The 15.3% tax nobody warns new business owners about

Thank you, Mick, for having me today.

Yeah. so again, thank you for having me. What really got me started in this was I my background is in public accounting. so I got my CPA license, went into public accounting, but I knew there was something different, something more for me. And I looked at the people that I had admired most just from books and podcasts and different stuff like that. And I realized that they all had One of two things in common. Either they were a founder in a business, or they were in software, or sometimes even both. so you know, people like Jeff Bezos and Mark Zuckerberg. And you know, I I started reading their their books and biographies and and interviews and realized that's the area that I want to go into. So I decided that I would move away from public accounting and go into The tech field, the software field, had quite a bit of experiences from there. had a very successful exit with one of those companies. And from there, really started the seeds of starting my own thing, which is a tax advisory and bookkeeping firm. and so actually some of my clients started from this very successful exit. We're great friends to to this day. And that's really how this business started was just some of these early opportunities that they came my way and turning it into the firm that we have.

Yeah, and that's a great question. And actually I think that's the heart of of what I want to speak to today is remembering why you started the thing in the first place. What is your why? And the reason that I had started this in the first place was I wanted financial freedom and but more than that, time freedom, being able to do what I want, and having the business support me and my family and my lifestyle. Rather than the other way around where it's me and my family supporting the business. And if the second part is what's happening, that is a business bound to fail with issues and and struggles. And it's something that I've personally had to to go through even just just recently. so yeah, fun fact about me, I live and travel full time in an R V. And so I have a wife and four kids. We travel all over the US. We've been to, I don't know, I I have a sticker on the outside of my RV that has you know, we put a sticker for every state that we visited. So I think we only have maybe a handful, maybe seven or eight states that we have not visited yet. but this is something that that we love to do. And as I was building this business out, I was figuring out. how can I continue this lifestyle while working for for myself? and unfortunately along the way I forgot about that very reason and started providing services and putting much more time and effort into areas that I probably shouldn't have done. and so it ended up having me to put a lot of extra effort and time and pain into areas I probably shouldn't have been doing in in the first place. And so now what that looks like today is so I run a tax advisory firm. And really what that means is I partner and help other business owners in strategizing and planning on how do we reduce your taxes as much as legally possible through these different tax strategies that are available through the US IRS code and also on on the state level as well. What are some things that we can do to reduce your taxes. and that's where where we really shine is how much thousands of dollars can we save for you as as a client. but along the way I allowed the scope of our work and the service that we provided to really creep over into doing some of these ancillary services that we weren't really great at doing. Or maybe we were, but we weren't it wasn't really a a passion, specifically mine and and the rest of of my team as well. So that and I guess what I'll just say outright, that was going into tax prep. The thing I swore I I would leave behind when I was in public accounting, I went back into doing the taxes of our clients and I'd say tax prep is just entering the numbers into the tax return. And so rather than strategizing on those taxes. And that's where a lot of the focus and attention has been, unfortunately, this past year. and so yeah, I'd love to talk more about that.

Yeah. for me personally, and I know it's different for everyone, but for me personally, it's been taking a step back, sitting down every morning and journaling. but just write not even just journaling, but just writing down your thoughts of what's most important to you and and why you're doing things. and so you know, throughout my career I've I've different experiences have brought me to the point of realizing and understanding what I wanted out of life. And it hasn't always been clear to me. But what has been clear to me is one, I want to be able to make money, which is important for the business. But again, more importantly than that, I am doing things that serve me and and my family and me being able to be there for my family and create the memories and the life that that we dream about. And what that really meant for us was making sure that I had a business that was able to support that and that lifestyle. And specifically when this first started was how do we continue to to travel in in an RV. and so that that's how I I got my why was just sitting down and taking a step back to really understand myself and Know what I want. It's the times when things got busy and things got stressful that it's easy to neglect those things and and forget the reason you're doing something in the first place. And if you're not careful, you let that happen for too long, then you start drifting and again, drifting away from that original why, that original vision.

Mm-hmm. Yeah. So for us, our core client is a small business owner who went into business for themselves. And now they're surprised by how much taxes that they have to pay. Here in the US, typically if you have a paycheck from an employer, you have your federal taxes and then depending on the state, you also have state taxes. But one thing That's not really as talked about as much is you also have FICA taxes as well. These are taxes that both you as the employee have to pay, but not well known is the employer also has to pay their fair share of that. So it's 7.65% on the employee side, 7.65% on the employer side. When someone starts their own business, they're both the employee and the employer. So they now have to pay what we call self-employment tax, which is both sides of that 15.3%. And that's fifteen point three percent on top of federal and state income taxes. And so people come to us and they're like, hey, I started a new business. It's been growing. it's been successful. But I just did my taxes and I got a tax bill for thousands of dollars. We don't have that money. I am paying it off and now I want to figure out a way To not have to go through that experience again. So that's what we help our clients with is making sure that they're set up and ready before the end of the year to reduce their taxes as much as possible. And unfortunately, after the year ends is when people start thinking about their taxes, which is why they get into that mess. And so we take a proactive approach to planning and strategizing to reduce that as much as possible here before the end of the year. That way they leave the the year knowing that they're gonna save as much as possible on their tax return.

Yeah. so for the type of client that we typically bring in and that that fit the mold, probably the biggest, one of the biggest strategies, the foundational portion of it, is moving from a sole proprietor into an S corporation and being able to optimize your salary and the basically the amount that people pay themselves. is what allows them to reduce their taxes significantly while being able to pay them themselves a a good decent salary from from the business. So really what that looks like is when someone starts implementing an S corporation strategy, what they're doing is they're paying themselves a payroll and then the remaining portion Of their profits, they pay as a distribution to them. They now the payroll portion is the only portion now where there's the quote unquote self-employment tax at 15.3%. So the strategy there is the IRS requires that you pay yourself a reasonable salary. But once we figure out that reasonable salary, really the strategy there is let's figure out that sweet spot where You're paying the least amount of taxes, but still in good standing of paying yourself a reasonable compensation. And so let's let's do an example. If someone is making $150,000 for example, they might pay an additional $23,000 in self-employment tax. but if they do the S corporation, they might owe. $9,000 in self-employment taxes. And so that right there you can see that's at least $10,000 to $15,000 in taxes saved for the typical small business owner, just implementing that one strategy alone. Now, after we do that, though, is really comes the fun part because there's a few other strategies that that we also help our clients implement.

in in reducing their tax burden down and that has to deal with a lot of expenses and travel and board meetings and you know a few other legally strategies legal strategies that that are available to small business owners.

Yeah, the the area isn't that big. Mm-hmm. Yeah, that's that's a great question. So one on on the space. So yes, RVs typically are smaller, especially if you're comparing it to a typical house that's on on a foundation, right? But with our RV one, we do have one of the bigger RVs out there, which which make things tremendous, you know, for for us and and our family. But the nice thing is when traveling, we're not in the RV most of the time. you know, my my family, my kids, my wife and kids, a lot of times while I'm working, they'll be going out to to different places. And it just depends. a lot of our travels we love doing in the national parks around the US, especially out west of the US because there's such beautiful mountain ranges and and beautiful national. parks out there. There's so much to do. now, I think this lifestyle is coming to an and and we're looking forward to eventually getting on our property. So we have some acreage out in Oklahoma that we've purchased and the plan and the goal is to don't you build build on there and and build our our home to to form a a base. But yeah, I mean that's that's a a a fair and great question because yes, it it can be difficult at times, especially if we're stationary or if there is not great weather and everyone is stuck in in the RV, it can be difficult at times with with the space. But as far as balancing the two, so that's an art in of itself. And it really just depends what time of the year That we're in. So for example, here in the US, October fifteenth is the tax extension deadline. So you know, clients tax returns, the last ones got done here around October fifteenth. And now my time and schedule has clear cleared up quite a bit, compared to, you know, a month, two months. You know, so it really just depends the season of where we're at in in the business. Thankfully you can plan a lot for that and plan around it.

Yeah, what would I tell my my younger self going into this? I'd tell myself, be curious and be willing to learn. Don't go for the flashy things. Don't try to make as much money as quickly as possible, but view every opportunity and every experience as a seed that plants you to go further of where that future. will be. And that seed might be small, but those experiences, those opportunities can blossom into something so much bigger than what you would have thought or imagined. And it if you would have told me, so 10 years ago was when I was at the first software company that I was at. And We ended up selling that company to a a public company had a a massive, wildly successful exit. and I I thought for the longest time after that, I I worked at a few different companies from there and I thought that was the pinnacle of of the success. But if you would have told me ten years later, hey, there's so much more and there's there's some great experiences for you. after this I'd be like, man, how can I how can I top this this experience of selling to this public company? but it's really, you know, these these seeds led to that that experience and opportunity. And then from that experience and opportunity led to more seeds that grew into into future growth. And I you know I'm I'm still I'm still planting seeds today and looking forward to to what the future has in store.

Yeah. So LinkedIn is probably where you can find me. I have quite a few articles and tweet threads on Twitter as well, though I'm not as active on there anymore. I plan on being more active and having a a presence on Substack where I'll s can start writing some articles on how to save taxes. and also Yeah, there I think there'll be a good mix of personal and and career advice on there as well, just as we continue to to f to figure out and find where we want to be in life. But yeah, you can find me both on Substack and LinkedIn at Arnyel Cia. And then if you'd like to work with me personally, you can find that on openpathfinance.com.

Thank you, Mick, for having me today.