myBurbank Talks
myBurbank Talks
Unraveling Tax Complexities: Practical Tips with Frank Gomez of CBIS DataTax
To reach out to Frank Gomez:
frank@cbisdatatax.com
Office: 818-563-3700
To contact CBIS DataTax:
www.cbisdatatax.com
LinkedIn: www.linkedin.com/company/cbisdatatax
Instagram: @cbisdatatax
Navigating the complex world of taxes can be daunting, but it doesn't have to be. In our latest podcast episode, we had the pleasure of hosting Frank Gomez from CBIS DataTax. With decades of experience as an enrolled agent, Frank shares invaluable insights into managing both personal and business taxes effectively. This episode is packed with practical advice that can help you minimize stress and maximize deductions, making tax season a breeze.
One of the first topics we tackled was the importance of being well-informed about your tax responsibilities. Frank emphasizes that understanding the basics of tax filing can save you from costly penalties and interest. He explains the differences between various entities such as S-Corps, partnerships, and non-profits, and highlights the significance of meeting tax deadlines. Missing these deadlines can result in penalties and interest, but Frank offers hope by discussing potential penalty abatements for those with a good track record.
Year-end tax preparation is another critical area we delve into. Frank provides strategic tips on maximizing deductions through retirement account contributions and expense tracking. He stresses the importance of examining bank and credit card statements early to avoid last-minute stress. This proactive approach not only ensures a smoother tax filing process but also helps identify potential deductions that you might otherwise overlook.
Ignoring IRS letters is a mistake that can escalate into severe consequences like wage garnishments or bank account levies. Frank outlines the IRS collection process and the importance of responding promptly to any correspondence. He also discusses the IRS's authority to file returns on behalf of non-filers, which can result in higher balances due to the lack of itemized deductions or credits. This segment is crucial for anyone who has ever been anxious about receiving a letter from the IRS.
Business accounting and tax planning are also extensively covered in this episode. Frank explains the importance of depreciation and expense management, especially for new business owners. He introduces options like Section 179 deductions, which allow businesses to take immediate tax benefits on certain depreciable items. This can be a game-changer for managing profits and losses across different fiscal years. Additionally, he emphasizes the need for consulting with an accountant early on to choose the right business entity and set up a reliable bookkeeping system.
Choosing the right city to set up your business can have significant tax implications. Frank compares the tax structures of different cities, highlighting how the City of Los Angeles taxes businesses based on their gross revenue, whereas the City of Burbank does not. This makes Burbank a more attractive option for new businesses, offering a supportive business community with fewer hidden fees and taxes.
Throughout the episode, Frank shares his unique background in accounting, bringing a fresh perspective to the often intimidating world of taxes. His practical tips and expert advice are invaluable for sole proprietors, landlords, investors, and anyone looking to optimize their tax returns.
In conclusion, this episode is a comprehensive guide to mastering tax management. From understanding filing deadlines and penalties to maximizing deductions and planning for the future, Frank Gomez provides actionable insights that can help you navigate tax complexities with ease. Whether you're an individual taxpayer or a business owner, the advice shared in this episode can help ensure your financial well-bein
From deep in the Burbank Media District. It's time for another edition of my Burbank Talks, presented by the staff of my Burbank. Now let's see what's on today's agenda as we join our program. Hello Burbank.
Speaker 1:Greg Schubert here with you once again, and we're going to do a very different type podcast today than we usually do. I think it's something that, hopefully, is going to help you a lot. I know it helps me a lot. So I figured I had questions. So I got to figure you're going to have questions too, and while the subject matter, you say, oh, there's a little bit more. No, it's only boring if you don't take care of your business here.
Speaker 1:So knowledge is information. Knowing what you're going to talk, knowing what is going on in your life, is important and, let's face it, if it's you versus the government, guess who's always going to win. So one thing we're talking here is taxes, yes, taxes, and we have a great accountant in with us today. He works for CBIS Data Tax, and I hate the word transparency, I hate that word. Okay, full disclosure. Cbis Data Tax is the my Burbank accountant and Frank, who you're going to be in a second, is actually our accountant, who has done a great job for me, who I highly recommend, and the reason he's on this podcast today. Okay, he's not paying for this. This is something that I wanted to do, and I think it's something that's important for people to have a perspective on what's going on, especially, you know, sometimes you're just nervous about this stuff. It's good to have somebody who can talk you through it. So, once again, I want to welcome Frank Gomez to the podcast. Frank, how are you doing?
Speaker 2:Very good. Thank you, I appreciate coming on and also like to mention we just recently celebrated our 25th anniversary here in Burbank, so we do appreciate, you know, the city of Burbank, our clients, everybody, the business community. It's a lot of fun to have people come out and, you know, celebrate that with us just a few months ago.
Speaker 1:And I know my Berwick was there at the function, rick was there at the function. Now we had some people from CBIS, data tax on before and the question we had and we don't know if it's been answered yet what?
Speaker 2:does CBIS stand for?
Speaker 1:I don't believe it has finally been answered.
Speaker 2:People have guesses, but there's no for sure statement as of yet. We're still doing research into that topic.
Speaker 1:that's great you know, um, but anyhow, if anybody out there knows the origins of cbis, please let us know, because it's a mystery that needs to be solved. Um, but they're really good people. They're located over at Alameda and Hollywood Way and, like I say, I really enjoy working with them. They've really taken care of us. They've made me feel at ease because, let's face it, I'm not a tax guy. I don't know about taxes, I don't know about finance, I just know about doing what I do and that's where my expertise goes. Well, let me give you a little background on Frank here. He's worked in the tax industry since 1998 in both Los Angeles and San Diego a tax professional, multi-unit manager and independent enrolled agent. What?
Speaker 2:does an enrolled agent mean? Yeah, so an enrolled agent definitely means you have some additional studies that you do in broad topics. So it goes from individuals to businesses, other entities and also kind of the I guess, the interaction process with the IRS. They call it representation. You know what can you do to stand in the place of a client, help them out. A lot of of times it's during, maybe, a collection process, some kind of trouble they might be in, but it could be just on day-to-day issues, and you take a number of tests in order to certify that knowledge and experience and you become an enrolled agent, which is a national certification, so it means you can practice in any state across the country. Normally taxes are kind of like state-based, each with their own either certification or rules or what it takes, and this way you can deal with IRS on any issue for anybody across the country.
Speaker 1:All right. Well, there you go. You work with both individuals and business entities and I should know, because you work with me individually as well as my business, knowledgeable of the state and federal tax returns for individuals, including expatriates, nonprofits, s&c corporations, llcs and partnerships. And, in all honesty, we we are my burbank is a c corporation or this s corporation s corporation. See, I don't even know what that entails and what that means. I just know, when we first signed up for it, that they was recommended to us, so we went that way. What it means? The difference? I have no. That's why I have people like you to help me. So, um, you're client oriented and you're uncovering meaningful deductions, absolutely maximizing tax refunds and minimizing balances due. Once again, I will attest to that. You're also a UCLA graduate Sorry about your football team lately, I know it's a struggle right now and you have additional experience in employee benefits, group insurance and direct event marketing.
Speaker 2:That is right Okay so there's the bio.
Speaker 1:So let me ask you this what got you into accounting? What was the draw? You know effectively. Let me start before that. Where did you grow up?
Speaker 2:Oh yeah, so I did grow up here in Los Angeles and I went to school at UCLA I actually was an English major at UCLA, okay, but at the same time I took accounting classes at SMC Santa Monica and I thought, you know, that's kind of like just a practical thing that you should know, maybe, and agreed could potentially be good if you ever did want to start a business or you know anything like that. So it was kind of just like almost out of an interest or kind of like a desire to say you know, this is a good skill to have overall. So I did that and I did work for a bank for a while and then my first job out of college, I did do some accounting for a what is it? The aerospace company? Oh, over in Vernon, and unfortunately it didn't last very long. It was about six months or so.
Speaker 1:But not because they had tax problems, right?
Speaker 2:No, they actually had financial problems that you can't help with. So they actually shut down the business after that and so you know I was out of work doing accounting. So then I did a number of other things and you know, just at a point where I was looking for even just some additional part-time work, I started getting back into it and that was 98 when I started doing taxes and, you know, got certified in California to do taxes. It was actually kind of just when actual computer software was starting to be more like familiarized and popularized. So before I didn't, I didn't have to actually grind it out by hand in those days, Just so we finally got on to computers, which is nice.
Speaker 1:It's funny we have our little Alexa thing in here. It responds to the word computers. So that's kind of funny how it heard you and when it responded to you Okay. So let's face it Everybody needs their taxes. I can imagine how swamped you must have been from March into April every year. That you probably don't even get to sleep at night. It's probably a minimal sleep at time and just nothing but work, work, work.
Speaker 2:Sometimes, yeah, it feels like that and for the, you know, for most of those years we had pretty much that kind of idea that you know we're going to be busy February, march, april and then kind of ease off the rest of the year till around now, you know, with this extension season, but because of so many different, I guess, things, events that happen, we have seen many times in the last three, four, five years just the extension of time for people to file where, like we were filing all the way through November last year. You know, sometimes some years it was like they gave an extra month, some years they gave like all the way to the end of the year.
Speaker 1:Well, the pandemic kind of changed everything for a while. It kind of changed all the rules. So let's talk about deadlines. So everybody has, of course, we know April 15th. I know that date very well because my dog was born April 15th. So that's a little good with bad, I guess. But you can file for a six-month extension, yes, and that is going to be due, I guess, october 15th. So that's the first question is is it too late to file? And what if you missed in April? Talk about the filing deadlines now and everything sure?
Speaker 2:so, uh, definitely, you can file for an extension. So hopefully that's what you did if you were not able to file back in april, and if you did, then as a an individual or a c corp you do have until October 15th, so that's coming up soon. We're going to hit October tomorrow, so you got two weeks basically to get everything together and filed. So that means getting it done without any kind of penalties or anything like that. Right, if you were an S-Corp or a partnership, you actually missed your deadline. If you haven't filed yet, that was last month.
Speaker 1:Well, thank goodness we did ours back in april.
Speaker 2:You took care of me back then, so thank goodness that's right, so yeah, so it really depends who you are as to when you have to file non-profits actually have all the way until, uh, november if they filed an extension, so it kind of staggered out, so not everybody is due at the same time. I guess that kind of helps as they're processing everything.
Speaker 1:But yeah, you can help you too, you know help.
Speaker 2:Yeah, it helps us too that we don't have to do everybody all at the same time and, uh, you just have to, you know, make sure you know what your due dates are.
Speaker 1:So let's say you missed the deadline. Okay, you just miss it. You didn't, you know, for whatever reason. There are probably legitimate reasons you missed the deadline besides just forgetting, or I don't want to do it, but you missed the deadline. So is it still worth filing after the deadline? And what happens if you file after the deadline?
Speaker 2:Right. So the biggest reason you want to file by the deadline is what I mentioned was penalties and interest. So there's going to be different penalties for different things and if you have a balance due there's going to be interest that kind of just accrues until you finally pay it off, Kind of like a credit card. If you charge something you have to keep paying the interest, even though you might start paying it down a little bit. Whatever's left, you keep paying what's the government charges for interest. So right now it's somewhere around like 6%, 7%, Okay.
Speaker 2:Not terrible, then it's not as horrible as some credit cards, you know, but you know it just keeps going, though it could keep forever until you pay, though could keep forever until you pay. Now the the the thing that's really more kind of um harsh is when you don't file, you get a penalty failure to file and that's a five percent on what you owe for every month or part of the month that you didn't file, and it goes up to 25 percent, right, wow. And you get another one of those for failure to pay. So, like, if you didn't file, you didn't pay. You got two of those, and then the state comes in and they'll give you another one. Of course they will. So so, yes, definitely it's.
Speaker 2:The most important thing is trying to get in on time, either april or with an extension, so you could stop that big penalty. The other stuff, not paying on time. There's ways to work it out and it's a much smaller fee, you know. So the really big one is when you don't file. But you know, let's say, you're in that situation, you don't want more stuff to add up on top of it, and so you do want to kind of get your information together, organize, work with somebody If you've got to get bookkeeping together. Do that and get it filed as soon as possible, so that you can kind of stop the bleeding as soon as possible and figure out. Then you're on a track to be, you know, on time again.
Speaker 1:Okay, so somebody listened to this and they haven't filed in a couple of years and they've gotten some of these this and they haven't filed in a couple years and they've gotten some of these notices and they're starting to kind of panic a little bit because who knows what the government could basically ever do to you. And they come to you and they say, hey, frank, I haven't done this now in a couple years and can you help me? Do you not only help them with their get filed again and get back on track, but do you help negotiate with the IRS as far as any penalties or payments and things like that to help them out?
Speaker 2:Sure. So, yeah, the first thing is obviously we want to get whatever years haven't been filed done and we want to start from the furthest back in case there's things that might affect, you know, the next return going forward. If you have any like, for example, losses that are going to go forward, um from investments or business or something like that, or maybe credit you couldn't use that one year, you're going to forward them over to the next year. So we want to do that in in the right order so you can maximize everything that you can deduct and take and then um with penalties. There there is a good thing that, let's say, you've been on time. Most of the time. You got a good track record, you know whatever, like you said, just something happened. This time you can ask for abatement of penalties and usually as a first time request, they'll go ahead and do that like, like, if everything else has been filed, all the other past years were paid for, if you had anything due, they'll help you out and release you of those penalties that you know.
Speaker 1:So the government is not unforgiving and cruel. The government can actually work with you then and they want to help you, in other words, the IRS is willing to help and they're somewhat flexible.
Speaker 2:If you can communicate with them, you know you could probably work out something, you know, at least to lessen the load. And yeah, that first time one will almost automatically be approved, but you do have to request it. Now the state they're not as flexible. You know it's going to take a lot more work and, like you mentioned, though, like if there's something legitimate that happened, you know, uh like, for example, some of the reasons were why we moved the deadlines were floods and other natural disasters that that could be a reason why you actually just really couldn't file. So that could be an argument like, hey, I really wanted to, I've done everything I could, but you know, because natural disaster, because of illness or having to take care of somebody in your family, right, could that could be a reason. So there could be different actual things that happen. Well, they'll consider that legitimate?
Speaker 2:things, legitimate things, and they'll consider that and get rid of the penalties. What they won't get rid of, though, is the interest, so if you didn't pay, you didn't pay. You know we're not going to add the extra penalties, but the interest will stay, and that's just how the tax code law is written. It says they have to charge interest, so they will charge the interest, even if they get rid of the penalties.
Speaker 1:At least they are willing to work with you, though. So does that? Have you had to deal with that a lot in your time, or?
Speaker 2:Sure, definitely these things come up. You know there's people that have these issues and you know that's one of the things as an enrolled agent.
Speaker 1:we get on the phone, we can talk to the IRS directly, we can make those arrangements, you don't have to wait on hold for 30, 40 minutes before you can actually get a hold of somebody.
Speaker 2:We do have to wait on hold, but we'll eventually get online with somebody. You know. Get on on the phone with them and we can work it out. And you know, like I said, with that first time it requests, most likely it's going to go through If it's, you know, I do have. I have had people where they say this is my first time. I tell them it's the first time and she's like well, it looks like the last three years you haven't filed on time and you're still paying on these. So the first time this year, yeah, the first time this year. So it's gotta be, you know, some something legit like that.
Speaker 1:But uh yeah, we can get through we can work with them and we can of having an accountant, you know, personal and professionally for the business is that you are now familiar with me on a year basis, but how you know. But once you file, how important is it to review any previous year's tax returns which now I think if they come to you and they're with you year after year, you're kind of doing that for them. But if not, how important is that?
Speaker 2:Yeah. So it is useful, both on your own or with a professional that's helping you, to go back and look at the return that you filed, and it's going to be for a couple of reasons. You're going to look at what did I do last year and what did I do this year. Is there differences that I'm going to have some expectations about? Did I make more money, less money? Did I go from being an employee to an independent contractor or vice versa? Did my business change in some way? Did I hire employees? Did I have specific expenses right? So you want to really kind of look at what happened before, to compare it with what happened now, and that way you're getting prepared so that when you actually do file, you know what's going to happen and you're also kind of trying to make some decisions too. So it's going to be just also a either a thought exercise or really like a review for planning to say are there some actions I might be able to take now that would help me out when I do file?
Speaker 2:And some of those kind of obvious things like for a business might be I was planning on buying some equipment or I had these expenses that are coming up. Should I try to squeeze them in now, at the end of the year, or should I push it off till the next year? If you have some control over when income might come in, you know, if you want to limit your income, you may want to not invoice or get it to come in January or something like that. If you want to, you know, maybe qualify for a loan or something you want the income to come down right. So it's a good time to look at everything that's going on and plan to see what's going to benefit you.
Speaker 1:I think there's a lot of small businesses like myself out there and you know, of course taxes are always daunting and you look at it as another expense, the cost of doing business. But it's something that I think you were saying. You've got to kind of think it out a little bit and and and you know what are your plans, and that's why it's good to have a, to have a tax professional, somebody who you can call and say, hey, give me some advice here on what you think I should do here. So do you get a lot of phone calls during the year?
Speaker 2:Oh sure, definitely. And again, part of that process is then you actually come up with questions. So if you have someone that you can call, this process helps you to come up with a question you want to ask, and so we do get a lot of questions about. You know, what should I do? What am I able to do? You know, some of the typical things that people can do is look at what kind of retirement accounts they have and what contributions are they going to put in, right?
Speaker 2:So everybody is probably familiar with IRAs and 401ks. These are two types of funds that you could put into to save for retirement, and the typical difference between the two kind of categories of those funds is it's either a Roth or a traditional. Where one the traditional, you're going to try to take a deduction in this year that you put the money in and that could help you to pay less taxes. Now the other choice is a Roth. Whether it's a Roth IRA or a Roth 401k, you're going to put tax dollars that have already been taxed into the fund and they're going to grow tax-free and as long as you, you know, wait this specific time to take them out, you won't ever pay tax on it. So obviously the younger you are, the longer you can leave it in the fund. That's definitely a lot more beneficial than maybe just getting a tax savings right now. So you have to look at you know where you are financially and in your life and kind of make a decision. What do I want to do?
Speaker 1:You're not a financial advisor, You're a tax expert. Do you try to counsel people a little, saying, hey, you know what You're making this kind of money you know. I really recommend you put this amount into one of those types of accounts you know each year. I mean, you try to recommend that to people and give that option, because I didn't know there was a difference between the two different types of retirement accounts.
Speaker 2:Oh yeah. So we definitely talk to people about where they're at and you know, one simple idea is let's say you had a bad year. Okay, you made a lot less than you normally might make. Uh, if you already have an IRA, that's a traditional IRA you may want to convert to a Roth during that year because then you'll pay less taxes. When you convert, you have to pay the taxes. Can you have both types of accounts? You can have both types of accounts, but the actual contribution limits account for all accounts per year. But let's say you had already.
Speaker 2:Because Roth is newer, maybe you already had put some money away. It's built up a little bit in your traditional IRA and, like I said, maybe you had a bad year or maybe you're taking some time off to go to school or for whatever, or maybe you're taking some time off to go to school or for whatever reason. You're going to make less, so your tax rate is going to go down. So if you transferred the money into a Roth this time you would pay the tax at a low rate instead of at your normal rate that you would be making. You know fully employed or you know whatever's kind of like standard for you.
Speaker 2:So that would be a good option during that year. So you want to kind of look at where you're at. Another reason could be like you're maybe right on the edge of going into the next tax bracket, where you're going to go up from 10 to 15 or 15, whatever you're on the edge of and if you can put, you know, the $7,000 into the IRA, that brings you back away and it keeps you in the lower tax bracket. So these are. This would be another reason why you want to do that because you're going ahead and saving yourself from moving up into a higher bracket.
Speaker 1:Once again, another great reason that you need to have an accountant and not just an accountant, but somebody who is your accountant, because hopefully you're learning what I'm learning right now and hopefully this is something meaningful to you and you're seeing the benefit of having somebody that you can communicate with and get some of these questions answered, because you know a typical person just doesn't know these things. So I appreciate it. Questions answered because you know the typical person just doesn't know these things, so I really I appreciate it. You know, I think and, like I said, you've done a great job for me. I mean, there's no doubt about it. You know your company and yourself personally I've been very, very happy with.
Speaker 1:So here we come. You know we're going to come near the end of the year, pretty soon, and what can you do at the end of the year to start getting prepared for next year's filing, and do you always? Well, let me just ask you that first. So what can you do at near the end of the year? Because a lot of people wait till you know April 10th and they'll start trying to find every seed in the world and this and that, and they're in panic mode, right. So a good time to start is probably, you know, in January to start laying stuff out. So what do you suggest?
Speaker 2:Right. So actually I would say even now to the end of the year or maybe right before the holidays, it's a good time, cause you know you're going to get busy at the very end. But if you can start looking over as simple as your bank statements, your credit card statements, to see what kind of expenses you had, what kind of things that you did, remind yourself you kind of forget, you know the stuff that happened earlier in the year. Remind yourself what happened personally, financially, or if you have a business in your business, and kind of start gathering that information, so it's not really a big rush at the end. You know, like you said in January, maybe you're like, oh, now I got to go back and find everything. Definitely you're going to start getting documents in January that are official and companies are sending out to you, so you can't have those yet, but you can start looking at your mortgage statements, your investment statements, those kind of things to kind of get prepared for it.
Speaker 2:If you are a sole proprietor, for example, you kind of now have a pretty good idea how the year is going to end. You might already know what income is going to come in for that last quarter or have at least a really solid idea and you can make your final estimated payments, which is what you're paying in lieu of withholding, because you're not an employee. You're getting just direct payments to yourself. Nobody's taking money out and sending it off on your behalf, like when you get a W-2. Same goes for landlords who are collecting rents. Same goes for people that are mostly making money or making a good portion of their income from investments. They're starting to see how those investments turned out. You may not know exactly all the way till the end of the year, but definitely with sole proprietors landlords you pretty much kind of have a good idea on the year. So you can determine those last estimated payments, which we have one in September, we have the very last one in January, so you can kind of get ready to go pay some stuff in so that it will lower the amount you'll actually end up paying. You know, in April when you, when you do file, if you filed that on time. And then, besides that, uh, you can do, um, the things I was mentioning about retirement accounts. Think, if you're going to put money in, for example, 401ks, you got to put those in by the end of the year. So if you get to alert your accounting department where you work or with your company to make that happen. With IRAs you do have a little more leeway because you have all the way through the deadline, usually April 15th, to make those contributions. So that could be a last minute decision, but you at least start thinking about what you want to do.
Speaker 2:Another kind of benefit that some companies have is an HSA, which is a health savings account, and that means you kind of make a hack on medical expenses where you can itemize them. You can deduct them if you itemize, but across the US only about 10% of people taxpayers itemize. In California it's a little bit higher, about 15% of the people itemize, but that means the majority of people don't. So if you have this available, you're able to essentially put money into account for your medical expenses, especially things that you already know for sure are going to happen your insurance payments or if you already have some treatment that's going to go on for so many months or so many visits that the kids are going to go, you know, so many times a year, and then you're going to deduct that out of your income without having to itemize. So it's a really great benefit if it's available to you to take advantage of, to have tax-free dollars.
Speaker 1:You were saying that only about 15% of people in California itemize.
Speaker 2:Yep.
Speaker 1:Do you think a lot more people should be doing that? I mean because 15% is not a lot of people and I'm sure that by itemizing you get a lot more deductions and the longer you pay, a lot less money. Do you think a lot more people should be looking at that to do that?
Speaker 2:So 100% of people should find out if they can itemize. Not everyone can, because there's a comparison you're going to make between whatever the standard deduction might be that year for your filing status. So for single, there's going to be a certain one, around 12,000. For married filing joint, there's going to be one about 24,000. So you need to have itemized deductions higher than that standard deduction for it to help you. But you should take a look and find out. So that's one of the reason why you go to an accountant to ask you know, what is it actually I can itemize and through a discussion you can find out things that you might be able to. And through a discussion you can find out things that you might be able to that you didn't know.
Speaker 1:Let me ask you this so you're a homeowner and you're making, let's say, $100,000 a year and you really don't itemize. What are the three or four different?
Speaker 2:items that you could, probably that people have no idea. That could probably really lower your taxes down. So obviously, being a homeowner is one of the main reasons why you're going to start itemizing. You're going to have mortgage interest and you're going to have property taxes, and so definitely historically that's been like. When you become a homeowner you start itemizing Right Because those things are going to be deductible and they're large expenses. In addition to that, you could have charitable donations, whether it's cash that you gave to nonprofits or maybe like furniture or items you give to Goodwill, those kinds of things. Those are going to be the three main areas.
Speaker 1:So let me interrupt you real fast, because I've dealt with a lot of non-profits, and if you take stuff over at Goodwill or you donate to your local sports, whatever it is any non-profit, you can ask for a receipt from that organization. It's nice, you give them stuff and you should give them stuff, but you can also get a benefit from that too, which you probably didn't realize, correct, that's right. So definitely.
Speaker 2:They'll give you a receipt and you're going to kind of estimate you know what they might sell that Like, say, if it's Goodwill or Salvation Army, they're going to sell it. So you're going to estimate what is it worth now? Okay, once you gave it to them, what's the value?
Speaker 2:And be honest and be honest yeah, so but yeah, and be honest, yeah, but yeah definitely is going to be beneficial to you to add to that total. So, besides the property tax, mortgage interest and charitable donations, you do have medical, which kind of how we got into this with HSA but the medical has a floor of 7.5%. So you're going to take the total cost that you had like, say on your insurance, your co-pays, if you had to go to the hospital, whatever anything that you had to pay deductibles and you look at your AGI. So it's going to be a different number for every single person. That's not a standard number. We look at your specific AGI, take 7.5% of that, then whatever's above that amount, then you're going to be able to deduct that amount and that's going to go towards your total. We are trying to beat the standard deduction. So it's a process that you go through. Not everybody will be able to, but definitely, being a homeowner, it puts you more likely into that camp.
Speaker 2:Now, the thing that kind of changed the game a little bit was on the last um tax tax policy change. We um limited uh state taxes to ten thousand bucks so you may pay more than that, but you're only going to get to take 10,000. Now, on the other hand, they did double the deduction. They did double the standard deduction, so it weighed out a little bit and nationally it kind of is even. But obviously in places where property values are high, like California, it's going to affect us adversely, more so than you know most of the other places in the country. So you will see that Now it's still worth it, because sometimes you may not be able to itemize on the federal return to the IRS, but you may be able to itemize on the state return, because there's going to be different limits and there's going to be things that get added back in or taken back out, like those property taxes taxes. They'll add back in the difference maybe you weren't able to take before.
Speaker 2:So, um, one other kind of item that you can't have on the federal return but you do have on the state is if you're an employee and you have unreimbursed employee expenses, meaning you had to pay for stuff to do your job. And so a classic thing is salesman right. Salesman goes out, does a lot of meetings, have lunches, buys gifts for people you know, promotes the company. A lot of times it's on their dime and they may not get reimbursed for everything or mileage driving around. You have a job where you have to drive around a lot right, or use your own phone or internet or whatever those types of things. So again, in the last tax policy change those were taken out of the federal but it remains on the state of california.
Speaker 2:Not every state has that, so you have to go state by state. Each state has their own rules and some may say nope, nope, you can't have any of it. Some may say, oh, you could have certain ones. So they're all different when you get to the state level. So that's why it's definitely worth it to find out. You know, can I itemize? Can I itemize on the IRS? Can I itemize on my state? It'll make a difference. You know you want to save wherever you can. So if you can save on state tax, you know that's great.
Speaker 1:Once again the reason you need to have your own accountant and have your own accountant the same guy year after year, because he'll really know these kinds of things for you. So let's talk a little about depending on who the person in power is. Talk a little about depending on who the person in power is. You know, sometimes you report well, I'm going to hire 5,000 more IRS agents and they're going to come back to everybody and other people say we're going to cut back the IRS and stop hiring everybody. So are they actually? What's the status right now?
Speaker 2:And are they actually auditing people right now? Yeah, so the status is, yes, they did get funded, you know, to hire a lot of more new staff to go out, and their focus is obviously it's going to be to collect money and they have started so, uh, potentially, right now, the estimate is there's about 15 million taxpayers that have balanced dues that are outstanding, so that's a lot of people. They want to go find that money and bring it in. There's around 11 million people that have not filed for a given year that the IRS knows of and they want to go track those people down. And there's about 3 million people that they owe money and the IRS is ready to levy, mean, take some money away from them, whether that is garnish their wages, get into a bank account and take the money. There's about 3 million people in the situation where the IRS is ready to do that. So they have started hiring. They're not done, but they got at least their first wave or so of new recruits in there, being trained and going out, and the first thing, uh, is that during the pandemic, a lot of cases where people owed money, uh, we just stopped collecting. So the irs said, okay, look, you know, everything is going on right now. Uh, you know it's a burden on everybody, we're not going to collect. We're not saying, wait, wait. Does the irs have a heart? Well, you know, uh, sometimes they do.
Speaker 2:And you know, sometimes, politically they pass laws that say you know you can't do it right now. Right, so, for whatever intention or reason, they put a pause on collecting. Okay, they didn't get rid of it. They said we're just not going to collect, it's still there. We're just not going to actually keep sending you letters or call you or do anything. We will keep charging you interest. They may even have some portions that they stop the interest, but essentially it was on pause.
Speaker 2:But now, starting this year, earlier this year, they send out letters. So probably, if you're in that group, you've already received the first letter that was just like hey, this is a friendly reminder. You know you had this bill a couple of years back. We just paused, but we're coming back now, so you've got to start thinking about paying. And you may have already received another letter that said okay, now you're in the collection process, so you really do need to pay, or else we're going to start moving forward in this collection process. And you know irs does take take its time, so it's not going to be like overnight boom, all of a sudden you um they're going to start taking your stuff.
Speaker 2:So they do give you a lot of time they have that power.
Speaker 2:They do have the power, but they give you a lot of time in this buildup period that we're in right now, and so, for example, I've seen cases more like from 2017, 2018, where people owed from those years or maybe didn't file from those years. That's what they're starting with going back to those, but it's going to be like on a monthly cycle now, so they're going to just keep working their way closer and closer to the present more letters going out and more people moving down that process. So that's why it's very important if you get a letter, you need to respond to the letter and you like we kind of mentioned a couple of times IRS is reasonable, you know, and you can work with them, but they will kind of accelerate if they don't hear from you. So you want to be able to, even if you like, say, look, I know I have this, I can't pay, and here's reasons why. Okay, that that's a start.
Speaker 2:They're not going to automatically just get rid of everything, but it could, you know, buy you some time. You can have a workaround, you can figure out some way to solve it, there could be options for you. It could be as simple as a payment plan, right, where you just go. Well, I can afford to pay you X amount every month. All right, that could work, and then it just depends how long does that last right. All right that that could work, and then it just depends how long does that last, right. So, um, the other thing that is possible, though, for example, like, say, you didn't file in 2018, irs also has the power to go. You know what we're going to file for you. We say this is what you made, based on whatever information they have, and let me guess- they don't do itemization either.
Speaker 1:They just say here's the raw one, and this is what you got yeah.
Speaker 2:So they do the least amount of any deductions or credits that you can get so they can have the biggest balance due. And then they send you that bill to go. You owe us twenty thousand dollars, whatever you know some amount and you just get scared with it and you didn't even file. So that's why we're back to filing is important, because it gives you it protects your rights one, it gives you the ability to have the say of what goes on that return, because they're not going to look out for you, they may not have correct information also. So you want to be able to control or have the input to make sure it's correct, and that way you're protecting yourself.
Speaker 2:You know your interests and that way the starting point of any collection you know if you, if they're saying 20 and you're saying 10, you know the starting point in 10 is a lot better than 20. Absolutely. So you want to have that control. And also, then you know again, california is going to say, hey, we saw that IRS filed this return for you, so we're going to go by what they said. Monkey, see, monkey, do right. Yeah, we're going by what they said. And and they also have rules and laws that cover that. Well, if the IRS said it, we are going to assume that it's true, unless you prove to us that it's not true. So they're going to base their collection also on that number.
Speaker 1:So, in other words, their policy is you're guilty until proven innocent.
Speaker 2:That's correct, yes, and so one other kind of thing that stems from if you didn't file and the IRS filed for you, the time frame that they have to collect extends. So normally, if you had a balance due, they have 10 years to collect. So once you get to that 10 years like if they didn't collect they can't collect anymore. So, however you get there, it's possible, you get there and then that's it Whatever. If they've got some payments from you, that's what they got, but if you didn't file a return, they have unlimited amount of time to collect from you. Okay, so again, by you filing, you're kind of putting a clock on how long do they have to come after you?
Speaker 1:And get those questions Right. Yeah, that's interesting. I never knew that. Once again, another reason. I hope you guys are listening to this podcast and learning, because this is good stuff. So. So my Burbank is a business. I use QuickBooks. Now, I do not think QuickBooks is going to solve any of my problems. It does help me keep categorizing things like that, but that's all it does. I mean, there's ways that you can say, okay, pay my taxes and file this tax. I don't trust it. I still want to come to an individual and say here's what I got and you know, please review this, find things that it does, because it's a computer. I want the human touch, somebody who actually knows what they're doing. So what should you know as a business? I use QuickBooks, but at the end of the year I have you go through the QuickBooks for me. So if you're a new business or you're now an existing business, what should you really consider doing and how do you prepare? You know how do you kind of put things together, especially a newer business.
Speaker 2:So definitely for business, both starting, existing and especially at the end of the year. The bookkeeping is very important One. You know that's going to be where the tax return comes from, so that's going to be helpful just on a practical level.
Speaker 1:You need that in order to file, but not to interrupt you, but I will interrupt you. I sent you the QuickBooks stuff last year and then you got ahold of me a couple of times saying, well, what about this, this and this things I had not considered and were not in the QuickBooks stuff last year. And then you got a hold of me a couple times saying, well, what about this, this and this? Things I had not considered and were not in the QuickBooks.
Speaker 2:So without having a true professional things would have been missed completely. Yeah, do the accounting so that you have accuracy. And obviously you got to categorize things as you are putting them in right, Whether they're revenues or expenses or whatever they might be. And sometimes you may have a choice, like, for example, with depreciation. You may have a choice to depreciate more upfront or, you know, put it on the normal schedule of whatever that item might.
Speaker 1:Talk about depreciation for a second. What do you recommend is like a dollar threshold, usually. Okay, now just write this all off this year, or we need to depreciate over a couple of years. Do you have any suggestions on that?
Speaker 2:Yeah, so basically how it works is that if your item, whatever you purchase on your expenses is going to last more than a year, there's going to be a useful life to it. So, whatever sound equipment, a car, you know, real estate, whatever something you're using, your business, the IRS already has a life for it. It might be seven years, it might be 10 years, might be, like real estate, 27 and a half years. So there's already something assigned to it and what the irs says is you should depreciate it over that time. But there's a couple ways that, let's say, you have, you've had a great, so you want to have more expenses, right, you want to reduce that profit, um, or for whatever reason it could you know it could be other business reasons but you want to appreciate more. There's two things that you have Um, we've gone back and forth over the last 10, 15 years or so with, uh, accelerated depreciation, bonus depreciation, those things where it says you bought it.
Speaker 2:Now it should go over 10 years. But we'll allow you to take it all today, right, or some version of that 80% of it today, 60% of it today. So you could make a choice to go. I'm going to do that, I'm going to take up to whatever the limit might be. There's also a thing called Section 179, where we've had that for a long time where you can always have an option to take the full amount up to a limit of whatever you paid on depreciable items specific kinds usually, things like this, like computers and cell phones and cars, those kind of ideas businesses usually are using so you can do that.
Speaker 2:It will then depreciate now, become an expense now and lower your profit.
Speaker 2:So where you come into even have to think about it a little bit more is like, say, a business is going to have a loss but let's think they think they're going to have a big year the next year, so they can do that depreciation. It won't show up now because you don't have anything to depreciate against, but now it becomes on reserve so you can take it next year when you know I have these big clients that are coming in next year that I know I'm going to have this revenue. It's going to move forward, carry over, and now you'll take it then instead of waiting over that 10 year period. So it's definitely a thing you want to look at. Uh, it's definitely a thing. As a business owner, you got to have in mind. What do you think is going to happen like this year, next year, you know when do you think you'll need those expenses, and so definitely being able to talk to your accountant about that is a good idea so you can have a plan and time it correctly.
Speaker 1:So you ran a new business, though, and, let's face it, this might be the first time you've ever gone into business. So what do you recommend right from day one? Instead of waking, you know, oh, I should have done this or that or something else. Anything you recommend immediately people should start doing, or at least thinking about. I mean, what about contacting an accountant like yourself just before they even start to go into business, to help them through the process?
Speaker 2:Sure. So it's definitely helpful to get an accountant, a professional, involved when you're even planning to start a business, to have a discussion about how to do that, so we actually can help you set up your business as well, choosing what kind of entity you're going to be, so that that can be clearly explained to you what happens if you choose the S-Corp, the C-Corp and LLC, those kind of things, which is another kind of item on the list at the end of the year here. Let me ask you a question, though.
Speaker 1:Did I make the right decision on which letter I picked. Was that a good?
Speaker 2:decision. It's a good decision, okay. So here's the thing I was going to mention. It's on the list here at the end of the year. Among other things is if you're an llc, for example, you can choose to be an s? Corp or c corp. Right, these are options you have, and so understanding how the revenues will flow through and who's going to get taxed, that that's important. So you can make a choice. You can't, like, go back and forth every other year but, let's say, you've been an S-Corp for a while, you could make a choice to change. So there's still an option to do that. You just can't do it like all the time, like if IRS says, oh look, you've done an S-Corp, a C-Corp, s-corp, you got to stop now. You got to wait for like five years and then, well, you're not going to talk about that later today.
Speaker 2:Then you know you can maybe think again, but you got to at least stick with something for a while. But yeah, so it's not set in stone 100%. You can make some changes. And definitely dialogue with your accountant is important. So, yeah, getting set up. So yeah, getting set up, that's one thing, kind of projecting what you think is going to happen, understanding what is going to be deductible and what's not deductible, um, understanding about setting up an office in your home or renting an office or whatever, what your different approaches might be. So definitely all those things are important. And having a system in place for the, the bookkeeping or the accounting, whether it's going to be yourself with QuickBooks, whether you're going to hire somebody to work in your company or you're just going to hire an accounting company, which we do bookkeeping for small businesses also. So we definitely can help in that on that subject, to keep your books correct and make sure that they're they are ready for you to file at the end of the year. And but besides that, having clear accounting helps you understand where your business is at. Um, when is the cash coming in? How does the cashflow look? Do you have high times, peak times and low times? So that in the future.
Speaker 2:Obviously the first year you can't really tell. You can make a plan, but it will. It will show you what actually happened so you can kind of start trying to look at it and go, well, why did it happen this way? That's another thing. It tells you what happened so you can kind of say why did it happen? And that's what the business owner is trying to do.
Speaker 2:So there's a lot of benefits to having that bookkeeping or perhaps getting someone to help you with the bookkeeping, to make sure it's clear, efficient, on time, accurate, all those things, and that you can ask questions to like why, why is it? Why is this in this column, not that column? You know simple things like that Understanding, depreciation, understanding. You know how revenues come in. So it's very helpful to do that from the very beginning because if, let's say, you let a year go by and you kind of didn't have a system, it's a lot harder to go back and now implement a system with all the stuff that happened with no system. So as long as you pick something, at least you can be consistent going well. I know I did it this way over this time period and so if you do change, then you at least have consistency, that you'll understand what happened up to that point.
Speaker 1:The theme that I have gotten out of today more than anything else.
Speaker 1:The theme that I have gotten out of today more than anything else and while I knew this I never realized it is how accounting is a very fluid thing. It's just not a. Every April you call your accountant and then you don't talk to them again until night. In all honesty, in the old days we had the old H&R blocks and these corporate places They'd hire 1,000 guys to come in March and April and do the taxes, and then they're all gone. After that They'd hire a thousand guys to come in March and April and do the taxes, and then they're all gone after that. They're not permanent employees when when you have a firm, like we do with you with CBIS, you're there all the time, I can call you anytime and you have a familiarity with my business and myself, and I think it's a huge benefit of having a firm who's there all year round, because things do come up all year round and I'm sure you get a lot of calls all the time from businesses saying what should I do here?
Speaker 2:Yes, definitely, you have questions just in general over the year about things you might be thinking about. You get correspondence. So I've had people get correspondence that um, trying to think of who it's sent by. One person sent me a letter that and it was telling them they had taxes to pay on these computers that they leased. Uh, it was a property tax. It almost looks like, um, when you get your property taxes for your house, it's the same department that does that, but this is for stuff that you don't actually own, you're just leasing. And they asked me, like, is this real, is this a scam or what? And so, yeah, I looked through it. I'm like, oh, yeah, it actually is. For businesses there is this type of thing.
Speaker 1:If you're leasing this, the county will tax you for some amount.
Speaker 2:they all want a piece of the pie, don't they use tax, right? So I'm like, yeah, it doesn't happen a lot, but yeah, that it's, it's a legitimate thing. You, you should pay the the amount, right? That's that's a true kind of bill. Other times it's uh, it is a scam. Sometimes I've had clients where they go hey, I got this letter. It says I should pay this, and I'm like, nope, it is a scam 100%. These are just companies that are sending you something that looks like a bill, hoping you'll just write a check and send it off to finance department, whatever they something they put on it that sounds like, oh yeah, that's probably real like oh yeah, that's probably real.
Speaker 1:Yeah, we all, we all see those emails all the time from you know, uh, best buy it, it's not really all right. Or your credit cards this or that, and it's it's all a scam and yeah, things get mailed out. So that's, once again, another reason it's good to have an account you can call or communicate with or just drop an email to sing hey, does this sound all right to you? And I'm sure you get a lot of those on probably a weekly basis.
Speaker 2:So we definitely hear a lot of them and what happens actually is when you first start your business. Now that you register with the county, there's a lot of companies that pay to get the information of whenever you first registered. Now they're offering. Some are legit companies that are offering you things that you might need insurance, whatever but a lot of them are just scams. Like they're like hey, you do this, we'll do this for you, you need to do this and it seems like the government is telling you you need to do it, but really they're just gonna take your money yeah and um in a lot of areas, you got to be very alert.
Speaker 2:Now, one thing I did want to mention about new businesses is that which there's information out there and so some people are concerned whether it's true or not. Is that based on the Corporate Transparency Act that was passed a couple of years ago, there's a new registration for brand new and existing businesses that are happening this year, and what they call it is a beneficial owner's information registration. A lot of words, and you file it with FinCEN, which is an agency that's supposed to fight financial crime. The purpose they say it's for is to kind of stop money laundering. Okay, that's the reason that they're stating we're going to do this.
Speaker 2:But essentially, if you're a business that existed before the beginning of the year, you have till end of the year, december 31st, to register with Vinson and you are supposed to give information about the owners and perhaps other people that have control of the company. Maybe you have officers of the company or a board or something like that. So it's a requirement and they haven't. The government has not put a lot of information out there. A lot of effort to promote like this is what you have to do, but I have had clients towards like the beginning of the year calling me like hey, is this true? Because one thing they do put out there is the penalty if you don't file it on time 500 bucks a day and up to two years in jail so they put that big you know penalty to say it's a pain point.
Speaker 2:You know you guys need to do this and, um, it's true. So currently that's the law. Uh, you need to do it and you have a certain time for those companies that existed before. You have till the end of the year. If you started a company this year, you have 90 days from the time you got your paperwork stamped that you're a company. So if you did in january, you might be behind that 90 days already now, right, all right, okay, and then next year they're going to move it to 30 days after you get stamped as a real company. So you know we could definitely help you with that. But it's a thing that's out there that there hasn't been a lot of official announcement and you know advertisements so that people know clearly what they have to do and there's definitely that penalty, um that they're promoting. That's going to happen and, uh, I'm sure there's still some leeway on it. But you know you don't want to push it and be in a predicament if you don't have to be if you already pass a date.
Speaker 2:You pass a date. You know you still want to. Same thing like filing. You already passed a date. You passed a date. Same thing like filing. You still want to register. You want to avoid the penalties as much as possible.
Speaker 1:Another reason you need an accountant and a firm Because I guarantee you that guy works for one month for H&R Block doesn't probably know it or going to tell you about it, and if you start your, another reason to start to talk to an accountant actually is you're starting your business, because there might be things like this that you have no idea about and they can at least advise you A good accounting firm. Frank Gomez, I can't tell you how much I appreciate you coming in. I said we're doing this because I think for the simple reason look at how much I learned today and I'm sure there's a lot of people in the same boat too that didn't you know. They think they're on top of things, and they probably are, but there's a lot they don't realize because this is an area of expertise and, let's face it, you screw around with the government. You know you're probably going to lose because they don't really care. They don't have the feeling that others do. Thank you for coming in. Anything else you want to say in closing?
Speaker 2:Yeah, there's one actual other thing that I did want to mention is when you are setting up a business, if you have a choice of where it can be. Obviously sometimes you don't have a choice it's going to be at your house or it's going to be at a specific location that you need. The city that you choose also can make a difference on how much you get taxed. For example, city of Los Angeles, they tax you on your gross revenue, so gross receipts that come in Right, and then it's based on what kind of businesses. City of burbank doesn't do that. So you know, if you have a choice and you want to start a business, city of burbank is a great place to start it. Uh, not only is it really just a great business community where people enjoy working with each other, promoting each other, working with local people, but you're relieved from that city tax that you might have in the city of Los Angeles and most other cities in Southern California. So think about it when you're starting.
Speaker 1:Boy, the Burbank Chamber of Commerce and the Development Department love you right now. It's true, though it is true I've heard businesses talk about that and you get outside of Burbank. There's a lot of things that, a lot of hidden fees and a lot of taxes in a lot of cities. Okay, well, that's kind of it, everybody. Once again, I really want to thank Frank for coming in CBIS Data Tax. They are the official accountant of my Burbank and myself, and that's why we're doing this. Okay, this is not a paid podcast or a paid announcement. This is because I think it's important and it's something that you really need to consider, whether you're in a business, even if you're just individually. Give Frank a call. I'll put his number on the screen and his information on the description so you can get a hold of him and get ahold of them there. I'm sure, um, frank, how many people you have working in the firm there?
Speaker 2:Oh, so we have about five people working Okay.
Speaker 1:So there's a lot of people who knows that. You know, I get Frank and I'm very lucky to have.
Speaker 2:Frank.