Wednesday, December 29, 2010

Hey Entrepreneurs, lets go in to business…

My 8-to-5 Accounting view, and I love it !
Everybody have their own specific Tax issues and needs, for example “entertainers”, such as being employed for different gigs for a few weeks, days, hrs, and the lucky ones for months or years. In that event I end up with entertainers with a bunch of W-2 forms every year (that’s really good because it means they were employed and paying taxes at the same time) at the other side I have the unlucky ones with no W-2’s or even worse the 1099 forms for independent contractors (that have to pay their own taxes, out of pocket!)

With this economy is not uncommon to find entertainers that have collected unemployment for a few months (or most of the year) there’s nothing wrong with that, as long and you choose to have your taxes deducted every week, and I tell you why in a moment. I have a personal friend who gets acting jobs, always getting pay by job and later collecting unemployment, on and off all the time. For such a no-so-Monday-to-Friday-9-to-5-job it is very important to pay your taxes as you go, little by little, as you to be paid, why? Because later when you are in the low side and you don’t have any steady income (or worse, any money in your pockets!) and you are stuck a bill from Uncle Sam, let me tell you, and he thinks “that’s not cool”.


I have a friend who told me a long time ago that he is always choosing to overpay his taxes so he has money coming back to him, at the beginning it didn’t make any sense to me, why? Why should I pay money to somebody to later claim it? I have tax teachers telling me in the past “just pay what it’s fair, no more”. But later a whole bunch of other issues came along to me (after I mastered the art pf preparing taxes for my clients). Like in life, different people have different goals in life, different approaches and different way to do things. Example of this is paying your taxes and how you do it to fit your life style and your goals as well.

Some people pay as they go, little by little in every check (the best choice if you ask me) some people pay in big chunk at the end of the year (the lucky ones that have the will power to save the money without touching a penny of it, they can do that), others like my friend overpaid little by little with every pay check, and later when tax season came along he received a big income tax refund check. I tried it for the first time. It is really easy by just claiming “cero” instead of claiming “1” for yourself, then you end up paying a few dollars more every time, but later you receive a big check, your money that dear uncle Sam saved for you, and who can you trust more than uncle Sam to store money? Later I also thought that by overpaying taxes during the year you can save yourself from some contingencies like when for some reason you have to pay more taxes, or other events that can trigger something like that, whatever can happen, you overpay taxes and you won’t be bothered later. I’ve tried the first time and I still do it, and never stop doing it I think.


When you have a business that's another totally different animal! It has its own beauty on its own, and the best time to do it (from my own experience) is when you are fully employed, while you pay your taxes, while you have a steady income) why? Because that's an extra income you don't need at the moment that you don't need to have that you are not under pressure to make it happen. If it happens, then it happens. If not, not a big deal, you paid your taxes already.

Anybody can go in to business!!!
When you want to enter to the business world, a whole new world "literally" opens for you, why? Because you are entering the "business expenses world," and like in any game "if you learn how to play your cards right" then you can have a successful business going on while having a little extra something at the end of the month to pay for those extra expenses you always wanted but never could afford.


 If you are fully employed, pay rent, have a computer, that's all it takes for you to start a business, you can just start a hobby and charge money for it, start with your friends, then if you provide services or sell something, the next step is when your friends start referring you to their friends, and they start referring you to their friends, etc, and a chain reaction starts, well, that's just if whatever you do is well enough for people to keep calling you for more. While you're employed you don't have to worry about paying rent, your internet, your car insurance bills on time, and on your spare time you can check your Craig list, eBay, Amazon account and see if you sold those items you decided to sell (if you decided to start a selling business).


The business expenses deductions are those expenses you incurred in order to make that business moment happen. For example, you pay your share of the rent for your bedroom (for that apartment you share with your roommate), let us say $600.00, but you decided to start selling stuff on eBay, then you use half of your closet and/or part of your living room to store your selling items, and that space you use to store your items happens to be 30% of your rental space, then 30% of those $600.00, yes $180.00! are your business expense, then you pay $30.00 for your internet connection and you use 20% to upload and post ads for your sales, then 20% ($6.00) are for your business purposes, then you need people to call you, hey part of your cell phone usage now is for your business, your car payments, your gas, the usage of your oil change, your tires, the utilities, and next thing you know you realized a whole lot of things happened to be used for business purposes and you did not even know it!

And that Dam tax preparer didn't tell you about! Or worse, like happened to me years ago, when I showed up with my shoe box full of paid invoices, that bastard told me as soon as he saw my invoices, words that I will never forget "I won't be organizing and adding up those invoices, so come back when you have those organized, I don't have time for that," I should have said: "OK," then I'll take my business somewhere else, you're fired!. I could have had saved a good chunk of money by claiming my business expenses, or at least itemizing my personal deductions, but thanks to that shady tax preparer that's money I'll never see again because you only have 3 years to amend a tax return, to claim your overpaid money; to claim what is yours.


The next best thing to know is when you are stepping up, firing your past tax preparer and finding one that can help give you excellent tax advice, to make your business born and more important, make it grow, to make it happen!

Don't feel bad if it already happened to you, we all learned from our mistakes; the next best thing you know is that you need a new tax preparer, the one that has the knowledge, experience and the patience to explain you all about these things. A good hint is when your brand new tax preparer is not rushed to pick up your check, and rushing you out into the exit door like happened to me over a decade ago.

My passion? numbers, money, numbers, money... numbers
Once you decided to be in business, what you need to figure out is what is your passion, what makes you happy; I would suggest starting with something easy, and if you have a steady income, then start with something that you would do even for free. Don't put yourself against the wall and just go for something easy.

Getting a business license is not difficult at all. Just walk to your local city hall and apply for one.

Sole Proprietorship

I see an entrepreneur inside everybody and I always try to encourage people to start a business early in life "just like starting a retirement account" 401 (k), Roth, etc. or my favorite... a Roth ira. And yes, you guessed! That's another totally different animal and another entire blog. Yes, I will...

Starting it simple is really important; do not complicate yourself with stuff you don't understand. Start as simple and easy as you can. Do not worry about liability (such as Sole proprietorship, LLC, Partnership, LLP, Corporation, S Corp. Yes, it is another blog) at this point, when you start a business be assertive on what you do, do your homework, take your measurements. If you sell stuff, make sure you have a sales license, if you do massages, make sure your get the right license, you don't want to hurt somebody and not having the proper license; so I suggest doing some research and get your license.

Once you are in business, make sure you start saving all your receipts for everything, even the ones that you don't think would matter "some personal expenses". I have people that tossed away receipts that they thought were not relevant or important, or they just thought they won't be allowable expenses, but later they found out "I told them" these expenses were a part of their business expenses.

Remember, I can help you in business
What I always suggest is to open business account and charge everything for the business from there, pay with ATM or checks ALWAYS. It is easier to keep track with a special bank account than itemized your business expenses from your personal account; and in the case you are in doubt "whether business expenses or not" charge it anyway because its easier to take out "non business" expenses than track and put in the ones that you missed.

I would say this is just the beginning of the "business expense" world, believe me when I say there is a lot, A LOT out there to be self conscious about ALWAYS, but you know what? Do not worry about it for now, that's why you want me around, that's why you ask me questions; for now I can tell you: you don't -need an expensive accounting software to be in business, you do not need to spend your hard earned money to hire a CPA or a lawyer to start a business, just shoot me a quick email or call and we will discuss what best suits your needs for now, and what you need to do in the future to make it happen.

My website

Sunday, December 19, 2010

How did I become a tax advisor ?...

Long, long time ago when I was totally lost about my taxes (like you), I basically just waked into the first place I spotted as “tax preparation," and sat down, made myself comfortable and gave all my W-2 forms to that girl inside that little cashier's check place at Slauson Ave in that nasty area of Los Angeles. I just wanted my forms to be filled up (just like you), sign them, mail them and be done with it. All of us think that’s all we have to do to be cool with the “devil” (the IRS).

Within  the years I became aware of stuff that can be done in order to pay less taxes “the loopholes” some call it, so my refund check will get fatter and fatter every year. But to get to that point wasn’t easy at all, it took me a few painful lessons through the years (money lost forever), a few letters from the devil himself, literally stressful moments, tears, and some blood too.

Everything started when I had a few simple questions that weren’t answered to my satisfaction, and then those questions became red flags, then concerns, then hell letters from the devil himself "notifications from the IRS". And all of that just because I trusted the wrong tax preparer, I thought he was competent ( next year I moved to the valley and keep a new guy for years). I’ve always noticed other people talking about their doctor’s bill deductions, commute expenses, mortgage interests, rent, auto, insurance, etc. and seemed like I was the only one not getting these deductions!

I’m the type of guy who saves all his receipts for everything, so, with that in my “DNA”, keeping records was never a difficult thing to do. I remember keeping all of my receipts  in a long line, stick one by one together in a long line IN THE WALL, yes I was a little weird back then, it just made it easier for me to add them up.

Anyway, every time I used to get pissed off at that incompetent tax preparer thinking  of the money I could  have had claimed, but I didn’t for my own ignorance, for that incompetent, unprofessional, ignorant, not up-to-date, but specially not-willing-to-explain-things-to-me tax preparer. I must say now (from the other side of the desk) the reason a tax preparer would not explain a thing to you is because he DOESN’T KNOW.

Get to the point! Ok, one day I found myself playing with the tax software at this real estate company I used to work for (horrible experience by the way), and I decided to redo my own taxes, for some reason I did not get the same refund, I got more, way more than I really got that year. Then, I started playing with the personal deductions area,but I learn that you needed more than a certain amount to really kick in (to make any difference) but when I went and play with the “business expenses," that was a sweet refund I was supposed to get, but business expense would be an entire new blog by itself.

That got me thinking “would it be possible to claim that money back?” I didn’t know better and decided to get enrolled in a four month tax class. During this time my due date to file my tax amendment elapsed. Yes I lost that money forever.

After my tax class was over and I got my tax license then I decided to file my first tax amendment, I got almost 3K back, and just because my old tax preparer didn’t know how to allocate my business expenses, this happened down the road, and this was my 3rd tax preparer!. For me it was just insane to think why in the hell the IRS won’t let me claim things so simple like phone expenses, rent, auto expenses, etc.

My First tax preparer, a girl who just imputed all my W-2’s information into the software, just like anyone can enter by  him/herself over the IRS website, and unless you know what you are really doing, then claim some of your deductions, even for me, a tax preparer with years of experience some times is difficult to find the drop down menus and navigate those tax software’s, because they change every single year. I know from experience!

My Second tax preparer, a guy who was just lazy, I remember bringing all of my receipts for him to do his work, just like I saw on those commercials, but now, I’ll never forget him telling me “I won’t be organizing and adding up those invoices," later after a few of my questioning of his job he basically told me if I was to use those invoices he would have to charge me more, then he said that it would make no difference to my tax filing. I should have report him to CTEC and to the IRS, that what I should have done! Next thing I knew I was walking away with all of my invoices in search of my next tax preparer.

Firing you tax preparer is a good thing to do, for the right reasons. In my “finding the right tax preparer journey” I’ve learned that you may have a lot of reason to do so, so far you can see I had plenty!

My Third tax preparer was another girl, she didn’t know the heck she was doing about my business expenses, and god knows I got plenty that year! A hint for me was when this girl put major business expenses on the “miscellaneous expenses” and writing on those blanc lines items like “office expense, cell phone expense, rent expense” these items have their own place at the main Schedule-C form, they didn’t need to be place all the way at the end, but I found out about it later, after the taxes were filed.

As you can imagine, when I got my CTEC license by mail, I was ready for better and bigger things. I started by amending my own taxes, fixing all these stuff that didn’t look, sound or just didn’t make me feel comfortable enough to leave it alone. Then, I told a friend about my experience, then he asked me a few questions, then he wanted me to do his taxes, and he kept coming for more every year; then he told to a friend, then his friend told to another friend, then all of a sudden I had five whole true clients! Although I always felt too embarrassed to charge them anything other than a lunch or dinner, with the years those lunches and dinners became small fees, then standard fees. That alone can be another whole blog by itself.

Well, I could be writing all day and night about taxes, tax advice, bad tax preparers, etc. However, I don't think I can keep you interested enough on the item to continue your reading of the topic.

The lesson learned for me? Regarding taxes “just trust you” ALWAYS, or call me. I'll be more than happy to help you achieve  short or long-term goals.

I hope and you enjoyed reading my very first blog, almost as much and I enjoyed writing it.