 Hi everybody. Today we have Alan Chen, CPE on the channel. So last time he had a lot of questions and I know to get CPE advice, I have to pay like thousands of dollars to get advice like this. So I'm giving it to you guys for free as well as having Alan on the channel. So thank you for your time, Alan. Okay, before we start, Alan has basically e-commerce accounting costs for e-commerce business owners. So tax and accounting, basically how to reduce tax and sort of your accounting stuff. So you have 50% off. I'll put somewhere on the link description in the video here, so you guys can check it out. I think it's limited to 50 units. So use the code OHG-50. Okay. So Alan, we're having, I think a Q&A session, right? So we have compiled a few questions from the group already. Okay. So you just want to give a very, very brief break down by yourself, then we'll start with the questions. Yeah, sure. Hey, John, thanks for having me on your channel again. Yeah, I realized you told me last time you got a bunch of DMs and inboxes from questions, right? Yeah, that's why I'm back on again. But yeah, anyway, if any of those guys don't know me, my name is Alan Chen. I'm a certified public accountant here in the United States. I'm located in Los Angeles. And basically my agency FreeCashville is focused on one niche and one niche only, just online and e-commerce business owners. So we offer an all-in package to basically help them wear any kind of sales tax planning, federal tax planning, state bookkeeping, helping with evaluation, forecasting, and really everything in between you can think of. And we basically offer a really personalized package just to provide for just this niche. Okay, Ken. So thanks for the introduction, Alan. Let's start. Okay. So first question is this guy, I'm 19 this year. This guy made over 200k this month. So I'm guessing he saw sales and marketing and management skill. Okay. His question is how do I not get audited or sued by the IRS if I run like a drop shipping store? Or like when does the IRS start knocking on his door? Yeah, a major concern. Okay. Yep. Well, first of all, congratulations. Whoever answered that question, 200k a month is amazing. That means you're a seven-figure guy, right? Annually. I think there's like multiple ways to answer this question. First, you're of course definitely going to be taxed if you're going to making 200k a month. So I would definitely start reporting it. I know a lot of people are very afraid of tax and tax situation. So they try to avoid it as long as possible. Please don't do that, especially if you're making six figures a month. But that doesn't mean you have to pay more than you have to, right? So if you are making 200k a month, you're potentially looking at maybe 2 million a year. I would say anything over 500k, I would definitely start reaching out to a licensed accounting professional, especially one that's in your field that you're doing. So if you're running an e-com store, I'll find someone that's really specializing in e-com accounting to look at your books and look at how much sales you're making and look at what great tax deduction they can get you. It's definitely worth the money, I would say. And also if you're 19, I will also be a little bit careful because given that you're so young, the IRS may look at that as a factor of, are you making this in a legit way, right? Because you're so young, are you doing drugs? How do you make 200k? Most people cannot make 200k a year, right? So for a guy to make 200k a month, it does raise some flags. So that is another reason maybe that you want to partner with someone to look through your books, make sure you are reporting the right numbers to the IRS and not making any mistakes or adding extra zero. You're actually making 2 million a month. So nothing like that, right? So yeah, I would definitely try to reach out for help if that was this person. Okay, okay. Next question is, how much money should I set aside per year to pay for taxes? So I'm guessing in, for example, like E-Com is very capital intensive, need a lot of cash to buy inventory, for example, right? But you still need to pay taxes. So how do we, how much do we set aside? Yeah, there's no, I would say there's no magic number of like how much you need to set aside for taxes. It really depends on each person's situation, for sure. I know it's a very vague answer. You're looking at something specific, right, Jonathan? But it really is the truth because I would say like some people, they start an online business, but maybe they have a spouse that works a W-2 job, right? That would really commingle and changes a lot of the tax thresholds that they didn't meet face with. And then some people may be, you know, running an online business and maybe have some like other stuff that they have going on, right? They may do a lot of stock trading or cryptocurrency with things like that, right? And those things will also impact how much tax, how much money you need to keep for your tax savings. But I would say in generally, if you just want like a rule of thumb, I would keep 20% of your bottom line for tax savings. So say you're making like a million a year, right? I would say you would want to keep around 150,000. And that might be too much actually. Normally, I'll say that too much. Let's call it 10%. If we're looking at just top line, if you can keep 10% of your top line as like a tax reserve, I think you'll be in shape. And this is cash sitting in the bank, correct? Yeah. I mean, because I would do want to caution, as you do make more and more money like seven to eight figures, things start getting more complicated, right? Because you also subject to a lot of sales tax issues. And sales tax means, you know, those are the tax collected by each state that you cost the threshold for the Nexus. So in case you guys didn't catch my last video, so Nexus basically any kind of affiliation you have with a certain state, and now in the world of online business, that can mean what they call economic Nexus, which means you just have enough of a concentration of customers in a state you're selling to that would trigger sales tax responsibilities. So for example, if you add up all your sales to the state of, I don't know, Florida, right? And it's over $100,000. The state of Florida expecting you to pay sales tax to them to their rate, which is around I think 7%, 8%. So that's why I'm saying don't only look at your federal and state and think that's it. That's all my obligations. Make sure you include sales tax in that. If you include sales tax in that, I would say 10%, it's a pretty good figure. Okay. Yeah. Next question is why is tax planning important? Why should I care? Usually it's, you know, people deal with it on the deadline. Or how do I actually go about planning for the year basically? Yeah. Yeah. So tax planning is a question we get very frequently here at FCF. And we get a lot of people on the calls and they're very confused. Like, why is it important? Do I just fill out some forms and put some numbers down? And that's it. That's that's how much I pay? No, that's that's that's actually the absolute worst way to approach tax pay. That's like, that's like the, I'll say the, what they call it, like a procrastinator of the way, right? It's like, Oh, no, it's April 14. I'm just going to put something down. That's how, that's how you really ensure you're paying the most tax. I say, like, if you're an individual person, you may not, the margin of how much you have to pay for tax may not be as big, right? But if you own a business, and if you own a six, especially seven or eight bigger business, that number really, really astronomically grows really meaning the gap between someone that does good tax planning and the someone that does it last minute, that's, that could be like 50 to $70,000, like literally, like that's like money back in your pocket, possibly if you do good, good tax planning. So why is it so important? Well, it's a lot more profit for you at the end of the day. You can think of it as another revenue source really, right? Think about it, another $50,000 to reinvest in your business, to buy that yacht that you wanted. So there's so many different ways that you can use that money, right? So I think a lot of the misconception comes from the whole April 15 date, right? People think, Oh, April 15, only time I have to pay taxes, but that's not true. Really, the true tax planning, if you think about it, happens during the last year, right? That's actually the year you're paying the taxes. So if you think about this year, April 15, well, this year is a little bit different with COVID, May 17, 2021, because the COVID deadline, right? But really, you're looking at your 2020 taxes. You're looking at January through December 2020 for how much tax obligations you guys have. So you really should be doing tax playing during that year. And there's a lot of things you can do, especially for growing businesses that's still on cash basis accounting. So there's a lot of things where you can do things like, I'm just going to give you a few examples. Okay, Jonathan, you can do what you do. You can prepay for inventory, which means you just buy more inventory that you know you're going to use next year, but you make sure you buy in the year 2020. That's going to be an extra deduction right there. You can prepay for software license, right? You know, you're going to use some kind of email marketing software or some kind of, you know, post-sales software, like re-convert, right? The I.O. You can prepay for it for a year, like annual subscription, save some money because you're paying annually, and get that as a deduction the year off, say 2020, right? So you can just buy that December 2020. If you're running an agency, what you can do is you have the flexibility of invoicing your customer later, right? So like for you, Jonathan, if you want, you can invoice your clients later, right? So you can invoice them January 2021 to not recognize that revenue for the year 2020. Then you wouldn't have to put that as your top line, right? So if you have a client that's going to pay you, I don't know, $20,000 a month, you'd be like, oh, I don't want to recognize that revenue and pay taxes on it. Let me worry about it in 2021, you can do that. You know, those are little strategies you can use, especially your cash basis taxpayer around year end to really kind of like work around and manipulate the numbers a little bit. And it's a very legal thing to do being a cash basis. It's nothing illegal. I'm talking about very legal. Okay. So you normally sit down with the client, say, look at all your expenses and then basically plan ahead. Okay, we're going to do this, this, and then just do it. Right? Is that the only thing or is there anything else in terms of planning wise? Oh, I mean, I mean, if you're really talking about planning, there's just tons of things, right? Because if you have a typical person or typical accountant or generalist that you'll say, just look at a tax form and just say, Hey, give me, give me your numbers. Give me what you think your expenses are and you just put it down. There's tons of things you're missing out on. Like there's, there's lines like business meal, business travel, there's COVID credits that last year that was, that was given out, that's not going to find any tax form that you're just not going to think about or, you know, plan around because I count and tell you about it. Your CPA didn't tell you about it, right? And those things will be too late to think about by time April 15 hit like April 14 that you can't pay those credit. If you didn't eat the business meal, if you didn't do the business traveling, right? If you didn't, if you didn't think about what credits you, you can possibly get, get, get yourself, it's too late at that point. You should have done it during that year. And those are the things that since we're more of a, I'll say an outsourced CFO service for our clients, we're there for them every step of the way. We tell them month after month, Hey, this is what you need to do to make sure that by the time you file your taxes, you're going to be one of the guys that's going to have to get your maximized tax savings back versus someone who just, you know, hands their stuff over to an accountant around April 10 and say, Hey, do it. And then times, okay, pay this much. Like, Oh, really? It's like, okay, I guess I have to. Some accountant told me, you know, so it is a huge difference between good tax planning and just doing it last minute. Okay. This question is so you see the numbers across industry, right? You see the numbers at the bottom line across industry. What pitfalls should economists, business owners look for when scaling the e-commerce business, especially I'm pretty sure multi seven figure plus eight figures. What's the pitfalls they should look for? Yeah, if you're talking about pitfall on the accounting side, just give me a couple, right? One is definitely not knowing your numbers, right? That thing that's in general, that's that's going to be a cover all a lot of time. I see these super successful e-commerce. They're at seven figures. They're almost maybe eight figures, right? And they don't have bookkeeping. They literally just keep their number on Excel. There's nothing wrong with Excel, but they keep it like randomly, like a number here, a number there, right? Like just not organized, not in any kind of financial statement. And they just, I'm just like, I'm just like really like flabbergast. Like, how do you keep track? How do you know how much, how much money you made at the end of the day? And they say, I make enough. I get a lot of answer like that. I make enough. Meaning like, you know, I make more than I'm losing. So that's good enough. And if that's good enough for you, that's good. You know, I can't argue with that. You think you make enough to cover your living expenses. That's all you wanted. Good for you, man. But for some of the guys, they're more, a little bit more, I would say aggressive or, you know, they really want ambitious and want to go after a certain future for themselves, for their family, for their brand, right? For those guys, I really encourage them to know their numbers very well, know their margins very well, right? Know what the winners and losers in their business, if they're running an e-commerce business, right? Like a lot of time they just look at gross margin as a whole. And that's even, that's even great. Like some people, some of our clients are going to do that. They look at a client, they're going to call and they're like, okay, I'm at 60% gross margin. Seems good, right? But what we do is we take a step further, especially if you're running multiple products, we break it down to each product's gross margin and to see which are the winners, which are the losers. And we're like, do you really need to keep these losers around as actually dragging down your profit margin, right? If you don't, you should get rid of them. You should only focus on winners and scale harder on your winners, right? Scale harder on the things that's giving you higher margin, right? So that's one point we want to make. The other thing is, you know, one important, I would say metric that I see a lot of people don't look at is they should look actually look at cost of good soul plus ad spend as one unified metric. Because a lot of time, if they just look at cost of good soul, they look pretty good, right? And then they realize they suck at running ads. And they actually need someone like Jonathan to run their ads. And they're like, Yo, you know, then they're like, yo, I need to fix this because my ROAS is actually terrible. And then then they look at the margin that it's only around like, you know, 10%, maybe less than 10%. And, you know, and they're like, oh, what's going on? And then they realized, realized the full story is they actually need to be better optimized on their ad side, you know? So those are two, I would say main cost, they have to control your costs of your inventory and your cost of your ad spend that you're going every month to see if you're actually making a true, true, you know, real profit at the end of the day. Okay. But even if you're looking at COGS plus ad spend, right, if you're in the growth company stage, you're expected to acquire customers basically at break even, right? Because you're trying to acquire customers. So is that, is that okay? Like, oh, it's just like, different businesses, then you just have different metrics to kind of look at. Yeah, I guess, yeah, it makes sense. I think it really depends on what your plan is, right? I think the, the, the, the e-commerce that come to us and say, hey, I'm purposely doing this to break even because I want to acquire just big enough, yeah, big enough customer pool because what I'm trying to do is actually do email marketing, for example, right? And I'm like, well, you can have a, you have a game plan that I'm not going to argue against it. I'm just making sure you have enough, you know, burn rate, you have enough cash flow to get you to that point, you know? Sometimes you have this great grand plan of, yeah, I'm doing this, but then I'm like, yo, you're bleeding cash. Do you know that? You know that, you know, you're not, you're going to run out at this point in this many months, right? So we're more in an advisory role. We're not running your business, obviously. We're just looking at your numbers historically and also try to forecast for the future, right? Like if you, if you're telling us your number up to the month of say May is this much, and this is how much you're running each month and how much you need for operating cash each month, we're going to tell you, okay, we're going to predict the rest of the year for you and say, can you get to that point to meet your goal, right? So we think, if we think, yes, we'll tell you that. We think, no, we're like, okay, you might need to change your plan because you're bleeding too fast. So those are things that are very important. We never, we never want a client to think they have this great plan going, but then at the end go cash negative, you know, and don't go out to complete it. Okay. Okay. Next question, what compliance and accounting problems will you run at 100K per year versus like a male per year versus like eight figures per year? So obviously the more money you make, the more problems you have, but what's the issues that most people face? Yeah. I think one big thing I mentioned is it's definitely the sales tax piece as you get higher and higher. Like if you're at six figures, I don't think you have much to worry about because most states threshold starts at $100,000, right? If you're a US base, but when you hit seven figures, when you hit eight figures, those marks, you really got to start looking at, you know, in a certain state, in a certain state toward a cluster of states, how many of those you're actually hitting that threshold where you're going to have to do sales tax registration for those states and then do sales tax returns for the states. So that can get pretty messy. You know, common thing is they think that they only have to look at the state sales tax rate, but they have to look further in that they have to look at the county rate, they have to look at the district rate and they have to look at the city rate and add it all together combined with the state rate to get what they actually need to pay for each customer that they're serving in that state. So yeah, I would say as they get higher and higher, definitely get someone who would get one of the software solutions out there if they must to really do their sales tax compliance well because they will start getting trouble in a lot of states and they're going to get a lot of these letters very fast these days because a lot of these, a lot, because online business booming right now, right? And all these states realize that. So they're like, we need to collect our revenue from these guys. And they're doing that. And especially if you're not running on Amazon, if you're running on the Shopify side, I think Amazon does have a way like we're holding for you a little bit. But Shopify is completely your responsibility, guys. Shopify does not help you out with that at all. So if you don't do that, that's going to be on you to handle the iOS and figure out how to handle the tax notes system, Leans. Okay, but like a sales tax threshold, I guess give a bit of background and like if there are 50 states, like how does anybody like measure or like, sorry, control like there are 50 states, there's so many things to worry about. How does any like e-com owner like figure it out, like there are 50 states that you can't be tracking for every single state, right? Okay, well, yeah, technically it's only 45 states collect sales tax. But yes, I understand what you're trying to say. Yes, it's a lot. It's a lot. I wouldn't do it myself. Okay, I will use software solution. There are software solutions out there. I can recommend some. I think tax jar is one of them. Avalara is another one, another good solution. They're more automation solutions, right? So they will calculate it for you. I mean, I would still try to get a licensed professional to check those numbers, even if you do use an automated system to run them, just to make sure that you're not overpaying them, right? And there's certain strategies also that I would say software will not catch for you. And, you know, if you had a CPA working for you, you know, you're wrong, we have an in-house person working for you, they will be able to better like warn you about. So for example, like I mentioned a lot of time, the threshold is 100k for a lot of states, right? But say you're like, if you had a competent CPA who's been working with you throughout the year and by, you know, Q3 or by November of the year, you're around 90,000 of sales for the state. Like just keep using Florida as an example, right? If you're 90,000 of Florida and I'm telling you, hey, if you had to hit 100,000, you're going to have to register and pay for sales tax in that state. I'll ask the business owner, do you want to do that? And I'm going to tell you what the impact is, right? Maybe you had to pay like $8,000 if that's the case, right? I'm like, is that $8,000 worth you hitting 100,000? Or is it worth you just excluding Florida and your paid ads and just focus on the other 40, 49 states? Does that make sense? And that's an $8,000 saving right there for this year. Because as long as you don't cost that threshold, you don't have to pay. You could be at 99,999 and technically you don't have to pay sales tax to that state. But if you just use software, they're not going to cash that ahead of time. They just would be like, oh, oops, you had 100,000, $3,000, you just cost over $3,000, you're going to have to pay this year. You see the difference? But if someone is working before you and helping you along the way, they can warn you for things like that. Okay. Ken, how do people learn about sales tax and how it works so that they don't get burned? I mean, there's of course a lot of online resources. If they just want to Google it, they can just search a certain state sales tax rate if they wanted to. Just a cell plug, the course that Jonathan mentioned beginning of the time, I have a entire module on sales tax. So it's pretty comprehensive and would help a lot of business only understand that. Okay. So what would happen if you actually don't file for sales tax or federal income tax? So it's interesting, right? So if you don't file a sales tax, the federal government won't come after you. It's just the individual states that come after you. Now, some states are more active than others. Some states have the money and the resource to go after the e-com owners. So they do. They go after you with full force. So California would be one of them if you don't want to piss off California. Okay. So for certain states are a little bit smaller and they don't have so much money. So maybe you can afford to wait a little bit on them. But I mean, in general speaking, if you don't pay sales tax or a state, what they can do is they'll put penalties on you. They'll charge you interest. And I mean, it doesn't seem like a big deal, but I know some states charge up to like 25% of your income as interest. It's like as a penalty. Yeah, it's crazy. It's crazy. So, and I mean, the worst thing I've seen a state can do to you is obviously ban you from selling that in that state. I don't actually know. I've never seen it happen, but it's just written on their website. It's like they can, they're on the state website saying they can ban you from selling, but I don't know how they prevent that if given that you're selling online, but I wouldn't try it. I wouldn't test it out, right? On the federal side, so on federal government, the bad news is technically there is no time limit as when they can come after you if you don't file your taxes. Okay? So if you don't file at all, right? It's not even just don't pay. You don't even file your taxes. Let them know that you have tax and pay. They have no statute of limitation when they come after you. Once you file and you just don't pay, right? Like you just don't pay the taxes. They have 10 years to come after you for tax fraud, tax evasion, unpaid taxes. I think the, don't quote me on this, but I think the rate right now is 3% plus the like kind of like the government's bond rate or the market rate, the free market rate as the interest. And John, forget this. It's compounded daily for any unpaid tax amount. So it's, I would just say like, you almost want to like overpaid at sometimes. You know, like, you know, just like if you have a nine to five job, sometimes you do overpay, right? Like you have a holding and then you overpay. But what they do is just refund you, right? At the end of the year. So it's, I always say business owners don't, if you don't know how much you got to pay, just pay a little bit extra. And then when you do file a tax at the end of the year, they'll give it back to you. The government's not going to steal your money other than keep it to make some interest for themselves, but they'll eventually give you a difference back, right? Okay. Okay. Next question. This guy's from an international seller. So he's asking, Hey, Alan, I'm not American. I want to sell the US market on to make sure I'm covered on the accounting side other than FEIN, tracking economic nexus in each state and registering for sales tax. Is there anything else that I should look out for? Yeah. So I would say if you, if you're not American and you're trying to sell in the US market, I actually recommend all like all of our international clients who set up an LLC in the US market for a couple of reasons, right? One, it brings legitimacy and trust to your business. So it just makes it a lot easier for you to, you know, talk with partners or banks or anyone that you want to associate your business with, right? So that's one reason why you want to see two is exchange rate, right? Exchange rate is horrible. If anyone would deal with exchanging USD to any, yeah, any other currency, right? They take like three to five percent. I heard even worse rates sometime five to 10 percent sometimes depending on what country you're dealing with. So that eats into your profit heavily. So being able to keep like especially with large concentration of US customers, which a lot of people I'm sure listening do, you want to keep the money you earn in USD and then spend the USD, right, for your expenses, that therefore avoiding the three to five to 10 percent of transaction rate fee. And the third reason is, you know, once you do establish enough of credit and trust in the US, you can open a bank account and open a credit card with that, right? And the credit card's point system is amazing in the US. They give three to four X ad spend points back to you. So that's like first class flights and luxury hotels for you, for your business, right? But as far as other things you got to do, if you do want to establish an LLC, there are certain compliance forms that you got to fill out. One of them is called 5472. This is basically a form that you fail to basically establish that you are a foreign entity that operates in the US and that you have a some sort of treaty in the US between your home country and the US, therefore, that you don't have to pay US taxes because you're just going to be paying tax in your home country. So this prevents you having any US obligation, which is great. And they'll just make you pay US taxes. And even further better is, if you happen to be from a country, say, I don't know, Singapore or Hong Kong, and those countries are territorial tax system, which means they only tax on income you earn within the borders of that country. So income, the income you made inside Singapore, there could be a way where you like, you really don't pay taxes on either side, right? I'm not saying this is going to apply to every situation out there. So this is the huge warning out here. Now I'm just going to have this, but the officer in situation where you're just your US source income might not get taxed and a lot of like both jurisdictions. So there's a lot of ways maybe you can do, you get a lot of taxing out of that way. But yeah, I would just say I would set up an LLC just to establish shelf, have that legitimacy and then to figure out from there. Okay, understood. Okay. Next question. I guess simple one. What's the difference between S corp LLC and C corp? Which one should I choose? Oh, okay. Yeah. So a business entity question is we get off and also, I would definitely say if you're just starting out, go LLC. It's the simplest thing to set up. There's even a lot of like sites that just helps people set up LLCs now and they make it so much simpler than you go and do the state website and doing it yourself. Of course, that's possible too. We just want to save a little bit of money. The reason you want LLC is the preferred method is because yeah, one is simple paperwork and two is if you don't set up any business entity, you're so proprietor, but then that others offer you any kind of protection, right? People set up an LLC because it's a limited liability company. That's what it stands for. And it offers you personal liability protection, meaning that if someone sues you, they can't come after your personal asset. They can't take your home. They can't take your car. They can only take up to your business assets, right? What's in your business account, business bank account and a business asset. We have inventory, for example. And beyond that, I guess, why would you want to go with the other two? S-Corp or C-Corp? So C-Corp is definitely the most complicated. C-Corp is what you think of when you think of Facebook, Amazon, Google, the big companies of the world, right? The Fortune 500 companies. And the reason they're C-Corp is for a couple of reasons. One is they want that kind of, I would say, ultimate company status because having a C-Corp puts you in the cost eyes of a lot of regulations, a lot of county regulations, a lot of federal regulations. And even though it's a lot of work and complexity, what it also brings you on the pro side is it brings you a lot of trust for your business, right? Knowing that so many people are scrutinizing, looking at your business, you're doing the whole financial audits for your business. So your numbers are very look after, right? They trust it. That's one reason why you will have one C-Corp. The second reason is just raising capital, honestly. If you're a company that have grown big enough where you're looking to have JV money, right? For any kind of investors. S-So it was JV? S-Oh, like any kind of like joint ventures or any kind of like venture capitalist money, like VC money, anything like that. You will want to be a C-Corp because those companies are going to be like, okay, I need you to be a C-Corp because I want you to go do a financial audit and be legit and I can trust your numbers, right? Because when you're a C-Corp, there's a lot more paperwork you got to do. You got to set up like a board, you got to have a president, a vice president, a secretary, you got to do minutes, you got to do board meetings. There's a lot, a lot of rules, but the advantage is you're the most trusted company form, right? The other thing, the only other reason you all, not was the only, but there's a couple reasons, another reason would be, you know, right now in the US, C-Corp technically do have the lowest tax rate forever, you know, due to what President Trump did with his tax act that he introduced, C-Corp tax rate, corporate tax rate has lowered from 35% to 21%, which is the lowest the USF has seen for like, I don't know, four or five decades at least. So that'll be one reason, but like I said, it's still going back to complexity, right? Because technically, you, when you're running a C-Corp, you just, you got to be running what they call double taxation. You get taxed at the corporate level, so to 21%, but then if you take any money out of, of the company as a, as say, a share owner or shareholder of that company, you get taxed again at your personal tax rate, which can range from 10 to 38%. So that's double taxation. There's ways around it. You can just take a salary, for example, and just take no dividend payments, you know, just ways around it. But generally, you do get the double taxes and issue, but there is cases where you just keep money inside the company, right? And, but then there's also, there's still more complications because there's also ways where the US government has caught on and say you can only keep this much in the corporation and the rest you have to distribute out, or you face penalties. And, okay, now we talk about the last one, which is S-Corp, right? The S-Corp is kind of the in-between between an LLC and a C-Corp. It's what they call the hybrid corporate structure, right? And the reason they call it a hybrid corporate structure is it is not as complicated as a C-Corp. Like the amount of work you don't, you have to do to set up is not as much, but it's also not as simple as an LLC, right? So you get kind of the best of both worlds in that you still have a corporation, but you don't have to go do all the paperwork and all the structural things you have to set up. And then the most important reason why Ecom owners or even agency owners want to do an S-Corp is the avoidance of self-employment tax. So I'm not sure if you guys know, right? So as a self-employed person in the US, you have to pay what they call self-employment tax. And what you have to pay basically is an employee portion and an employer portion. And each side is around 7.65%. So if you add it both together to about like 15, 15, what's called a 15%, right? So that's like 15% of self-employment tax on your income that you make bringing in pretty, pretty big significant, right? But as a S-Corp, you basically can act as an employee of your own company and you would cut that in half. You save 7% of your income. So if you just think about it, if you say you're making 100,000, say you're making a million dollars, what does that mean to you, right? What does 7% mean to you? And you can do kind of do the math from there. And so a lot of time, it's worth it for company that has a net profit of more than 100,000 to do that because they can take that net profit and pay themselves a salary out of it, a reasonable salary. And whatever salary they pay themselves, that amount is the only amount that's subject to the self-employment tax while the remainder will not be subject to the amount. But then you kind of need a professional to let you tell you what's a reasonable salary. You can't just declare yourself. You know, you can't just say yourself, hey, I think I'm worth only $2,000. Well, I think I'm worth $80,000. You need someone to measure that and give you the market value while you're worth due to your company that you're working for. Okay. So why would an e-com owner, so I may follow up the next question, the business structure to pay the lowest amount of tax, right? Would an e-com owner consider going from an LLC to a C-corp? Like how would I say it? LLC to a C-corp? Yeah, to pay the lowest amount. I guess you're going to say technically yes. I would say technically yes because, like I said, right now the flat rate is 21%, right? But like I mentioned, there's two factors against that. One is the fact of it's going to be a lot harder for you to take out money from the company because you either got to pay yourself a salary or you got to do a dividend, right? But need a way, if you pay yourself a salary for a dividend, that money becomes your personal income. You get taxed again on it. It's just different rates, right? Dividend gets taxed a little bit lower rate because it's considered capital gains, but then salary gets taxed your normal personal income rate, which like I said is 10 to 38%. So that's one reason why you wouldn't do that, right? Because then you had to really hire a good amount of accountants and CPAs to help you figure out just the right amount to take out and just the right amount to keep in. So just, I would say the headache is usually outweights the tax savings, but if you have grown to an amount, I would say like, I don't know, like 50 million or more. Then yes, I would say at that point, you kind of want to offer the C-Corp because when you're at that point, you're looking at growing to a large number of employees, you're looking at probably bringing in outside investor money, right? So then they're going to request that. They're going to ask you to switch to a C-Corp at that point. But for most E-Com owners, that's, you know, I would say in the five, 10 million or less range, I would not do it just because of the complication and the extra headache for the E-Com owners to deal with the C-Corp. But it's kind of your mileage will vary, you know, depending on that, but there may be other factors that may push you to a C-Corp. You know, if you, if you are, there are a lot of possible exit strategies that you're looking at, that may be a reason why you want to go C-Corp. Okay, next question. Hi, Alan. I'm wondering how to handle sales tax in other states. It looks like most states want us to collect sales tax, but do we register our business in every state? Okay. Yeah, great question, whoever submitted that. It's, you do not want, you don't have to do it ahead of time. I just say that, right? So say you're already selling to 50 states. That doesn't mean you have to just right away register all 50 states to selling them. No, that doesn't mean that. It's exactly, we go back to the threshold rule, right? It's only when you cross that threshold is when you have to register for that state. So I know we've been keep using Florida. So we'll keep it, keep it consistent. So Florida say they have a 100,000, I'd usually it's two, two parts actually, it's 100,000 would like 200 transactions, right? It's like one or the other that you meet, you have to register for sales tax. So if you do hit that number and that, that, those are the figures that for Florida, then yes. So say you made $100,000 of sales to Florida customers this year. That's when you, that's when you file, right? So say California is 500,000. Say you hit 510,000 and in California, that's when you file. So don't do it beforehand. It doesn't benefit you, I would say, because when you register, they're expecting you to start collecting from your customers. Okay. Ken, next question. What will an accountant do with, will he help with tax and registration process? The tax and, yeah, you get it. Will he help with the tax and registration process? Yeah. I mean, that depends on the accounting service. Some, some accounts offer very limited scope services, right? It's like some just focus on bookkeeping. Some just focus on tax. Some just focus on consulting. I mean, here, we're like, we are free cash flow. We kind of take all three piece and kind of package together because we don't, we don't want our clients to like have to look for three different accounts and then have all three accounts talk to each other and work out a deal of like, okay, this is why we think the clients should do. We kind of just say, hey, we wanted to eliminate all that headache for them and we'll just figure out all three issues for them. So like for us, yes, we, we help with registration. We help with the sales tax process and help, help you with the bookkeeping too. So all three pieces. Okay. Next question. Hi, Ellen. I run multiple drop shipping e-commerce stores, one general store, a few niche and some branded as well. How should you advise me, should I put it all into a single LLC or how do I structure, I guess corporate structure wise? Yeah. Yeah. Yeah. Yeah. That's an awesome question. Whoever submitted that. They're thinking way ahead of the game. So I would definitely advise against single LLC setups, especially if they have multiple successful brands, right? So say they have like two or three big brands, right? Like a, like a, I don't know, a pet brand or a beauty brand, a nutritional brand, right? These three categories are totally separate, right? Like they don't, they don't relate to each other at all. So I would, if I, if I was them, I would set up a separate LLC for all three different brands and the reasons are very simple. It's diversifying your risks. If you think about it, if for some reason your pet brand, you know, you make a pet bed and for some reason the pet died sleeping on your pet bed, I don't know, because the material is something to alert you to, right? And then that customer sues you, you don't want them to be able to come after all three of your companies, right? You want them to only be able to, to bring down your pet bed company, you know, you know, God forbid kind of thing. They bring down your whole company, right? So, but then, but then your other two company lives on your beauty brand, your nutritional brand, they, they, they're fine, right? But if you have commingle all three businesses into one LLC, then technically the, the, the court, the court that you go into with a judge can deem that this is actually just one business, you know, one business entity, and they can go after all of it, right? So that they have a place, they'd have a big settlement or a big ass, they asking for like 20 million, you know, they can go after all your business assets at that point. So that's why I would, you know, with how inexpensive setting up LLC is, I would definitely advise separate out the LLCs. Don't, don't just scoop it all in one. Okay. But if you're separate LLC, you need additional accountants, additional accounts and everything, right? Especially additional costs, duplicate, right? Yes. That's why, that's why I only advise if you're running a multiple successful stores, right? Okay. So say, say you're running only one successful store and you're just testing the other stores, right? And they're making like, you know, 200 a month, 200 a month, of course, it's not worth that your time to separate out. And like you said, have separate, but keeping, you know, maybe incur higher accounting fees for that, right? It's only when you're running, when you know that these businesses have taken off, right? There's six, seven bigger ones. That's when you do, you have more, you have more to lose when you say a lot more to lose in those cases. So you, I think at that point, it's worth the accounting fees, well, whatever it is, you got to pay someone to, to separate it out with LLC fees. Okay. Again, next question. Do I charge taxes to everyone based on the country they are purchasing in? And if so, how do you manage or organize tax payment information to ensure you're paying taxes to the proper government bodies? Or does Shopify auto submit that for you? Confused at how to set up taxes help? Yeah, long question. Oh, okay. So it's a lengthy question about, I'll try to take it from the beginning. It's okay. I think, I think I got it. So one is, does Shopify help you with this? The answer is no. They don't, they don't, they don't submit or remit or tell you how much you have to pay and sell tax to any state. Okay. Just, just got to get that out of your mind. Shopify does not help you. Do not, do not expect Shopify to help you. I guess one. And then the second thing was, do you only charge taxes on good purchase in your country? Do your business be sizing? I think, I'm assuming that person is international that's asking this question. Yeah. So that's why it's a little bit hard to answer, right? So I guess if the international person is selling in the US, I think I can answer that part of the question for them, meaning that if they're selling the US is the same rules that applies. It's the economic nexus rule, meaning that if they have sold to a large amount of customers in a certain state, then yes, technically they would be obligated to pay self-tax to that state. Now, how easy is it to go after that person who's international and non-resident? That's, that's a whole like great area of questions. I'm not going to go into that, but yes, and technically in the eyes of the law, as long as you're, yes, you're selling to a person and the shipping address is to a certain state, that's how they count what self-tax you have to collect for that state, if that makes sense, right? And as far as, I guess, the, I know he's trying to ask for other countries, that unfortunately I can't answer, like, if he ships to Europe, how does he deal with that? I think you have to pay that. I don't want to answer that too closely. So I'm not a European accountant. Okay. Ken, next question. Alan, give me the hex. Okay, give me the hex, like, not well-known tax deductions that I can use right away to farm my taxes this year. As a, as a YECOM owner, as agency owner. YECOM. YECOM. YECOM. Okay, okay. Yeah, I mean, there's, there's a lot we can talk about. Obviously, I mean, I'm just going to, I'm just going to roll, roll, roll through them because I don't know who, who knows what, right? Cause a lot of information out there. So, started off, I think it would be like startup cost deduction would be one. That's really nice. Like, if you guys are just starting out in the world of YECOM, this is one you probably want, want to take right away to help you reduce your tax, your taxes a little bit for, for the year. And startup cost is basically like, like the name mentioned, it's the cost of starting up your business, right? So it's any kind of product research you've done before you start your business. It's any kind of incorporation, like filing fees, like cost of standing up your LLC, anything like that is basically startup costs, right? Like what was the cost of starting up your business? And those are the things you can take up to $5,000 your first year as a tax deduction right away. So that, that'll help a lot of you like just starting out. So if you guys starting out, that's a great one to start with. Another thing to look at is of course to look at, make sure you capture your, your business meals, right? I think a lot of time people don't realize this, but if you're a full-time business owner, a lot of time, you know, the, the technical, I guess, wording for business meal is that you have to be doing business with someone. Okay. So I want to make sure that people are clear. So technically if you're just, just sitting in a room, like, like, like me and Jonathan is doing, when we're not actually talking to anyone else, it doesn't, and we're eating a meal, it doesn't count. Okay. Technically that doesn't count. But given that we're doing online business, how, like there's so many occasions where you're actually talking to someone, right? Think about it. If you're doing customer service, you're talking to someone, you know, if you're talking to a supplier on Skype from China, you're talking to someone. So there's like so many occasions where you are conducting business because you're online business, right? Because I think when I always wrote this rule, they're assuming you're like an office job, you know, where you have to travel somewhere to talk to a supplier or a logistics, but people wanting online business, technically you're conducting business just by sitting on your laptop, right? So don't forget about business meals because a lot of times unless you're literally just sitting by yourself and not looking at your laptop and just sitting at a desk and not doing business, you know, that wouldn't qualify. But I would say 80% of the time you can find a way where business meal will qualify as a business deduction. So you should take advantage of that, right? Another one is of course business travel. As COVID has been lifted right now and you guys start doing more traveling, you know, any kind of business related travel you can deduct, right? And that includes the airfare, lodging, and luggage fees, and even a gratuity that you paid that will count and laundry that you do during your trip will count and kind of a bunch of other masculinist things. But the point is if you're starting traveling, even if you're going to attend a conference, right? Like an e-com conference, or if you're just traveling to China to visit your supplier, any kind of trips like that, you should try to get a full deduction for any kind of dose costs. And then beyond that, you should also look at your home office deduction, right? Most of you are now working from home because of COVID or because you're just a digital nomad and you don't need an office. So IRS is actually very generous with their home office deduction. Home office deduction is basically as long as you have an exclusive space in your home that's only serving your business purpose, right? So it can't be for anything else. It has been both, but basically a living room would be a bad place to put an office because living room is technically also for recreation, right? But say you have a room dedicated to your business, you can take a deduction for how much of that room you use for your business, right? So there's two ways to calculate it. There's a simplified way and a more, I'll say, complicated counting way of doing it. I would definitely look at both, but I'll let you guys know the simplified way because you guys are doing your own taxes. The simplified way is super easy. The simplified way is you just look at how many square footage you're using for your business up to 300 square foot and you multiply it by the IRS rate of $5, right? So say you're taking up the whole 300 square foot of an office for your business, you just do $300, sorry, 300 square foot times $5, it goes $1500. There you go. That's your tax deduction, $1500. Now that's good and all, but let me introduce you to the other more complicated way, okay? And why you hire a good accountant, they'll look at both. The more complicated way is called the actual expense deduction. The actual expense deduction says we're actually going to take a percentage of the usage of your home as a deduction and we're going to take a cost many, many of the expense categories, right? So let's take a concrete example. Say you have a 1500 square feet home, right? And you're using 500 square feet of that. So we'll do 500 divided by 1500. That's 33%, which means you can take 33% of your utilities. So electric, gas, water, you can take 33% of your rent, 33% of your mortgage, and 30% of any repair and maintenance you do. So you repair the roof of your, if you're home this year, you can take 33% of that. And if you just repaired, you know, your actual home office that you're using, that's actually 100% deduction because that's a direct deduction because that's only for your home office. So if you think about this side of the category, we have, you know, we have got our client up to like $20,000 to $25,000 back in a tax deduction. And that's a huge difference when you think about the other side's limits of $1,500, you know? So that's why you really want to do your comparison, really want to be knowledgeable about your tax deductions and not get gypped, right? Because if you think about it, if you just do your taxes, file it, and you don't know about this side, that's another $20,000 you can potentially be missing out on. Okay, question from me. If I buy like KitKat or biscuits, is that deductible? KitKat or biscuits? Yeah, I guess if you treat it as a business meal, if that's your lunch, you know? That's like how? Snacks in office, if you have an office, yes, it counts. But I think you need, you need to have employees. Okay, got it. Yeah, Ken. Yeah, if you're paying for snacks for your employees, or you're throwing them a party, it counts too. So you can be very generous, you know, if you have employees and throw them a party. You know, there's pantry, like pantry, kitchen pantry. Yeah, pantry snacks, yep. Okay. But you just need employees, it's not for yourself. Okay, Ken. Yeah. Next question, when should I start worrying about accounting? When should I start worrying about accounting? Six figure mart is probably the, I would say, the time, right? You get six figure mart, you should start either studying up yourself by educating yourself on accounting laws and taxes or reach out to a professional and get some consultation. Okay. Next question, how much cash should I allocate towards deposits in the bank, sitting in the bank towards my product, towards wages, buying inventory and any advice on managing cash flow? Okay. This is a very general question, right? Because it can, it's really product, you know, even, even, even e-com, right? It really depends on what product line you have, right? Like a fashion brand and nutritional brand is very different, right? And then a one that's selling wash, wash a tablet is very different as someone's selling like big equipment, right? So I don't know if there's a general rule to doing it, but what you can do is you can do analysis on your numbers to figure out the right answer, right? You can do casual analysis. You can do burn rate evaluations to determine kind of like a 12 to 18 month trending of your business based on historical to see that, you know, this is how much cash I burn every month. This is how much my operating expenses every month for the last 12 months. And then you use that to kind of predict the future, right? If you're saying your revenue level is going to stay consistent, like this year or last year, then you're like, okay, this is how much cash I'm going to need this year also. If you're saying your revenue is going to take a 30% bump this year, then you know, you also need to bump up your cash cash for about 30%. You just bump up your probably 30% of your operating expense by 30%. So that's kind of way for you to estimate and forecast going forward. So then you know that this is how much cash cash I need to keep in the business for tax and operating. And this is cash on how much I catch. I can use to, you know, either reinvest in other product lines or reinvest in myself. Okay. Cash versus accrual accounting for e-commerce businesses. What should we use? Starting out when you can, I would say you definitely want to start out as cash basis. It's just easier to understand, right? Cash goes out. That's its expense. Cash comes in. It's revenue. Super easy, right? Accrual method brings a lot more complication. It makes it a lot harder to understand because it doesn't follow cash. It follows what they call like usage, right? The actual usage of the expense or actual recognition of the revenue is what they do. So a little bit more complicated. But I would say as long as you, they don't make you switch to accrual, which is usually around a $5 million mark for tax reasons and a million for bookkeeping sometimes. So as long as you don't, I guess, seven figure, I guess it'll be the right number, right? Seven figures is when you start kind of got to be like, oh man, do I need to switch to accrual? What can I keep cash, right? Usually don't want to switch to accrual until you have to. I'm going to make you switch. So cash is just more flexibility. Like I kind of mentioned the other question. There's a lot of ways you can manipulate how you do it, right? Like you can, like I mentioned, you can prepare your inventory, prepare your software license or delay your revenue invoices, right? If you switch your accrual method, all those things are out the window. Okay. And next question. This is a bit biased, but how to choose an e-commerce accountant for my store, for my e-commerce business? Oh, yep. How to choose an accountant? How to choose an e-commerce account? Okay, okay. I mean, there's a lot of ways you can choose the right e-commerce accountant for your store, but obviously if you're looking for e-commerce account already, you're already on the right track, right? You're already looking for someone that only focus on e-commerce, thus e-commerce accountant, right? Okay. I'll say this couple of rules. First, make sure your e-commerce account is a CPA. That's very important. The CPA is kind of the highest certified level you can reach as an accountant in the U.S., right? So you know that person is both neither rich in education and experience, right? That's one. And obviously you want to hire an e-commerce account that understands your business from top to bottom, right? Hire someone that speaks your lingo and you don't have to explain to any to him. One of the biggest frustrations I hear from clients is like, oh my God, my account doesn't understand any I'm saying. When I tell him about Aspen, when I tell him about ROAS, they don't know what I'm talking about. You know, when I tell him about my Facebook account, I banned it. Like what account? What account got banned? So don't hire someone like that, doesn't understand. Just test them, right? Test them on lingo. Number three is hire an account that already has clients in your specific niche. Let me let me let me let me let you know what that point. So say you're a fashion brand, right? And you are interviewing accountants right now. Say, hey, why should I hire you? If that account's answer to you is because I have two other fashion niches already, that's a really good sign. Why? They understand you. You don't have to explain anything to them. Any part of your PNL, the profit and loss statement, any part of your balance sheet, they understand already. They know what kind of inventory you should have. They know what kind of margin you should be meeting. You know, they know what makes you profitable. They can answer questions like the last one, how much cash you're keeping your books, right? That's how why it's so important. Number four, hire a US e-com account if at all possible, even if it costs a little bit more. Let me explain why, okay? Okay, so I know a lot of you, there's a lot of options right now for accountants, right? You can hire one of five or even you can Google one. You can hire one upwork even, right? And a lot of time, of course, the international ones are going to be cheaper, right? Just like anything else. I'm sure a lot of you guys use the VA's and stuff. Well, accounting is one of those subjects where you may not want to do that because of how sensitive it is, right? Just think about it. Once you're trusting a CPA, you're providing them with all your financial data, right? Your bank information, your credit card information. Do you really want to give that to an international person that you can't track down and don't know? Probably not, right? You kind of want someone that has a registered US business located in the US that you can easily locate and find, right? That has a US license number, a CPA number. So then it's, you know, that person's in legit and you know that person's going to follow all the rules of the US courthouse and US laws that make sure that they stay in line and go with the fiduciary duty to never reveal any of your client information because they have a duty to not do that, right? So that's why it's so important. And of course, number five, I would say, you know, you want to hire an e-com account that's going to be supporting you all year around and can kind of be your outsource CFO. Let me know what, let me tell you why that's important. Like if you haven't taken away anything from this video, is that I'd hope you take away that you kind of want an accountant that's just not there to do your taxes and just put some numbers on the paper for you. That's not what you're after. You know, if you're really trying to scale and really trying to get tax savings, you're looking for someone that's actually cognizant and really looking out for you every step of the way and doing tax planning for you month in and month out, doing the monthly bookkeeping for you month and month out, making sure everything's allocated in the right place in the right right expense allocation code, making sure that they understand your business in and out, tell you your margins, tell you when your margins are falling and let you know when you know you can plan for an exit even, right? That's why it's so important to have a comprehensive account that's kind of around for you all year long because they can help you solve so many more problems than just tax issues. I think that's what people don't realize out there, but yeah, those kind of my top five, I'd say criteria, if you will, to look out for an e-com account. Okay, and to follow up that question, so what type of questions should we be asking this accountant if we're interviewing him and obviously not from an accounting background? You usually ask them questions about your industry, right? Hey, do you understand how an e-com business and nutrition, do you see what a margin for that is? You should ask him questions like, do you have clients in my specific niche? You should ask him for his CPA number, right? You should ask him where he's located, right? Is in the US with someone else, you know, is in a very shady country. We could of course ask him if he's a CPA just in general, right? And yeah, I think you can ask those questions and they don't stumble. That's already a super good start. And they're already like, yeah, I don't know. Yeah, I can't give you that. Then next, you know, exhale, exhale your call. Okay, okay. Next question, how do you settle payroll? I usually pay my VAs through PayPal and other stuff. But if I want to hire full-time stuff, for example, how do I settle payroll? What software do you recommend? Why? Also, what are the advantages of the software that you recommend? I mean, I think there's a lot of payroll provider solution out there. I know, personally, I don't like, we use Quickbook Online a lot, right? And Quickbook Online, Quickbook put into it has their own payroll solution, right? But if I'm going to be honest, my most recommended date one, recommended dated one, is going to be Gusto. The reason why is Gusto is kind of built just for startups or like businesses, like online businesses. They're very, I'll say, reasonably priced. They price per head, per like headcount. So then, you know, you're not going to get overcharged. And then they're just really easy to set up. They just walk, walk, you do it. The interface is very intuitive. And they take care of all your payroll forms that you need to fill out, right? Okay. So it's very, and it's also very easy for your account to kind of like get in sync with them. They have a portal just for accountants. So then, even if you don't want to do it yourself, your accounts can just go in and run your payroll for you on your behalf. So it's just very intuitive. They kind of like plan ahead knowing that this is the niche they want to serve with online businesses. Okay. And Gusto is spelled G, how do you spell it? G-U-S-T-O, but I can include a link below if you need it to. Sure. Okay. Next one, can I deduct my taxes when I buy inventory for my e-commerce business? Yes, absolutely. Absolutely. But it's not how you think about it. You can deduct it once you use the inventory, right? So it's not that it's not when you purchase it. It's when you use up the inventory. Does that make sense? Use up means what? Like when you sell it? Cause a good soul. When you sell it basically? Yeah, when you sell it, exactly. Okay. So when you're buying from the supplier, you can't deduct? Yeah. So when you actually when you're actually selling the inventory is when you can, you know, write down your income to the lower taxable income number, right? So I guess, I guess it's you, you can, you think of it two ways, right? When you, when you actually buying the inventory, you're actually paying cash for it out the door. So if you're a cash basis, a cash basis, technically, yes, you can take a deduction for it, but you got to kind of see, do you want to? Is the, is it correct to take it at that, at that point in time? A lot of time in, you may be, I would say, you may not even have that much income to absorb that inventory deduction you're taking. So it may be that you're putting in a situation where you don't want to take that deduction. You may want to wait until you sell that inventory to take it. But there are situations where you're just like, screw it, I just want to take all the deduction the year off. You can do that. But then you might set yourself a little bit bad for the next year, right? Cause you're technically, you're buying ahead of next year's inventory. So the next year, you don't get that deduction. Does that make sense? Less tax be paid now is better than less tax next year, right? You're enjoying? Yeah. If you're looking at like present time of money, sure. Yeah. Yeah. I am. Okay. Yeah. If you are, yes. Yeah. Yeah. Okay. Got it. Next one. What's the difference between a software like A2X and QBO? So QBO I think stands for QuickBooks Online. Yeah. A2X, I'm not super familiar with, but I know they're more of a newer company and they basically offer a way for you to sync your Shopify data if I'm not mistaken directly with their platform. Well, QuickBooks Online is not that intuitive, right? You kind of have to just do it from, you just have to enter it manually almost yourself and you kind of need more outside help to do that usually, right? You need to hire like a bookkeeper or someone like that. A2X I think is built for Shopify owners in a way. I think it's like more of like concentrating a solution for them. I haven't used it myself, but I heard good things about that. Okay. Yeah. What key metrics should I look at in my e-commerce business? So just now you mentioned gross margin, but is there anything else that this guy should look at? Yeah. So like I mentioned, you don't want to look at just gross margin. You kind of want to look at gross margin plus the Aspen portion of it, right? Anything else? Those two? The true numbers. I mean, there are the key metrics. You do also want to look at your burn rate. Burn rate is very important. Burn rate basically measures how many months you have to go before your business runs out of money. Just to mean they're profitable. Assuming they're profitable already. Assuming they're profitable, okay. Assuming they're profitable, then you probably just want to look at free cash flow, right? Free cash flow measures, how much cash you have that you don't, that don't get absorbed into any operating expense of your business, right? It's like, it's the money you have that's outstanding that you can do other things with. So you can think about it as money that you know that you don't want just sitting there, right? Like the savings account somewhere. You kind of want to know that this is the amount that you can safely use to need to invest in real estate or stocks and bonds or just reinvest into your business line, right? And double down on another product line. So that's a very important metric to have. Okay. Next question. If I'm not American, but run a USA LLC, do I still have to pay US sales tax? That depends on nexus status, very much so. So there's two suicide nexus. There's physical nexus, and then there's also economic nexus, right? Physical nexus basically measures any kind of physical attachment you have to a state in the US, right? So think of it as you have a warehouse in the US fulfillment center. If you have any kind of agent on the ground, right? Any kind of employee, a person that works for you in the US, right? If you have any kind of affiliate program where there's like you have a network of people that's recommended your business in the US, right? Those are all physical nexus possible, right? Economic nexus is you have a strong enough concentration of customers in the state. So 100,000 is what the number we keep hitting, right? But say your Ecom owner, an international Ecom seller that just started out. Don't worry, right? You're only making 10, you're only selling to $10,000 in the state of Nevada. You don't want to pay anything. You're only selling $20,000 to the state of California. You're good. Okay. Okay. Next question. What are the top five mistakes that Shopify sellers, like myself, what should we look out for in text and accounting? Number one is not doing your quarterly estimated tax. So like it goes back to that misconception that a tax is an annual event, right? But actually businesses are required to submit quarterly taxes. So every three months, you're supposed to submit tax to government. Number two is not looking at your transaction fees. Transaction fees are a huge killer, right? And then you really need to know how much you're paying in transaction fees. And that really adds up in accounting and it's a tax deduction. So don't forget about that. And number three is not having good enough bookkeeping to track your margins and your actual profit, right? A lot of time, like I mentioned, owners just have information to scatter everywhere or just look at top line Shopify screenshot data saying, oh man, I'm making, I made eight figures. That's not your real profit. That's not your real profit. You got to look at your whole picture. And number four is not understanding cash flow, right? Not understanding that how much money you actually have access in your business to do more things with it than just have it lying around, you know, in a savings account. And number five, of course, not maximizing your tax deductions. There's so many different ways of doing this. Like I mentioned, there's so many ways of educating yourself on tax deduction and credits. So if you are not doing that right now, I highly encourage you to start learning about them. Okay. Next question. What is your recommended accounting software? I think it's QBO and why? Yeah, definitely QBO because that's our preferred software. Three reasons is scalability, automation and multi-business support. You know, scalability means that the software grows with your business, right? It does have certain limitations at the higher end. But I would say for most e-commerce is more than enough as you scale to seven figure marks. Number two is, of course, automation because QBO is so, I would say used by so many people. It has a lot of great automation syncing where it syncs with most credit card providers. It syncs with most bank accounts. So a lot of automatic fees goes in. So there's not a lot of manual entries you have to do where we use a lesser known software that may not have like a specific bank that you're using, right? And then three is just multi-business support, meaning that, you know, it handles all type of businesses, right? Not just e-com. If you run an agency, it handles that. If you run a SaaS business, it handles that. So it handles all kind of business. So if you pivot to something else, it can also do it. You don't have to switch accounting software. It can handle all of it. Okay. Yeah. Next question. Do you use any software like taxjar.com, quadeno.io, taxdo.com, Avalara, to automate sales tax calculations and do your filing? And what do these softwares do compared to QBO? So I'm guessing this guy's shopping around. He wants to know your opinion. And yeah. Yeah. So the two I heard of or you have seen people who use the most is definitely taxjar and Avalara on that list. They're the two most popular and from what, from the feedback we got are the most easy to use. We, on our agency side, we don't use those software. We prefer to use our own proprietary method of calculating sales tax. So we don't rely on the software to do it. Okay. Yeah. Next question. How do you record all your expenses in Shopify? Is it automatic or do I have to manually pull the data from Shopify into Excel? Bro, nothing is automatic in Shopify. Shopify is technically, it's very, it's very terrible for like taxes and accounting and bookkeeping. Honestly, it is. Okay. I think there's some solutions as far as Shopify app software that I've seen that does okay job, that makes it better, but it's not perfect. There's no perfect solution there that I found. Shopify is also not the best source of truth. If anything, you want to rely on your PSP, your payment service providers, meaning like PayPal or Stripe to be your source of truth of how much money you're making. So don't rely on the Shopify numbers. And, and then if you're talking about recall your expenses in Shopify, I'm guessing you mean like your app, your app fees, and your Shopify payment. I mean, those, yes, you can, you can rely on. I mean, you just have to take the number out of Shopify and put it in some kind of county software, I would say. Okay. Next question. I paid like 60K in taxes last year, and I feel like I'm getting ripped off. Okay. How do I illegally pay less tax, Alan, without obviously breaking the law? Yeah. Yeah. Yeah. That's, that's great. Don't break the law. Don't break the law. It's a great question. There's a lot of ways to do it. Number one, I would suggest if you're paying 60,000 taxes, that must mean you're not taking advantage of these retirement planning plans that's available to you, right? We haven't had a chance to talk about this, Jonathan, but so say you're a solo owner of your econ business, right? For a solo owner of an agency. If you're in your US citizen happens to be, right? What you can take advantage of is what they call a solo 401K plan. So if one case is very powerful, if you guys haven't heard of it, I would say you start paying 10 to this part and Googling it if you, if you want, if you want to, right? Solo 401K is basically a 401K plan. I'm sure if you, you, as you heard of a 401K plan, right? It's a retirement plan issued by the government. And usually as an employee, you get around, I think this year is $19,500 as a tax deduction. And you put that $19,500 into your retirement account for your future, right? And it acts as both as both as a tax deduction and as a future planning tool for your retirement. But as a business owner, you get the solo 401K, as long as you're a single business owner or a spouse, a spouse is fine, where you don't get $19,500. You get, get this $58,000 as a tax deduction. So think about he's paying $60,000. That's almost a fully cover. $58,000 as tax deduction. It basically, because you get two parts, you get the employee part, which is the $19,500. And then you get another around 30s. I can't do the math. My head right now, it's very late. I've done it $38,000 to get to that $58,000. Basically, as long as you make enough income in your business, you can get the full $38,000. And the cap, it caps at $58,000. But get this, if you have a spouse that also works in your business, that number's double. So you get $116,000, $116,000 as a tax deduction. If you take advantage of, so I'm not, there's not no small number. I'm not, I'm not kidding, right? This guy's paying $60,000. So that's $116,000 right there. If he has a wife, I don't know. I don't know this person, right? So that's one, one big one, you're going to take advantage of. You should look into if you qualify. Obviously, I'm just talking about a general term, but usually if you're a solo business owner, you do. Even if you don't, there's other tax planning things, but this is the biggest, if you just happen to be solo. And I know a lot of people out there are solo, right? Obviously, number two, another one is you should just capture all of your, make sure you capture all your business meals, make sure you capture all your mileage. If you, if you travel by car, make sure you travel all your flights, if you're flying this year. If you're, like I said, if you're cash basis, there's a lot of way to, you know, move things ahead, move expenses ahead, right? To pay less taxes, like we've been mentioning, like pre-paying for software license, buying additional inventory. And then, you know, if you, if you've run an agency business, I'm not sure what kind of business guy provides. He can, you know, also move revenue to next year, you know, build, build his clients later to help out in those cases. Okay. Okay. Next question. I have three VAs working for me now. How do I expense the cost of hiring my VAs? Yeah, normal business expense. I'll be, I'll be under some sort of consulting fee because they're not actual employees of your company, right? Especially if you're international VAs, you don't even have to send them a 1099 lending like that. So yeah, it just, it just like a service fee really. Okay. Okay. Next question I'm interested in. I'm looking to exit and sell my e-commerce business. How do I value the business and how can I maximize the value? What is a fair valuation multiple? I'm running an e-commerce store physical product. Oh, okay. I see. So you're talking about like, how do I value my business? Yes. So this guy wants to sell it. How does he get the highest payday basically? Got it. I'll say step, step one is definitely, I would say, you need to have very clean bookkeeping and not just bookkeeping by like, like investor level financials, where it's invested between, I would say bookkeeping and best of level financials is, investor level financials is the highest grade of financial you can obtain from, you know, a certified public account or someone that understands how to perform that because they cover not just the basic bookkeeping needs, they cover all the margin needs, right? All the operating ratio needs that a, I would say someone who's looking at your business and looking to buy will want to know, right? Because it doesn't include just your current state. It includes a 12 to 18 month forecast of what your number is going to look like in the future. So the investor can kind of feel comfortable saying, okay, if I buy this business, what am I going to make my return on it in the next 18 months, right? And you're already showing them that, right? So then that already gives them the confidence that you're worth, I don't know, three times multiple, four times multiple, right? And of course, other things you can do in the meantime to help you, it is, is of course, make sure your margins are very healthy, right? Make sure that when they're running their margin analysis on your business that your gross margins is high, you know, at least above 60%. And then when you add an ad spend, you're still running at a good rate, you know, 15 to 20%. Your net, your net income, you know, is at a good rate, right? It's not, it's not, you know, you have too much business. Yeah, I would say for e-com, you at least want to look at what, 10 to 15% usually. And yeah, you just want to have like very healthy looking ratios across the board, right? You want to have, you want to make sure that, you know, if you're looking, also your inventory turnover looks very healthy. You don't have a lot of dead inventory sitting, just sitting on your books, right? They're going to look, want to look, make sure that you can turn over your inventory very fast. That's going to be a very, a sign of a very healthy business, especially if you're running e-com. Okay. And what's the valuation? I know three to four is normal, right, for e-com. Yeah. What are you seeing from your agency site, your clients? Yeah. So if it's a, I would say a branded business and not drop shipping, obviously. Yeah. Yes. Very terrible. Yeah. Racial. Yeah. I would say three to five is pretty typical. Yeah. Okay. If they're doing, if they're running the business well, they have high, good margins and they're, they're having someone watch out for that. Yeah. Three to five is good. Yeah. And this is based on revenue or EBITDA? You, it depends, depends, depends who's buying your business, right? Some people are just buying your business to flip. Yep. And, and, and in those cases, they're going to look at, like, revenue. But if they're, if they're actually looking to run your business, like just like continue running it, they might, they will look at EBITDA. Okay. Yeah. Next question. What type of deal structures can I explore when I sell my e-com business? So you have, you're experiencing M&A and stuff. So, yeah. I mean, there's different ways of doing it, but obviously the most simple way is just all cash, right? Just pay straight cash for the business is the easiest way. But then there's all the ways of looking at it. Usually what they do, what they call an earn out, right? Is an earn out is basically that the buyer pays a percentage in cash, plus a profitability of your business as a partnership, right? So in this case, the seller receives payment from the buyer as a, as the business continue to grow, right? That's usually a way of doing it. And there are also other methods where, you know, your business is big enough where you have like, I don't know, stock to offer someone else, like shares of your company. You can also just do a all share exchange of your business where you actually kind of like invest in each other's business in a way and in exchange. And there's no cash changes hands, right? If you're more of a, not of a cash, like a cash poor business. To me, I will actually recommend you probably do some sort of cash plus earn out method because then you kind of get on the upfront cash benefit, but then you also, also get the earn out benefit of it, right? As the business starts to grow, you still get a portion of it. Okay. Next question. I'm looking to exit and sell my e-commerce, same thing. Are there any specific things that I should be looking out for on the accounting side before I go and sell? Yeah. I think this is very similar to the other question, but basically you just want to keep very healthy margins, right? You want to keep good margins. You want to keep good cash flow. You want someone to do your certified, you know, you want someone to do great clean bookkeeping for you so then you can pass any kind of due diligence, right? That's going to be, that's one of, I would say the biggest fallacies or a way for a deal to not complete, right? Not go through is they look at your bookkeeping and they say, wow, this is terrible. It's jumble. It doesn't make sense. Like I would never buy a business that has this kind of numbers or if they ask you about it and you can't prove it out, you know, they're like, okay, can you prove out that this is how much revenue you make? Can you prove out this, how much expense you have? And you don't have an answer for that. That's, that's just a really bad sign for any kind of investor.