Wealth-Building & Tax Saving Strategies for Ecommerce Store Owners and Entrepreneurs in USA & Canada

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Chase InsognaAs President of Insogna CPA, Chase Insogna is passionate about helping small businesses and their owners with accounting, tax strategy, and wealth building. Since its inception in 2011, Chase has grown the business to include a team of highly-trained professionals that use tech-savvy solutions to create efficiencies and provide expertly designed and transparent advisory, coaching, planning, and strategy.

Here’s a glimpse of what you’ll learn:

  • The four stages of ecommerce business growth and tax planning
  • Choosing between a C Corp and an S Corp and the tax implications
  • Investment, tax saving, and wealth-building strategies for people making seven to eight figures and above
  • Forecasting cash flow for greater wealth management
  • Liability protection and why it’s essential
  • Rental property investment advice and tips
  • Why businesses should use an inventory tracking platform early on
  • The importance of having liquid reserves or a line of credit for unexpected circumstances

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In this episode of the Ecommerce Wizards Podcast

Are you a small business owner who’s focused on growing your business? That’s one crucial aspect of running a business, but how much planning have you put into your long-term goals?

For many business owners, much of their focus is absorbed in growing the business. Although that’s essential for success, it doesn’t take wealth-building into account. You don’t want to spend your whole life growing and reinvesting profits back into the business and have little to show for it at retirement. That’s where a trusted advisor comes in to help prepare you with long-term planning, including where to invest, how to build wealth, and how to get the most out of tax-saving strategies.

In this episode of the Ecommerce Wizards Podcast, Guillaume Le Tual has an informative conversation with Chase Insogna, the President of Insogna CPA, about wealth management and tax-saving strategies. They talk about various topics such as C Corps versus S Corps, forecasting and planning cash flow, and forming a financial safety net. The two also talk about personal finance tips for business owners at each stage of growth.

Resources Mentioned in this episode

Sponsor for this episode...

This episode is brought to you by MageMontreal.

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Episode Transcript

Guillaume: Hello everyone. Guillaume Le Tual here, host of the Ecommerce Wizards Podcast where I feature leaders in e-commerce and business. Today’s guest is Chase Insogna. He’s a CPA, Certified Public Accountant and today he’s going to tell us some pretty awesome tips about saving money, of course tax tips. This is for e-commerce store owners and business owners in general in the US, if I know the Canadian equivalent I’ll let you know. Chase, thanks for being here today.

Chase: Thank you for having me.

Guillaume: So can you tell me a little bit about your background as a CPA and how long you’ve been doing this and built your own firm as well?

Chase: That’s correct. I’ve been in CPA since 2009 and I have had my company here since 2011. I started it from scratch and I didn’t pay myself for two years. So I’ve been there, where you’re just starting up and just getting going. I’ve grown it and I have 20 employees currently, we’ve grown double digits annually and been fortunate for that. We have a huge vertical on the online seller Amazon space, we work with a lot of clients there. We have a dedicated accounting team helping with monthly reconciliations and helping with daily transactions. We have an in-house controller doing advisory and tax planning and then we have a tax team obviously helping with that stuff, too. So we have a kind of a year round relationship with our clients and we’re just looking to add value and make sure they’re saving as much as possible every year on their taxes.

Guillaume: Alright. So a classic self startup that suffers a few years and hopefully starts making it big a few years down the road. Good job there. All right, let’s get right into it. So for e-commerce store owners, what can they do to try to save especially on tax?

Chase: On our website we have a white paper and some deliverables, kind of, what I’ve learned over the last decade plus there’s kind of four stages that online seller/Amazon’s clients go through. The first phase is, you have up to $100,000-250,000 in gross revenue, probably selling out of your house or apartment or a garage and arbitraging products or maybe you have your own brand you’re starting up. Just make sure you have an LLC to start out with an EIN number so that you don’t have to change that with Amazon especially in the future. Once variance starts building up and your items start selling and with reviews, you don’t want to have to change that. And then have skills in, do you need to make an S Corp election with your LLC, or not, depending on your net profits. Our general advice is $50,000-60,000, minimum after expenses and that includes mileage and home office and cell phone and things like that. So it doesn’t need to be an S Corp, maybe not in the first phase but probably in the second phase probably. Now you have up to like $500k-ish, maybe $500-750k, and probably if you’re getting products into your house you’re probably getting to where you need to start getting a commercial space and into phase three.

That becomes phase two with a little more tax planning and a reasonable salary. We have third party tests to determine where that needs to be, making sure you don’t pay as much FICA tax as you need to. You’re probably looking to hire an employee or two to help you in the phase two process. So HR, and tax planning, probably doing some forecasting, starting to pave down if you’re borrowing money, pay your lenders and hopefully get to the point where you’re lending to yourself. Then phase three where you’re looking to scale that into like $750k to over a million which definitely requires more tax planning and cash flow forecasting. Because now you’ve probably got a commercial space or a warehouse that you’re moving product in and out of, and more than likely you have an employee or three or more. And then phase four is obviously kind of legacy growth, you have enough volume where you’re selling to maintain your lifestyle and you’re continuing to grow a business and it’s just kind of on autopilot at that point from a base level and the sky’s the limit from there. So obviously, there’s larger tax planning, or you’re paying your spouse, paying your kids, looking at other structures, potentially, depending on how much money you’re making, or you’ve got clients starting out in the $50,000 range up to eight-figure gross revenue range for Amazon online seller clients. So work with all of them. For us accounting and taxes are all the same, it’s just where you’re at in the spectrum of it and what that advice looks like.

Guillaume: Okay, so to help you guide us in the conversation, let’s focus on the $1 million and up kind of game. So for sure this is not for every range but let’s start with, what do you think of B Corp, the benefit corporation versus S Corp? Is there any tax impact whatsoever?

Chase: I don’t know anyone that’s recommending B Corp for what online sellers are doing here in the US. I mean, the S Corp structure makes sense if you’re looking to reduce taxes because it flows down to your 1040. I mean, the more you make the more your tax bill gets but currently here in the US we’re in an ultra-historically low tax rate environment through 2025. So my philosophy and what we’ve been advising our clients is, yeah, the numbers are big and nobody likes to pay the IRS but generally your effective rate if you’re over a million in sales you’re probably effectively paying. And this is a non-tax state, obviously, we’re in Texas based on taxes but you’re going to range between 22-28%. If you’re in a taxable state you’re anywhere from probably 25-40%, but effectively you’re still in an ultra-low tax rate environment. And if you’re paying around 25-30% and you invest that money properly or you invest it back in your business for growth you will likely make that back in three to five years at 25 percent. So try to put it in a structure that’s kind of pigeon holed and have an account which is not liquid, though it is not something that we recommend especially if you’re even at a million dollars. Because you’re still dealing with cash flow and maybe you’ve got a line of credit. The ultimate goal for us is to get our clients out of borrowing money and leveraging to buy inventory. We want our clients to get to borrowing against themselves and paying off credit cards every month.

Guillaume: Alright. I’ll ask him, because it’s becoming very popular, if it’s like a real B Corp or just a certification of B Corporations. People want to have an impact in the world and want to feel how their product is different from somebody else’s product or maybe there’s a more social angle, or some kind of cause to try to rally people to. So I’ve seen a lot of interest in B Corps, is there any negative point from a tax point of view of using a B Corp?

Chase: To be honest, I’m not familiar enough with them to answer that.

Guillaume: Yeah, it’s fairly new stuff. And for anyone else, the main thing from what I understand with all the traditional corporations is you sort of have to maximize profit. And if you are in a public setting you could even be sued for not maximizing profits for making a charitable decision to some degree, while the B Corps will have actually a stated purpose such as, ‘Our goal is to help the ocean and we’re also running a business by the way’, so anytime you put money towards that it’s acceptable and you’re not going to get sued for lowering the profit or dividend payout in a reasonable way, because you’re pursuing the mission of the business. So there’s a lot of interest in this right now.

Chase: I mean, you can always take an S Corp and move your profits into a donor-advised fund or a charitable remainder trust for yourself. You’re getting the tax deduction that year and then you can choose to pay out that money over time to whatever charity or nonprofit organizations that you want to pay it to. So you don’t necessarily have to do it through a B Corp, you could still have an S Corp and then have another set up on the side with a donor-advised fund and we are in a trust to achieve that goal too.

Guillaume: Okay. And you were talking about larger tax planning, like paying your spouse or your kid or some other structure, let’s say, 1 million and up. Is there anything specific that you could see someone do, maybe even in the eight-figure range? Is there any kind of game plan that you would say is generally big and good?

Chase: I mean, everybody’s tax situation is different so you can’t really say one thing for everybody. But ultimately, the goal is to make sure you’re not borrowing money and especially at today’s rate these lines of credits are getting into the 6,7,8, plus range with banks and interest rates climbing. So a million plus or even if you’re around the million to 5 million range you’re still kind of borrowing to buy inventory in Q4. But the ultimate goal is to pay that down and start borrowing against yourself in future years. So we still advise to keep building up liquidity in a savings account and then get to that point where you’re using your own money. Once you’re beyond that then sure, we can look at maxing out 401ks, do you have employees? Sometimes that gets interesting how to max it out but if you have a spouse that isn’t working, for example, we would pay them a small salary to max out a 401k. If you have kids that are generally just over five, unless you can prove like a marketing point and they’re in photos and on Amazon in photos, but generally, if it’s not marketing related then age 5 is kind of our general minimum where we recommend creating a job description and having them work in the business, we pay them a net 6k annually. So that is earned income to contribute to a child’s Roth IRA to grow tax free, which here in the US is for education, medical expenses, purchase of a first home or retirement. Kids are going to have one of those four if they choose not to go to college. It’s still flexible. And it’s money you can deduct in your business along the way.

Guillaume: I don’t know much about the US stuff but I have one for Canadian businesses, there is the exemption of capital gain on the first $1 million when you sell your business here in Canada and this is where it can be interesting to have a family trust. So you can add your kids and your spouse in there and then you can use everybody’s 1 million exemption here and spread it across, but for you and your partner you both get nothing in your pocket but for the kids it will be half/half and there’s no way of messing around. The kid will really get half and you will have zero control over it, it’s a gift. Because you’re burning their lifetime with the $1 million exemption, they cannot use it later in their life but then at the same time they have like half a million right now to get a nice life started. So half is theirs and half is yours. So the moment you get around a $1 million valuation of a business here in Canada, it’s a good time to get a professional evaluator to give you an official evaluation of your company.

So you can freeze and prove to the revenue agency that this was the valuation of the business at that date, we had a certified professional do that. And because also any kind of value your business goes above before you freeze that value you will pay it in taxes if you sell your business one day. So you want to freeze it as close as possible to the $1 million range otherwise you will pay taxes on more. Let’s say you wait for your business to be worth $10 million before you do this process in order to create the family trust and all that. Well, guess what, you sell your business for 20 million and then on the first 10 million you just have 1 million that there’s no tax, you’ll pay tax on the full 9 million. And then because you’ve done the freezing of value at 10 million before transferring everything to the family trust. Then the next 10 million will start to be distributed and you’ll save three more there. But you can start saving a lot more on taxes in case of a sale of the business but this has to be a sale of shares. Sometimes another way of doing this is not to necessarily sell the whole business, you can sell a division or you can start a second business just to flip it. And then you can do this kind of thing. So that’s one very interesting thing when you get around the $1 million range in business valuation in Canada, it’s important to try to maximize on this one.

Chase: It sounds like I need to be adopted as a child personally with the business owners in Canada.

Guillaume: To get a million?

Chase: Now that structure doesn’t exist in the US. A lot of questions we get though kind of related to that is, is it better to be a C Corp here in the US from a tax perspective? Our position is generally no. Again, because we’re in an ultra-low historically low rate environment right now. Tax wise C Corps don’t make sense because the only way to get money out is to payroll yourself and pay 15.3% Medicare and Social Security tax as the employee/employer and dividends which are 23.8%, you’ve got 20% Capital Gain plus 3.8%, Net Investment tax on passive income. So between those two to get money out of a C Corp you’re running around 38-40% on average in a non-tax state. If you’re in a taxable state that’s even more versus the S Corp you’re going to run 22- 28%, in a non-tax and probably around 32-40% in a taxable state. So you definitely save money as an S Corp versus C Corp in most cases.

Guillaume: And you’re talking about tax states and non-tax states, would your strategy change depending on where you’re located in the US?

Chase: No. Again, it boils down to everybody’s situation, what does their personal tax return look like? Would it make sense to shelter money in a C Corp or not? A lot of startups, a lot of tech companies, obviously are C Corps because they have shares and they’re looking to exit. So that’s a different story than just owning a business and holding it for 10-20 plus years and exiting. Right now capital gains are favorable but again after 2025 my expectation is that those rates are going up.

Guillaume: Okay, so anything else in the sort of $1 million range or just a little bit above the $1 million range when you’re just hitting seven figures?

Chase: If you’re not forecasting cash flow I definitely recommend doing that or working with a professional to do that to make sure you’re on track for the year. A lot of what we see is everybody just running through their bank account to see how much money they have to spend. But when most of your income in general comes from Q4, how does the rest of the year need to be planned out in a rolling 12 month forecast for planning and analysis in the next year. So that’s why we work on larger clients where there is a lot more forecasting on a weekly, monthly basis with a lot of our larger clients and we use software to do that too.

Guillaume: Well, if somebody is just going to check out the bank accounts to see if they can spend something to implement profit first. Do check that out Mike Michalowicz. It’s very easy, you can read the whole book or you can just create yourself an additional saving account and then put profit away first, that’s it. Profit first, that’s the spoiler of the book. And then you can budget your other expenses with savings accounts like this one. So you can do this once or twice a month, and you just do transfers between those accounts and then anything that’s left in the checking account, that is what you can truly spend. That is the cash flow management point of view, of course, it’s far better to go with accrual, not sure if I’m pronouncing it correctly in English, accounting rather than cash-based accounting. But they’re both useful because accrual can say that everything’s amazing, but actually, your bank account is drying and about to go bankrupt from lack of cash flow and cash. It doesn’t give you the big picture, so I do believe they’re both useful even though the full company should run efficiently in accrual.

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Guillaume: Okay, so we’ve covered the 1 million low seven-figure range, let’s go to the eight-figure range. Any specific advice on something that makes sense as an eight-figure and becomes an eight-figure play?

Chase: I mean, it’s pretty much the same advice in certain eight-figures. I mean, obviously you might get into some estate planning. We don’t specifically do that, we refer it out. And you probably looked at some estate planning where a lot of our clients have real estate, you want to make sure you have liability protection so it doesn’t affect your eight-figure business. Make sure you separate those out liability wise. There’s no huge tax difference in advice, it’s just mainly like life planning at that point and what you want to do with your money.

Guillaume: And when you say to put liability, would you put everything that is like a car, truck, boat, or whatever, in a separate corporation just in terms of being protected versus being sued or something like that?

Chase: If you have business vehicles, yes, but personal, no. That’s not necessary. I mean, your personal house and your vehicle is usually excluded from liability and bankruptcy here in the US in most states. So you don’t have to do that here in the US. But if you have rental property you probably want to set up a separate LLC, or LLC for each one, depending on what you have. I have 15 rentals myself currently, we do a lot of real estate here too. But again, everybody’s situation is different. Have umbrella insurance, talk to your insurance agent and make sure the business is covered but also make sure your personal liability is covered too. A lot of people are under-insured, when they start getting in the wealthier range because generally they have other assets and the business, so you want to make sure you’re protected in the event somebody falls in your warehouse, or has an accident. Insurance doesn’t cover all of it and they’ll try to sue the business and then sue you personally. A cheap umbrella policy for a million plus can cover most of that.

Guillaume: Good advice. Okay. Anything else in the eight-figure range?

Chase: No, not specifically. Obviously, working with a licensed professional is what we always recommend for all ranges. But make sure you’re working with a CPA or a chartered accountant in and outside of the US, Certified Public Accountants here in the US. The reason why I started my business was, there’s always a bookkeeper and always a tax person and those two were never incentivized to talk to each other. So that was the original kind of plan to bridge that gap when I started my business 11 years ago. And so that’s what we recommend with clients today and why we do the transactional work but we also help with the planning and forecasting because now we have it all in-house. We have all the data and it allows us to advise the owners more quickly than if it was totally separate and we were just doing taxes for somebody. So definitely worry about the license individually, you know, unlicensed people there’s no recourse. So if you’re running your business with a bookkeeper that’s unlicensed, anything can happen in life, that bookkeeper could disappear, they could get in an accident, and you have no control over your data. There’s not a state board like a CPA to figure out and go into the office of the CPA to get your data for you. That’s what the recourse allows for in a licensed CPA on any state board. The CPA also has groups of people internally to help when CPAs die or disappear and clients are stuck. Always make sure you’re protected.

Guillaume: Sounds good. Now, since we’re talking about the eight-figure range, you’re usually accumulating interesting personal wealth as well, so what you do is totally your choice, speak with professionals about this and keep stock about what you do. Real estate is often an option that comes up a lot but not for everybody, but it’s more stable. Sometimes some of those web-based businesses can be a little bit more volatile with lots of high risk high reward. But real estate tends to often be the selected choice for a lot of web entrepreneurs that I’ve spoken to. Anything top of mind like fun techniques that somebody should know about if they decide to put some of their money into real estate?

Chase: It’s a good question. I mean, it really depends on your personal goals. I would say if you have a retirement place in mind or you visit a place often and you want to have a property there then that makes sense to do it. I have a beach condo five hours from my house so we get a chance to go down there when we want and we rent it out for the rest of the year. I mean, from what I’ve learned in 15-20 plus years of real estate on my own, single family homes are a lot of work. And generally, if you’re borrowing the money and not paying cash for it the cash flow generally isn’t there. Because you’ll have a good year, you’ll have a down year, you have move-outs, you have three months no rent, you’ve got a re-lease fee, repairs, make-ready fees, etc. The only money that I at least have experienced in single family homes is when you sell it, the capital gain is there for sure. But over the course of all those years I haven’t really seen any gains. If you’ve got a one off single family home here and there the cash flow is difficult.

Now, if you’re concentrating, let’s say, in one city of 10-15 plus single family homes that’s different because then you can scale people that rehab it, and people that lease it, and people that manage it, maybe that’s a little bit different. But if you’re just buying a house here and there, that’s generally been my experience. So for people that hear about real estate and they are like, ‘I want to buy one house and rent it out’, I mean, usually short-term rentals are more profitable than long-term from my experience but also, at least today, this is November 2022, you can invest that same money in the market in REITs and potentially keep your money liquid and make 8-12% returns annually and get paid a dividend every month or quarterly from those companies without the hassles. And if you want that monthly check coming in consistently that is maybe a better option for you. But if you’re just looking to hold it and capital gain in the future, again, if you look at tax on the money you pay it when you sell it or you 1031 exchange it into another property or more properties at the time. So it really depends on your goals. I will try to tell you how much work do you want to do in retirement? As you know, real estate can get out of hand if you have a bunch of properties to manage when you’re looking to retire. So yeah, I have a different advice for everybody.

Guillaume: Right. So you were mentioning, was that like an index fund you were talking about?

Chase: Yeah, real estate investment trusts, the stock you can buy on the stock market. Something like SPG, for example, you know, as the Starwood Property Group owns a bunch of malls. I’m not recommending that specifically for disclosure, but it’s just an example of a REIT.

Guillaume: Okay, yeah. So that instead of owning real estate you could buy stock into a real estate group that gives you the benefits. So that can be interesting, too. And, of course, if you have the skill set to do it yourself, it will generally be way more profitable. Because even though they have economies of scale they still have managers and all those layers of bureaucracy going on. So real estate can be extremely profitable. I have the same experience that renting short-term for houses is more profitable, the risk is you may have a month or two that has nobody there so you have to be more solid financially. Also, banks here in Canada don’t like it. Like if you say I want to build a larger real estate portfolio and you have short term rentals they will want to see, most banks, at least two years of history to show that you don’t have downturns during the holidays, and whatever. So if you go with single family short-terms you will most likely be blocked for two years in your ability to buy more real estate. That might be fine with you but it’s good to know in advance before we get into this. Otherwise, it’s the long-term lease that will allow you to, again, go buy something else as soon as you have the cash down for the next one as well. So it’s more scalable this way. Typically, I prefer duplex and up.

Chase: Yeah, I’ve discovered that duplex is good, the fourplex is kind of where you get two renting two none and kind of break-even there, have a small loss cash flow wise. But four and up is where you really can scale and have consistent income because you can leverage more individual renters in the same complex and move-ins and move-outs are not really going to affect your cash flow usually.

Guillaume: Yeah, and that’s a minor thing. And if we start talking about small purchases like the smaller units where every tenant has his home door directly outdoor and you don’t need to maintain a central place with stairs and all that is a little less trouble. So that’s a minor benefit, but something to think about when we’re in the small number of units, upside and downside when comparing two buildings. And it does make a lot of difference from my experience when buying a more recent building versus an older one, in terms of how much upkeep each building will need and how much of your time this will consume. So it’s usually way more scalable to have a more recent building even though they’re more expensive, they’re a lot less trouble, so you can own more without necessarily putting in a management team. Okay, anything else on real estate or we’re closing this little side venture here?

Chase: No.

Guillaume: Okay, all good. Let’s go back to the startup guys, because we’ve covered seven, eight-figures, zero to 250k. You talked about making sure to register an LLC or an EIN number, it would be a good idea to have a professional doing your books so that you have things in order. Anything else?

Chase: When you’re starting out the biggest thing we see and clients run into is inventory counts. We’ve seen returns where they’re just expensing everything they buy, that’s completely wrong. The IRS, Internal Revenue Service doesn’t require you or doesn’t allow you to expense inventory you have not sold yet, and that’s a big mistake we see on some returns. So keep check of that. When you’re selling $50-100k you can do an Excel. But the problem is, these businesses usually scale to the second and that third level very quickly over the course of a few years and once you’re in $750-800k plus, running that much inventory in and out becomes very difficult to institute an inventory platform and get everything on there and then like flip a switch from day one to day two when you’re running that much volume consistently. So we recommend very early on to consider an inventory platform. A lot of clients use inventory labs to start. There’s a number of them on Shopify too that track inventory. But be looking at it operationally, how to efficiently keep track of inventory because it will become an issue down the road for you.

Guillaume: Okay, cool. Then I guess we’re in the next phase or was there anything else for the startup guys who are at the $250k?

Chase: I think you’re just looking at cash flow forecasting a little bit, you know, making sure that you’re on track to pay taxes and not using the cash to buy more inventory, probably looking at paying yourself a reasonable salary, probably they are less for collection. We generally don’t advise doing retirement savings until you’ve built up enough reserves. So maybe you’re not there yet or unless you have a spouse that makes a bunch of money, that’s okay there but every situation is different. But in general, you’re looking at, I would say mindsets when looking at what the next phase looks like. Do I need to start looking for commercial space? Because it can take some time to find the right spot. Do I need to look at hiring someone? Because at some point it just becomes unsustainable for you to do it all. What do those roles in your org chart look like in the next kind of step as you continue scaling?

Guillaume: You did talk about being careful with cash flow and just buying more inventory. This is a very key concern for lots of merchants especially if they are in the $250k-750k range and for everybody else too. Maybe your sales are starting to pick up now and you don’t have a lot of reserve inventory and perhaps you’re getting that stuff from China and it’s going to be like one month on the water. You have to go to customs and get it shipped to you and maybe you have a two to three months or three to six months time depending on what you’re buying of course. So any advice for merchants to not stretch themselves too thin because they try to maximize their sales. Like, if you don’t have stock Amazon will not like you and if it’s on your own website it’s kind of the same because you cannot sell anymore so you cannot make profit. So merchants try to not run out of inventory but at the same time there is a cash problem because if you are in $100,000 the range we’re talking about here, that’s sort of reserved overseas and that doesn’t generate profits for many months. It can be a problem for businesses of sizes below a million, any tips to help them out?

Chase: Generally, that’s where a line of credit can help facilitate that. Obviously, as a CPA we like to be conservative and make sure you don’t spend your tax due money but a lot of people are borrowing against that kind of reserve in their savings account. That can get tricky because come April, do you have the money to pay the tax bill? But the line of credit comes into place then. I think it’s just making sure you’re forecasting what that looks like, your borrowing costs, your monthly payments versus why you’re taking and especially in the low seasons, you know, can you afford the debt service while you wait for your high seasons to sell the product? Just really forecasting it to make sure you’re on track.

Guillaume: So, never use your tax due money. I’m going to highlight it, underline it, put a spotlight on it, do not do that, period. No matter how tempting it is, don’t do that. Because you never know what’s going to come next. I’m speaking from a personal experience when I was starting up. I said, ‘Wow, I have all this money here, I could use it. I’m going to grow and then we’re just going to make it back’. Guess what? Something unexpected happened. When April comes you don’t have the money and then you have to make an arrangement with your revenue agency. I was also misinformed in my first year of starting up that, ‘Oh, their interest rate is like 6% and actually it’s cheaper than credit card, I want this’. Like, ‘No, here in Quebec there’s a 10% penalty on top of the 6%’ Like, ‘Ouch, that starts to hurt, 16%’. And then it’s not just that, you have a payment agreement that says $2,000 monthly payment agreement and you were behind. Then the next year, any payments you make like this, because you’re under startup situation from nothing, this $2,000 is not a deductible expense, it has to come out of your profit. So you can dig yourself into an infernal loop that you barely cannot get out of unless you suddenly raise your game a lot and this $2,000 per month becomes a small number for you and then you can exit that loop. But it can put you in a very dangerous negative place. Never ever use your tax money. See that like the [inaudible-36:55] money because that is one of the traps to avoid. Put it in the savings account and absolutely don’t touch it. That’s for sure. Anything else?

Chase: When it comes to saving for taxes I think that’s where a licensed professional or somebody keeping track of your stuff monthly becomes very important. Because if you are a schedule C sole proprietor filing this will be a different tax planning than S Corp. With our clients in our customized dashboard we have their effective rate from last year and we’re estimating what they’re going to owe every month going forward. So our clients are clearly seeing what their tax bill is going to look like and how much they need to have in savings and maybe they’re borrowing against that for the first six months to buy inventory but the next six and Q4 they can pay that back. But you just have to be careful because, you’re right, a lot of people do get into trouble. They think they’ll just take a loan from the IRS but there’s penalties and interest on top of the interest rate and then you’re using next year’s cash flow to pay down prior year’s debt and you need to save for the current year’s tax bill. It can be very cumbersome very quickly. That tax bill goes on your credit report, so when you’re in a loan situation from the IRS and you try borrowing a line of credit it becomes almost virtually impossible.

Guillaume: Yeah, same here in Canada, it’s one of the few things that the bank actually does care about. Do you owe money to the Revenue Agency, yes or no? You want to be able to always say, no. There has to be an official report, you have to go and download it from the website. But you really cannot count on this. This is like one step before bankruptcy, where your startup almost just dies, basically. Okay, so there’s that kind of mistake to avoid. Anything else that comes to mind?

Chase: One of the things we kind of add value to our clients though most people don’t bring up and I track personally is I’m a huge points and miles person. So we try to help our clients by recommending the right cards for the right businesses based on where you’re spending. And that’s kind of one of the quote values we can help build for you. Some people just like the cashback, I personally love travel so I travel nothing but first and business class and five star hotels all paid with points around the world, and that’s what I enjoy doing. But if you have a flexible card here in the US like Chase, Amex and Capital One are the top three. There’s Citi too, those are the big four where there’s a pool of points and are flexible to then do other things. That’s what we recommend looking at especially if you’re arbitraging products, I mean, there’s no reason you shouldn’t be using a credit card and paying it off every month. If you’re already using cash, that’s a lot of points and miles or a lot of potential cashback that you can get just from points and miles. Another caveat is, if it’s a business card that cashback is added back to your P&L. If it’s a personal card, it’s not. So keep that in mind.

Guillaume: Important distinction because that’s why I don’t like the cashback on a business card because then it just becomes taxable income. Let’s say at 1.5% just becomes 0.75%, not that cool. But if you can do travel stuff like travel hacking of all the points and whatever. So flytripperz.com, and milesopedia.com, those two places have all the information you can possibly need about that topic. If you’re outside of the US it becomes interesting to have a credit card with no exchange rate cost on it. Because if you’re buying something from Canada that is in USD, you’ll have a 2.5% currency conversion fee on your credit card. Regardless if you paid every month versus that transaction has 2.5% added to it. So if you can save that 2.5% plus get, let’s say, 1% or 1.5% return, it’s interesting you’re now getting a 4% return when you’re buying in foreign currency versus other cards. So keep that in mind. There’s a few of them out there that have no foreign exchange fees. So that’s a pretty cool thing.

Chase: A very good point.

Guillaume: Yeah, and I’m a big proponent of bookkeeping and keeping everything up to date like here, or bookkeeping, or accounting is done to the day. My data is on a maximum, 24 hours out of date. It takes years to get to that level and you don’t need that when you’re in the startup phase, but I cannot imagine running my business with the level of spending we have per day and per week without this kind of data. It also gives amazing history for your company if every one that you get investors or maybe even when they sell you business or whenever, you have an amazing history there of everything that has happened in the company. So very important. All right, so I think we have a good episode here with lots of tax tips and business tips. To conclude, any last thoughts?

Chase: Yeah. I appreciate you having me and, just again, always look for a licensed professional so that you have recourse and your information is being done accurately. That’s our biggest recommendation, make sure you work with the right people.

Guillaume: All right. Thank you, Chase.

Chase: Thanks for having me. Please visit our website at insognacpa.com, I’d love to talk to you if you’re looking for help and see how we can help you.

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