Small Business Tax Hacks: A Roadmap to Financial Success

Jonathan D’Ambrosio speaks with Gary Milkwick from 1-800Accountant. Gary talks about the challenges that entrepreneurs face, particularly in understanding tax law and tackling the complexities of state or national regulations. He discusses the importance of reserving money for taxes, keeping up to date with tax initiatives, and when to seek out professional advice to avoid financial penalties. Milkwick also covers how 1-800Accountant sets itself apart from competitors by using automations, allowing their accountants to provide personalized advice and support to clients.

Episode 13 of The Seller’s Edge, Gary and Jonathan talk about:

• 01:18–03:16 The problems that small businesses face with taxes
• 03:30–04:30 An increasing number of entrepreneurs
• 04:30–07:19 Why small businesses are reluctant to hire an accountant
• 07:35–09:20 The current state of tax firms across the country
• 09:30–10:37 How business owners can save time, money, and stress
• 11:00–12:31 The impact of technology on accounting
• 13:05–15:53 When should small businesses outsource their taxes
• 16:00–18:43 What people should know before starting their own business
• 19:00–21:02 It’s not possible to know all of the tax laws and regulations
• 21:11–26:18 Cautionary tales of people who tried to do their own taxes
• 26:15–31:44 The truth about auditing
• 31:45–33:56 Special services offered for eCommerce businesses

Key Takeaways:

• The dawn of the “Gig Economy” and non-traditional work arrangements has led to an increase in entrepreneurship and people starting small businesses, with more people looking to work for themselves or earn extra income with a side hustle.
• There are many new business owners who struggle with comprehending tax requirements and are easily discouraged or overwhelmed, causing a delay or complete avoidance of seeking professional advice.
• 1-800Accountant provides incredible services to new and small business owners, offering remote services, especially businesses traditionally underserved by larger accounting firms.
• Setting aside money for taxes, understanding tax rules and deductions, and keeping track of changes in tax laws are crucial for small business owners to avoid financial surprises and penalties.
• 1-800Accountant leverages cutting-edge technology to streamline task and distinguish their services from competitors, with automations that allow their accountants to focus more on providing personalized advice and support to customers

Full Transcript of Episode:

JONATHAN D’AMBROSIO: Hi, Gary. Thanks for joining us today.

GARY MILKWICK: Good to be here.

JONATHAN D’AMBROSIO: Yeah, I’m very excited about this. I know nothing about taxes or accounting, so you’re going to be answering a barrage of questions that I’m sure you answer all the time.

GARY MILKWICK: Yeah. Maybe. You’re not alone in not being an accounting expert.

JONATHAN D’AMBROSIO: Yeah. Although hopefully my goal by the end of this is to have, like, asked a unique question that no one else has asked you. So you’ll have to call it out if I do that.

GARY MILKWICK: Awesome. I’ll be on the lookout.

JONATHAN D’AMBROSIO: Let’s start by you just telling us about 1-800Accountant, its mission and your role in it.

GARY MILKWICK: Yeah. So 1-800Accountant is a company that we started to try to provide world class service to brand new and small business owners. When we started, it was all brand new business owners. Now it’s kind of expanded in all sorts of different shapes and sizes of small businesses. But, you know, the idea was to provide great services in a remote manner to small business owners across the country. A lot of times, these clients that we were dealing with weren’t top of mind for traditional accounting firms because they were maybe didn’t fit the profile. Most traditional accounting firms would like to deal with 50 fairly large, established businesses as opposed to hundreds of small ones that are working to get to that point. So we took kind of the opposite approach of, okay, this is kind of an underserved market. We want to go out and provide great services to newer businesses.

JONATHAN D’AMBROSIO: Yeah, I’m sure that there’s some long term investments in that for you guys, just because I’m sure those businesses grow and you’re like, oh, now we have a big fish on our hands.

GARY MILKWICK: Oh, absolutely. Yeah. Yeah. And that’s what’s kind of happened over the years as clients have grown and gotten larger. You know, we have hundreds of accountants, so we’ve got accountants who have worked in all sorts of different roles. We’ve been controllers or CFO’s and companies that are much larger. And so it’s like, okay, well, now that they’ve kind of graduated from the new business kind of set of services, let’s get them into more of a traditional outsourced controller, CFO type services. So, yeah, we, we do it all now, but we kind of started with, and we still to this day, are dealing with thousands of small, brand new business owners a month that are coming into the service, which is really cool.

JONATHAN D’AMBROSIO: I’m so glad that you mentioned that. I don’t know if it’s just something where I, depending geographically, I end up in the right place. And there just seems to be a trend with people around me, but it seems like I’m meeting more people who are starting businesses. And I don’t know if that’s just a proliferation or like, there’s more entrepreneurs out there in the world at this point in time, or has it always been this way and I just didn’t meet them?

GARY MILKWICK: No, I think you’re right. I think the gig economy with Uber and Lyft, you can now be an influencer on social media and make money that way. I know multiple people who. That’s their full time job. I think people are not necessarily loving the traditional, I’m going to go work for a company for 30 years and just kind of slowly. So I think you’re right. I think there are more people looking to either do more of a non traditional, I’m going to work for myself type thing as a contractor, or I’m going to supplement my income with some sort of part time gig. Whether selling things on Amazon or being an Uber driver or whatever. We deal with a lot of people who have, like, a full time job at a big company and then they also have a side gig.

JONATHAN D’AMBROSIO: I’m curious, I mean, if you have an idea percentage wise, I mean, you don’t have to, but I’m curious how many of those people have an idea, they want to start a business, but they have no idea what it’s actually is involved, and that there is so much more red tape and yeah, that’s.

GARY MILKWICK: I don’t know the percentage. So I don’t have any hard stats on this, but it probably 70% to 80%. I don’t realize exactly how much goes into it. And so that was part of the reason that we were trying to do what we’ve started out to do, which is provide kind of an education to people. I used to talk to clients all the time. As a percentage of my day, I would work directly with clients myself. And a lot of times the first question they would have is, I don’t know what questions to ask. Tell me what I should know. As a brand new business owner, it would literally be okay. Do you know what estimated tax payments are? Do you know how payroll taxes work? Do you know the difference between a contractor and employee? When you said, you’re starting this business, you need workers, are they going to be contractors or employees? You know the difference? Do you know what it’s going to cost you, what the difference in price is if you’re hiring somebody as a contractor versus employee? Yeah. The vast majority of people don’t know. A lot of people know little bit. You know, you have friends that start businesses and they may have have worked for a small business owner in the past, but really understanding how the whole thing fits together. Not many people really have a complete understanding if they haven’t done it before.

JONATHAN D’AMBROSIO: Do you think that people are, because I’m no stranger to people acting as if they know things that they don’t know just to look like they know them. I’m curious, how many people do you think get deterred because they feel intimidated by asking those questions?

GARY MILKWICK: It’s interesting because I think a decent number, you know, I think a decent number, even when they’re setting up their entity to begin with, you know, a lot of people drop out of the process because I think they start getting into it and they’re like, wait, LC or S corporation? Like, I don’t know. And they start getting into the nuances and they’re like, yeah, I don’t know, maybe this, maybe I’ll just kind of wait. And then they put it to the side and maybe circle back to it a year later or something. But yeah, I think a lot of people, once they start getting into it, they’re like, eh, I don’t know. Or they’ll start their business and they’ll get into it and they’re like, ah, this is just a little harder than I thought. It’s more time consuming. It’s harder to generate revenue than I thought. It’s harder to make sales than I thought. You know, I’m really good at providing this type of service, but it was harder to get clients than I thought. That does happen. But on the flip side, you know, we see lots of people who get into it and it’s even the opposite, right? They’re like, oh, I’m just gonna do this kind of a part time thing. And then their business just ends up blowing up. And it’s that, that’s really cool to see because it’s like they weren’t expecting it to be something huge, and then it ends up blowing up and being a really big thing, which is, which is really awesome to see.

JONATHAN D’AMBROSIO: I always love those stories. Cause it’s just like, there are people who, I mean, there are people who are just hell bent on success and they don’t really care how they get there. And then there are people who just want something to do and are passionate about it, and it ends up just blowing up into this huge thing. So it’s a, it’s a great thing. Yeah. So how do you feel 1-800Accountant distinguishes itself from other competitors.

GARY MILKWICK: Most of our competitors, I would say, would be the traditional small local or regional accounting firms out there. I think it’s just that we have a different scale. So our idea from the beginning was to leverage technology as much as possible to make it do as much of the work. So that once you’re adding the human layer on top of it, something that would have taken me 10 hours at a traditional accounting firm may only take me 2 hours now because we’ve got so much technology that is doing most of the heavy lifting or a lot of the heavy lifting. So my job is now just to explain to the client what the backend has done and help the client really understand that. And now with AI, we’re getting into all sorts of stuff that is super, super cool, that is really helping us save time. I talked to somebody recently who is a friend of a friend and came to me. He’s like, yeah, I’ve got this tax return. It’s not that complicated. My accountant was charging me about $1,000 for it, and the prices are doubling or tripling. And it’s because there aren’t many accountants right now that during COVID a bunch of accountants either retired or switched careers, and there was already a shortage. And so now there’s this massive shortage of accountants. So prices are just going through the roof. There’s kids out of school in some markets are making over $100,000 a year just straight out of school. And so in order to keep the prices somewhat reasonable, you have to leverage technology, or else you’re paying labor to do all of the work. It just doesn’t make sense financially for a brand new business owner. It just makes it really tough. Right? So I think that’s where we’re different, is that we’ve invested just millions and millions of dollars into the technology that kind of supplements and provides support for the advisors, which is really cool.

JONATHAN D’AMBROSIO: So what you’re telling me is I should have went to school for accounting is basically the takeaway I’m having from this conversation.

GARY MILKWICK: Or an AI engineer.

JONATHAN D’AMBROSIO: That would have been too. I just. I can’t wrap my brain around the AI thing.

GARY MILKWICK: Right! When my kids are asking me, what should I do for school, it’s like, well, accounting, you’re always gonna have a job. I can promise you that. But one of them is a sound engineer now. So he did the fun thing. He actually enjoys.

JONATHAN D’AMBROSIO: He made the mistake I made. I went to school for creative, and I was just like, I should have done that on the side and became a doctor.

GARY MILKWICK: Yeah. Right. Right.

JONATHAN D’AMBROSIO: Everyone’s always looking for nurses and accountants. You don’t see people beating down the door for a sound engineer and a film director. So that’s tougher.

GARY MILKWICK: That’s right.

JONATHAN D’AMBROSIO: And then how do you, I mean, obviously you’re taking a lot of that with the technology. You’re taking a lot of the time out of the equation, which I’m sure, I mean, I grew up in a family business where I know that that was one headache after another with my family and just always getting bogged down and having to do taxes and go through receipts and all sorts of things and expenses. There’s a trade off. Right. Like people are like, all right, less stressed because I don’t have to deal with this. But it’s also spending money. So as they’re investing in 1-800Accountant and what is the money and time that you’re saving people? Can you quantify that?

GARY MILKWICK: My goal always from the very beginning when we were setting this up, was we want to save people more money than they’re investing. Right. Even with just the tax advice. So if they’re paying us a couple thousand dollars a year, I want to be able to save them at least that, if not more, just in taxes, so that it just pays for itself completely. So it’s not even just the time. So that’s always the goal, but yeah, the time. Now that the technology has gotten more advanced, you go into our portal, you hook up your bank accounts and credit card accounts. It automatically downloads all the transactions. AI categorizes the vast majority of those transactions. So it really, it’s not perfect. Right. So there’s still things that don’t get auto categorized or things. But compared to like, ten years ago or 15 years ago, the time commitment for the business owner is much, much lower because the technology is doing a lot of the work. And then the accountants are on top of that, looking at, okay, now that everything’s in, all right, here are the ten transactions that I’ve got questions on this month. Rather than, okay, the traditional way where it’s like you bring me a bank statement and a bunch of receipts and I go through and input it all. It doesn’t work like that anymore. And then for our company, once it’s into the bookkeeping software that’s inside of our portal, then that flows into the tax software or into our tax organizer. There may be some questions there based on what information has flowed in, and then from that, that then flows into the tax software. Back in the day, there were people that were just data entry clerks at accounting firms that are just doing data entry. There are still people that handle the data and manage the data and manipulate the data. But doing the actual data entry, that’s not really a thing anymore, at least in our company. It’s really cool because it’s so automated and does relieve a lot of the time from small business owners.

JONATHAN D’AMBROSIO: And plus less stress means longer life. Or so I am told.

GARY MILKWICK: Yeah, that’s right. That’s right. Yeah. You’re off putting stress to us to make sure that our programs are all working properly. Our technology’s all working, and, you know, over the years, it’s gotten better and better. We had AI built into our software before chat GPT, right? But now that chat GPT’s out, we added that advanced layer on top of what we already had to categorize things that we couldn’t categorize before. I think we were up to 70% to 80% accuracy, and we could categorize 70, 80%. Now it’s like over 90%, you know, so it’s really cool adding that layer just in the past year and a half or so had seen huge improvements from that.

JONATHAN D’AMBROSIO: Yeah, I’m curious, because I know a lot of entrepreneurs and just starting out, and I’m sure that there are people that fall into this bucket, but I don’t know where the threshold is where you’re just starting out, you don’t really have that much business. And then at some point, I mean, you’re just being scrappy. You’re doing it all yourself. But at some point, you get bigger, and I think at that point, it’s just muscle memory. So you keep doing the thing that you’re doing, but at some point, you got to know when to let go and move that business to someone else. So is there, like, a good rule of thumb for that?

GARY MILKWICK: It really depends on the person, I would say, because we do have people that right out of the gate just are like, I know I’m not good at this, and if I try to do it, I’m going to mess it up. And that’s what we see a lot, right? We have people that are like, I can just do this, and they’ll do it for a year or two, and they come to us, they’re like, I got all these notices from the IRS, and we start looking into it. It’s like, oh, man, this is like an absolute mess, you know, and a lot of times, like, super smart people. I think that’s what happens, too, sometimes, you know, you get people that are overconfident. This is a kind of funny story. One year, there’s, I had this guy who was an engineer, brilliant dude. Like, super, I think he went to MIT. He went to some super fancy school. He’s like, ah, accounting’s easy. He had used the quickbooks, and he did it all reversed. So all of his debits were credits, and all of his credits were debits. He had done everything completely opposite as the way he was supposed to. So when he was running the report, they were all screwed up. And it was like, you get the idea of double entry accounting, but you did everything completely opposite. So it was. It was really funny, but we had to go redo the whole thing, basically. So, you know, it just depends. There are people that can do it effectively, and especially if you don’t have a ton of transactions. You know, if I’ve got a very part time thing, I might be able to track it in Excel. Or when people try to do it themselves in quickbooks and things, they usually screw things up. But it depends on how much time you have, and if you could better utilize that time doing something else. And that’s usually what we see. That’s kind of the point at which people change when they’re like, okay, I can either spend 10 hours this month working on accounting stuff, or I can spend 10 hours generate. Trying to generate revenue. And usually, like I said, like with. With us, we’re trying to save more money than you’re paying us to begin with. So if I could say to you, you give me $1,000, I’ll give you 2000 back, then it definitely doesn’t make sense for you to do it right now. Not to say that that’s always the case, that we can always do that, but we will catch things that people don’t know about or don’t know they should be tracking or don’t know they can deduct or just can’t see because they’re not aware of certain things. But that’s usually when we see people switch in general, once they realize, okay, my time is probably better spent doing something else. Instead of taking away my family time to do my accounting twice a week, I’m going to just offload that and enjoy that time or spend it generating revenue.

JONATHAN D’AMBROSIO: Yeah, I get that. I’m sure that we have a lot of listeners who are potential entrepreneurs, who are thinking about starting a business and don’t really know what that looks like? I mean, I’m sure they’ve done some research and googled it, but what are some of the things that people should keep in mind that they don’t keep in mind initially or don’t predict?

GARY MILKWICK: One of the biggest things that we see on the tax side is that people don’t set aside money for tax this all the time. A lot of times people will set up an LLC and they’re used to working for a w two and w two. It’s like the taxes don’t exist because it’s being taken care of for you, right? It’s being deducted. Like Social Security, Medicare, for example, you’re having 7.65% of your paycheck every time. Every paycheck is deducted just for Social Security, Medicare. That’s not even income taxes. That’s just Social Security, Medicare. And then the employer is matching that. So they’re also paying 7.65%, and then they’re remitting that 15.3% combined amount plus whatever you’ve had withheld from income tax. So we’ll get. People come to the end of the year, they’ve set up an LLC, and they’re like, they don’t realize, oh, I’m responsible for the employer and the employees portion of Social Security and Medicare. So that’s 15.3% on top of my federal, state, maybe city income taxes. And so then it’s like, I made $150,000 in profit. I had a great year. This is awesome. And it’s like, okay, well, you didn’t do an election to be an S corp, so all of that subject to self employment tax, which is Social Security, Medicare. So you owe $57,000 in taxes. And they’re like, wait, what? That’s not fair. Like what? That’s like, no, that’s. If you were working for somebody else, you would have. You just don’t. It’s like a psychological thing, right? Because it’s coming out. You never see it, as opposed to writing a check at the end of the year. And so. And then on top of that, people don’t know that you’re supposed to be paying that at least quarterly, or you get penalized for it. So it’s like, now your $57,000 is $63,000 because you didn’t make quarterly estimated tax payments to remit that because the IRS wants the money. You know, if you’re working for an employer, they’re taking it every two weeks, so they’re getting the money regularly. You can’t just wait till the end of the year and pay it. You have to pay it at least quarterly. So that’s another thing that people don’t know. I mean, there’s all sorts of things, but that’s a very, very common one, and that’s one of the bigger ones. When people come in and you tell them that they’ve got a tax bill of tens of thousands of dollars, and they’re like, oh, crap, I was not planning on that.

JONATHAN D’AMBROSIO: Yeah. And when it comes to retail consumer goods, I’m sure supply chain adds another layer of complexity to that because I’m sure there’s, like, tariffs and other things that are muddling all that.

GARY MILKWICK: That’s right. Yeah. I mean, we haven’t even touched on sales taxes yet, and that’s for people that are selling things online and e commerce, and we have a lot of those clients. You know, that’s a whole other level of complexity on top of everything else. And then, you know, if you ever own a restaurant, you’ve got alcohol tax, and there’s all sorts of your trucker, you have the gasoline tax, and there’s all sorts of other things that are industry specific that you have to worry about on top of just income taxes.

JONATHAN D’AMBROSIO: Right. And maybe you can explain this to me, because I just don’t know. I’m always surprised when I find out that I have some tax exemption for some random thing that I didn’t even know that I could have. It feels like there are just these secret ones that somehow bubble up out of the woodwork. How does everyone keep track of those? Because it seems like there are just some really wonky ones out there.

GARY MILKWICK: For a person who’s not in it, it’s almost impossible. I read, like, accounting news almost every day, and it’s hard for me to keep track of all the new stuff and all the new proposals that are out there, and there’s different things being proposed that might happen that don’t happen. So every single day, there’s new stuff happening in tax law. The last ten years. There are major, major changes happening all the time. And if you’re not on top of it, and as a person that’s not in taxes, it’s nearly impossible to be on top of it all. Sometimes I have people. How does. How can an average person keep up? An average person can’t, you know, like, it’s literally impossible unless you want to devote an hour or two a day to reading all the changes, which I doubt you want to do. So that’s another reason why it’s good to outsource your accounting stuff. You know, going back to the same theme as earlier, those things that you’re talking about that you don’t know that there’s like, oh, I didn’t know this thing was deductible, or that I, this thing was exempt from sales tax or whatever the case may be. You know, that one thing often pays for your entire year of accounting services. We see that all the time where it’s like one small tweak that the person didn’t know about. Oh, that saved you $12,000. That’s three years of accounting services for you, or five years of accounting services for you, depending on how much stuff they have. So it really is one of those things where you don’t want to try to do accounting or plastic surgery or certain things on a cheap, like, accounting is one of them, right. You don’t want to find the absolute cheapest accountant in the world or do it yourself. You know, there’s certain things that it’s just like, unless you’re willing to put in a ton of time and energy into it, it just. It’s really tough to do it yourself.

JONATHAN D’AMBROSIO: Yeah, I would imagine, and I certainly, in a reductive sense, always think about taxes only when taxed time comes around, like once a year. But I’m sure it would be a much better scenario if I always kept it in the front of my mind throughout the year. So I’m curious, what’s that relationship like that you guys have with your clients throughout, and what sort of advice do you offer?

GARY MILKWICK: Yeah, so the way we do it is if you’re a brand new business owner, we take you through what’s called our tax advisory series, and that’s basically answering the question, what should I know as a small business owner? And so we’ll go through things about how do payroll taxes work, how to estimated taxes work, if you’re industry specific, if you’re doing e commerce, how does that work? How do sales taxes work, employee versus contractor? We go through that with people. And so we’ll go through those things over a series of, a few calls with clients, and we’ll go through, like, deductions that they may not know about, home office deductions, how to deduct my vehicle in the business, how do business meals work? So a lot of things that people just don’t know how exactly it all works. And we go through that. Now, if you already have been a business owner, you know, we don’t put you through that same route. Right. We skip that. But then we. Every quarter, we do what we call a quarterly business review with the client, and we try to go through, at that point, anything new that may be affecting that client’s business. We get an update from the client to find out how their business has been doing. If you go a year without talking to your accountant, sometimes it’s like, I think I once. That one year, he made, I think, a profit of $100,000. And I talked to him the next year. He was one of those people that just didn’t want to talk to the accountant. I talked to him the next year, and he’s like, yeah, I had a big year, so I think I’m going to owe a lot of tax. And I was thinking, oh, man, he must, like, double or triple. He generated profits, like three and a half million. And so I was like, dude, you should have talked to me. Why didn’t you not tell me that your business blew up? There were some more advanced tax strategies we could have done. Now it’s the end of the year. Now it’s too late to. We can do it for next year. But now, if you would have told me, like, at least in October, we could have, like, done some things, you know? So we. We try to do it, like, have at least a quarterly cadence. Now, you know, if you just don’t want to do that, and you’re. You’re the client, you obviously have control over how often you talk to us. But we would like to talk to our clients quarterly so we don’t have surprises, and we can kind of be on top of those things. And if there’s industry specific things that come out, sometimes there are tax law changes that have specifically impacted certain industries. If we’re talking to the clients quarterly, we can. We can go through that stuff with them in a timely manner.

JONATHAN D’AMBROSIO: Earlier, you mentioned the debit and credit situation that end up getting butchered. Are there any more nightmare cautionary tales about people trying to do their own accounting and taxes?

GARY MILKWICK: We could do a whole episode on that. There was this one where this lady, she was just insistent on deducting, because when you look at business expenses, what is a business expense and what is deductible from the IRS perspective? So the IRS’s definition of a deduction is an expense that is ordinary and necessary for your business. It’s considered something that’s normal in the course of business, and it’s necessary for your business. Well, I had this woman. She was a psychologist, and she was like, my jet ski is necessary for my mental health. Like, I have to deduct that. I was like, I can promise you the IRS is not going to think that’s. Or that they’re going to disallow it. She’s like, no. I mean, she just argued with me, just non stop. And I was like, I finally was like, I can’t. I’m not going to sign the return. I can’t. Like, I can, I can go in the gray area. I’m, you know, and happy to explain risks to you, but I’m not going to sign something I’m 1000% sure is going to be disallowed. You know, we get that a lot. People pushing back on business expenses that they want to deduct. It’s like, well, my friend does it. It’s like, yeah, that’s another one we get all the time, right? It’s like, well, my friend told me that I could deduct this or that. And it’s like, yeah, well, your friend has won the audit lottery and hasn’t been audited. That’s the thing, right? It’s like, as long as you don’t get caught. Well, this person’s been doing it for years. They’ve never been audited. And it’s like, well, you might not get audited, but our job as accountants is to provide advice so that you can legally deduct as much as possible and save as much as possible. There was a famous Supreme Court case, and that was the point of the case. It is expected that you as a taxpayer will legally do everything you can to minimize your taxes. And that’s expected. So that is not, there’s nothing wrong morally with that. You should do everything you can to legally minimize your tax bill. The point of the tax code is not to make you overpay in taxes. It’s to make you pay what your fair share is. There is gray area, and you can make the decision with how much risk you want to take in that. And our job as accountants is to inform you, we know something’s wrong. We’re not going to sign the return. But I tell clients, this is what I do. I’m not super aggressive. I’m kind of middle of the road as far as gray area. But, you know, I kind of lay it out for clients. Say there’s this, here’s this, here’s this. This is the risk of audit. These are your potential additional taxes and penalties. And if you want to get more aggressive, you can. If not, that’s, that’s also fine.

JONATHAN D’AMBROSIO: I get that. It just depends on any given person’s appetite for risk.

GARY MILKWICK: Yeah, exactly. Exactly. And then people have different appetites for risk. But, yeah, we get people that want to push us to the point where it’s like, no, that’s not. That’s not even, like, that’s not great. We’re not. We’re not going to. You know, we’re way past that. We’re not going to sign the return in that case.

JONATHAN D’AMBROSIO: I’m so glad you mentioned auditing, because while I haven’t been audited, but I’m aware of people who have been, and it hasn’t been a joyous experience. Is that really just the IRS pulling a random file or is there something to that?

GARY MILKWICK: It’s both. Right. So as. As income levels increase, audit rates increase. So the more money you make, the more likely you are to be audited. I think if you make over a million dollars a year, you know, it’s. I can’t remember the percentage off the top. They just released the numbers not too long ago. But let’s say you’ve got six to 8% chance of being audited if you make over a million dollars a year. If you make less than $100,000 a year, you’ve got, like, less than 1% chance of being audited. So there’s that. There’s the income levels. Then there’s also kind of risk factors where if you claim certain deductions, you may be more likely to be audited. Let’s say you had a profit of $50,000 and you claimed a home office deduction of $30,000. That would be a kind of a red flag of a couple of the audits that I’ve been involved with. They had expenses that, as a percentage of revenue, looked weird to the auditors. There was one that I represented a client once, and it was like the advertising was really high as a percentage of revenue, which seemed weird to me because it’s like, well, you know, they’re just getting started. Of course, they’re trying to get their name out there. And the auditor was like, yeah, your reasoning makes sense, but it was flagged by our system. And they’ve got certain things that are picking out what they determine are risk factors. There’s probably a small group of people in a room somewhere that know exactly what those are. They’re careful not to share them with the rest of us so that we know what they are to make sure we avoid them. But going back to benefits of accountants, I think that’s another benefit. I get clients all the time. I’m like, are you sure you want to deduct this? That’s going to look weird. If it’s flat on and everything’s 100%, then that’s fine. I don’t discourage them from doing it, but sometimes I’ll get the sense that the clients like putting a little extra, putting stuff in there. Like, are you sure you want to say that you had $80,000 of business meals in this type of business? That doesn’t seem, it’s not my job to audit you, but it seems a little weird. And if I was an auditor, it would seem weird. And I would be willing to bet that the IRS is starting to use AI to do some of this stuff in the press. It comes out all the time about how low audit rates are. And it’s like people aren’t really nervous about audits anymore because the audit rate is so low. I think now that AI is so good, it’s going to be really easy for them to audit people going forward.

JONATHAN D’AMBROSIO: I would imagine if it’s any sort of irregularities in your income, like year over year or in your profit year over year, especially with entrepreneurs in our line of work that are constantly blowing up overnight, I’m sure that that’s something that gets flagged.

GARY MILKWICK: That’s right. And my point, when I’m talking to people about audits, it’s like, as long as you’re organized and you’re deducting what you should and there’s no issues, it’s not that big of a deal. It’s really not. Especially. And I always recommend people don’t talk to the IRS. Like, let us talk to the IRS, sign the power of attorney, we’ll talk the IRS for you. We’ll take care of the whole thing. And it’s not that big of a deal. It is a bigger deal if you’re being super aggressive and, or your records are just a mess. You know, if that’s the case, then, oh, I claimed that I had, you know, 12,000 miles, but I don’t have a mileage log, so I’m gonna have to recreate that, and I’m gonna have to do all these things to try to support what I claimed. Recreating stuff after the facts are gonna be a pain and a hassle. Right. But as long as you got good records and if you’re audited, if you have an accountant that’s representing you or a lawyer that’s representing, it’s not that big of a deal. Usually. That’s the advice that I give to people.

JONATHAN D’AMBROSIO: Good to know. I’ll keep that in mind so when I make my first million I’ll be sure to have both an accountant and lawyer on retainer.

GARY MILKWICK: That’s right. That’s right. I’ve had people who won’t deduct things that are legitimate, that don’t want to deduct things that are legitimate, that, oh, that’s going to look weird. Like, they might audit me. And it’s like, so what if they audit you? That’s a legitimate expense. Like, you’ve explained to me. And that that’s not even great. That’s like just black and white. You definitely deduct that. And they’re like, well, okay. But, you know, people get nervous about it because there’s. It’s an unknown thing. It’s scary. Am I gonna go to jail if they find something? You know, it’s scary, right? So, yeah, even me today, if I get. If I go to my mailbox, there’s something from the IRS. I’m like, what is this? And 99% of time you open it, you’re like, oh, okay, that’s not a big deal at all. But, you know, if you’re, if you’re not an accountant and you open it, I’ve got people that just get. They used to send out a lot of form letters and things that were just like, instructions, hey, make sure you’re doing your whatever. And they get it. Like, what is this? What is this? Am I going to jail? It’s like, no, that’s literally just an instruction booklet. You know, how to file your estimated taxes. You know, it’s not. It’s not anything scary, but, yeah, I mean, it freaks people out. And I get it. I understand completely. But after you’ve been in it for so many years, it’s like, okay, the IRS is made up of ordinary people. You know, they’re not out to get you. At least not that I’ve seen so far. Knock on wood. So it’s usually fairly easy to resolve again unless you’ve done something really aggressive. We had a couple of clients that did something shady with their PPP loans during COVID and we got subpoenaed, and it was something they did outside of us. It was weird. So, you know, that stuff happens. But if you’re trying to do what you can to legally lower your taxes, that’s totally fine.

JONATHAN D’AMBROSIO: Nice. You mentioned earlier that you have worked with e commerce businesses. Is there like, a specific, unique service that you would offer to Internet business versus a small brick and mortar business. I’m not sure if there’s a difference in those.

GARY MILKWICK: Yeah, basically what we do, we match up clients with an accountant who’s an expert in their industry and their geography. So, you know, if you’re an e commerce person living in California, we will match you up with somebody who has a lot of experience working with e commerce businesses in California. And then if they, you know, you expand to other states. And we talked a little bit about sales tax. Sales taxes are, you know, just super complex because every state’s different and within states, cities and counties are different. So it can be a real mess. But the good thing about kind of our scale is if you’re in California and you open another office in New York, if your California accountant doesn’t have a lot of experience with New York sales taxes, we can bring somebody into the team, or they can consult with them and kind of work together to build that. So that’s generally the approach we take, is matching up people by geography and industry.

JONATHAN D’AMBROSIO: I mean, it can be a nest of wires that you just don’t want to untangle on your own. So I completely understand that. And it’s great that you guys are out there helping small businesses and companies all over the place.

GARY MILKWICK: Yeah, yeah. It’s one of my business partners. He always says what we’re selling, basically, is peace of mind to people. You know, it’s not super, super difficult. This isn’t rocket science or brain surgery. It is a lot of information that we’re constantly digesting and trying to help people implement. But it’s just the peace of mind that you’ve got somebody that can help you. If something comes up, they’re taking care of things, and if something comes up, you know, they can take care of that as well.

JONATHAN D’AMBROSIO: Yeah, and that’s great. I appreciate you taking the time to talk. This has been very informative. I’ve learned a lot, and it was a very engaging conversation. I was worried that if I was going to get into a conversation about taxes and accounting that I might get drowsy. But this was actually a really great chat. So thank you for bringing that passion and enthusiasm to it.

GARY MILKWICK: No problem. Thank you.

Click here to learn more about how 1-800Accountant can help Amazon FBA Sellers with taxes and other financial advice.