just don’t recommend it. And it’s from legal state.

Speaker 1: Yes. Jeremy is actually going to share, your message that if you, if any veterans are participating in this, program, if you haven’t filed your LLC, the filing fees waived, for veterans in Texas, just a note to make if, if anyone is a veteran.

Speaker 16: So my question was, does your organization,

Speaker 2: We do work with senators every now and then we do have clients that need corporate minute book documents. And, and sometimes we step in and help out with operating agreement over Extensive. You actually consult with a business attorney to draft up any sort of contracts, especially between partners or with potential third-party vendors, You know, service accident. And so we work with both individuals and small business owners. A lot of the small business owners approach us when they have issues with the IRS or Presentation and us tax court representation, pursuing resolution, whether it’s a settlement or a payment plan with the IRS. So we have, if it’s tax related, especially, especially if it’s non-property tax related. So if it’s IRS state taxes, that’s not property taxes, we handle it for our clients. And then every now and then we do handle drafting agreements and corporate minute book documents for certain clients. But with that sort of stuff, if it’s anything extensive, we do recommend that you consult with a business attorney on it.

Speaker 1: All right. the next related question is, are sole proprietors required to file an S-corp designation

Speaker 2: They’re not, it’s completely something that you need to determine on your own. Does it, does it make sense to follow an S-corp election And it goes back to two things that you really need to ask yourself. One is what are your long-term plans for your business And the second one is, are you willing to stay on top of the book K bang and w what the second that’s that second person, as far as are you willing to stand on top of the bookkeeping That’s whether are you going to stand on top of it internally or outsourcing it and making sure that somebody is doing it the right way

Speaker 1: Got it. the next question we have is how do we find what percentage to set aside for quarterly taxes

Speaker 2: So the thing there are calculators out there, and if you’re not willing to, to use those, those online calculators, and you purely want a rough estimate, and again, this is purely a rough estimate, and you’re not willing to use these, these online calculators that are available. you definitely at a minimum should be looking at once. You’ve determined your net income amount. You should set aside 15 to 20% for your estimated taxes, but I highly recommend that you use some of these online calculators that are out there that can give you an exact amount that you should be sending, because when it comes to estimated taxes, what I want to emphasize on that, that particular issue is that there’s way too many business owners out there who don’t realize that every time they get paid, I mean, they, in the back of their mind, they realize that they owe taxes in some capacity, but they don’t realize that every time they’re getting paid, there was a portion of that that needs to go towards taxes. And it just, again, it happens way too often that there’s these small business owners that have large tax bills at the end of the year. And they’re so overwhelmed by paying it off, or they just don’t pay it off. And then they keep accruing and ongoing tax to.

Speaker 2: And the reason why I recommend that you make estimated tax payments every month, as opposed to every quarter, because it goes back to, for a lot of small business owners, you want to make sure that these payments are manageable. And sometimes if you’re waiting until the end of the quarter, that that amount is going to be significantly higher and it can potentially be overwhelming for you to make that payment. So, you know, if you, if you create a set schedule to compensate yourself every month, you should be paying estimated taxes every month. And granted, if your business is struggling and you can’t compensate yourself, then no, you don’t need to make estimated tax payments. But if you are paying yourself, then you have to, I mean, you should just, you need to make it a requirement to send an estimated tax payments.

Speaker 1: Are there any other questions

Speaker 14: Oh, Yes. This chooks again from Houston now. So for example, if you’ve been paying yourself since maybe January and you haven’t sent in any tax payment, like we’re talking about 15 to 20%, can you send all those other ones that you’ve paid yourself Can you still do that now Or it’s too late

Speaker 2: No, it’s not too late at all. And I highly recommend that you do that, and I’m really happy. You asked me that question because it’s never too late to make those estimated tax payments, so you can definitely play catch up to the year.

Speaker 14: Okay, thanks.

Speaker 17: Hello. My name is Carla. I have a question. I have a full-time job and my employer pays my, federal taxes as well as I have a business. So even though my employer is paying my income tax, do I also need to, to, either monthly or quarterly pay taxes from my business as well

Speaker 2: You do, if you’re bringing in revenue from your business, I mean, what is the current state of your business Do you, do you have net revenue I mean, after you subtract your business expenses,

Speaker 17: I do.

Speaker 2: Okay. Yeah. Then you do, because your employer’s only covering taxes on your W2 wages. So it’s, you don’t want to assume anything that, unless, I mean, the only thing I can say is if, if you’re ending up with really large refunds at the end of every year, there is a strong likelihood that it could cover your taxes for the business, but otherwise, yeah, you still need to be paying taxes on your business and income.

Speaker 17: Okay. Thank you.

Speaker 1: Any other questions Feel free to unmute yourself and chair

Speaker 10: Yeah. I have a question. I have a corporation that I started for real estate. but the tax year was November to November. So how does that work at the end of the end It just started, so it was not even a year yet. So when November comes around, meaning that’s the end of my fiscal year, do I file my taxes like normal Or do I have to follow them at that time I’m a little confused on that

Speaker 2: For, so the thing is that you still have to file your tax return by March 15th. It’s just the accounting of it is from November to November, as opposed to January to December. So you still have,

Speaker 10: Because I was a little confused because it started November if I needed to file my taxes for this March, but no, because I haven’t done a full fiscal year. Is that correct Yeah. Okay. Very good. Thank you.

Speaker 1: Any other last questions

Speaker 1: All right. If there are no other questions, we’ll go ahead and, move on to our wrap up. thank you so much Kunal Mishra for sharing your expertise with us today. again, we have recorded the session, so if anyone wants to, refer to the recording and I’ll be sharing this presentation as well. so you’ll have resources thinking Nina for sharing that, tax calculator. I’m going to copy that and I’ll share that out, as resources as well. lastly, as you know, last week we had our, or a Sunday, we had our, deadline to submit the three or four required pieces of, document collection, which are the personal financial statement. your business and personal bank statements three months for each. And then, your verification of personal income. So if you haven’t submitted those, please do so in the portal, the Tofutti online learning portal, you’ll likely be hearing from your loan officer if you haven’t already, they may be following up about additional documents that, they’ll need to continue the loan application process.

Speaker 1: and there are also opportunities for you to submit your loan application. If you do have all the paperwork that you’ve needed, and you’ve been in touch with your business coach and your loan officer, and you feel like you’re ready to, get your package all ready. You’re certainly welcome to do that. If you, need a little bit more consulting, again, you can reach out to your loan officer directly. Anthony and I are also available, to provide any education assistance. but for now just the main things are to get your initial paperwork, and documents submitted so that we can, start to generate your packages for you. the next class will be next Wednesday, same time, 12 to one 30. but if there are no other questions, we can wrap up, but feel free to unmute yourself. If you do have any questions about, the session or any of the continuing homework pieces that are missing.

Speaker 14: Yes. How the question is chooks. yeah. for those doc loan documents, what I did was I was trying to kind of upload it at the, two routines routine. Right. And for some reason I couldn’t upload multiple documents all at the same time. So I sent it out to, is it Maria No, no, no. I sent it out. Yeah. Yeah. I’ll send it out to hop before, the deadline. So is that okay

Speaker 1: Yeah, no problem. If anyone has any issues with the uploading, in the online portal, that’s perfectly fine. I did add a couple additional uploading sections if, if you need to submit separate documents, but, again, we’re available via email and can, put those into your folders for you to know no problem.

Speaker 14: Thank you.

Speaker 1: Yeah,

Speaker 7: Just one reminder about uploading. When you go and you bring your first document in don’t hit upload document, that’s it, it closes it off and you can’t upload anymore. So what you do, you bring in your first document, bring in your second document, bring in as many documents as you need to, when you’re done, then you hit upload document and it will take all of them. Okay. That’s how it works.

Speaker 1: The only thing is though, I did, I did reach out to our account manager that helps with, our, you know, access to the portal and all that. They said that it’ll only accept the first uploaded document. So even if you add multiple documents in the same section, it only takes one of them. So that was why we added those additional uploader fields to add, additional documents because, unfortunately the system only accept one document per section, if that makes sense.

Speaker 7: Oh, so I need to check and make sure they got my documents. Then I said, I said,

Speaker 1: I think we do have them. but yeah, feel free to email us or, I can go in the system again, but I think, I think you’re all squared away.

Speaker 9: Okay. I have a question.

Speaker 1: Sure.

Speaker 9: okay. I’m going on vacation. so how do we, do we do a makeup class or how does that work

Speaker 1: So we don’t really have makeup classes. That’s why we record the sessions. so if you need to miss next week, that’s fine. again, we’ll send out the, recording after, but if you have any questions upon your review of the session, you can reach out to me or anyone that, is involved in that sessions organization.

Speaker 9: One more thing. Oh, okay. Like, like you said, like last week when I did, I uploaded all my documents, what not so it’s like a timeline before the loan officer reached out to us or work.

Speaker 1: So I, they should start to be reaching out to you. there is a bit of a, like a process at play here. there’s an underwriting matrix where they plug in the different components of your required documents. And then, things beyond my scope of understanding, they figure out the different factors that compile to make your loan package, and then they may need additional documents. But, as far as I know, the loan officers should be getting those on in review now. So, you should be hearing from someone in the next week,

Speaker 9: Everything was uploaded correctly. So, but if they do need anything, they will contact me. And let me know

Speaker 1: Then, and I did receive all of your documents that you uploaded. I was able, I’m not sure if anyone got this notification or not, but as I collected everyone’s documents, there was one section that I was able to move from incomplete to complete. so if you go into your portal again, you should see that all of your documents are complete. if you have submitted everything,

Speaker 18: Tamara, Tamara

Speaker 1: Has a question.

Speaker 18: Oh,

Speaker 1: When what yeah. Do, where do you want to pop up and then rebuild, we’ll call on you next.

Speaker 18: Okay. the question that I have is, I know last week at the beginning of the session, there was a guy that was asking a question about, having the loan, re report it to the business credit versus the personal. Do you know if there was ever a resolution with that or an

Speaker 1: Do you know I don’t yet, but next week we are having our, our topic is on, personal versus business credit. So, I believe that his question was a little bit more specific to his individual case, but we will be having a session that, covers that more in depth next week.

Speaker 9: I mean, that was me. That was actually, that was me that, because I was actually, because I have, I currently have a loan through people fine. And it’s reporting on my personal, and that’s why I was asking about this new loan. Would it be on my business because of course, when it’s on your personal, like right now, I’m in a process of purchasing a home and it affects your debt to income.

Speaker 18: Right. That’s and that’s where I wanted to know the answer to, because I’m about to start the process for purchasing a home and he’s right, that he is going to, because I’ve been building my business credit. And so a lot of things report to my business credit, but this loan, if it reported to the personal, then it would a bit mud debt to income ratio. And so that’s why I was asking

Speaker 9: This one also because I’ve had almost four years. And if it would have been reported to my business credit, my bins credit would have been awesome because I have an excellent payment history in it because the visit credit works way different that person

Speaker 1: I would recommend reaching out to Cerena directly. And, she should be able to answer your questions more in depth and potentially, address any issues as far as like where it’s reporting. I’m not sure if people find as the capacity to go in after the fact and, and move where, the loan is reporting to. I think it depends on, the initial loan acceptance when that was accepted, but, your loan officer should have more, more details to provide

Speaker 19: All of my SBA loans do not report to my personal credit. None of them ever have,

Speaker 1: Reba, would you like to share your question

Speaker 20: Yes, Chloe, thank you. my question is regarding the documentation uploading in the portal, some of the sections where all of the sections are required with the exception of one, and even though these sections are required, some of the information I do not have. So how, how do you suggest I move forward with completing the upload

Speaker 1: Sure. So I have access from the administrative side of things and I’ve been through the portal and I’m transferring all of the documents into your respective files that we have internally. And, for example, if you don’t have a business bank account yet, that’s fine. I just plug in what you have for your personal bank, statements that are available and then most for the last couple of situations where we’ve had that, either Anthony or one of the loan officers has let me know that the client doesn’t have, some of those documents and they’ll, they’ll probably follow up with you and let you know if there are any other supplemental documents that we can collect from you. but otherwise don’t worry about the completion cause, on the portal part, because I’ve been able to, just toggle that to being complete. So that is kind of just like one extra check.

Speaker 20: Okay. So to confirm you are able to retrieve the documents that I have,

Speaker 1: Correct Yes. Okay,

Speaker 20: Perfect. Thank you so much

Speaker 9: About the, the business of the business plan. what does that timeline for that,

Speaker 1: Anthony Do you know, if there is a deadline for compiling your business plan, I would imagine that it needs to be as complete as possible by the time that we actually submit your loan package, which, should be at least by June 22nd. or prior to that June,

Speaker 21: Chloe. Yes. yeah, the underwriting team will need to review that before they make a final decision. So as soon as you can complete it, the better, because we don’t want to have a log jam and when we’re reviewing all the applications. So, so if we can work on it right away, I’m available to schedule an appointment. and, you can shoot me an email and I’ll send you a, an invite as to when you would like to meet, to finalize your, your plan.

Speaker 22: Hey, Anthony, this is Nina. just to clarify, for some of those that are having to do the business plan, is it still maybe acceptable for an executive summary and two years projections Or are you guys asking for something different this time around

Speaker 21: W we’re looking that use the live plan format Okay, so, so yeah, so if you have an existing plan, you can, you can incorporate it into the life plan. And then when we review it, we can see what, what needs to be done to improve it. Okay. Okay. Thanks.

Speaker 1: Thanks Anthony and Nina, If there are no other, final questions, feel free to hop off. again, thank you so much Kunal Mishra for, for venting on this session for us. I’ll hop over to contact information, but, again, I’ll send out a wrap up email to everyone and I’ll include, the links that were shared and, Kunal Mishra his contact information if you’d like to reach out to him directly. Thanks everyone. Hope you have a great afternoon.

Speaker 21: Thanks Chloe.