 changes. Yay. Woo, woo. Ah, hey, everybody. Welcome to Smart Business Moves. I am Liz Trotter and today I have Kevin Bassett as our guest. Hi, Kevin. Hey, thanks for having me, Liz. Yeah, I'm so glad you're here. Now, for those of you that are thinking, what the heck? Where's Tom? I don't know. He didn't even tell me where he's going, y'all. He just said, hey, I won't be there, Liz. I was like, oh, okay. Well, he's going to be so sad because he loves to talk numbers. And Kevin, he's going to be just, well, he's going to have to watch later. He's going to have to listen to the podcast or watch on a recording, but but more for him. That's what happens when you don't show up, dude. So, Kevin, do me a favor and nobody's going to be on here this early either, because everybody knows that when Tom's running the thing, he never starts us out exactly on time. It's like two minutes late, maybe three minutes late. So, we don't even, we have one person on right now. It's probably Dawn. Dawn, is that you? She's always live and, or, or Denise, one of those two. All right. So, Kevin, why don't you give just a quick intro about who you are? Yep. That was Dawn. Hey, Dawn. Yep, hey, Dawn. That's what we're business. Sure. Yep. No, great. Well, thanks for having me. Yeah. And I'm a Kevin Bassett. I'm a CPA and owner of Bassett & Associates. And we're a firm that we exist to help our clients make more and keep more through great good business planning and good tax planning. And our clients that are all business owners and their businesses, most of them are operating companies. We also have a lot in the real estate or construction trades too are all part of that. So, many types of businesses. And my mission is to help them make as much as possible and save as much in taxes. And I'm a big believer that every business, almost every business, is capable of making at least a million dollars profit for the owner's family. And that's what we focus on. And then with some good tax planning, pay the minimum amount we have to in taxes. So, that's a lot of fun. And our countries are nationwide. Our clients are nationwide. And we're team members. We're based out of Raleigh, North Carolina, but we have team members around the country as well. That's what we do. All right. So, Kevin, give me a favor and repeat that number. What do you guys believe that all business owners can achieve that? Almost every business owner is sitting on a business that can make a million dollars a year profit for the business owner's family. Convince almost every owner. Yeah, there are a few businesses out there that are dead ends. Sure. Probably shouldn't be in the cassette tape business anymore. Certain things like that or the proverbial buggy whips. But I am convinced and have seen it and have helped clients do it, walked alongside them, get their business above a million dollars a profit every year. And that's a great thing. And in my opinion, if you're going to put in the work anyway, might as well make the million dollars. I agree. Now, that is actually, Kevin, I know that we have our five text tricks that we're going to talk about today, but I really want you to talk a little bit more about that if you could just because in this industry, the big goal, the big goal is a million dollars in top line revenue. And that's it. It's been just an uphill slog trying people, trying to get people to understand that this is not a good goal, y'all. This is too strong. It's a good first goal. Yeah, first goal. Yeah. And I've been there and have taken the same journey and I'll freely admit and echo what you're saying is that first million is the hardest. It really is. And the second million is the second hardest, but it gets a lot easier from there. So yeah, that first million, the top line goal is hard work. And you usually make it as a sole proprietor, your lone ranger, meaning you're actually doing a lot of the work for the first part of that journey. In your case, your clients are actually out in the field for that first part, but getting past it. And so what you're doing is you're changing from a sole proprietor, self-employed to a business owner, right? And that transition is the hardest. But once you do it and go from level one to level two and possibly eventually level three, that's different. So that first million in top line is important. And then with that, getting your margins up to 20%. So that on that first million dollars, you're making 200 to 250 of personal income. And then the next stage is to get to 2 million and make 1.5 million bucks. And that's about when clients come on with us. They'll often join us. A lot of our clients are in the million dollars and above personal profit, but they tend to come on to us sometime after they cross the $500,000 of personal income number because they're in a higher tax rate. Our tools are more useful and they need tax planning. Okay. So I think that this is something for everybody to aspire to, right? For all of y'all that are on here thinking, oh gosh, though, I just want to get to this first one. Good. You heard Kevin. Good. Get to the first million. That's the first step. But don't stop there. This is one thing that I would love for all of the people in our industry. You don't need just one goal, y'all. That's just the very first one. What's the next one? We're going to be two years, three years, five years, 10 years, have some of those bigger goals and think bigger, like think much, much bigger. So otherwise when people are focused in on only this one goal, I find it takes too long to get there. They just dig in too hard, too much. And I don't think there's a harder working industry than for business owners, than the residential cleaning industry. I mean, I work with a lot of different business owners and, you know, I have multiple different businesses. They all work hard. I'm not going to deny that. But I haven't seen another industry that will work this hard. I mean, we have people working 16 hour days, not taking a vacation for five years, you know, taking one day off a month with kids. Like, why don't they have children? These people work so hard. So I just want them to get there faster. Yeah, absolutely. And to that point, that work ethic is huge. And that's an asset. All you got to do is transform that time from working in the business to on the business. If you don't work that hard, if you actually work that hard on the business, oh man, you're going to blow past a million dollars of profit, right? So keep that work ethic. And you don't have to do 16 hours, six days a week. If you're, get to a certain point and you're able to allow yourself to work smarter, there's a diminishing return with working too hard. And I know I used to be one of the big firms that we did work, you know, over 90 hours a week. And there's a diminishing return. And early on in my business, I, you know, worked a ton. That's what I'd say. The entrepreneur is the only one that'll work, you know, 80, 90 hours a week for themselves to avoid working 40 for somebody else. And that is true. But if you're working on the business, that's where the real wealth happens. All right, talk to us about that, Kevin, because you know, everybody talks about that. Everybody says that you got to work on your business, not in your business. And I think that if you talk to the vast majority of business owners, if they're not out in the field cleaning, they would say, well, I'm working on my business the whole time. But is that true? Are they all working on their businesses? Maybe, maybe. Yeah. So maybe, yeah. And it's right, working on the stuff. So they got to do is get the memo. They're not an employee, not self-employed, but they're now actually a CEO of a business. CEO's number one job is to drive profitable revenue. And if you're just driving revenue, you can have what's called growth, but not necessarily scale. Scale means you've got growth profitably. And so meaning as you scale your revenue, you're also scaling your profit at least as fast, probably faster with the way margins levers work. So if they're working on, you know, processes and systems to help scale that business, then yes, they are working on their business. There's a whole lot of busy work. They can be going around the paper, the office counting paper clips and opening mail and doing stuff they shouldn't be doing busy work. And I know if I'm stuck in my office, man, I could find stuff to do. And I do. Yeah. Easily distracted. Me too. Me too. Well, we do have, sometimes we'll run into a situation with people that will, actually we have one. I'm pretty sure on today on smart business, most oops, hold on, I gotta be Yep. Sometimes the whole, the whole grind can be about building systems and processes and more systems, more processes, making them deeper. And but then at some point in time, we got to just start hammering on the sales too, right? Gotta have to a little and we got to remember, you know, Bill Gates, the one that was the, you know, became the wealthiest man in the world for a while before he was given it away. He started Microsoft by selling an operating system to IBM that he did not even have yet. He sold something before he even had a product, right? So he wasn't focused on processes and systems. Heck, he didn't even have a product yet, but he sold it. And then he had to go find it and bought it from someone. So he did sales first, became the wealthiest guy in the world. So I didn't know that. Yep. The first time hearing about this, he, so what? How? He went to a meeting with IBM and sold them an operating system and he didn't even have an operating system yet. And he had to go buy DOS and that's what he did. Wow. Became the wealthiest guy in the world with that. I guess visionary, right? So. Absolutely. Salesman, right? He deserves credit. He sold something he didn't even have. He literally sold air. That's amazing. He sold it out and delivered and made it happen. Yeah. Yeah. All right. Well, I know that I've listened to you talk for hours and I always end up, I've got my remarkable here with me today. So I can even more notes because you always have so much. But today we're just talking about five tax tricks. I mean, we'll talk about other stuff too. If anybody has any questions for Kevin, please put them in the comments. He is a crazy wealth of information, y'all. Like I, yeah. Just any question you have, ask him about it. Oh, I do have one that I want to ask. Actually, I'm going to ask this one now, if you don't mind. Kevin, before we jump into the five tax, the top five tax tricks. So our industry in the past has not talked a lot about EBITDA. And I say probably in the last six months to a year, man, everybody's talking EBITDA. It's like all over the place. Can you explain EBITDA to us? What is it? How do we find it on our P&L? Like, what is it? Yep, absolutely. So what EBITDA is, is it's a abbreviation or an acronym for something called earnings before. So that's the EB earnings before interest, taxes, depreciation, and amortization. So that's the interest, taxes, depreciation, amortization. And so what that is, that's the profit on your P&L before you write off for taxes, your car, your equipment, whatever, before you pay any interest to the bank or credit card company or whoever you borrowed money from, and then any taxes if your company pays taxes. A lot of your, a lot of folks are S corporations, so they not only have state taxes on there, but it's the profit before that. And then if you're a privately held company, there's another term that is used equally as often called adjusted EBITDA. And that's that same profit number, that save even a number, but also not including anything that the owner is paid in any way, shape, or form. And as we'll talk about in a bit on the tax side, is how an owner's paid is really a tax decision if they're, if they're smart because they're going to get some wages, they're going to have some benefits in there, they're going to have some car, you know, their car in there probably, and they're going to get S distributions and all that. So the adjusted EBITDA is the profit before interest depreciation and all that and also before the owner takes a dime. And so the reason that's important is if, if and when you sell your company, this is the earnings that the buyer is going to get, right? They're not taken on the owner, they're not taken on your tax write off for your car and stuff. They want to know that adjust EBITDA. Very important number. So one of the things that, so we do like, so we have these strategic success circles. I know I've talked to you a little bit about those. Did I ever send you the link that I never did? No, let's check it out. I will make that happen though. Okay. So most of these people are working in their businesses as a, as a function of their business. So they're fulfilling a role, like maybe they are acting as the general manager, acting as the operations manager. So what we're currently having them do is we're having them put whatever the amount is that they would have to pay someone to complete that job, not, not, not an inflated number, not how much money they take, but how much they would have to pay someone to do this exact job. We have them include that as an expense above the line. A smart way of doing it. Can be as long as you're going to replace it before you sell. That's good question. So if you're getting within three years of selling, then we would talk with our clients of when it's appropriate to move all the owner's stuff below the line. And so to answer your earlier question, hey, how do we find this on the P&L? The key is setting up your P&L properly. So in fact, at the foundation sale scale conference coming up this month, I'm actually going to be spending some time on exactly how to set the P&L up. And it's so important because I'm a huge believer in managing by margin. And you can't do that unless your P&L, your books are tight, your P&L set up correctly. And a lot of folks use QuickBooks. And we do too. QuickBooks has its strengths, but its chart of accounts is not one of those strengths. You got to modify it and get it working right. And then it allows you to manage by margin, really make smart decision with your books, and then also sets you up for sale when that day comes. I'm super excited about that. So Kevin just talked about or spoke about a foundation scale that's happening here in April. Y'all, I have one seat left for scale. So if you have been interested in it and you're, you've been thinking about it, go to coreprofitbuilders.com and check out Foundation Scale now, because it's the last minute here, I'll probably can swing you some kind of a deal. Reach out to me if you know that you are wanting to go. All right. And I can promise you, I know for a fact that content will pay for itself at least three times over just, just my session, not counting the other amazing speakers you have lined up. It's going to be great. From a numbers guy, right? I know, I'm super excited. Just that one thing is for me is going to be like, oh, yeah, I need to, I need to know and when. So much of the time we missed the piece of when to do the different things. So I'm looking forward to that. All right. All right. So y'all ask questions, but I'm going to go over to the, the tax tricks. Absolutely. What are the five tax tricks for? Okay. So we've got five tax tricks for work, for business owners. And these are things that are commonly missed. So it's kind of my greatest hits, if you will. I'm going to cheat a little bit on this first one, trick number one, but a nice segue from what we've been talking on. As first, you want to focus on write-ons instead of write-offs. And wait a minute, did a tax CPA just say that, right? Out loud. And here's what I mean is, first of all, make as much money as possible, you know, until the effective tax rate is over 100%. There is no reason whatsoever to sell yourself short and not make as much money as possible. That is literally your duty and responsibility as a business owner. And kind of quoting my grant card down there, your job is to make as much money as possible. If you're going to be away from your family working in any capacity, hopefully on your business, your job is to make as much profit as possible. And then with some good tax planning, then we're going to maximize the amount you take home to your family. So focusing on write-ons instead of write-offs, here's what it means from a tax standpoint. Don't go out and buy that truck that you don't need New Year's Eve because it weighs more than 6,000 pounds and you can write it off and get on what we call the depreciation addiction. Don't do that. And don't do the year-end spend-down. And let me talk very specifically about this one issue. There's this horrible behavior out there that thinking that business owners, they're sitting there with some good profit, you're on your way, you're marching your way to the half million and then a million of profit, but you're going to make that profit go away at the end of the year by spending down. Here's what you've actually done. Okay, so you saved a little bit of tax. Maybe if you're set up in the right structure, your top federal rate on that business income should only be 29.6%, which I'll explain in a little bit. Then you've got your state rate. So maybe you saved a third of what you just spent down, but if you're going to sell your business later for 3, 4 or 5x, you're saved 30 cents in the dollar, but you just cost yourself maybe four times that. So you spent down 100 grand to save 30 in taxes, but you just cost your family wealth $400,000 in valuation. It's a terrible idea. On something you're going to have to pay eventually anyway, just for a timing difference. Okay, so for us, we have a tendency to, not a tendency. Many of us are not fiscally educated, right? We started off our businesses cleaning some houses, cleaning some stuff, buying vacuums, and so numbers sometimes will be a little bit trickier for us to think about. So tell me about the difference. Like you said, I could sell it for 3, 4 or 5 times. How does that impact how much I'm spending today? What do you mean? Yep, well, as you talked about at the beginning of the podcast is there's this concept of EBITDA or adjusted EBITDA, and they're going to buy your business based on a multiple of that EBITDA. So if you're small, maybe with a half million dollars of profit, you'll probably be able to sell it for between 3 and 4 times EBITDA. So if your business is making half a million dollars in profit before the owner's paid, they might pay you between 1.5 and 2 million dollars for that business. Pretty cool. And then if you grow that above a million dollars of EBITDA, they might pay between 4 and 5 times. If you grow that to the EBITDA, not only, you know, we doubled from 500 to a million in EBITDA, cool, but our business more than double because not only is our EBITDA double, but they're going to pay more than 3 to 4 times, now they'll pay 4 to 5 times. So maybe you now just create a 5 million dollar valuation for your family. They'll pay 5 million dollars for you to sell that business to them. So that's pretty cool. So what we're not going to do is do a spend down to lower our taxable income because we also just lowered our EBITDA. EBITDA, okay. That's crazy, right? So lower our EBITDA. We're thinking that we're just doing it today, but buyers are not looking at today, they're looking back like 3 years, is that right? Yep, last 3 years, yep, that's exactly right. Unless you're going to, you're guaranteed that you have no desire to sell your business at least for maybe 4 or 5 years, then could you do it that? In theory, but you know, man plan, God laughs and you know, something happens, you get an illness or if I had a dollar for every time a business owner said they weren't selling and they got a letter of intent and smelled the money and sold before they should have. It happens, but you know, the sooner you act, you know, to have some financial maturity and act like a business grown up, the better it goes, right? The smarter you are, the smarter you are, right? You make better decisions. All right, so. So tell me, tell me why do so many accountants tell you to like, you need to buy a bunch of vacuums, you need to buy whatever the stuff is. All I can do is apologize for profession, but some folks are good being counters, but not great business people. And it's just not good. And we don't know the training they came from. I'm an entrepreneur first. I just happened to, you know, I went to college not get very far down, I'm picking my major. I started the A's, got to accounting and didn't keep going. So, so it's, but I'm a business owner first and fortunately did well in school and passed the exam and the, and here I am, but, but I love, I love, love, love what I do. Because I have the best job in the world, best, best profession. I get to talk with business owners all day, every day that I'm at work. So, but yeah, it's really, it's more of a business decision, not a tax thing. So that's why I was kind of cheating on this first one. So, but I love that because I think that there are a lot of people not think I know that there are a lot of people that run their businesses according to their either their annual, their bi-annual meeting that they have with their CPA. And if their CPA set up as a business professional, or are they set up as a an accountant? I mean, sometimes that they're not the same just because someone's an accountant, then they have different ways of doing things and different objectives and different agendas. Yep. Yeah. And that's where we pick up most are we're more of what's called an upgrade firm. Folks were with their local accountant and they probably did a good job and kept them out of trouble. I'll probably help them keep their books. So, so that's a good time and place for probably a super trustworthy person that helped them. But once they get in those higher brackets, that's when they upgrade to us and we're thinking. So in the beginning, you just need to get solid. You need to do things legally. Stay out of trouble, right? Yeah, out of trouble. Do things the right way. Do things like get your personal stuff out of there unless you can put it in there. And I know we're talking about that. But other other than that stuff, like separate your books have for sure, even if the stuff that you have on there is workable for for that, you have to have a separate account for your personal account. Period. Absolutely. Co-mingling. If you want to blow up in an IRS audit, co-mingle. Don't co-mingle. Okay. The first thing they'll do is pierce that corporate veil. Okay. Yep. Get up and hire income, making sure your CPAs got a serious experience in IRS audit defense. That's really important, especially now with the audits increasing in frequency. Okay. So what's going on there? Can you just, somebody? Sure. Yeah. And I'm apolitical. So I'm, you know, don't let politics enter into this. But the last two tax bills, and one was by one political party and the next was from the other political party, both increased funding for IRS agents. And it is kind of funny they're pointing fingers at each other. But, but not result is IRS audit's got really low. And, you know, and that was kind of nice. You know, in theory, you know, a lot of people's opinion may be maybe too low because we knew that chance to get an audit were pretty low. But anyway, funding's been restored. Many thousands of IRS agents have been hired. And then we were bought a little bit of time with COVID, but now IRS are back in earnest. We started seeing them show up heavy the end of 22, not much in 2021 because of COVID 2021. So starting the end of 22, IRS audits are way up. The primary focus is in, you know, from the second highest bracket up. And so you just got to have your stuff straight. And so we do, we focus on a lot of things, number one, to prevent the audit in the first place because it's based on what's called a diff score. So we're real careful on how our returns go out to minimize their diff score. And as a firm, we have one of the best diff scores in a country. And all right, you're going to have to tell us what that is. Yeah. Yeah. So I don't even remember what it stands for anymore, but it's an algorithm that they use to select audits. Okay. So, um, yep. And so I never, I never met a, I forgot what it's called. DIF, DIFF. Yeah, DIF, capital D, capital I, capital F is like differentiated something factor. I know the F is factor. Okay. Acronym, that's what I was going to say. I never met an acronym I didn't like. Yeah, exactly. I'm a little crazy with them myself. All right. So, um, you have, your firm has one of the highest DIFs in the, okay, cool. I love that. I always like to check that kind of stuff out too. All right. So number one, we got, so it's focused on write-ons and not write-offs. Don't do it by the truck. Don't buy the urine spend down unless you need the truck. All right. Number two, segues into it. So we're making a ton of money, right, because we focused on write-ons. So number two is have the best tax structure. And for the overwhelming majority of folks starting out, once you're visiting, you know, say you form an LLC, and that's good to go in your early years, but then you can, well, once your profit gets above about 80 grand, taxable profit, at that point, you'll want to talk with your CPA about forming an S corporation. And a lot of folks do that. A lot of folks do get this right. Some don't, but you don't want to remain a sole proprietorship or single member LLC that isn't an S corp above that 80k, because what happens is you have to pay 15.3% self-employment tax on all that profit. And that's a voluntary tax. You don't really have to pay. So once you get that point, it makes sense from a money standpoint to become an S corp and have that as the best structure. And that's going to allow you to continue to scale and remain as an S corp for as long as it's that that is the business that's feeding your family and taking the money home. S corp has a one layer of tax. You get rid of that self-employment tax issue, Obamacare tax, and the profit, K1 profit gets what's called the 199A deduction if you've set it up correctly. So you want to do that with things. So S corp is super tax efficient. You don't have double taxation. You eliminate a bunch of other taxes and get 199A. So that's the name of the game. So item number two is get the best tax structure. And the cool thing is about having the structure, you didn't have to go buy a $60,000 truck to do it to save a ton of money. And you save that money every year. Okay. And this sounds really easy. It's not even something that's hard to figure out is you're an LLC until you've got 80k and that. And you're still an LLC. You don't all you do, but you file this two-page form from 2553 to become an S corp. So that same LLC is now just going to be taxed as an S, right? You're still the same LLC, same name, didn't have to change anything legally. Okay. Super easy. So people don't have to make this into a big thing because a lot of times people can mess into a huge thing, right? It's a two-pager. Super easy. Easy peasy. Love it. All right. So that's item number two. So first we focused on write-ons. We got the best tax structure, probably an S corp. And then item number three, we're going to want to pre-tax our lifestyle. This is what we talked about earlier. So the cool thing is, you know, if I live in a developed country, there's certain expenses that we have. And now because we're a business owner, a number of these expenses, our lifestyle expenses now legally are deductible from the simple fact that we're a business owner. So we have a one-page list when a client comes on, a little spoiler alert. I'm giving this list away at the Scale Foundations Conference and help everybody through it. Thank you. It's going to be one of the goodies. And so on there, we're going to be able to take a number of things. So, you know, usual suspects are an automobile. You've got an auto that's more than 50% business use. We can have it in the company. Of course, we'll notify our insurance agent. And if it's less than that, you can still write off mileage, which is good. You can take a home office. They now allow what's called a safe harbor home office deduction, which the IRS issued. And it's now, if you do this, it's a free $1,500 deduction from the simple fact that you telecommute or keep supplies at home or whatever. And they cannot and will not audit it if that's all you do. And you don't have to worry about a taxable sale of your home later. And then you've got some insurances and other benefits. You can write off your shareholder meetings and things like that. And then any business coaching, those kind of things, these are all things that you're paying. But now that you're a business owner, we can deduct them. It's called pre-tax in your lifestyle. What did you mean about shareholder meetings? Yeah. So if you're an LLC or an Inc and now tax is a Corp, you're actually required to do annual meetings. How cool is that? And if those meetings are in the U.S. or U.S. territory, guess what? They're deductible and easily deducted. International, the rules are a little trickier. And so if you've got to have a meeting, they're making you do it, go somewhere cool, right? And write off that part of your trip. All right. So the whole trip can be deducted or just? That depends. So if more than half of the trip is our business days, then you get all of the flight and hotel. But if you go play golf or go to Disney or something, don't write that off. That's personal. If less than half of the trip is business days, then you only write off the business days. And you pro-write the flight. Yep. So see, you're reading my mind and we must be related. So we say on a bad year, go to your local McDonald's on a good year, go to Hawaii. I highly recommend it. That's in the U.S. Interestingly enough, the U.S. Virgin Islands are easily deducted British Virgin Islands aren't. So depending on what side of the country. But Hawaii's great and that's where we're doing ours this year. Right. Everybody likes Hawaii and you hardly ever hear anybody complaining about Hawaii. Yeah, they're open again. Get over there. Yeah. All right. So that's good. Pre-tacture lifestyle. Oh, I had a question. So on the number one where it is on, what is it again? Don't off. What is it again? What's number one? Oh, focus on write-ons, not write-offs. Write-ons. Okay. Write-on is just more money. Bringing in more money, right? Yeah. More profit. Okay. Write-on more profit. Okay. Yep. And don't focus just on write-offs, letting tax tail wag the dog, trying to spend down or buy stuff you don't need. Yeah. And have that lower profit so that you pay less taxes. All right. Make a ton of money. Number one, number two, get the best structure. Three, now we're pre-taxing our lifestyle. And these are all going to be below the line, by the way. So they don't hurt our adjusted EBITDA because these are owner's expenses. But now we've simply deducted some stuff we're already paying. But now it's deductible, right? We get to pre-tax it. So it's better than when we were an employee, right? Right. Okay. Okay. Yeah, that makes perfect sense. So that's called pre-tax your lifestyle. And we get you that worksheet. Okay. Susan has a question here. Great question. Who should your board consist of? And so that's one thing we'll talk about at the event. But board meetings are also deductible. And the, as our shareholder meetings, board and shareholders are not necessarily the same thing, but you can have a board. And a lot of folks will get their spouse. So even if they're the shareholder, they'll get a spouse, maybe kids, maybe close family friends, but usually it's spouse and kids. And then guess what? Now they're, now you can pay for them on that trip. So, wait, your kids are on the board? Can't. Yep, ours are. How old do they have to be? Well, I waited till they were teenagers, but yeah, now my kids are up and they're all adults, young adults. So not two-year-olds. No, no, but I've got clients that are doing that, but we haven't seen that one tested. I'm more old school. I waited till they're old enough to do something. We'll talk later about paying the kids here at the end. And that's always a fun topic. We also have this question. Yeah, so she's asking, hey, are these shareholders in your LLC or Inc? Yep, so what I was mentioning earlier, you have shareholders. And you'll probably want to talk with your, give some thought and meet with your estate and ask the protection attorney on who should be a shareholder. So in my case, with Bassett and Associates, you have to, with a licensed CPA firm in our state, you got to be a CPA. So no family members are shareholders of Bassett and Associates, but they are on the board and also get paid, which is a separate thing, but not shareholders. Now, I've got other companies say I've got Bassett Family Limited Partnership where, as I'll talk about at the end, I'm building wealth outside of my business and my wife and kids have shares in that LLC. So that's a great question and a little bit, that's another podcast though. That would take a whole hour. So absolutely, well, at least. All right, all right, well, that's good though. So she was thinking that she was trying to answer Susan's question, but she's like, oh, she didn't have the full detail. Yeah, no, that's a good point. And all your shareholders might be on the board, maybe, but you might just have one shareholder, but five board members, right? So board members aren't necessarily shareholders. Okay, cool. I love the idea of your board members being able to be like just your immediate family too. Yep, absolutely. And you absolutely can do that. And board meetings are deductible. The rules on deducting board meeting expenses are really favorable. Okay, what do you mean by really favorable? For example, the meals for the board meeting instead of being limited to 50% is 100% deductible. And so that's really cool. All the travel to a board meeting is deductible. The hotel for board meeting is deductible. At 100%? At 100%. Yeah. Okay. Pretty cool. I see what you mean by favorable. All right. Yep. And again, they're most favorable if it's in the US or US territories, less favorable if you go international. It's trickier. Okay, but Hawaii is. Yeah, no, we got plenty of places to go. So yeah, some good spots. All right. Love it. All right. Are we moving on to number four? Yeah, pretext lifestyle. So the next thing we're pretext for lifestyle, our next piece is, okay, how are we going to pay ourselves? And so tip number four is have tax efficient compensation for the owners. And so what I said is we're going to focus on right on to make as much money as possible, right? And we're dropping as many pennies to the dollar to the bottom line. And I try to, I'm in a high margin service business. Service businesses, which folks on here are, should drop at a minimum 20% to the bottom line. Yep. So here are that loud and clear. Minimum 20%. If you run it really well, you can get north of 30. Okay. So you need some things there to do that. You know, the three pillars are wealth, our leverage arbitrage and compounding. So what that means is you're getting leverage is either using other people's capital or other people's labor, which you are arbitrage. And so you're leveraging, you're not doing the work anymore, you got your people doing the work. But arbitrage means you're paying them a certain amount of money, but you're selling it to your customer at a higher amount of money, right? So you're paying them X, but you're, you're selling that service for two or three X. And then compounding means you grow over time, keep your clients, keep raising prices, keep improving your margins and let it compound, let that business grow. And that's how, that's how you build wealth, whether it's a business or an investment. So, so now we're dropping as many pennies to the dollar, right? Hopefully two to three dimes for every dollar that comes into the bottom line. Now, how we take those dimes home is a tax decision. So we've got our S corporation, and we're going to pay ourselves, we have to pay ourselves some sort of W2, some sort of officers comp, because the IRS says so. And let's say you're making you've grown your business to half a million dollars a profit, we're going to have to pay ourselves at least 100 grand to meet what's called the reasonable comp rules. And we've already pre-taxed our lifestyle, right? So we're getting some stuff tax-free, and we're getting some benefits, but the rest we're going to take out as S distributions. And other than the pre-taxing the lifestyle, which is tax-free, S distributions are the next best thing. And here's why, our S distributions have no social security tax. They have no Medicare tax. They have no Obamacare tax. We don't have to pay any workers' comp or liability on it. Oh, there's a lot. There's a lot. And all our K1 income that we're taking as S distributions are eligible for section 199A, which means 20% of that is completely tax-free, right? So you can see how being tax-efficient. So I brought on a new client recently that didn't get good planning. His W2 was way too high. It was nearly a million dollars. And we did a quick calculation and cost him about 120 grand in extra tax and lost 199A. Now, a good first world problem. His business is crushing it, but just the point is he just didn't follow this tax trick, which was tax-efficient compensation. Yeah. So really, it can make the difference between how much, bottom line is, how much is actually coming to you? How much you're actually getting? How much you're going to be paying out? And if you do it well, if you do it by paying attention to all of the different things in the different order, et cetera, then you can be bringing home more money at the end of the day just by where you put the money and how it's taken, basically where you put it, right? Yep, absolutely. And yeah, if you grow your business to that million dollar mark, which all of us on here will, right? That's the difference between paying 400 grand in tax and 200 grand in taxes is putting all these tricks in. So how much money you're going to keep? How much more money you're going to keep to do all your really fun things? And then you compound that over the life cycle of you as an entrepreneur. I've got some questions here that I... Oh yeah, so good. We got to have C on all of our podcasts here. Okay, so what about the meetings on that, the details on the meeting trip? If Audit, do you need meeting notes? And the answer is absolutely. Make sure you got meeting notes and hopefully do them when you're there, but if not, make sure you create them before that IRS audit, 100%. And they do. And actually, they didn't IRS audit. They actually request all your meeting minutes for the audit period. So I'm looking forward to know. How detailed do these minutes need to be? So they don't have to be very detailed. They just have to prove it happened and talk about it. And usually there's these templates out there you can get online. We're talking about who's on the board. You put some basic financial info, how you did that year, any changes in banking, any capital expenditures and changes in compensation. So even this compensation that we just talked about, hey, we're going to pay the owner 100 grand plus health insurance and pay these expenses, throw it in the meeting notes, right? It's all consistent. Okay. This can be one page. Just get a quick template that will tell you exactly what you need to have on there. Absolutely. Yeah, go to dinner, spend five minutes on it and enjoy the dinner. Yeah. All right. We got another question here from Susan. Yep. So I take my four sisters on a trip for a board meeting, pay for everything and then write it off, save on the taxes. And the answer is yes, if your four sisters are on that board. So make sure they're on the board. Yep. Otherwise, no, don't write it off. They're not on the board. And then, Keith, as to C's point, make sure you take meeting, you know, meeting notes. And if you're going to have somebody on the board, make sure that they have a job so that you have, you know, a way to say who's doing what. So they actually, you have some notes to take. And she says, yeah, they would be on her board. All right. And then, yep, they'd be on the board. Great job. All right. That's great tax in your lifestyle, right? Yeah. Sibling trips are great. Do it. So, okay, so you're going to save on your taxes. So what if somebody, I can see somebody saying, oh, okay, so I'm just going to, this is how I'm going to get around this thing. I'm going to just take a vacation. And I'm just going to say that everybody's on the board and we're doing that just because I'm not going to get audited anyway. What do you think, Kevin? Yep. So good luck with that. So statistically, you know, if the audit rates returned where they are and what they're projecting, if you're on a business owner for 20 years, you're going to get audited at least once in that time period. So just assume that it's going to happen eventually, be ready before it happens. Now, in this case, with getting them on the board, you need to have a board meeting and a vote to appoint them on the board in the first place, right? So make sure that happens. Now they're on the board. Now you can do your trip and do it. But yeah, keep those meeting minutes and keep good receipts. And we weren't really talking about this topic today. But since it's come up IRS audits, one thing that's super important is any deduction you took on any of those tax returns. And when they audit you, they can audit up to three years. Any deduction you've taken on any tax return, you have to provide documentation for, right? And if you do not have it, they can deny that deduction plain and simple. And what the documentation is, is nine times out of 10, that's a receipt. And you need, yes, you need the receipt. Now they do allow it in electronic format. So it doesn't have to be all paper. And with our clients being around the country, we're able to get most of our audits to be virtual. There's a couple of tricks we do to, number one, try to get them to move it to Raleigh, which sometimes makes the audit go away, but that doesn't always work. Don't count on it. And the next is to make it virtual because we don't, we prefer not to have the taxpayer to have contact with the, with the IRS's paging. But then what we got to do is provide electronic copies of every single receipt. And that's no joke. And then one of the most important things missed, we could do a podcast just on IRS audits. But for credit card transactions, you need a copy of that actual individual credit card transaction slip, not the statement. And this is probably the most commonly missed thing out there. It's a terrible rule, but it is the rule. Oh my gosh. So when I order something from Amazon on my credit card, I somehow have a receipt. That's correct. Yep. And then right, same thing. Like we order stuff on, right on here on Amazon all the time, but you have to go on and get it. Go get the receipt. All right. So we don't do that as it happens. We go back after the fact, the same thing. Yeah. And it's a bad thing. Even I won't, you know, be 100% an audit because there had been at least two times in the past, you know, three months alone during tax season that I get gas and the darn little thing at the pump doesn't spit out a receipt and I'm in a hurry. So I don't go in and get it. I'm going to, that deduction will get denied. Okay. All right. So you got to know that if you don't have a receipt, it's going to be denied. So make it that big of a priority. Either I'm going to have it as a deduction or I'm not, receipt or not. Ah, crud. Yeah. So I'm with C. She's like, ah, crap. Man, me too. Yeah. And that credit card rule, it's horrible. Yeah, as it was written in the 70s, right, back when it was master charged and the carbon thingy that went like this showing our age and it has not been updated. It is, it is terrible. And a lot of times when I say it, I get some pretty violent reactions from, from some folks. They just know they've got a problem. Yeah. All right. We've got a couple of questions. Susan's asking if it did a trip in 2023 that you paid for personally, but actually discussed the business. Good question. I would get with your CPA and see if you can get them comfortable on documentation and you might be able to reimburse some or all of that trip, but I'll leave that to your CPA to see if you can get to their comfort level on documentation. But there's a chance you could. Yep. And it do bring up a point. If a client comes on with us and joins us after year end and we're helping on the prior year return, we actually go through that worksheet to see if we can pick up things like this deduction. So a lot of times right out of the gates with that first tax return, even if we didn't have them at year end, we can still usually find stuff. But the real magic is the planning you do during the year. Right. So that you know exactly what you're going to do. But sometimes you can find things like this and get some deductions. All right. So receipts, Kevin. I get a receipt. Now what do I do with it? Susan's, or somebody was saying, where'd it go? Do you put them all into QBO? What do you Yeah. Good question. So you've got some options. We still have them all, you know, some paper ones in a folder and we have a on our network, a drive where all our stuff stand. We're paperless where we can be, but some things come in paper and that's fine. We have those and in an audit we would stand those. Now we do have some clients that are putting them all in QBO. You can do that. One thing to be aware of a couple of things I want to bring up here. One is now you are beholden to QBO and if you change, if you end up upgrading software to NetSuite or Sage or something else, you got to figure out how you're going to get those receipts. So if you're cool with being beholden to QBO, that's probably a reasonable decision, but just be aware of that. The second thing that this has nothing to do with taxes, but I hope everybody's listening. If you are a business owner, make sure you and only you and hopefully your spouse or somebody you will trust and will be with forever have admin login credentials and that's it. Your bookkeeper should not have that form. We have plenty of instances that's terrifying where you had a bookkeeper, you love them and something went sideways and you're permanently locked out of your QuickBooks file. It happens all the time. So your bookkeeper should not have admin rights on your QBO, only the owner and then someone you really, really, really trust that you'll be with forever has a copy of that login. In a lot of cases, it's us the CPAs because we can't do anything nefarious with it. And y'all, there's a lot of people that have been burned by this. So I hope y'all were paying attention. They should not have that privilege. Do not. It's not smart business move. Not a smart business move. Yeah, at the scale conference, I'm bringing up the screenshot of what that looks like. It's terrifying. So you're gonna scare us before you give us all that. Yep. And then see, you guys forward them all to an email address. That's great. A lot of folks do it. Other folks use an app called Expensify. And it's easy to download from there. And there's one other one besides Expensify that's very popular. The name escapes you right now, but there's two awesome apps for that. I usually just take a picture of their receipt and then I put it into Google Drive. Was that good enough? You can do that. Yeah. And Expensify works the same way. They get them to do it right in the field. And the other one does too. And I think bill.com's got something. That's another popular one. Okay. I love that. And if you did say something also, you have paper receipts. You said if you get audited, then you're going to scan them all. You can't give them paper receipts? You can. You can give it to them. You might be shipping it to them. But if what we try to do on purpose is make the IRS audit remote so that the agent is not in the same room with their client and then we're ship sending it to them. That's funny. They still request it on a CD. I mean, at least they're catching up a little bit, right? They're only 20 years behind. Oh, wait. A CD? How do you even get it on? Yeah. We got a little drive in a drawer somewhere. Oh, my gosh. That's so funny. I think we might have had one except the flash drive. But there were years where they didn't take anything electronic. Okay. And yes, the IRS still has a fax machine. Not kidding. That's so funny. Okay. So one more thing I wanted you all to hear for anybody that's in the correct tax bracket and you got the revenue bracket that Kevin's talking about. Did you hear that nice little thing that if you get audited, he does everything in his power, or they do at the best CPAs to keep you out of the office with the IRS agent. I don't know about y'all, but for me, that is a huge win. Just that I don't have to be in the room because it's going to stress me out, right? I'm going to be stressed being in. I have been stressed being in the room and I love the idea of not having to be there. Yeah, for a few reasons. Number one, like the anxiety of being an IRS audit is it's real and no one loves it. But the other thing, right, a lot of business owners, entrepreneurs, part of what got them there is really good sales skills. You got the gift of gap. Well, that is not an asset in an IRS audit. Silence is an asset. So I've had folks, well, I just want to get in there and talk with them and reason with them. I was like, nope, I don't want you anywhere near that agent. I'm terrified of you talking to the agent, right? You're the last person that I'm letting in there. Yeah, yeah. I don't want you anywhere near it. And the only bad things happen, right? Yeah, more talking is more bad. Yeah, talking is bad. It's the stop talking, right? So. All right, we have time for this fifth one. I'm so glad. Yeah, we do. All right. So the fifth one, and let me know we're out on time. What's that? We got about eight minutes. Awesome. Yeah, we're good. All right. So we focused on write-ons. We got the best structure, we pre-taxed our lifestyle, and we got tax-efficient compensation. So now what we've done is we're making a ton of money. So we made more, and then we're using great tax planning to send as little as the government. So we're keeping more. So now we're keeping a whole bunch of this adjusted EBITDA. And the key here is to tax efficiently. Tip number five is to tax efficiently build wealth outside of your business, right? And so we've created this money, and now we're going to build family wealth is what we call legacy wealth. And so first thing you do to build legacy wealth is maximize the value of your business. And the way you do that is growing your adjusted EBITDA, right? And getting that highest multiple on your business. So if you run adjusted EBITDA to a million dollars, maybe now your business is worth five million bucks. So that's your first piece of wealth. But now, hey, we're making so much money. And we're not spending it all on taxes. And we're not doing stuff foolishly with our finances personally. So we're investing outside your business. So a couple of key tax strategies to do that is have some sort of retirement vehicle. That may be, and you can work with your CPA and or financial planner to do that. But that may be, you know, with us, at Bass and Associates, for example, I have the 401k, which we need to retain employees. And we do that. And I've got most going into a Roth's, you work with your planner to do to do that. And then also do backdoor Roth IRAs every year. So these are a couple of tricks that we talk about. So we're building that tax efficiently and everything in a Roth can grow forever tax free. And I can pass those down tax free as legacy wealth. All right, next thing. Okay, so we've got cool retirement set up, right? We did a little planning there. Maybe you pay your spouse and you double the amount you're putting in that retirement plan if it's a company based plan. Okay. And on the vein of paying family members, another great trick, if you're interested in legacy wealth is paying your kids. And one thing you can do is pay them the IRA limit every year, which I think this year is like 6500 bucks or something. For a while it was six grand. And so what I did once my kids were teenagers and yeah, I made them do a little bit of work. I was paying them the IRA limit every year. And then putting that in their account. And that was their college money, right? Money they were going to spend for college for books and pizzas and whatever. And so I'm pre taxing some of their college and get it out of my high tax bracket and down to their tax bracket, which is zero, 0% bracket. And I also did a second thing where now that they've got earned income, I put money into the Roth IRA. So I told the kids, hey, you're not getting a big trust fund, but you're going to have a fat Roth IRA. And they'll all be millionaires by retirement. And I control the login of course. And so by age 20, they had, you know, a good amount in a Roth IRA. And so building wealth outside of my estate outside of income tax bracket tax free. And then in addition to that, you can get your investments once you've taken care of you and your spouse and your retirement, you can form a dynasty trust or a family LLC and let that grow tax efficiently and controlling that wealth. A couple of things there. I want tax efficiency. You want to build wealth and I want control. Oh, probably don't have a lot of time to talk about like dynasty trust, et cetera. I don't even know what that would be an advanced strategy or advanced talk. Okay. Yeah. That's the tail end of my presentation at scale. And I don't even have a clue there. All right. Yeah. Now to that point, couple of things on paying the kids, I'll just end with this fun note. So what I can tell you is the IRS agents, if they see you're paying your kids the IRA limit, I haven't had any agents mess with that. They just allowed it. Now there's nothing written that says that they don't even have to look into it. I'm just telling you that's what they've been doing now for 20 plus years. And so that's kind of cool. So then the question is, hey, when do we start paying our kids? And so this is always a fun one. And I'm old school and waited till they were actually doing some work. And that's just me. So that's not smart tax planning per se. That's just a parenting decision. I've got tons of them that the minute they get a social security number, they're paying that kid and they're taking pictures of the kids putting on their website somewhere. Even if it's a hidden page and they're paying them a modeling fee, right? And that's what they're doing. Okay, that makes sense. They're doing that. The IRS agents have let them alone. Now interestingly enough, when you do pay somebody that young, the Social Security Administration sends you a questionnaire saying, hey, I see this, you know, one year old got six grand, what did they do? And then you reply and then they don't respond, right? So that's a new thing that started about three, four years ago. I did have one client and I've told the story a million times, but it's so funny to me, I just have to share it, that they sent me a picture of their ultrasound said, hey, if I put this on my website, can I pay him as a model, a modeling fee? And I was like, I love the idea, but you don't have a social security number. And that's why three more months, three more months. The social security number. So that was the only hold up, but it was a cool idea. I love how creative people are, right? When they're figuring out how. Yeah, I was like, man, you have a job in the tax business. Yep. How to make more money. Okay, Kevin, this was amazing. Thank you so much. I really appreciate you coming on here and sharing all your wealth of knowledge. Yeah, my pleasure to come back anytime. I'm happy to. Yeah. Well, I wrote down a few notes of things that you're like, whole other podcasts. I'm like, okay. Yeah, yeah, it'd be my pleasure anytime. All right. Well, I'm looking forward to seeing just gosh, I don't know what day are you coming Wednesday? Yeah, yeah, the night before. And yeah, my speaking Wednesday, some are coming in Tuesday night. What day are you speaking? I think I speak Wednesday. All right. So I'll see you like in two weeks. Exactly. See you at the beach. Yes. I'm so excited. Thanks, everybody. Thanks for coming along here. If you have any more questions for Kevin, if you're looking for a great CPA, hit me up and I'll get you. Oh, do you have a, like, could we maybe pull up your website, Kevin? Or I could. Yeah, it's acidcpas.com. See, this is one thing that Tom always does. Acidcpas.com. All right, y'all. So if you want more information, oh, plus he has a ton of other stuff too. So reach out there. Okay. I posted all of the different groups in Facebook pages. All right, y'all. Thanks, everybody. And we'll talk to you soon. Thanks, Kevin. Thanks so much. Take care. You too. Bye-bye.