AJV (00:01): Hey y’all, and welcome to another episode on the Influential Personal Brand podcast. And y’all, let me tell you, this is an episode that you want to listen to. So before I formally introduce my friend, Shannon, I need you to know why you need to stick around all of you. And I don’t care how much of it you have, but all of you make money. I don’t care if it’s a dollar or a billion dollars. You got some amount of dollars in your banking account. And here are the three things we’re gonna talk about when it comes to your money today. One, we’re gonna talk about how do you keep more of the money that you’re making? Who doesn’t want that? So you’re making it, how do you keep more of it, number one. Number two, there is no minimum income level to benefit and learn from what we’re gonna talk about today. AJV (00:53): This is not for billionaires, millionaires, or thousands of errors, . This is for anyone who has dollars, all right? And it’s like there is no minimum amount. These are skills and tools and mindsets that you need to have when it comes to money. It doesn’t matter how much that you have. So there’s no minimum requirements to be a part of this conversation. And then number three, which is, this is just a precursor to just a little bit of what you need to know when it comes to keeping more of that money. The number one tool that you need to have in that toolbox of yours is understanding cash flow. You can have money on a p and l statement and not have money in your banking account. So how do we understand cash flow to help us ha, help us have a happy, healthy financial business? AJV (01:38): So without further ado, I’m going to give you a formal introduction of my friend Shannon Weinstein, and we’re gonna talk about all things money. But before we do that there’s a couple of things that you may want to know about Shannon. So I’ll give her a quick formal background overview, and then I will let her tell you guys a little bit about herself. So Shannon is a c p a. So, so she actually has credentials in this money conversation, always a bonus. She’s also a fractional c f o for growth minded business owners, emphasis on the growth minded. She’s a teacher at heart. Her real life relatable example, simplify, which I think is really important, help make easy the financial side of business so you can stop stressing and start scaling. She’s also the host of the most awesome, keep What You Earn podcast, which I got to be a guest on a few weeks ago. And I’m so, so, so excited to get to swap the roles today and be the interviewer, not the interviewee. So without formal ado, Shannon, welcome to the show. SW (02:45): Thank you so much for that intro. I really appreciate it. AJV (02:47): I’m so happy to be here and have this conversation because I think the best thing about being a podcast host is all this free training, free coaching. Amen. SW (02:58): Amen. Amen. Same here AJV (03:00): As host. And so to help our audience get to know a little bit about you, I would love for you to kind of just give, like, how did you end up doing this, right? As a C P A? It’s like, right, we know that the trajectory that you were on, but somehow something took you off course to get you to where you are today. So give us a little of the backstory. SW (03:22): So nobody grows up in like second grade, and when they ask you what you wanna be, when you grow up, you say c p a. So there’s always an origin story that that deviates from. Well, when I was a kid, I really wanted to work with numbers and spreadsheets. In fact, spreadsheets didn’t exist, I think when I was that age. So I, I lost a bet with my dad and ended up majoring in accounting wi willingly, willingly. But it was, it was fun because what I realized was numbers were a language that I spoke and I actually loved language. I wanted to be a Spanish teacher, believe it or not. And I I fell in love with languages and teaching languages and speaking different languages. And I was like, this is so cool. We can communicate through these different ways and people understand different things. SW (03:59): Hmm. So in learning all that, I was fascinated by it. And then I took an accounting class again, a dare from my dad. He’s like, take this and if you hate it, I’ll stop bugging you about, you know, taking over my firm and being my protege and all this stuff, right? And, and I took it and I was like, I actually love this. Hmm. And I realized that it was something it took to me easily, and my dad sat me down and said, this is the language you need to teach people. So that is exactly how it happened. I’ve always been kind of a teacher in the back of my mind and couldn’t wait to share knowledge, teach it. Every time I learned something, I go, how will I explain this when I pass it on? And that has been the, the kind of the anchor point for everything I do since then. You know, working in corporate, working in big firms, and then eventually starting my own practice. AJV (04:43): I love that whole piece about numbers is a language because it is like, it really is. And then the financial acumen of knowing what numbers are make up the most important parts of the language, I think is a really important thing that, I mean, I’m just going back thinking in my college days, like, you know, I had a business minor. I actually was a Spanish minor, so also love language. But there, you know, I remember those accounting classes and I’m like, I retained nothing. There was nothing of actual value, real world personal or professional value that I can recall from any of my college courses. Now, perhaps that was my college of choice, who knows? But I do think as we kind of enter in, I also believe that most people didn’t expect to be entrepreneurs, right? They developed into that without having developed some of the financial acumen to help them keep more of the money that you’re earning. And so, I’m gonna start with what I think is what you said. The most important kind of thing is understanding this language with the number one tool, being understanding cash flow. So walk us through, and let’s just like take it down to the basics. What is cash flow? How do you know if you have it? And how do you start learning the language of going, all right, this is actually something I should be looking at as a business owner. SW (06:09): So another fun fact about me is that I worked in fitness for about 10 years. So most of my analogies are related to fitness, but I think it’s something everyone can relate to cuz everyone has hated a workout or been on a diet or seen a diet or something before. So it, it’s really relatable and I look at cash flow as your business’s metabolism. Mm-Hmm. So it’s how, at what pace and through what timing are you bringing cash in and paying cash out and paying cash out comes in the form of both expenses. And when you take money out of your business to pay for things personally. So you have to be looking at, are you consuming what your business is producing at the rate that you need to be? Or are you consuming more than your business can produce? And you’re tapping into the back reserves and you’re actually at a sort of a deficit in terms of what you’re bringing out of the business. SW (06:56): And what you may not realize is that could be happening even if your bur business is turning a profit mm-hmm. because you’re just pulling more than what your profit is producing. And you may not realize, you just see the bank account and you see a certain number and that’s the metric. But that’s like looking at the scale on a given day and measuring your overall health. Yeah. You don’t know what’s behind that number. That is one data point. So unless you understand how rapidly that is changing, then you don’t really know what that number is telling you. AJV (07:23): Hmm. That’s so good. I love thinking about it like the metabolism, right? It’s like, you know, because it’s, it’s easy to think about. It’s like if you eat more than you burn, eventually you’re gonna gain some bees, right? Exactly. And if you burn more than you eat, eventually you’ll lose some bees. So it’s like being able to think about it that way really does make it easy. So what are some of the best tips of like, where, where should you start of going, okay, I don’t do this, haven’t been doing this, I get it, I should be doing it. Where do you start? SW (07:53): So I recommend anyone who’s brand new to the idea of cash flow, sit down with maybe a month or six weeks. I say four to six weeks of a cash flow forecast. Don’t get scared, but it actually makes sense when you break down the weeks across the top and let’s say a spreadsheet, or you can, you could even draw it, it doesn’t matter. But across the top you have all the weeks for about four or six weeks. And then you list out every way money comes in, every way money goes out. And you can look at your bank statements as a hint as to where things are going. And you can kind of figure out, Hmm, this is how much money I have now, this is how much I’m expecting to come in each month. This is how much is going out each month. And then the bottom is your cash flow. SW (08:30): It’s pretty simple. And accountants like to make it more complicated by throwing jargon in the mix and calling it different things and different labels and cash flows from operations. And it’s like, let’s just keep it simple to what’s coming in, what’s going out and what is happening at the bottom. Cuz I think most entrepreneurs will be surprised to realize that they actually have negative cash flow. Hmm. And that that can be, again, it’s not bad. One month of negative cash flow is not bad, but as a habit and as a consistent habit, it can actually lead to the downfall of a business. It’s the number one reason small businesses fail according to surveys is lack of cash flow or capital. But unfortunately a poor cash flow, you don’t realize until it becomes a problem. Yeah. Like a real problem. It’s kind of like how you don’t realize you’ve been eating too much until the jeans don’t fit. And by then you’re like, it’s kind of too late. I gotta go buy new jeans. So it, you don’t wanna get to that point where it becomes uncomfortable and those problems surface and you really feel the symptoms. You wanna be able to identify those before they become a problem. AJV (09:29): So this is, I think this is such a great conversation specifically for entrepreneurs and small businesses, small business owners. I, I think also in this, and I’d love to hear your thoughts and philosophy on this. Like one of our, you know, we’re, we’re Dave Ramsey people, so we’re net free livers. You don’t have to subscribe to all things Dave Ramsey to acknowledge like not having lots of debt isn’t a bad idea. If for no ever reason, then peace. So we’ve always kind of been of this, you know, belief that we self fund, right? We don’t have investors, we don’t have loans, we don’t, we don’t, we just, we self fund. And so one of the things, and I don’t know who taught us or where we learned this along the way, but it’s been, it’s been a true saving grace of we actually, and I’m just like, this is again, philosophical question. What is your take on the amount of money that a good healthy business should keep on hand? And both ordinary day-to-day operations, but then also in reserves. So kinda like your emergency fund above what you need on a daily operating level. SW (10:37): So I believe that you should have four to six months in a normal economy of expenses of what I call your monthly burn. So I think your monthly burn, if I were to define that, is anything that you’re committed to spending, whether you make a sale or not. So if that’s the rent for your building or that’s the subscriptions that you’re on or your software or whatever, where if you don’t bring a sale in, you still got these bills coming in, then I would say that could be your team, your management team, your operations, right? So I look at monthly burn and that cashflow forecast is part of that too is like, what’s the burn gonna be over time? Mm-Hmm. But it, it literally is calorie burn. It’s like, what are you burning if you’re doing nothing? If you’re not moving at all, what is the minimum amount you’re gonna be burning every month in cash? SW (11:18): Yeah. And I look at that and say that times, let’s say six is what I wanna make sure I have in the bank account at any given point in time. And right now we’re recording this amidst pretty much chaos in the financial industry and a lack of understanding of, of banking and what’s going on. And I go now, I would say six to eight. Wow. I would say six to eight because you just wanna make sure that in turbulent times that you feel extra secure. I mean, look what happened with Covid, that was definitely an evident example of who wasn’t keeping an emergency fund. And I think that you wanna be ready for six. I mean, we literally had six months shutdown. Like we, we’ve been saying this for years, six months in, in the bank. And then I think all the accountants looked around and said, holy crap we were right , like, like people literally shut down for six months and those who who had that advice were like, oh, we’re gonna be okay until August or whatever. And, and I think that you just wanna be ready, you just wanna know that you’re ready and you can tap into that if you absolutely need to. But I think having a good emergency fund of four to six months on a normal day and maybe six to eight if you wanna be a little extra safe is a good bet. And I think that’s reflective of what the cost to operate from payroll, to subscriptions to rent and so on. That’s what goes into the emergency fund. AJV (12:31): Yeah, I think that’s really helpful. And you know, you brought up something because we are recording this in the light of what an interesting time with S V B and the government and this bank run and volatility and interest rates and we could go on and on and on. So completely a side thought that just came to my mind because I called up our personal banker as probably the majority of small business owners understood on Monday. I’m like, so let’s talk about my account dispersion and coverage and all the things here. And so I’m curious to kind of get your thoughts. And you can be as vague or as specific as you like around just how important it is to even know the types of accounts that you have in the bank because we definitely are in the middle right now of going, oh, we need to move this here and move that there, and we need to close that account and open this type of account. And that all came in light of somebody else’s tragedy. But there’s great lessons for all of us to learn. So would love any thoughts or insights you would have to share on this really unique time that we’re in when it comes to money and accounts, what type of accounts you need and how many and all the things. SW (13:48): So of course it’s gonna vary based on your goals, right? Like the number, like the number of accounts you need, what types of accounts you need. It’s gonna depend on what purpose each account serves and what mission it has. So my, my philosophy on it is, there’s a couple of things. One, my husband and I specifically, if we’re talking about the personal end, and you can do this for your business as well, I do this with my clients as A C F O, but we go through every quarter and we take stock and inventory. Where’s our money? What accounts is it in? Is it doing its job? Hmm. So if we have too much in the checking account, I go, do we really need all that money in the checking account? Can we move it to a high yield savings, getting 4% interest? You know, can we move this over here? SW (14:24): Like, is everything doing the job we want it to do? And we just have a, a checkpoint every quarter at a minimum. We have that kind of on the calendar at the end of every quarter to just go through and do a quick update and to do our own little family balance sheet. Now, of course I’m an accountant, so of course we’re gonna do this. And Jason and I, my husband, we’re nerds. But it’s a good habit to just take stock of everything, be aware of where your money’s at. Because when this happened, we weren’t worried. We knew where the money was, we knew what it was doing, and we knew we were under the insured insured limits. So we got nothing to worry about. So we weren’t making any phone calls. We were, we were cool, but the most people get into panic mode and they go, I don’t know where my money is. SW (15:04): And I said, well, I think that starts with that. It starts with the awareness of where your money is and also knowing what the goals are. So if you’re in a business, for example, and this goes back to business owners, right? Of if you have everything in checking and you have like multiple hundreds of thousand dollars in checking, I would say if I were your C F O and I see that, I go, do you really need that much? Is that really six months worth of operating expenses, especially for service-based businesses who may have, you know, not that many expenses. Hmm. I say take some of that, put it in high yield savings, take some of that, put it in the tax savings account, take some of that, put it into like an investment account for like that rainy day fund, but make sure that that’s earning interest for you. SW (15:39): Make sure that you’re letting your money work for you and that you can call on it if you need to, if you need to keep it liquid. We call it liquid meaning ready access to it. So you don’t have to sell anything to cash it out. And, and that’s what I would encourage people to do is just be mindful of how you’re managing your money and aware of where it is and just make sure that you’re clearly defined on what goal every dollar has for you so that you know if it’s doing that or not. AJV (16:04): Yeah. So you just again said something that I wanna kind of like take this rabbit trail naturally here because this is, again, one of those like real simple but really important things of actually having different accounts to properly save for things like taxes. And it’s like we, I have just found like for both us personally and us professionally, it’s like, I don’t know if I’m embarrassed or proud to say this, but it’s like we have like 13 different banking accounts and I’m just like, this is the savings for this thing and this is the savings for that thing. But a lot of it’s not about, it’s, I I can’t, this is not money I can use for every day function. Like this is every single month I take, you know, basically 35% of our earnings and I just stick it in this tax savings account for a rainy day. Right. One day it’s gonna have to come out. But yeah, like I’d love to hear some thoughts and best practices around like, how can entrepreneurs, small business owners go, okay, I have everything in one or maybe just two accounts. What are some of those accounts that would be really good for me to really start developing as my business matures? SW (17:09): So I I bel I subscribe to this idea of I think it’s Parkinson’s law that like things will take up the space you give them. Yeah. Yeah. It’s, it’s why we, it’s why we cram before exams and do our assignments the night before. Right? If you gave me two days, I would get the same work done as in two weeks. I just do it the day before . So the idea behind that law and why it relates to your bank is if you are a business owner and you open your checking account on your online banking and you see $200,000 in there, guess what you’re gonna think, I got money to spend. I can do all these things with that. That’s, I could pay for that mastermind, I can pay for, I can pay ahead, I can pay, you know, all these things. I’m rich. SW (17:45): You feel like you’re a scooch McDuck in the vault, swimming in the dollars . And then you realize, oh wait a minute, I got that money in the bank cuz I did a launch and I have to make that last three months. Oops. But you don’t realize, you see that money and it makes you feel something and it makes, it changes how you think. It changes how you say yes or no to things. It changes. It’s like I can afford it, therefore I will do it. And, and I wanna be careful with that. And where I’m going with this is when you’re, when you’re designing how you’re gonna organize these accounts, I would say these outta sight outta mind concepts of when you take the money, like as soon as it comes in, just like you said, aj, take a certain percent and put it to taxes. SW (18:26): And if you’re taking it out of pure revenue, you can round down a little bit. I say between 20 and 25% if you’re in California, sorry, it’s on the higher end of that, probably more. But it depends on your federal and state tax rates. But you’re gonna want to set aside that money and set it and forget it because your paycheck used to do that for you. They don’t do it for you anymore. So you gotta have the discipline to go move that money and say, that is not my money. I’m hanging onto that for the government, but that is not my money to spend. And then same thing, if you wanna save up I have a particular client right now who’s saving up to buy a license to be able to use certain imagery on her products. So what we’re doing is we actually created a quote unquote sinking fund. SW (19:05): So every time she makes a sale, a certain amount goes into that towards the saving. It’s almost like putting coins in that piggy bank when you were a kid and going, I’m gonna save up for my first whatever. Like I did that to save up for my PlayStation mm-hmm. . So it’s the same concept of throw a few here and there, here and there until you’re reaching that goal of like fundraising for your business mm-hmm. . So we actually do that with clients all the time. We set up multiple accounts under their bank account and we use it for different purposes for their payroll, for their savings, things like that. So when you give your money a mission and you have a way to measure it, you’re much more likely to be successful in accomplishing that. AJV (19:41): Love that. So good. So good. So, okay, so on the note of measuring it, what would you say, you know, on the topic of how do you keep more of the money that you earn? What are the things we need to be looking at? What are the things that we need to be measuring? What actually can we do to keep more of this money that we’re working for? SW (20:01): So as I mentioned before, it’s, it starts with the cashflow forecast or create the initial awareness of where is my money actually going? And then being aware to go, Hmm, well do I want it going there? Is that, is that aligned with my mission? And one thing I always do with my clients is we go back to their three goals or I call their components of their why goals. So it’s like three levels of why. It’s like why are you doing this business? What are you trying to accomplish with this? Like the, the why, why, why, right? And if these expenses don’t serve that or anchor to that, I ask all the time, is this something you really want to do? This something you actually need? Or is this something you think you need? Because so and so is also doing this. Like, do you need to be doing that? SW (20:41): And not to be the Debbie Downer, right? , but we wanna be able to to minimize extra costs mm-hmm. and be able to really hone in on what is actually serving the mission. And then I also look at keeping more of what you earn is also understanding the flow of when it’s coming and going so that you can plan. And if that launch brings in a bunch of money, you know exactly how long that’s gonna last you and what your goals are for that launch because you’re aware of what you’re gonna spend over the next, let’s say three or four months. So you’re going, in order for me to do this, I need to do this in terms of selling. And I think that’s a, that’s a big piece of it. The other part of keeping more of what you earn naturally every entrepreneur’s biggest expense is what AJV (21:23): Taxes. SW (21:23): Exactly. So when you, when you look at taxes, right, it’s saving for your taxes, but it’s also strategizing and it’s also figuring out how can I reduce my tax liability as much as possible using business strategies that maybe I wasn’t taught in school. Because if they teach you these things, they don’t make as much money. SW (21:45): Wait, imagine if, imagine if Target taught a course on how to use coupons at their store. Yeah. Right. That wouldn’t benefit them and welcome to our education system. Yeah. So they’re not gonna teach you how to use the coupons. What you have to do is figure it out. You have to start hunting for your own little hacks and and things like that. And to do so legally cuz everything’s in the tax code. It’s just that nobody wants to read that rule book. They want to find someone who read it who can explain it to them. And that’s what we try to do in, in our profession. And and tax strategy is probably the number one thing that can help entrepreneurs save money in taxes that they didn’t even know they were overpaying. AJV (22:20): Oh my gosh. This, I don’t know how accurate this statement is, but I remember I was on like a, a two year mission when we started Brand builders goo group to reorient myself to tax law, tax changes, all the things that had changed in the, you know, at that time there were new administration and Yep. And just also getting reacquainted with how do we want to set things up. When we started Brand Builders Group, and I remember in one of the courses that I had bought, they had said, just like most rules tax rules are also built with adjustments, right? And with I would say not that rules are meant to be broken, that’s not it. But it’s like, and this was like the example, and again, don’t quote me on this, but it’s like the tax code is like, I don’t know, I re easy math a thousand pages of which actual tax rules are like 30 pages and the rest of them are the different caveats to the rule. Is that true SW (23:23): ? It is 5%. I’ll, I’ll say it this way. 5% of the tax code is how to pay taxes. 95% is how to not pay taxes. So the the, it is actually true. So there’s only about a, there’s only a, you know, a, a decent amount of afternoon reading of how the tax cut actually works and what is taxable. And then there’s a ton of stuff, hundreds if not thousands of pages of how to avoid taxes legally by doing, by doing behaviors. The government incentivizes. Yeah. Like donating to charity, owning property, creating jobs, retirement funds. So as the government decides they want their citizens to execute on these certain activities like buying electric vehicles, solar panels, things like that, they start offering these tax incentives to people to say, we want you to do go do more of this and we will pay you for it. SW (24:15): Essentially. We’ll we will make sure that you don’t pay taxes on that. So that that way you’re encouraged to do it. That is at the simplest level what it is not to mention this is gonna make it sound so less glamorous, but they literally write tax code to benefit the senators and the congresspeople. So for example, I’ll give you guys an example. When you sell a house, if you’ve lived in that house for two of the last five years, you don’t have to pay taxes on your profit up to a certain amount of money. The reason they did that, guess what the congress person’s term is two years. AJV (24:51): So Bo guess . SW (24:53): Exactly. But they did that so that they could relocate to another home because they were living in their constituency and then they would have to move so they wouldn’t have to pay the appreciation on their profit. So understand if you live like a congressperson AJV (25:07): good, SW (25:08): That was actually written for them, AJV (25:11): It’s really built to benefit the elected officials. Exactly. So we have to think in those, they wrote it Uhhuh , they SW (25:18): Wrote the rule book who, if you had access to the pen and paper to write the rule book, wouldn’t you write rules that kind of work in your favor? And that’s exactly what they’re doing. And of course they represent their constituency, but they’re, they’re also thinking, well I don’t wanna sign and get myself screwed with my, my real estate here. So think about that. Like it really is that simple and it’s like, Shannon, did they really do that? I go, wouldn’t you? Yes. , AJV (25:44): I mean it’s it, but it’s just like kinda one of those things. I just remember being in that ring. Like 5% are the rules. 95% are the exception to the rules. Exactly. Come again, I need to really learn these exceptions. Right? Yep. And it’s like, and at the same time I can’t learn all of them. So give us some hacks. What would you say are like your three to five, like no-brainer, you must be doing this tax saving strategy if you’re in business. SW (26:10): So I would say just to, to make sure you guys know how accessible these strategies are. I think once you’re making about 50 K in profit or more, you have tax strategies available to you. So if, if you, if you immediately dismiss that and say, well I’m not rich enough to do strategies, wait for it. Because there’s always a way to plant the seeds now and then be able to take advantage later. I would say number one for me, and I just love it, is the S corporation once you elect to be taxed as an S corp, which is just an outfit we throw on your corporation or your L L C so that the government doesn’t make you pay self-employment tax on a certain part of your profit. And all that really is, is you’re saving so much money with every dollar of profit that you keep. SW (26:52): And as you grow, you’re just saving year over year over year. And if you’re not doing that, you can be overpaying so much money in self-employment tax. And it really is as simple as making an election and faxing four pieces of paper to the i r s to avoid so many thousands of dollars in taxes. And I think that many entrepreneurs aren’t even aware of this or they’re a little bit suspicious of it, like it’s too good to be true. And I go, it isn’t because a lot of these guys in congress started these companies and they started doing this. So so it’s absolutely legit strategy and if you’re in good shape with your bookkeeping and you’re compliant and you’ve paid all your taxes so far, you’re in great shape to implement that as well. That’s one of my favorite hacks. AJV (27:32): So on that note, so we are an L L C with, you know, the S corp tax selection. And one of the things I think would be great is going, you know, well now that you’re technically an employee of the business, what is an adequate salary to pay yourself so you don’t get flagged Yep. But also so that you are receiving the actual benefit of doing such. This thing. SW (27:55): I think the biggest mistake people make with this reasonable salary requirement on an S corp is they, they just kind of pull it out of thin air. We go through a comprehensive analysis where we actually look at comparables, we analyze your time, we analyze your region, we, we look at what people are getting paid to do your job and we look at how much time you’re spending in versus on your business. And we do a comprehensive analysis with our S corp clients twice a year to make sure that their compensation is reasonable and it can be backed up in the case of an audit. And this gets to the point of the strategy is only good as what you write down because if you can’t tell the story through documentation and evidence, your deductions will get disallowed. Yes. So it’s just as important to know the strategy and to go implement it properly with the right evidence, illustration, and storyline that that talks for itself. Then you don’t have to actually explain or you know, have to fight with an i r S agent in an audit you have all the evidence that backs it up. AJV (28:50): So what would be some of the evidence documentation that you would recommend? SW (28:54): So for, let’s say for the salary, right? I would want comparable jobs in my region. I would want to see maybe a calendar of like, show me how you spend your time. Show me a bit of how you work on your clients. Right. I would just say a lot of that can be proven just because it is the business owner, they are the expert. But a great example too is another tax hack, which is called the Augusta Rule, which Oh yeah, we may have heard about where you can rent out your primary residence to your business for up to 14 days a year at the market rate of rent for a meeting space. Yeah. But when you’re picking that rate of rent for the meeting space, you gotta have comparables. You gotta be able to show that that’s a fair rental rate. Cuz if you’re charging 10 grand a day for your house in Nashville, I’m like, well the Marriott doesn’t charge that, so we gotta figure out how you feel like you can actually, unless AJV (29:45): You are in Nashville and then they do . SW (29:49): True. But if you wanna host a like three person meeting in your space, it’s kind of like, well you don’t need, you know, the Gran Ole Opry to, to do that. So we actually look at, you know, what is a reasonable comparable rental rate. You know, what is what, what could we use as a basis to argue this is how much we’re gonna deduct and why that would be acceptable by the I r s. So there’s a lot of stuff that you have to do on the backend to prepare to make your case. AJV (30:17): Yeah. You know, that’s so good. This, you know, I think both of these are super helpful and it’s, and then it’s like, you know, I’m curious, I mean it’s, I think it’s, we still have like two years with a 1 99 a you know, business deduction with a passthrough, right? Mm-Hmm. , it’s about two years left on that. And it’s again, one of those benefits of an L L C with an S corp. If you’re not taking a salary, then it’s like you get this pass through benefit. But it’s good to go back and go, okay, to justify why I pay myself this amount, this is how much I work in the birth business on the business, this is how I could replace myself, this is what I would pay. Like just having that pre-planned so wise that’s so smart. And then the same thing with the Augusta rule. Like, I did a little BA background digging because I got bored one day and I was like, because also I’m from Dalton, Georgia and I’m like, like Augusta, like Augusta, Georgia. And it was like, yeah. Yes. Actually Augusta, Georgia, because the masters Yes, SW (31:13): The masters, yes. That’s how it started. So they wanted to go, let’s be real, the senators wanted to go to the masters. AJV (31:18): I mean, I want, it’s like so much of this is so crazy. So one of the things that I picked up, and I’m curious to get your thoughts on this to how accurate or am I just being completely O C D over here, but it’s like I go to like the crazy extent every single month I have like a little meetings template of this was the meeting that was held at my house. These were the attendees, this was the time that it was held. And then I have my assistant make one of those for every single month for our meetings. That did happen at my house, but we actually have meetings minutes from each of those meetings are, is it that level of documentation or is that like overkill? SW (31:54): No, no, that is perfect. That’s actually what we, we give templates for that as well. We don’t put in air quotes. They’re legit meeting minutes. They’re they’re they’re legit. They’re, but they’re like the meeting minutes. But also we think outside the box too, because you can use the house for other things than, than meetings. So for example, I have a client who used her home for photo shoots. Yeah, yeah. And that’s great. We have the photos to prove it. We have actually ba behind the scenes footage of how much of the house they were consuming with backdrops and cameras and lighting and, and the catering for the, the, the crew. Like it was a big deal. Like this is a large mansion in LA that happens to be where she lives. And I’m like, go figure. Like this is such a funny thing that I would never let slide for certain clients. SW (32:34): And I’m like, no, this is actually like really legit. Like you’re filming content all day in your house. Yeah. And like your kids had to leave, you needed to get childcare. Like this whole thing. I go, I, I can see how that could be, that could work cuz it was actually cheaper than going to another photo shoot location to use the home. Mm-Hmm . So we basically found a comparable rate that we could use that was pretty conservative and and it benefited them greatly to keep that cash flow in house because here’s how these things work, right? Tax-Free cash flow, it’s a deduction to the business. Meaning it lowers your profit and therefore lowers your taxable income. But also when you’re, when you’re paying that, that is not income to the recipient, it’s not income to you as an individual because of the Augusta rule because they give you a 14 day headstart, like a freebie. So basically until you cross 14 days of renting out your house, it’s not really rental income. You don’t have to claim it. So basically cuz of that rule, you get a tax free transfer of cash from your business to you personally if you use this rule the right way. AJV (33:35): Okay. So two things on that. This has come up in other questions that around this conversation in my entrepreneur community is one, do you have to give yourself a 10 99 on that? SW (33:45): Yes. AJV (33:46): Okay. So asking what’s really important to know, because again, auditors ask for it, document it, still gotta document it. This comes up so much in our entrepreneur community. And then the second thing, cause so many people now are working from home and it is your primary quote unquote business and it’s your home. Mm-Hmm. , does this still apply if you have a from home at home business? SW (34:11): It can, there, this is a very tight, I had to pay for research on this because this is such a, like a nuanced thing. So, so here’s how, if your home is your business location, there’s two things you’ll need. Now, can you use Augusta? Yes you can. But that would be a secondary thing. And I would start with figuring out what portion of your home is exclusively used for business and is the primary place you conduct business? I e a home office. So if you have a home office space, or let’s say you’re a product-based business, like e-commerce, I have clients who use their whole garage, uhhuh or maybe they have one car and a whole bay of their garage is storage. So I go, okay, let’s measure the square footage of the home office space. That’s exclusively business. I’m not talking about like I’m sitting here in a guest bedroom, I’m not talking about the bed and all the other stuff. SW (34:59): I’m talking about the desk area where I actually work. Then I add in like the storage spaces, whatever is like really just business use and divide that over the total square footage of your home. Now you have a percentage and that percentage is how much of your home expenses can be pushed through the business. Yeah. But this is done a very certain way depending on what type of business entity you have, this is executed a certain type of way. And we call this the accountable plan for my S-corp and c corp owners. We call this the accountable plan. And you can reimburse yourself from your business these types of expenses. So you can pay a portion of your mortgage interest, a portion of your rent, a portion of your utilities security, landscaping, cleaning, repairs and maintenance. Like it’s, it’s all over the place and it can actually really add up. And if you’re using a lot of your home as your business, then that’s a really big benefit. Beyond that, you could use the Augusta theoretically to rent space that is not part of your primary business use. But that requires a bit of map and that square footage and like I would definitely back it up if you’re gonna use both of those con conjoined, you have to have really good documentation to clearly separate the, the space that you’re renting versus the space that you’re using for your business. AJV (36:11): I think that’s, it’s so good to get double verification from a professional versus my coursework . Yes. But it’s like for, you know, like I’ll give you an example of like, something that we do that we started doing for this unique reason is we host quarterly socials, like quarterly social event for our employees and we do them at our home. They’re not in our home office, but we use our backyard, we use our pool, we use our kitchen, we use our living room, we use our dining room, we use all these non at home business locations that are a part of our residential property to then it’s like if I were to go rent out a rooftop pool and any place downtown Nashville, I’m gonna be paying easily 30 grand easily to rent out this entire rooftop or pay myself to have it here at the vaden villa pool. Well back out those windows. Right? Yeah. SW (37:07): I love it. . Yeah. That, that can be beneficial. The, and I wanna add on to this too, that like me saying this doesn’t just make it deductible. Ultimately every i r s agent is going to interpret things differently. Yeah. Be able to enforce them differently. This is just my interpretation cuz there’s nothing in the tax code and this is the burden of it that it’s so specific, it leaves a lot of stuff out, but it’s also so vague that it leaves a lot of stuff out. So there’s a lot of things that they don’t specify about how, how these things interact with each other. So until they put tax code in place, there’s a lot of gray area that isn’t really spelled out and this is one of those things. Hmm. So depending on how you interpret the law or how your professional interprets the law that you can potentially take advantage of this or you know, a a an auditor can easily come to you and say, I don’t think that’s reasonable. SW (37:57): I don’t think that entertainment should count. I don’t think this based on their interpretation of the law. And usually when I’m representing clients with an auditor, it’s me and the auditor reading the, the law and saying, here’s what I’m reading and them saying, here’s what I’m reading. And it’s different things. Yeah. And then you have to kind of agree on agree to disagree and agree on some type of like, negotiation, but there’s a lot of gray area and that’s part of why having a professional is key to help you kind of translate that because it’s not really all spelled out for you. AJV (38:27): Oh, I love that. All right. One last tax strategy, tax savings tip, SW (38:33): I would say. Okay. So we, we went through a little bit of the accountable plan, the Augusta rule. I would say, oh my god, my favorite strategy to implement, even though it’s the most work , is hiring your kids. AJV (38:43): Oh SW (38:43): Yeah. Yeah. Yeah. So the, here’s why it’s my favorite, number one it, number one tax savings straight up. Like you can pay them up to, I think we’re up to 13,850 this year. Oh, oh, up pay them. It went up and it keeps going up. So we increase the standard deduction so you can pay them up to that standard deduction. Now they can, I should say, they can make up to that standard deduction. If they got a job at Wendy’s, then that goes into the mix too. So you gotta make sure that they’re not making more than that limit, otherwise they’re paying taxes. But ultimately you can pay your kids to do age appropriate work and that’s the key to do age appropriate work. You’re not gonna hire your two year old to be a courier and drive you around. Like you can’t do that. SW (39:25): So you have to make sure that it’s age appropriate and that you have really good documentation of how they’ve spent their time, what they were doing, how they were doing it the hours they were spending, how much you paid them. And there’s a very mechanical way, which I won’t go into on how you have to pay them through payroll. That requires a lot of setup and infrastructure. But once you build that mouse trap, like once me and my team help entrepreneurs build that system, you can pay them up to 13,850 a year. And the beauty of it is they can also put that into, let’s say a Roth ira mm-hmm. meaning no tax on the way in tax-free growth and no tax on the way out. So if they’re young enough too, you can start this process. Next thing you know, you’re building tax-free wealth for your kids. SW (40:05): They graduate school and they have this, this whole amount of money to use to go buy their first place or to go on their next phase of life. So that one of the reasons why I love doing that is the tax-free wealth building. The other reason is I love teaching kids about money. I love having kids get a paycheck and like look at it and go, taxes taken out. Right. Or whatever it is. And understanding what it means to work and get paid. Yeah. Because I do believe that when kids understand that money, you know, isn’t guaranteed that you have to work for it in some way, whether that’s physical labor, being smart, being creative, whatever that may be, that you’re gonna be rewarded for that by being able to make money and learning that at a young age is so powerful. AJV (40:46): Yep. That money don’t grow on trees. drives me nuts when my parents used to say that and now I’m like, I’m that parent. I’m like, where do you think this money comes from? Yeah. So like on that note, like a couple of things I think would be great questions of like, okay, so let’s just say your kids are eligible to, you know, be employees with legitimate, you know, business tax Of course. Could you put ’em on a 401k? SW (41:15): Could you, could you, yes. It depends on the type of business you have. There’s a ton of questions that just popped into my head. So it’s like case by case possibly I’ll say, AJV (41:25): Okay. Because that could be a po potential thing. Again, like these are just all the things that I’m constantly like, can we do this? Can we do this? Can we do this? Mm-Hmm. is, do, is there an a minimum age for something like a four [inaudible] or Roth ira? SW (41:40): Oh, the minimum age for those I’m not aware of. That would be a great question for A C F P, but I was thinking you were gonna ask a minimum age to hire the kids. And I will add in that it’s ideal. Most of the SEC social security administration and others generally look at seven and up as like, just seven’s like a functional human that can actually do things. If they’re, if they’re really, if they’re like infants on your payroll, then they’re generally in marketing content. Like I had a, a client that sold baby clothes and I was like, that’s legit. She’s in every single photo. Yeah. So I, I would say that would make sense to me, but the it has to be, again, age appropriate and business connection. So if they’re just in marketing content, but your stuff has nothing to do with family, I would also kind of weigh the options of that. And if it’s worthwhile, it has to be pay that’s is appropriate and experience appropriate. Like you can’t pay your infant 10 k a month or whatever. . Yeah. AJV (42:34): So SW (42:34): I would not, I would not stretch that to the extent, if they really can’t work more than like 20 minutes a month, I would say, well, let’s be realistic on what you’d actually get paid to do AJV (42:43): That. So, and this is I think, really super applicable to a personal brand audience. And it’s like my whole personal brand is about being a mom and an entrepreneur. So I hired my kids as child models. SW (42:58): Yep. AJV (42:58): Because they were required to be in these big photo shoots for my website, for my social content or blogs because the whole, my whole thing is about like balancing both entrepreneurship and motherhood. Right. And so this is like, I literally went out and said, what would I be paying to go rent some kids , aren’t my kids for these like photo shoots? And it was like, I’m SW (43:24): Laughing at, I’m laughing at what agency you would go to to like rent it. Like I know it’s model agencies, but the, like, I need to rent to AJV (43:32): Kids agencies. And it was $180 an hour SW (43:37): Wow. For one AJV (43:38): Through these modeling agencies. Now of course the kids don’t end up getting that. Right. But I was like $180 an hour. Are you kidding me? Yeah. So my kids are child model employees. They are required to do all the photo shoots. I tell ’em to and they’re child models now they’re under seven, but it’s, again, it’s applicable work and it’s, it’s, they have contracts. So we made ’em a contract I had to sign as their legal guardian. Right. And it, there is like, when it comes to payroll, so much additional paperwork and I had to like file all this stuff and sign this stuff and all the things. It’s SW (44:12): Gotta be worth it. It’s gotta be worth it. And, and I think a lot of business owners, a lot of business owners have, like, they may do that, but they don’t do that many photo shoots or they may want to do that, but it may not be as applicable. And I go like, is it worth all the work to save a couple hundred bucks in taxes? Like is it, is it, wouldn’t you rather spend that time making more money than worrying about all the payroll documentation, the contracts and all that stuff? And sometimes the answer is it’s not worth it. Yeah. And I’m totally okay sacrificing a little bit of tax savings for a lot of time because it really comes down to is it worth it for you as a business owner, this is one thing I truly believe is that if anyone is just like throwing cookie cutter tech strategies at you, go do this, go do this, go do this without understanding how it actually benefits you or what it actually requires of you in terms of a commitment to your responsibility to maintain that, then I think they’re doing you a disservice because you need to make a co I make a conscious decision on, okay, if I do this, I get this result. SW (45:09): But if, is that result worth the work? Mm-Hmm. and the answer might not, maybe no, it may be no. AJV (45:15): You know, it’s like I get hit up, we use Gusto and it’s like gusts always like sending something and they keep being like, do you wanna qualify for $8,000 in the, you know r and b credits? And I’m always like, no, no, no, I don’t because the amount of work that it would take to apply and file for that stuff would cost me 20 to get eight. So I think that’s a really good thing. It’s like sometimes we see, oh, credit this, credit that, and you realize yeah, the amount of hours and time and all the things to get that is so much more than what the savings would actually be. SW (45:49): Yeah, I agree. And and it’s the same with tax deductions. People misunderstand tax deductions and think it’s like a rebate or a credit and I go, no, A deduction is a coupon, A credit is a gift card. So when a deduction comes in, you get a percentage off. So when I look at it, I like think about going to a store you go to, like I used, remember we used to go to the mall and go to like Ann Taylor and there was just sales everywhere. It was like every day was a sale or New York and Company in those places in the mall. And I’d be like, it’s only this much, it’s 20% off. And it’s like, it’s always 20% off. It goes between 20 and 40. It goes between 20 and 40% off. Like it’s never not on sale because that’s how they’re getting you to buy it. SW (46:26): Yeah. So instead of don’t spend a hundred to save 20 because you’re spending 80, you’re still negative 80. So when you’re, whenever you’re looking at tax strategy and deductions, you’ve gotta make sure that there is a benefit beyond the tax savings to the thing that you’re doing. Like don’t go buy a G wagon just to save on taxes because you’re probably not gonna save on taxes. You gotta pay for that in insurance. You gotta pay for the thing, you gotta maintenance for maintenance, you gotta pay for the oil changes you gotta pay. So you gotta be ready for the responsibility of those things. It’s not just a tax rebate as you know, the 15 second videos on TikTok would leave you to believe, but there’s a lot more that goes into AJV (47:04): It. I love that. I wanna make sure I wrote this down. Credit is like a gift card. Yes. But a deduction is like a coupon. Correct. That’s so good. Just simple everyday metaphors that we can kind of relate to because it is easy to get caught up in all the, whoever TikTok, Instagram, it’s like, you know, there’s a lot where it’s like, I actually need to verify your fi, you know, your credentials. Are you an actual financial anything? Who’s like, spouting out all this stuff when you actually, you go back and you get to the heart of it and you’re like, that is a lot of work. That doesn’t even apply to me. And you find it after hours and lots of dollars trying to figure it out. So just little simple ways. This is so helpful. There are so many things like we could continue this conversation probably for eight hours and still not cover even like, scratch the surface of things that you do. Shannon, where should people go to learn more about you? SW (47:58): So you can find me on my podcast, which is called Keep What You Earn. We have five episodes a week and I drop stuff. I have episodes on everything we discussed today. Much more in depth. And people like AJ on to interview them and learn more about business strategy and all dimensions of your business. AJV (48:11): Y’all go subscribe, download, comment, like, share, do all the things. Keep what you earn. Podcast with Shannon Weinstein, y’all, this is gold. This will help you keep more of the money that you’re making. Thank you so much, Shannon, for being on the show. For everyone listening stay in tune for the recap episode, which will be coming up next. Until next time, we’ll see you later.