What are 9 steps I can take right now in my business for a better tax situation next year?

Ralph
00:00:00

Last April, I sat across from Mark. Now, Mark was a small business owner who was fighting back tears. He said to me, he said, Ralph, I owe $47,000 in taxes. I might have to let go of two employees just to pay this bill. How about you? Have you ever felt that gut wrenching moment when your tax bill arrives? That sinking feeling when you realize you could have done things differently? Today, I'm sharing 9 battle-tested steps that help Mark not only keep his employees, but also save over $30,000 on his taxes the following year. Listen, don't let taxes destroy your business dreams. Stay with me today to discover these game-changing strategies that merge smart financial planning with faithful stewardship.

Podcast Announcer
00:00:43

Welcome to the Ask Ralph Podcast, where listing to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your host, Ralph Estep Jr.

Ralph
00:01:11

Well, thank you for joining me today on this journey where we master your finances from a Christian perspective. I am truly excited to walk alongside you today. Now, if you missed yesterday's show, we talked about 11 tax related new year's resolutions. So I'm going to encourage you if you missed it to go back and check out that episode, because we covered some game changing commitments that you can make that could revolutionize your tax strategy for the coming year. Today's episode is going to sort of be the compendium to that.

Well, today's question comes from Michael. Michael is also a small business owner, and he poured out his heart in this emotional note to me. He said this. He said, "Ralph, I'm writing this at 3:00 AM because I can't sleep. Last year's tax bill nearly destroyed my business and my family's peace of mind. I had to take out a second mortgage on our home just to pay the $42,000 I owed the IRS. My wife and I haven't had a date night in months because we're still recovering financially. The worst part? I know I'm probably making the same mistakes all over this year again. Every time I look at my three kids, I feel like I'm failing them as a provider because I can't seem to get ahead of these tax obligations. I've been praying for guidance, but I feel overwhelmed and don't know where to start. My business is doing well in terms of revenue, but after taxes, it feels like I'm just treading water. How can I be a better steward of what God has blessed me with? What steps can I take right now to avoid another devastating tax bill next year?"

Michael, I love your question. And it perfectly illustrates those challenges many of us face as Christian business owners. We're trying to balance financial success with faithful stewardship and not owing a bunch in tax. And your situation reminds me of many clients

I've worked with over the past 30 years, who felt trapped, just like you did between growing their business and managing their tax obligations. And I'm going to address those concerns today head on with practical solutions that will align with both sound financial principles and our Christian values.

But before we get started, let me ask you a question. Are you struggling with money, finance and faith? Listen, I get it. Sometimes it's like you're the only one trying to make Godly financial decisions in a world that pulls you in different directions. And that's exactly why I go live every Tuesday night at 7:00 PM Eastern time, because I want you to know you're not alone in this journey.

You want to know what makes my heart sing? What makes my heart sing is when I see members of our community having those aha moments during those live shows. When someone finally breaks free from debt or understands how to invest while honoring God or find peace in their financial decisions. Listen, those are the moments that really matter. Every week

I hear stories that could be your story. Like this one, "Ralph, I was drowning in debt until I found your show." Or this one, "I never thought I could invest and stay true to my faith." And I love this one. "Your advice to helped save my marriage from financial stress." Well, here's what makes our Tuesday nights special.

I give you some real talk about money and faith. There's no sugarcoating. I cut right to the chase and yes, your questions are answered live. I'll help you in your specific situation. And the best part of it is it's a supportive family of believers who get what you're going through. They understand it because they're dealing with it as well.

And I also give a hundred-dollar Amazon gift card every single week. The real magic happens in the community. When you join us, you'll see others facing the exact same challenges you are, but the difference is they're winning and their victories will become your inspiration. So here's what I want you to do right now.

I want you to take out your phone, add askralphpodcast.com/live to your calendar for Tuesday night at 7:00 PM Eastern time. And make this commitment to yourself and your financial future. Don't let another week go by feeling stuck or alone. Join me and our incredible community this Tuesday night and together we'll build a strong financial future while keeping faith at the center. And I'm going to be looking for you in the chat and Hey, you might just walk away with that Amazon gift card. So see you on Tuesday at 7:00 PM Eastern time. Again, that's askralphpodcast.com/live.

You know Michael, your concern about tax planning brings to mind one of the most powerful teachings about financial stewardship in the Bible. And it comes to us from the book of Matthew 25:14-21. So let me share that with you. And here's what it says. It's "Again, it will be like a man going on a journey, who called his servants and entrusted his wealth to them. To one he gave five bags of gold, to another two bags, and to another one bag, each according to his ability. The man who had received five bags of gold went at once and put his money to work and he gained five bags more. So also, the one with two bags of gold gained two more.

After a long time, the master of those servants returned and settled accounts with them. His master replied, 'Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things." And think about it, Michael. That parable perfectly aligns with our discussion today.

We're trying to balance tax planning and business stewardship just as I help my listeners navigate their financial journeys while growing in their faith. This parable teaches us about wise resource management. Think about it, the master praise those who actively manage their resources, not the one that hit it away. And see, it's not about hoarding wealth.

Listen, I'm your financial mentor and a fellow Christian, and I'm walking alongside you in this journey. And I see tax planning as an extension of this biblical principle. It's not just about saving money. It's about being a good steward of the resources God has entrusted to us and using them wisely to grow our businesses and support our families.

And most importantly, contribute to our communities. Remember this. Sound financial principles and strong faith go hand in hand. They're not separate. And when we approach our tax planning with this mindset of faithful stewardship, we're better positioned to make decisions that honor both our business obligations and our Christian values. So let's get right to it. Let me share 9 crucial steps and I'm also going to talk about some success stories from my clients. The first step is this. This is a great time to review your business structure.

Let me tell you about Sarah. Now Sarah is a freelance graphic designer, and she was operating as a sole proprietor. She didn't know any different. And listen to me, reviewing your business structure can make a huge difference. Let me tell you about how huge it can be. So I sat down with Sarah, we looked at her structure. And I told her about this thing called a subchapter S corporation. And I'm not going to get into the details on today's show.

I've done some shows about it, but what it ended up doing was saving her, listen to this now, $7,500 in self-employment taxes last year. That is $7,500 going back in her pocket. So here's my pro tip for number one. And that's consider your business structure annually. Take a look at it each year as your revenue grows and see, does it make sense.

So number one, review your business structure. Let's move on to number two. And this one is one of those "Duh Ralph", and that's maximize deductible expenses. Let me tell you about John. Now John owns a local restaurant. His food is fantastic, but his tracking of expenses was, it was not up to par.

Let's just be honest about it. And he came, we sat down, we took him on as a monthly client. And what we did for John is we implemented what I call a systematic approach to tracking. We set them up in QuickBooks online, and he hired us as an accountant because he knew we could do it better than him.

He had to worry about running his business, and we started categorizing everything from utility bills to maintenance costs. We categorize the marketing expenses, subscriptions and all those incidentals and listen. John's typical of my restaurant clients. They have all kinds of ingredients that he used in his restaurant, but he wasn't keeping track of that.

You know, it was a dollar here and $5 there. What that ended up doing for John in just the first year, we found $12,000 in additional deductions, all by being proactive and being organized. So my pro tip here is use accounting software to categorize expenses automatically. It's a great time to set that up now that we're getting close to the end of the year.

So number 2, maximize those deductible expenses. Let's look at number 3 and that's plan for equipment purchases. Let me tell you about Linda. Now Linda is a client of mine. She's a photographer and boy, her pictures are fantastic. And what Linda did is she would timed her new camera equipment purchases strategically at the end of the year. And you might be asking Ralph, why did she do that?

Well, it allowed her to take advantage of what's called a section 179 deduction. Again, I'm not going to get into the weeds, but basically by buying those things in the calendar year, she was able to spend or to save $4,000 in tax. See, right now with my monthly clients and the clients who are being proactive, I'm meeting with them right now.

We're discussing ideas that they can do before year end. I got many clients on my counter. In fact, my calendar is full just about to the end of the year, because they're looking for ways to reduce those tax burdens. They're also looking at getting that equipment they need, but you need to know where you stand and then we can make those decisions.

So here's my pro tip. Research upcoming equipment needs and align purchases with your tax strategy. Now I'm not telling you to go buy stuff you don't need. By no means am I saying that. I've got some clients, I'm not going to call them knuckleheads, but they're about knuckleheads and they just feel like, oh, every year I got to spend money, so I don't pay the tax man. But you're buying stuff you don't need.

So be strategic about it. So that's number three and that's plan for equipment purchases, but again, you got to know where you stand. So that's why number two, that keeping track of everything comes into play. Let's look at number 4. And this one is often overlooked by my small business clients. And that's consider retirement contributions. Let me tell you about Tom.

Now, Tom was a consultant. And he had maxed out his SEP IRA contributions for the year. What did that do? Well, it reduced his taxable income by $30,000. Not only did it do that, but it secured his future. And that really highlights what we're talking about when we say stewardship, and this is often overlooked by business owners. They get in the day to day. On yesterday's show, I talked about creating that monthly plan to put away money into retirement. And it's a great way to save money today.

And as I said, it's a great way to provide for a more secure future. And it's not complicated. You can set up one of these SEP IRAs or solo 401ks. It's really easy. So here's my pro tip. Like I said, I mentioned this on yesterday's show. Do it but set up that automatic monthly contribution to stay consistent. Make sure you're funding that throughout the year so you don't have good old Ralph saying to you on the 20th of December, hey Tom. Guess what? You could put 30,000 into a SEP this year and Tom goes, I don't have the cash to do that. So if you're funding it as you go, I think that's a better plan. So number four, consider those retirement contributions. Let's look at number 5. And this is another one for my small business owners.

Look at your inventory management program. Let me tell you about David. Now David had a retail store. And he had a little of this and a little of that. But to be honest with you, when I went and visited David's store, he had a little too much. He had excess inventory. So I sat down with David, and I said, hey, let's talk about a better inventory management program. And what did it do, because think about it.

If he's got all this extra inventory, he's paying money for storage costs. And we were able to optimize that inventory and improve his tax position. And it amazes me when clients don't manage their inventory. I've got some clients that are technicians out on the road, and they've got these big box trucks and I'm not picking on anybody, but their box trucks, you can't even get into the back and they're so full of stuff. But I say to them, hey, what is all this stuff? Have you inventory? But then as soon as they get to the house to do a job or get to a particular place to do a job, oh, I got to run to the, I got to run to the place to get the tools. I got to run to get the materials I need to supply house.

That's a term I was looking for. But listen, what's on the back of your van. And think about it. You're paying interest on loans, your, and here's the bigger issue. Some of that stuff could become obsolete or it could spoil. So here's my pro tip. You're not going to like this one. But conduct quarterly inventory reviews to identify those slow-moving items.

This is not a time to just do that a year. And I've got some clients to say, Ralph, yeah, I'm going to do my inventory at the end of the year. You kind of know where your inventory is throughout the year. So that's number five and that's review inventory management. Let's look at number 6. This one's not going to apply to everybody, but it's a good time to assess your home office deductions. I've got a client.

Her name is Maria. Now Maria does online tutoring. And she was great about documenting her home office space and it led to a $3,000 deduction that she had missed in the past because see, she used her home for business. And the truth is if you look at where we're at as an economy right now, so many people work from home these days. Yes, online her business was, but she still had exclusive space. Now again, you got to be careful with this one and make sure you document it all. So here's my pro tip. A lot of people don't think about this. Take photos of your home office space and keep them with your tax records. Because if you come to somebody like me and we talk about his home office deduction, I'm going to ask you those type of questions.

So that's number six. Assess your home office deduction. Let's look at number 7. This is an often-overlooked thing as well and that is to explore tax credits. I have this client James. He has a small manufacturing business in Dover, Delaware. And he didn't know it till he came to meet with me, but he qualified for research and development tax credits.

Guess what that did? That was a tax credit of 10,000 bucks. So research those tax credit. There are R and D credits, there's energy efficient credits, and the beautiful thing about a tax credit, it is a dollar-for-dollar tax reduction. It's not a percentage. So this has a huge impact. So I'm going to encourage you, work with a professional advisor and don't miss these opportunities.

So my pro tip here is review available credits quarterly with your tax professional. Don't wait till the end of the year. Start talking about that in those monthly or quarterly meetings at the beginning of the year so you can make plans if you've got to acquire some of this stuff. So that's number seven, that's explore tax credits.

Let's look at number 8. And this one, I'm going to be very careful how I talk about it. I'm going to say this as defer income, but I'm going to tell you to do it strategically. I've got a friend of mine. Her name is Lisa. And she's a consultant. And what she did was in December, she didn't bill anybody for her work.

She waited to build those things until January, because she knew she had already had a good financial year. And this was a way to manage her tax bracket. Listen. I got many clients that do this. I got some clients, they hold their payment checks for the whole month of December. But listen, here's the warning part of this. It's sort of a show game for two reasons.

Number one, it's going to look kind of weird if you get audited that every month you have sales, but then all of a sudden December, you had none. Second thing, you gotta be careful of your cashflow because you got those checks sitting on the shelf, waiting to put them in, or you're waiting to invoice people, that can create a big problem.

And it also might create what I call the annual dilemma. Once you do it one year, you're going to feel like you got to do it every year, because now what you're going to do, think about it. You're not going to bill or you're not going to invoice. You're going to post payments in December, well now all of a sudden, January is double what it should be.

And if you don't do that again next year, you're going to find yourself in a problem. And the other thing you've got to balance this. You got to balance your desire and your customer's desires and you got to be transparent about that. They may want to get that tax deduction by paying you and if you're not invoicing them, you could lose a client over it.

So here's my pro tip. Create a tax projection in October so you can look at what your year end is going to look like. So that's number eight, defer income. But like I said, make it strategic. Let's look at number 9. And that is consult with a tax professional. Now you might hear me say this all the time.

Well, I say it all the time because I think it's important. You cannot run your business and do everything on your own. Let me tell you about Robert. Now Robert had an e-commerce business. And what he did was he invested quarterly with meetings with me. He said, Ralph, I'm going to pay you for your time.

I'm going to sit down with you quarterly. What did that do? We ended up saving him $25,000 in tax. It amazes me how many business owners won't invest in their business. Because listen, it's tough to know your business and know accounting, and know tax. Let me ask you this question. When you get sick, do you call a doctor?

Of course you do. And think about it. If you work with somebody that's a professional, that's an advisor and understand this, your savings can be significant. I would say to my clients, you should find 10 times the value in what you pay me in the value what I'm bringing to the table. And that's where a lot of my clients. We meet with them either in person monthly, we do zoom monthly. And I'll mention later how you can book a call with me.

But here's my pro tip here. At the very minimum, schedule quarterly tax planning meetings, not just an annual tax preparation. I've said it a million times. I can do a great job putting your tax return together. I can make the forms look nice. The I's are dotted.

The T's are crossed. But the real value comes in tax planning and that has to happen before the end of the year. So that's my number nine thing. And that is consult with a tax professional, not just at tax time but throughout the year. So what's my big takeaway today? You know I like to have a big takeaway from the show. My big takeaway is very simple.

It's three words. Make informed decisions. You know, change the way you think about taxes, take control of your business, and it will help you take control of your taxes. Now, before I move on to some action steps, you know, I always like to share those action steps with you, let me ask you a question.

This comes back to what I was talking about. Maybe you're feeling overwhelmed by your financial challenges. Maybe you're buying a home, you're running a small business or living paycheck to paycheck. You don't have to walk this journey alone. Like many others, you might be watching your dream slip away. You might be struggling with mounting debt.

You're feeling stuck and frustrated. Or like the business owner today, you're trying to balance business and personal finances. But there is hope. I know there is hope and together I can help you create your path to financial freedom while still honoring your Christian values. And here's how we'll get there.

I'm going to sit down with you. I'm going to assess your current situation. I'm going to help you identify your God-given dreams. What I call your big, hairy, audacious goals. I'm going to help you build that personalized financial roadmap that aligned your goals with your faith. I'm going to be that accountability partner and very last but not least, we're going to work together to track your success. Because listen, there's no cookie cutter solutions to this. You're not going to watch some YouTube or TikTok video and get all the solutions.

But what you need is a practical, faith-based approach, tailored to your unique situation. So think about it. Do you want to break free from debt? Do you want to find that financial stability? Do you want to achieve that long-term success and grow spiritually while building wealth? Listen, don't let another day pass feeling stuck or overwhelmed.

You can book a consultation with me. Go to askralph.com. It's really simple. You got to askralph.com with it at the banner. You'll see a thing that says book a call with Ralph. So let me share, and again, that's askralph.com. Book a call with Ralph. Well, let me share some of those action items. Because as I always say, good intentions don't make an impact if you don't put them into action.

So number one thing, write these things down. Number one. Schedule a business structure review this week. Call me. Book a call with me. Book a call with somebody you trust and get an understanding of your current business structure and decide if there's a better way to do it. Number two. Ramp up or set up an expense tracking system. Just like John, that restaurant owner. Keep track of what's coming in and what's going. Number three, create an equipment purchase timeline.

If you know there's equipment that's going to make you better in your business, or if you've got some things that have gone obsolete, or you need to replace, create that equipment purchase timeline and see if there's a way you can fit it into current year. Number four and a lot of people miss this. Calculate potential retirement contribution amounts.

And like I said, start funding those things throughout the year so you're not waiting until the end of the year. Now, if you've got that home office deduction, document that. Take pictures, look at the measurements and make sure you're using that exclusively for business. Number seven, research available tax credits for your industry.

Again, don't wait till the last minute to do it. And number seven last but not least. Consider meeting with a tax professional. Like I said, I've given you an instruction. How to book a call with me, just go to askralph.com. Now tomorrow, I'm going to discuss how to find financial harmony with your partner. We're really changing topics. But this one is important because it affects both your personal and your business finances. And remember this. My passion is to help you achieve financial success.

I want to see you live out your dreams, and I want to see you grow in your faith. And I know working together, we can master your finances from a Christian perspective. So as I always end the show, stay financially savvy out there and God bless you.

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