Young Smart Money Transcripts: Income Taxes For Entrepreneurs with Ed Canty

Please enjoy this transcript of my interview with financial planner and partner in Investing Simple, Ed Canty.

Ed Canty is a Registered Investment Advisor Representative and tax professional at CFM. He graduated from the University of Tampa with a Bachelors of Science degree in Finance. Ed specializes in individual tax preparation and investment advisory services and is in the process of pursuing the CERTIFIED FINANCIAL PLANNER™ certification through Northwestern University. He enjoys volunteering in the local community and is a member of the Ballston Spa Rotary Club

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Ed Canty
I would say that his top priority bar none. Whether you’re doing your own taxes at the end of the year or you’re having a, you know, paid tax preparer or tax professional, do them for you. It’s going to make both your jobs much easier.

Apple Crider
You’re listening to young smart money, a podcast that inspires young entrepreneurs to take their personal finances to the next level. My name is Apple Crider, and I am a huge personal finance nerd and entrepreneur who’s constantly looking for a better way. Whether it’s amassing millions of credit card points, learning which parts of the tax code can work to your advantage or just figuring out how to run your business as smart as possible. I am all about it. Join me as I sit down with some of the smartest financial planners and specialists for young entrepreneurs out there and extract the action steps you need to get the most bang for your buck from your business.

Welcome back to young smart money with me Your host Apple Crider. Today, we are sitting down with Ed Canty to take on the impossible. We’re here to make income tax for entrepreneurs. sound like something fun, so. So get excited. So I know that when people are starting their business when when you’re an entrepreneur who has an idea and you’re going after something, income taxes might not be the first thing that’s on your mind. But it is important to you to get this piece of the puzzle, right? There’s not that much that you have to do or think about once you kind of understand it. But it is important to have that foundational knowledge and kind of know the things that you need to be thinking about when you are going into business when you are starting something so that you can do things the right way the first time. Definitely not getting in any trouble with the IRS and just make sure that things are flowing as smoothly as possible. So in this episode, we’re going to as simply as possible as simple as possible, but no simpler kind of break down. What you need to be thinking about in terms of income taxes, as an entrepreneur. Whether you are just starting off making a couple thousand dollars a month or whether you have a pretty substantial business going on, we’re going to kind of dive into some of the ins and outs you need to be thinking about in terms of when you need to be paying taxes, how much you should be paying, and how to pay a reasonable amount of taxes without paying too much and making sure that you’re not subjecting yourself to any unnecessary fees, fines, or just taxes in general. So I hope that you are able to come into this with an open mind. I know when a lot of people here income taxes, they just shut down and their brains are just done. So I hope you give this an open mind. It’s not too long. We try to keep things as succinct as possible. So without further ado, I’m excited to introduce you to my good friend, Ed, and allow him to open our minds to the intricacies of income tax for entrepreneurs. All right, Ed, welcome to young smart money. How are you doing today?

Ed Canty
I’m good, man. How’s it going?

Apple Crider
It’s gone. It’s gone. From Well, we’re making we’re making the best we can out of these times, so I cannot cannot complain. So it kind of fill the listeners in right now, on where you’re at in terms of the personal finance space. I know you got a couple things going on in terms of what you’re doing online, which you do an offline. So give the listeners a little 62nd spiel as to what I’d Candy’s up to right now.

Ed Canty
Absolutely. Absolutely. So I’m a personal finance. Basically, I’m a financial planner. That my day job, canteen, financial, accounting, financial calm. So that’s what I’m doing every day helping people plan for retirement and manage their investments, do their income taxes, income tax planning, and really the wide array of what a financial planner encompasses or basically a holistic, full scale financial planning firm. And then on my side job, my little part time side business, I’m doing a personal finance basically a brokerage review website. I do that with Ryan Scribner. He’s a well known YouTuber. So we do a lot of brokerage comparisons, reviews, and some general financial planning and investing topics. So that’s kind of what I’m working on right now. And they both kind of work with each other I get experience and, you know, one on one financial planning and I can write about it on the blog, too. So they they work well together.

Apple Crider
Absolutely. And that’s kind of why I wanted to sit down with you and kind of chat it up about kind of both sides of the coin there because yeah, we met through Ryan. Super cool, dude. I’m sure a lot of the listeners are familiar. He was on the podcast A while back. But yeah, so I want to start off by focusing more on the financial planning side of things because that’s something that is pretty unique. haven’t talked to many financial planners on the show before so what led you into becoming a financial planner wanting to work with people one on one in things like tax and investments which for a lot of people aren’t their idea of a good time when when when someone says income A lot of people just kind of shut down, they like start shaking a little bit. And they don’t they don’t really want to want to be there anymore. So what what led you toward these areas that aren’t aren’t necessarily so common to move towards?

Ed Canty
Right? So I guess yeah, initially going out through my school, I would say I really didn’t know what I wanted to do. I was kind of indecisive going into college, I kind of knew maybe a business background would be in the cards. But really, I’ve always liked make money. The stock market has always been an interest to me. And then really going out. I was a finance major in college, and then just learning more about the topic and the wide amount of, of, you know, things that it covers. It just was it was fascinating. So, you know, it’s an endless learning process. I don’t think any financial planner is done learning, there’s always new information out there. And then the the stock market’s fascinating as well. You know, no one knows what the stock market’s going to do. Each day, so I think it covered such a wide variety of topics that I was just really into it. So when I got out of college, you know, another influence I would say is my father who’s a financial planner as well. So he started our firm Canty financial. And basically I joined on after college, and my brothers joined on. So we’re a relatively small firm. We’re growing but yeah, finances has kind of just been a root topic. I’ve been always had a interest in

Apple Crider
diggit. So in terms of county financial, how I know he said small but like in terms of number of clients assets under management. How do you guys kind of measure how big you are? And can you give the listeners kind of a feel for

Ed Canty
you guys? Absolutely. Yeah. So we mainly do financial planning. So we do investment advisor in income tax preparation as our two primary niches. We manage over $100 million. So in the wealth management side of things, it’s not massive. But it’s it’s sizable considering we’re a small firm that started organically in a small town in upstate New York. So I think it’s, you know, it’s unique. So it’s interesting.

Apple Crider
Go. So I want to dive more into, I mean, specifically focusing on like taxes for entrepreneurs, because I know this is an area that a lot of young people when they’re just getting into starting some kind of online business, whether it’s kind of like a blog, similar to what you’re doing, whether it’s an Amazon store, some kind of eecom some kind of like social media marketing, like they don’t necessarily like taxes is not top of mind for them. I mean, it’s not like the first thing they’re thinking about when they’re starting their business. So I want to kind of dive into what what kind of things they should be thinking about and kind of the steps that need to be taken. So in terms of like, high level income taxes, so that’s that’s the primary taxes were To be concerned about as an entrepreneurs, like getting tax on the money we’re bringing in so can you kind of paint a paint a picture for what the income tax situation for for an entrepreneur looks like? Like, what kinds of taxes are they going to owe? And just kind of how does that even look like? Where does one even start?

Ed Canty
Right? Right. And you said it perfect. You know, a lot of these people are working so much on their business, trying to generate revenue, trying to follow up on leads, whatever it is, they’re not thinking about taxes and income tax planning as their, you know, primary goal not making sense. But yeah, a lot of times, you know, I see people who, you know, start side hustles and eventually it grows to a side where it’s actually a full time business. And then I also see others you know, who go after it and really put in some upfront capital and try to start more legitimate business upfront. So either way, I would say there’s a variety of general principles that That a business owner and self employed person should be checking off on. So really, I would say you primarily want to start off by having extremely good record keeping. I would say that is top priority barn on whether you’re doing your own taxes at the end of the year or you’re having a, you know, paid tax preparer or tax professional, do them for you. It’s going to make both your jobs much easier. So I would say, software like QuickBooks, you know, this is this is not a paid promotion for QuickBooks, but it will help you so much it really well. keeping good records, whether it’s in Excel using QuickBooks, just knowing what is coming in, what income is coming in, and where your money is going to pay these expenses is a really primary driver, I would say.

Apple Crider
Yeah, I totally I totally agree. With that, I can speak from a lot of experience my first year in business, before I filed my first tax return, I was keeping terrible records. It was just a total mess. And then tax time came in. I was like, I have to give you what kind of information like I was supposed to keep track of what now? Like, yeah, I had to go and find all this stuff. It was a mess. Um, and then Ryan actually showed me his like, accounting system and his bookkeeping system. And that’s actually still what I use to this day, because it’s very, I don’t know if he’s still doing the same thing. But it was just a simple like Google Sheet where he just like, has all the categories in the month and like I can, I can link this up in the in the show notes, too, for the listeners who want to kind of see what I’m talking about. But having having something is a huge win. I actually, I tried QuickBooks, and I was using them for like, three or four months maybe. And then I was just like, you know what, this is kind of overkill for me. Because, I mean, it depends on the type of business to like, some businesses are going to have a lot more like expenses and stuff. But I mean, if you’re if you’re running an online business, a lot of times there’s just like Like, not even not much to it, it’s just kind of keeping an eye on what what is happening, you know?

Ed Canty
Exactly, exactly. I don’t think everyone needs to go out and get something like QuickBooks. And you’re right, it really depends on the type of business. I would say businesses that have a lot of either capital intensive or have a lot of transactions, you would want to lean towards something like QuickBooks. But if you’re more of a lean company, you really don’t need it. Excel is fine. As long as you’re categorizing and keeping track of everything appropriately. Some definitely

Apple Crider
can you do you have any horror stories of just like terrible record keeping or just like examples of what not to do?

Ed Canty
I have too many horror stories. You wouldn’t believe what these be. I mean, they all I understand people don’t really understand taxes and accounting and that’s an understatement.

But I have had quite a quite a few doozies. You know, people that just basically look at their personal check account and start writing in what expenses, they pay both personal and business expenses as business expenses, so it can get messy. I would say that is another thing that really to keep track of is make making sure your business expenses are separated from all of your personal expenses. that’s a that’s a biggie as well.

Apple Crider
Yeah. What what are some? What are some effective ways to do that? I mean, personally, I’ve got like separate bank accounts, separate credit cards, and that works pretty well for me, but in terms of kind of what you’ve seen for someone, maybe it’s just starting out, you know, like, what are what are some good first steps to take in terms of splitting those things up effectively?

Ed Canty
Yeah, no, I would just say like you said, separate bank accounts for everything. You know, for our my blog, for example, we just have all separate bank accounts, separate PayPal accounts, you know, a separate we don’t operate as, under our social security number. We actually have an employer identification number and a separate lol See setup for our business which isn’t necessarily required for everyone out there. But, you know, my business might be a little bit you know, unique and being a partnership but generally for self employed people with a smaller business with their separate bank accounts, that’s probably the best way to go. And really solid bookkeeping.

Apple Crider
Totally. Yeah, I think Yeah, splitting things up is huge. Just Yeah, in terms of keeping track of stuff and accounting and, and then also I mean liability if something were to happen, and you’re kind of mixing the pot and kind of pulling from both, that’s, that’s gonna get pretty messy pretty fast. Okay, sweet. So So say we’ve got our stuff split up pretty well. We’ve got our separate bank accounts, we got our separate credit cards. And we haven’t just been like throwing receipts in a shoebox like we have like QuickBooks or something to actually like, make things keep track of things. Well, when tax time comes around, what should what should entrepreneurs be thinking about? I mean, what are kind of the steps to Doing this thing. Right? And and kind of what are the considerations be when we’re kind of approaching that that April 15 deadline?

Ed Canty
right? Exactly. I would say if you’re keeping good records and, and really keeping track of things, then tax time really should be a breeze. And I can get into more of the reason why I’m not later on this about estimated taxes and everything. But generally, whether you’re gonna do your own taxes as a self employed person, or you’re gonna pay for someone to prepare them for you, which I do mean, I’m a little bit biased toward self employed, professionals hiring professional tax preparers. Just because the tax prep fee alone You can be saving even more than that in tax savings because there’s certain areas where their expertise will save you significant amounts of money. So I typically do mean towards a professional tax preparer you’re self employed, but it’s not always easy. required, especially if you have a simple relatively simple business. But but generally if you’re a sole proprietor or a single member, LLC, all your business information, your your expenses and eventually or your net profit will be reported on your 1040 of your tax return under something what’s called a Schedule C. And basically all you’ll put into that schedule on the tax return all the income you made throughout the year, and then all the expenses associated with your business. And that could include you know, anything literally, that’s anything in business expense, as well as there’s unique expenses such as home office, car miles, that’s pretty unique and so is depreciation of capital assets. So I would say those are the three expenses that that people really get kind of bogged down on and confused. I would say appreciate Generally should happen to any business asset that you’re using to generate income, you know, say you are a gym, your fitness equipment, so you would be depreciating that over the useful life of that asset. You wouldn’t be just depreciating or taking the expense all in one year, because that that assets being used for multiple years to generate revenue. So that’s something to consider anything that’s a large capital asset that’s used that’s used to make revenue for the firm or generate income for the firm that needs to be appreciated. And I think that is also an area where entrepreneurs can get a little bit on to

Apple Crider
totally agree. Yeah, I think for a lot of online entrepreneurs, where it’s really just like you your computer and just like that the knowledge in your head like stuff like depreciation isn’t isn’t a huge factor. But yeah, if you do have some kind of brick and mortar business, something like Jim something like anything that requires like actual physical stuff? Yeah, I mean, depreciation is definitely something to keep in mind. And I’m sure a lot of small business owners are not not really thinking much about that.

Ed Canty
Right? And it’s, it’s tough because they think typically they’ll have a big expenditure, maybe it’s on some piece of equipment, and they’re thinking this isn’t a business expense all in one year, when that’s really not the case. So sometimes it’s a tough conversation to have with them to explain, you know, you can’t prove you can’t expense this $20,000 asset within one year, the whole has to be broken down.

Apple Crider
So So in terms of I know you shared right there some some examples from like mileage and depreciation of things that that some people might not be thinking of in terms of their things they can write off on their taxes. What are some things that that you found that a lot of self employed people think they can write off, but they actually can’t? And do you think see anybody like trying to take deductions on things they shouldn’t be like, obviously, you mentioned like personal stuff. It’s like, clearly, like you’re buying a new car for yourself, and you’re not using it for business at all. Like, clearly that’s not a sign of business expense. But are there any things that that are kind of on the borderline that you see people kind of getting tripped up by?

Ed Canty
Yeah, certain things? I would say. Yeah, it’s a variety of things where people think they can get an expense. And, you know, it turns out they can, for example, clothing so so say you need new work boots, new jeans, and overalls. So you’re a construction worker. In that case, you would need to it’s only a business expense if you can use that uniform strictly in in your line of work and strictly at work only. So it typically has to be unique clothing, like if you’re a police officer, your police uniform, you know, you can deduct that. If you are self employed, which they aren’t, but just an example. But yeah, like, certain people think they can be dogs pieces of clothing because they use them for work. That’s not necessarily the case. And yeah, there’s just most of it is ends up being personal expenses, that people come to us and they try to stretch it into a business expense. And it’s not necessarily that easy to do. So. Yeah, I wouldn’t, I would say there is a variety of expenses that people think they can they can write off but they can’t. Maybe uniformed is one of them. I would say when you buy a, if you’re buying a truck, or for your, for your business, I would say people think they can write off the entire cost of the truck. And that is not necessarily always the case. That can get a little bit more sticky, but typically, that’s a depreciation situation, or an auto mileage. So I’ll briefly can explain auto mileage. Basically, if you use your car for work your car truck Work and you’re using it both for personal and business use, you basically get two options on your your expenses for your your vehicle, you can either take the standard mileage rate, which is a rate based on the number of miles that you drove that were business related for the year. And they’ll do a percentage of your business miles over your personal miles so that divided by the entire miles you drove for the year, they’ll get a percentage that was business use. And then they can give you basically a mileage deduction that way, you can also do it based on actual expenses. So So adding up your actual insurance, your actual gas, your actual repairs, and you can actually come out with a with a figure based on the actual expenses. where it gets a little bit sticky is whichever. Whichever method you decide to go with, you need to keep using for that specific vehicle. So say in one year, you’re using the mileage rate, you decide to use it for that vehicle for that year, in the next coming years, you need to use the mileage rate for those years as well. So sometimes you see construction workers or someone that uses a vehicle a lot for their line of business. In that case, that actual expenses are typically a bit higher. But for the average worker, I would say no mileage is typically the best way to go.

Apple Crider
I mean, yeah, keeping track of all of those different expenses that kind of go into maintaining a vehicle and driving it on a day to day basis. Sounds pretty intense. So yeah, I can definitely see why people would opt for for the mileage especially if they’re just like driving to meetings with clients and whatnot. Trying to try to keep track and prorate all the all the gas bills and everything just seems kind of crazy.

Ed Canty
Exactly the mileage rate makes it easy and they just encompass all your expenses within that that standard rate. So your insurance repairs, maintenance. everything like that is all within within the mileage rate. So it does make it a bit easier. Sweet. So I don’t want to get too in the weeds here. But all the deductions that we’re talking about are going to be above the line, right? Like when we’re talking about just just to give I mean, do you want to give the listeners I guess a little insight into the kind of above the line and below the line in terms of deductions and their taxes and how those things kind of work? Yeah, so they’re basically Yeah, some people refer to as above the line or below the line, I would generally say, within the Schedule C on your tax return, you’re going to have your revenue of your business, and then all the reporting expenses, it’s going to come out with a net profit, and that net profit on your schedule C within your tax return, travels on to the 1040 the main page of the tax return and it gets added to your income just as ordinary income I will say with self employed people They have to pay self employment tax, which if you want me to get into that, now I can. Let’s do it. Yeah. So basically self employment tax is is social security and medicare being paid as both the employer and the employee. So you can think of it as So basically, Social Security and Medicare. So it’s a little bit over 15% total is going to be a deduction as an employer and an expense as an employee as well. So I would say, people get very blindsided by self employment tax, especially when you’re self employed for the first year, all of a sudden, you know, you made 30 or $40,000 being self employed, and all of a sudden they’re hit with, you know, a $10,000 tax bill. They’re like, Oh, my God, this is insane. Why is it so Hi, I’m in self employment tax. So you’re basically Paying for yourself as an employee paying Social Security and Medicare, because that’s how it works. You’re your employer, if you’re a regular w two employee, your employer is paying half of your social security and medicare as a payroll tax. You as the employee are paying Social Security and Medicare as well, about seven and a half percent. So when you’re self employed, you’re basically paying both of those

Apple Crider
tax it’s not just like it

Ed Canty
adds up to around 15% or a little higher. And people do they do get blindsided on the self employment tax. So I would say it’s also ties into, you know, paying estimated taxes. So, quarterly, what you want to do, and it’s required by the IRS and by the states, you’ll basically each quarter come out with a net profit of your business, and you’ll have to come up with the amount of tax that’s owed or will be owed. On that income, and you’ll need to send it in as an estimated tax payment for that quarter. So, basically, you’re going to be doing your tax return almost every every quarter virtually. So that’s another reason why it’s really important to have accurate records. Because you’re almost doing your taxes four times in a year, you know, you have to figure out and you’d be surprised how many people don’t know their net profit until I give it until I do their taxes and give it to them. But you shouldn’t be doing this every quarter. And the IRS requires you to send in an estimated tax payment based on the income for that quarter.

Apple Crider
All right, so yeah, so you dropped a lot of valuable information there. I think we might have lost a couple people just in terms of here and here in the word tags too many times their brain just stops working. So to back it up a little bit. Do a little rewind here. The first thing that you mentioned was self employment tax. I think this is really important. And I think people should really take a second to understand what what You’re saying here. So basically, to reiterate, what I heard is like when you’re when you’re employed, your employer is paying half of your Social Security and Medicare taxes. So help you guys know what those are social security that’s hopefully going to give you some money when you retire. And then Medicare is gonna help you out when you’re old. And if you need medical help, so you’re paying for those things throughout your life. Normally, they’re going to be withheld from your paycheck. So so like you were saying, your employer is normally just, they’re paying their half, and then for your half, they’re just kind of not giving you that money, right. So when you look at your paycheck, and you see, well, I earned $10 an hour but I only ended up with eight. Those those $2 are going to whatever medicare and social security so

Ed Canty
yeah, so that that kind of ties in did you want to add anything else onto that? Yeah, I mean, basically you you are receiving the net amount of the sorry, the gross amount of your wages and then Have your pay stub, you can look at this. We’re getting the FICA taxes taken out. So Social Security and Medicare will come out of your of your gross paycheck. So it’s a deduction after you basically an after tax deduction.

Apple Crider
Sure. But then when you’re when you’re self employed, you don’t have anyone writing you a paycheck. Having your withholdings. So you kind of have to, you both have to pay those every quarter. But then you also have to pay double because there’s nobody else paying the other half. So that’s kind of that’s like you were saying that’s where a lot of people get blindsided because it’s kind of like double trouble.

Ed Canty
Yeah, yeah, exactly. And, yeah, people do get blindsided at first, then they start understanding how it works. But yeah, I would be very cautious and that’s why I’d sell in just as a general principle. If you’re self employed and making under you know, $40,000 or so I would really be saving about a quarter of what you need for taxes. That’s just a general ballpark. But you know, I would I would definitely recommend at least that.

Apple Crider
Yeah, I think that’s a that’s a really good call. And I started doing this probably about a year and a half, maybe two years ago, I opened a separate bank account I actually follow I don’t know if you’re familiar with the profit first system. But there’s this dude named Mike mccalla wits, he’s got this profit first system for entrepreneurs for like accounting where you’ve got five different bank accounts. And then each one gets a certain percentage allocated to it. So you’ve got your profit account, your operating expenses, your your owner’s pay, and then you’ve got your taxes. So you have like a set percentage each of those accounts, then you automatically when money comes in, just gets split those accounts. And so I started doing that, like two years ago. And so My Tax Account was automatically getting whatever I think it’s like 20%. I just automatically throw it in there. Every time I get paid, and then it just goes to it even goes to a separate bank, so I don’t even see the money that’s in the tax account. So then when tax time comes around, I got to write out my quarterly checks. I just go to this account. I see Well shoot, I got like, freakin eight grand sitting in this bank account that I didn’t even know was here, and then I can just use that to pay my quarter lease. So, um, that’s, I feel like, did you see a lot of your clients doing that or is Yeah,

Ed Canty
yeah, I mean, that’s a really good way to do it honestly. And everyone kind of has their own methods about going you know about savings. Yeah, others just take the estimated tax penalty, which basically you you’ll be hit with an estimated tax penalty if you don’t pay in a certain amount of estimated taxes when you go to file your taxes at the end of the year. So how substantial

Apple Crider
is that is that should I should I be considering that Should I just

Ed Canty
don’t can? No, I would not consider it it’s it’s so easy to do estimated tax payments, I would do it but some people are fine with the penalty. The penalties based on the the amount of tax that is due and they charge you a certain percent interest rate on it, but I would not advise, I would try to make estimated tax payments and get a better understanding of where your, you know, financial situation is sitting because a lot of these clients that I have they, you know, they don’t even know their their profit of their business when it comes to tax time, which is, you know, it’s tough. It’s tough to make any financial decisions if you really don’t know exactly your you know, profit of your business.

Apple Crider
Yeah, that’s that’s pretty appalling that you have clients that just don’t even know what their business is making because like, I’m a huge numbers guy. So I’m always looking at the numbers. I’m like, Okay, did we grow this month, like, are moving in the right direction? How’s like monthly recurring revenue doing so like, those things are just like, I live, breathe, sleep, eat numbers. So like, I’m all about that, but it’s crazy. So a lot of your clients, they’ll just come to you with like, their QuickBooks and they’ll be like, hey, like, Am I making money and like, do I need to pay the government? Is that

Ed Canty
kind of what it looks like? So occasionally, yeah, won’t work. Say everyone is like that. Sure, you know, a small percentage are in that bucket. But yeah, it does happen, you know, and more more common than you would think.

Apple Crider
That is, that is bananas. I mean, wow, wow. crazy world out there. Well, okay, so so let’s say let’s say it’s time for estimated tax payments and listeners can probably just look up when those are due right but it’s like approximately every three months.

Ed Canty
Yeah, yeah, the months are don’t really correspond to each quarter perfectly, but it’s generally each quarter of the year. So yeah, I just keep on it. And then if in keeping good records, it shouldn’t be a huge issue, you should be able to tell your net profit, pretty in a pretty simple quick way. Records.

Apple Crider
Definitely. So in terms of a couple questions about that. So when you are making these estimated payments, I mean, number one, like how accurate Do we need to be like Do we have to be like on the penny like this? Exactly how much profit I made this quarter. Do we have a little bit of wiggle room there? Or what’s what’s that situation had to look like? Can we just like throw extra money at it to make sure we didn’t like underpay? what’s what’s kind of are the kind of the rules there?

Ed Canty
Right? So, right, it doesn’t need to be exactly to the penalty to the penny, I would say you want to be within, you know, at least 90% of what you think your tax liabilities are going to be. So basically, you’ll get hit with an estimated tax penalty if you don’t pay in either 90% of the current year’s taxes, or 100% of the prior year’s taxes. You know, if you make a certain amount of income, I think it’s 110%. But basically, you’ll want to make sure you’re paying in close to you know, as close as you can be to 100%, obviously, but if you’re a little bit less or a little bit over, it’s not a big deal. As long as you’re paying in 90% in the current year, you shouldn’t have an issue.

Apple Crider
Okay, sweet. So we got a little bit of wiggle room there, nothing too crazy, but as long as you’ve generally got your books on point shouldn’t have any huge issues falling within a 10% margin of how much money you’re actually making. Okay, sweet. So now in terms of actually like making those payments, I mean, what do we what do we do? Do we just like get an envelope address it Uncle Sam and like throwing the post backs are like, how does how does that work? And you do it online? Like how do you how do you make these payments?

Ed Canty
Yeah, really you can you can we actually have most of our clients mail in a check. It seems archaic, but the other option is to link your bank account with the IRS using their online portal. And not everyone is comfortable doing that, I think having all their information directly linked to the government, but other people don’t really mind. So yeah, you can make a payment online with a bank transfer. You can pay in using a check written check. Or you could use a credit card but I think they charge a 2% fee or something along the way.

Apple Crider
Okay, that makes a lot of sense. Yeah. I I know some people I know, Ryan will sometimes shoot me a picture of like the cheque that he’s sending in and be like, Oh my god, I just bought a car for the for the IRS but like, yeah, I, I personally prefer to just do it online. I don’t really care too much if the IRS has gotten my bank info, hopefully I don’t do anything too bad, where there’ll be an issue for me, but that’ll be something to watch out for. I guess. So. So. So I guess that that kind of covers self employment taxes pretty well. I mean, I think we kind of dove into kind of what they’re what they’re for. And then the quarterly stuff and then how to pay him actually in in terms of, was there is there anything else that you think is important to note in terms of the self employment tax side of things? No, not really. I mean, I’m just keeping good records and

Ed Canty
really, making the estimated tax payments are will be huge because you don’t want to be hit with massive self employment tax at the end of the year. As long as you really Understand what it is and, and generally know what your what the tax is, you know, it should be pretty easy to plan for it once once you have a decent understanding of it.

Apple Crider
Totally agree. Cool. Well that that pretty much wraps it up. I mean, you dropped a ton of valuable knowledge when it comes to taxes. And I think for the listeners, we’re just kind of coming in and being like, I know nothing about income taxes, I’m running this business I’m making however much money as an entrepreneur, like I think people definitely have a more solid understanding of how things work and they can definitely go out there and kind of fill in the missing pieces find someone to help them out with this stuff and really just have that foundation in place for for this information because you’re not really going to get it many other places. I mean, I’m sure you’re not gonna learn it in school, even if you take I mean, I I just graduated with like a financial planning degree. And we didn’t talk about any of this stuff like it was very, very glossed over and I was like studying this. So I’ll tell you, it’s, you kind of have to go out of your way to learn this stuff and for a lot of people, it’s Just not their, their idea of a good time. So hopefully this, this little chat was able to fill some people in. So, Ed, I wanted to just kind of finish with any last kind of tips you had in terms of reducing, like overall tax burden for self employed people. Are there any strategies that you find particularly effective or just like commonly overlooked areas? Or just like when it comes to to a few like any any quick tips you have for for self employed people? Any, any come to mind?

Ed Canty
Yeah, I mean, generally, doing as much research as you can on the topic will always be a benefit. Knowing as much you know, as you can, as much knowledge as you can about a topic will always be helpful for you. I would say consider speaking with a tax professional, and just bouncing questions off of them. You know, people may have certain expenses that they didn’t even think were business expenses, or they may have a home office and they didn’t realize They can write off certain deductions on their taxes for their home office. So I would say just generally having as much knowledge as you can, speaking with the right people, and then really another nugget of information for your listeners, I would say, and this is a little bit more sophisticated, but once your net profit starts getting reasonable, and some people say this is 30,000, some say it’s 50,000. Some say it’s 100,000, you will really want to consider going for an S corp status, and putting your books, putting yourself on the books as a W two employee. Basically what what that’ll do is reduce the amount of self employment tax you’re paying. There could be an entire podcast about you know, the how that works. But But generally, I would say it’s a good topic to keep in mind, especially if your business is growing. And you think your profit will be substantial. Eventually that forming, you know, an S corp or going for an S corp status. electing S corp status will be definitely beneficial and saving on self employment taxes.

Apple Crider
Sweet. That’s actually that’s a potential future topic for the show. So we might have to have you back to chat about that at some point. Because that’s definitely a question that I’ve gotten quite a few times. So yeah, I think Yeah, keeping keeping an eye out for Yeah, once those profits start to become significant. Thinking about shifting over is definitely an important consideration. So we’ll have to pick that back up later. Thanks for joining us, man. Where can the listeners go to find out more about you? And kind of candy financial investing simple, kind of fill us in on the best places to find you out?

Ed Canty
Yeah, absolutely. So you can find our financial planning firm at Canton financial calm. And then our personal finance blog is investing simple, calm, so you can find me in both of those. Yeah, and you can feel free to feel free to reach out you know, ask me any questions. My contact info is on the site, so you should be able to find it. Cool. Well, thank

Apple Crider
you so much for your time and I really appreciate it. You have a ton of valuable knowledge for the listeners and I hope we were able to make tax at least a little bit more accessible to people who don’t actively seek out this kind of info.

Ed Canty
Absolutely, man. Thank you for having me.

Apple Crider
Yep, have a great one.

Well, I hope you all enjoyed this episode of the podcast with my good friend Ed. I hope you weren’t too intimidated by the topic. I’m glad you made it all the way through to the end. As always, if you have any questions about what we covered, feel free to reach out to either myself or our Yes, ed. He made himself pretty available and y’all know where to find me. So that’s that’s pretty much it. I hope you guys are having a wonderful Wednesday. And I look forward to seeing you in the next one. As always, if you have not yet left a review in iTunes would really appreciate it. Let me know your thoughts whether it deserves a one star whether deserves five stars. I’d love to see it either way, and I look forward to seeing you in the next one.

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