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[00:00:00]Dr. Sharp: Hello, everyone. Welcome to the Testing Psychologist podcast, the podcast where we talk all about the business and practice of psychological and neuropsychological assessment. I’m your host, Dr. Jeremy Sharp, licensed psychologist, group practice owner, and private practice coach.

This episode is brought to you by PAR. The BRIEF-2 ADHD form uses BRIEF-2 scores to predict the likelihood of ADHD. It’s available on PARiConnect-PAR’s online assessment platform. Learn more at parinc.com.

Okay, y’all, welcome back to the podcast.

Today we are talking about money. Money is such an important topic and something that’s been coming up a lot in my individual and group coaching sessions here lately and also been coming up a lot in my own practice and personal life over the last few months. So I think it’s a well-timed episode.

Today, I’m talking with Eddie Valls who is [00:01:00] the founder and a tax advisor at Wellness Fi, an accounting and bookkeeping firm that works specifically with mental health practitioners. You may have heard Eddie on any number of other podcasts but he is here talking with us about a number of things in the tax and accounting world. We cover some basics and then get into some more advanced topics like the difference between a tax entity and a legal entity, common ways that mental health folks lose money on their taxes or deductions that they might commonly miss, and just talking through his philosophy of what he calls proactive tax planning which is a little bit different view than a lot of accountants maybe take. So I hope that you enjoy this episode. I think there are a lot of actionable pieces to take away and things to think about.

[00:02:00] Before we get to the episode, let me see. We still have a spot or two in the Advanced Practice Group Mastermind which is starting very soon. This is a group coaching experience just for psychologists who’ve really reached beyond that beginner stage. You’ve kind of dialed in the referrals and made some amount of money. Income is fairly stable but you’re really looking to grow higher, streamline and just dial on your processes. The key with a group like this is that you are willing to be part of a group where people hold you accountable and you want to do the work to reach those goals in your practice. So if that sounds interesting to you, I would love to jump on a pre-group call and see if it’d be a good fit. You can get more info and schedule that at thetestingpsychologists.com/advanced.

All right, let’s get to my conversation with Eddie Valls from Wellness Fi.

[00:03:00] Hey, Eddie. Welcome to the podcast.

Eddie: Hey Jeremy, thanks for having me.

Dr. Sharp: Yes. I’m glad you’re here to talk about one of those things that nobody really wants to talk about, but we absolutely need to talk about. So, I am excited about this conversation.

Eddie: Likewise. Yeah, money is darn a necessity.

Dr. Sharp: Right. Yeah. We can’t avoid it. As much as we want to avoid it, that turns out to be really hard. I’ve told the story I think on the podcast before. I grew up in a family where we didn’t talk about money literally ever. And we had only come to find out as an [00:04:00] adult, I think I was probably 30, maybe even older when I was in a conversation with my mom. And she related all these instances of us being pretty close to not being able to afford food or gas. And I was like, “I had no idea.” And then on the flip side, there are times we’re doing quite well.

So anyway, I’ve talked about how that has flowed into my practice. I had to do a lot of work at the beginning around just confronting money and not avoiding it entirely because that’s kind of how it was.

Eddie: Yeah, I’ve had a lot of clients come through that they’ve avoided the money piece so much to where it’s causing some issues like too much tax or not being able to afford their lifestyle. So, yeah, we’ve got to face this demon.

Dr. Sharp: I like the way you put that. Face it and tame it. [00:05:00] But that’s what you’re going to help us with today.

Eddie: Absolutely.

Dr. Sharp: So I was thinking maybe we could start, I loved hearing your story off the recording. And I wonder if you could tell that story a bit just how you came to do what you do, being a financial professional specifically for mental health folks.

Eddie: Yeah, sure. So I’m a typical accountant. If anything, I’ve coined myself as a modern accountant. But I tried to get away from accounting as soon as I graduated. Well, first of all, I chose the study for all the wrong reasons, a stable job, and money. And then when I started that job, that dream job it spiraled into a quarter-life crisis. And so I spent the next 8 years trying to get away from accounting. I really tried hard.

[00:06:00] And it was working with a life coach to help me identify things that I care about, what motivates me, what gives me enthusiasm. And it was through him that I learned to work directly with people, which is something that you actually don’t do that often as an accountant, like developing a relationship. That piece was a big motivating factor.

But also working with clients that I actually care about. If you’re in certain industries, I have more issues with it. But there are a select few that really just gets me energized. And the mental health industry is one of those just because there are life coaches working with counselors, they’ve upgraded my life. They’ve helped me identify who I am, what gets me going to relieve me of pain [00:07:00] that has tormented me through the years, and I’m just so better off because of the industry that I’m induced to work with you guys.

And so it was working with that life coach and helping craft the perfect life or a perfect career for myself that enabled eventually become Wellness Fi, this accounting firm that I’ve designed to fit with your industry and to fit my own ideal work-life.

Dr. Sharp: Right. I love that. And you said you’re married to a therapist, right?

Eddie: That’s right. Yeah, she was the one that gave me the in. I got my first few clients through her peers. And that’s where I tested the waters. [00:08:00] Could I do this modern accounting thing with this industry? And it clicked really well. We’re a good fit for each other. My clients but also my wife, we’re a good fit for each other.

Dr. Sharp: That’s good. It’s good to check that out, right?

Eddie: Yeah. She’s a marriage and family therapist and LPC. She knows how to work with a dude with ADD, that’s me.

Dr. Sharp: I’m curious.

Eddie: She can handle me well.

Dr. Sharp: It sounds like you both met your matches.

Eddie: Yeah.

Dr. Sharp: Well, as somebody who’s also married to a therapist, I know the value and the challenges that can be involved with that. But all in all, great choices I think.

Eddie: Absolutely. One thing I don’t do for her is accounting. [00:09:00] I do for all my other clients. I just keep a distance. She’s set boundaries.

Dr. Sharp: Good for her. That’s what we’re all about, boundaries. That’s great. 

I love that you have this personal connection to the work that you do. I think that that makes a big difference and just adds another layer of meaning, right? It’s not just a job.

Eddie: Yeah, absolutely. It makes the challenges so much easier to face when you care about the other person.

Dr. Sharp: Sure. Well, I wonder you use this term, now I’m curious, the term modern accounting, I don’t know if that’s something you have actually fleshed out and defined or branded if that’s the word. But if so, I would love to hear what you even mean by modern accounting. And if not, that’s okay. We can go to something else.

Eddie: Modern accounting, I think is big [00:10:00] on the relationship piece. You’re a classic accountant who is either focused on just doing your monthly bookkeeping, organizing numbers, and then sending your report. You’re a tax accountant/tax preparer, once a year, you talk to them, send them information, they organize it, send it back to you and to the IRS.

And so there’s no real relationship except for this transactional relationship and the classic accountant. And those are the beef I had in my career. It was all transactional. I never really met the clients or talked to them.

And so this modern accountant is taking a look at the numbers on a regular basis and able to assist the client with advising. That’s really what the relationship is. It is based on some level of advising. A lot of ours is just [00:11:00] tax-driven, tax fundamental advising. We also just serve as a resource for a lot of financial nuts and bolts, just little things that come up, we’re here to help and talk through it, educate. And so, what makes it interesting is just having conversations like this, educating others, and maybe even talking shop with my clients. It’s super valuable. It saves them a lot of time. And I think it makes it that much more enjoyable for each party.

Dr. Sharp: Yeah. I think that’s true. At least in my experience, I think I’ve had a little bit of both approaches, sort of the hands-off once-a-year kind of thing, and then working with someone who is a little more proactive or engaged. And it definitely makes a difference. Because if we’re talking about just running with these [00:12:00] avoidance themes, the once-a-year transactional approach doesn’t work super well. I mean, that’s almost enabling our avoidance of something that we need to be really familiar with.

Eddie: Yeah, absolutely. And there’s this whole proactive approach that we do that you just can’t handle at tax time. You have to do it throughout the year. You’ve got to plan for it and take advantage of it during the year. And it results in dollars saved and reduced taxes.

Dr. Sharp: Yeah. That’s important. So let’s get into that. When you say you, I think you described yourself that way, when we were chatting before the podcast. What does that even mean when you say proactive approach or proactive tax planning? How does that operationalize our contact throughout the year, the work that you do?

Eddie: Yeah, sure. So [00:13:00] it comes in with this whole avoidance piece. If you’re not looking at your numbers during the year, you’re getting paid, money’s coming in and after you pay your expenses, you have money left over, that’s good and all. Hopefully, it’s paying for your personal expenses.

And you get through the year and at tax time, at some point, you’re going to be faced with a large tax bill. That might not be your first year, maybe your second year or third. Oftentimes, you could have done something about that big tax bill. And it’s that proactive piece. You can’t really do anything about that tax bill when you’re filing your taxes, but during the year you have plenty of opportunities to take advantage of the tax code. Take advantage of certain things that reduce your taxes so that you can [00:14:00] whittle away that number before you get to filing your tax return.

And so that’s just on the tax side. If you’re regularly looking at your numbers, you can make adjustments. You can make managerial decisions for your practice to account for certain things. If your profits are too low, if you’ve recognized your profitability, you can make the decision to either reduce your expenses or increase your revenue somehow. But just getting familiar on a regular basis allows you to make choices during the year.

Dr. Sharp: Yeah. How often would you say it’s recommended to look at the “numbers” and then what does that even really mean when you say, look at the numbers?

Eddie: Yeah, look at the numbers. Well, ideally you’re sitting [00:15:00] down once a month and just comparing it to the years or assuming the months prior. What those numbers are is just a categorized list. It typically takes the form of a profit and loss statement or income statement. They’re the same thing. It’s a list of your revenue at the top and then followed by each of the expense categories and then your profit at the bottom. 

If you look at those and compare them to prior months, you can see these trends. Maybe your profits are growing or maybe your profits are shrinking. And then you can look at those different categories and say, okay, it looks like for some reason, my energy bill is going up or my advertising is going up. So, you can just start creating these opinions [00:16:00] and see trends or maybe some bad habits forming and take action on it before it becomes the norm, I guess you could say.

Dr. Sharp: Yeah, that totally makes sense to me. I’ve had people in the past talk through profit and loss and everything and what that entails. And I think it’s overwhelming for a lot of us to know what to look at and how to make sense of all those numbers and figures, and even how to navigate QuickBooks. I mean, I’m pretty tech-savvy and I use QuickBooks and I do this every month, but I’m still like, “This doesn’t seem super intuitive.” So maybe there’s like a software component to it with how to create graphs and comparisons and so forth. I think that just reinforces the importance of having someone who helps [00:17:00] us do that.

Eddie: Yeah, and there are just definitely do-it-yourself options like QuickBooks or using a spreadsheet. There’s a learning curve. All you’ve been studying is psychology.

Dr. Sharp: Yeah, we did not have a QuickBooks class.

Eddie: Right. Even for us accountants, there’s a learning curve to learning QuickBooks. But yeah there is a gap and I’ve seen plenty of therapists, psychologists that have learned how to use QuickBooks and learned how to use a spreadsheet to track their stuff. And it gets the job done. Absolutely.

Dr. Sharp: Yeah. You look like you maybe were going to say something.

Eddie: Yeah. But I guess at a certain point what I’ve [00:18:00] seen is a lot of the clients that do that, it gets the job done, but they leave a lot on the table. There’s the whole tax code piece. And there’s a lot to be taken advantage of there. So missing deductions is often one that comes up and certain entity arrangements. These are all things that your accountant can steer you toward that will result in significant tax savings.

Dr. Sharp: Definitely. Maybe we could get into that. I’m guessing people listening are like, let’s talk about how to save money or make more money. So when you say deductions, I think we all have a good idea of deductions. We can deduct things for our taxes. But what are some of the major ones that you find mental health folks leaving on the table like you said?

Eddie: The major one is the home [00:19:00] office. So home office can result in maybe $1000 worth of tax savings if not more depending on where you live. 

Dr. Sharp: So, this is an example that’s very relevant for me. And I think it is probably going to be relevant for a lot of folks this year, specifically as we all transitioned to doing Telehealth from home. So I have two questions there that we could maybe dig into. One, I’ve been told by accountants that it’s maybe risky to try to write off a home office if you have a physical business office that you could go to. So that’s one statement/question I’d love to hear your thoughts on. And then maybe the bigger issue that’s more relevant right now is, how do we take advantage of a home office this year as many [00:20:00] of us have transitioned? And what does that even look like when you say, writing off a home office? So a lot of stuff wrapped up in those two questions.

Eddie: Yeah. So let’s first talk about that advice. And whenever you talk to accountants, you’re going to probably hear varying things. We have our own spectrum of a conservative approach to aggressiveness. And one thing with the accountants is they may push that on you. You take a more client-driven approach in terms of our aggressiveness and conservatism with using the tax code.

Another thing is just how they interpret the tax code. I don’t know about that account you talked to but they may be missing an exception for you guys. [00:21:00] There’s this thing called the administrative exception when it comes to the home office deduction. And so clearly right now, you guys have a lot of hours being put in at the home office. They forced that in many states to work from home. And so clearly, you can take the home office, but in prior years you were just as equally able to take home office deduction despite the fact that you guys have an office say downtown or in your neighborhood. All you have to do is just do administrative work from home and do it in an office area of the home. And that’s the qualification. That’s the bare minimum you have to do.

A lot of clients think they can’t take it. And so they leave $1000 or so [00:22:00] up for grabs.

Dr. Sharp: That’s unfortunate.

Eddie: It’s unfortunate. Yeah. And this home office this year, it’s got to be just like a designated area of the house. It can’t be a master bedroom. It can’t be that area between your couch and the TV. It can be a portion of the living room or maybe a portion of the kitchen perhaps. But it’s typically a room or part of the room that is your home office. And you get to take a lot of deduction from that.

Dr. Sharp: I see. So in your mind, it’s totally legit to take the home office deduction even if you do have a physical office that you could go to?

Eddie: Yeah, without a doubt.

Dr. Sharp: So how does that work? And we might be getting in the weeds a little bit. Hopefully, there are folks who are interested in this. I know I am. So, [00:23:00] how do you determine how to take that deduction? I mean, is it just like a blanket based on the square footage of your home or do you have to spend a certain amount of time in that office versus your physical office or your business office or anything like that?

Eddie: Yeah, sure. So there’s no time requirement for it. That area of the room does. That room has to be primarily used for business.

Dr. Sharp: Yeah. Sorry to interrupt you. Can I throw a curveball example at you? And this is just blatantly self-serving. Again, hopefully, other people are in this situation, but with the transition home over the past 7 or 8 months, this is what’s come up in our house. So, we have a large master bedroom with a, what would I call it? a nook or an area that is like a sitting area that we put a desk, two chairs, a lamp, and a [00:24:00] computer and all of those things. So that’s what we’ve got going on. Where does that fall here this whole time?

Eddie: Same as me. I’ve been kicked out of the office. My wife uses that. And now I am sectioned off into this little area of the master. Jeremy, welcome to my master bedroom.

Dr. Sharp: Great to be here.

Eddie: I will use square footage.  So, I’ll have to take measurements of this little area and compare that to the total size of our house. So you take this deduction at tax time whenever you’re filing your taxes. There’s a home office area and you’re going to need the square footage of your home office, square footage of your house, and then all your expenses for your house.

Dr. Sharp: That’s right. And when you say expenses, you [00:25:00] mean like the mortgage, the gas, the utilities, the internet?

Eddie: Yeah. Everything but the mortgage principal. If you’re renting, you’re good too. You can include that. You can probably come off better as renters. Even if you have pest control or if you have a cleaning service that comes through, but not your pool service. That doesn’t even indirectly impact your home office.

Dr. Sharp: Fair enough. Yep. In most of our practices that lose getting, let me see. Maybe two more nuanced questions with that. So again, in our family, both of us are self-employed or are working from home. Can we both take that deduction I suppose or does it just happen once [00:26:00] like on our joint return?

Eddie: Yeah, you guys can both take it. As long as you guys have separate businesses, then sure you guys can each take one and it would be based on your home office and hers would be based on her home office. If you guys are sharing the same home office, I think it would be best to split that between you guys, the square footage.

Dr. Sharp: Got you. Well, that anticipated my second question. What if we have two home offices or what if you only have one that you’re sharing? Okay. That’s great. So went down a little bit of a detour there, but I think hopefully relevant for a lot of folks right now. What are some other deductions that people are not catching?

Eddie: The cost of therapy. And this goes beyond supervision which is required [00:27:00] therapy session but the cost of therapy…

Dr. Sharp: Can you give me the rationale for that? I mean, you’re hitting on all the hot topics. So this is another one that there’s a lot of debate. I’ve heard a lot on both sides. Like we can, we can’t. So hit me with your rationale for writing off therapy in our business?

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All right, let’s get back to the podcast.

Eddie: A business expense has to be ordinary and necessary. So if we can accomplish those two things, then we’re good to write it off. What’s nice about working with a niche accounting firm is that we have insight into your career. And one of the big things with your industry, I’m not sure how it is for Testing Psychologists, but to burnout for many therapists. They’re listening to pretty rough stories, traumas on a daily basis and that can really wear on someone. So the therapist is almost necessary for the longevity of your business.

[00:29:00] Similar thinking, my mom, she’s a dance professor. She has to dance with her students, choreography, and whatnot. And so maintaining that old body of hers is important. So the cost of yoga is really important to maintain her back and those joints.

Dr. Sharp: Yeah, that opens Pandora’s box of self-care in general then. So I’m curious, is it just therapy that we can write off or could we write off massage or yoga? Where do you draw the line? Gym membership? I’m curious about this?

Eddie: We got to go back to the ordinary and necessary for a dance professor. A dancer or [00:30:00] performer just working on their body, that kind of stuff is important. It’s ordinary and necessary for her to keep going. Massages for you guys might be ordinary but it’s not necessary.

Dr. Sharp: Fair enough.

Eddie: Yeah, if you’re buying these things and you’re a group practice of some sort, you want to give these things you need to maybe work with your accountant to determine whether or not it’s a gift or a reimbursable business expense.

Dr. Sharp: Sure. Great. What else are we leaving on the table that you can think of?

Eddie: Health insurance. If you’re self-employed, that’s a big one. Your business can pay for your health insurance. And again, this is actually something [00:31:00] that would be deducted whenever you put together your tax return. There’s a little spot for that to drop it in there. And that can tip them a few hundred dollars in tax savings if not maybe a thousand.

Dr. Sharp: Oh, sure. Yeah, health insurance can be expensive.

Eddie: So bam, I saved you guys $2000.

Dr. Sharp: We’re already up to $2000. This is great. So you mentioned, and maybe we’ll circle back to deductions if that comes up later in the conversation or if you think of other things, I am curious, you mentioned the entity of our practices. Could you say more about what you mean by that and then, of course, flow into how that relates to our taxes?

Eddie: Yeah, sure. One of the biggest tax savings is the S-corp. And I’ll get into exactly what that is and how to get that in [00:32:00] just a moment. Legal entities and tax entities are something that is often getting confused with. And so just taking a moment to talk about that, I think would be really helpful.

So each state has these legal entities. Texas, we’ve got a lot of therapists that are PLLCs- Professional Limited Liability Companies. And I think most of the United States is like that. California, you guys form P-Corps, professional corporations. And oftentimes it’s the licensing boards that say what corporation or company you can be, what kind of legal entity you can be. And so these just provide you a little bit of legal protection. Not much, it’s really just from creditors and people that you owe money to. It protects your personal money from those people snatching that up if you owe them.

If[00:33:00] you’re committing fraud with your clients, misleading them, if they sue you, that legal entity won’t protect you. So don’t look at those legal entities as something that is necessary for your practice from the get-go to feel protected and more like that insurance that, what is it?

Dr. Sharp: The liability or malpractice.

Eddie: Yeah, liability malpractice insurance, those things. That’s going to provide you a lot more protection. And just being honest helps too. So that’s a brief overview of what an illegal entity is. And then there are the tax entities which are… you guys automatically become one when you start a business. Once you put that sign above your door saying that you’re in business, you are a sole proprietor [00:34:00] and whatever you are as a legal entity, doesn’t change that.

The other tax entity is the S-corp and there is supposed to be a business reason for becoming an S-corp. But the real reason is just simply reducing your taxes. That’s the only reason that I see of becoming an S-Corp. And again, this is just a tax treatment. It tells the IRS to treat your income differently. It simply allows you to get taxed at a smaller rate. Most of my clients are like a PLLC legal entity as well as [00:35:00] being an S-corp. So you can be these two different entities simultaneously. So they don’t really interact with each other.

Dr. Sharp: So where does the general LLC fit into the tax entity? Because I know that that is on like in the W9, I might fill out, it has the options like an LLC or you are a sole proprietor or you an S-Corp, but then there’s another option which is what I check, which is LLC filing as an S-Corp. Can you talk through that a little bit?

Eddie: Yeah. That makes sense. So it’s going back to being simultaneously two things. If you become an LLC, that won’t change anything tax-wise. That doesn’t set off a chain of events. [00:36:00] If anything, the IRS might send you a new tax ID but there’s no tax impact until you tell the IRS that you would like to be treated as an S-corp. So the reason it’s on the W9 is just so the virus doesn’t assume that you are an LLC sole proprietor. It’s just the caveat. You’re an LLC as an S-corp.

Dr. Sharp: So tell me and the listeners, how an S-corp actually saves on taxes compared to a sole proprietor or maybe a single-member LLC?

Eddie: It all begins with employment taxes. This is an often-overlooked tax. It’s around 14%. [00:37:00] You’ve been paying this ever since you were an employee. You and your employer would have split it when you were working for someone, then paying 7.5% and you paying 7.5%, around those numbers. Whenever you become your own boss, you get to pay both sides of that. And yeah, it often gets overlooked and you end up owing a chunk of change all resulting in this employer tax.

And so, what the S-corp allows you to do is treat your income differently, pretty much as a royalty which gets taxed differently. It doesn’t get hit with the employment taxes. Now, this doesn’t apply to all of your income, but it is safe to say around 60% of your [00:38:00] income doesn’t have to pay this additional 40% tax. So if you’re making, I don’t know, $100,000 in profits, then I think you’d be able to save when the math is done around $10,000 of taxes or something. So it’s significant. And that’s on an annual basis, the kind of tax savings that being an S-corp can be. It comes with a price though but it’s worth it typically.

Dr. Sharp: Okay. I want to talk about the process of becoming an S-corp and when we might consider that. I’ve heard certain income quotas before we would consider it. I wonder if we could walk through an example just to make this super concrete for people. I mean, you said if we’re, let’s just keep it at  $100,000 to keep it easy. If you have $100,000 in [00:39:00] profit and you are not an S-corp, you’re just a sole proprietor. Then you’re going to pay that 14% self-employment plus whatever income tax bracket. Is that right?

Eddie: Correct.

Dr. Sharp: So that’s going to end up being whatever it is. I mean, let’s just say $14,000 plus your income tax which might be $25,000 or $30,000 or whatever it might be?

Eddie: Right.

Dr. Sharp: So then… I keep interrupting you. Go ahead.

Eddie: No, you’re fine. So one thing that needs to happen is you have to be a legal entity first before you can go down the S-corp path. You can only become an S-corp as early as the year you became a legal entity. So if you’re making over $100,000 in revenue, I would definitely go become an LLC PLLC or whatever, a legal entity of some sort because I might be leaving money on the table.

[00:40:00] And so it’s as simple as really filing a form with the IRS to elect that you would like to be treated as an S-corp. You want to run through the numbers first with an accountant to see if it’s even worth becoming an S-corp because there’s a cost involved? You really should have an accountant for it because accounting can get a little complicated.

You also have to do an S-Corp tax return. So you’re going to want the accountant to do that. You need to be on the payroll. The big thing is that you actually have to run a salary, you got to pay yourself via salary with a payroll provider. These costs add up. Typically, it’s depending on where your accountant is. It’s going to be around $1500 a year.[00:41:00] So you want to make sure that the tax savings exceeds the financial cost as well as the effort of being in an S-corp.

Dr. Sharp: Right. Can I ask a dumb question?

Eddie: Yeah.

Dr. Sharp: So if you’re saving that 7.5% right off the bat, why wouldn’t someone just do that as soon as they start?

Eddie: I think it really comes down to the cost. You’re signing up for a lot at the beginning of your practice. If you don’t already have enough costs, you’re going to be adding a minimum of $1500 more if you don’t already have an accountant, and then you’re sending yourself up for payroll which can be a slight hassle to deal with. [00:42:00] And so you’re setting yourself up for a lot and it may not be worth it. 

Dr. Sharp: So, if that 7.5% you save is not more, it’s if that doesn’t cover the expenses then…

Eddie: Yeah. And it’s more like 14% to correct you. Yeah. So, if your profits are $100,0000 for the year, you’re going to be saving around $14,000.

If you add in the cost of, I don’t know, $1,500, then it’s clearly worth it. Right? You’re coming out $12,500 ahead. So clear that’s worth it, but if you’re making around $30,000, the tax savings is going to be so much less and at that [00:43:00] rate, you’re probably not paying that much taxes anyways.

What gets people is between just starting out at like $30,000 and that second-year maybe where they’re making $60,000- $80,000 in profits, so after expenses, that’s when the taxes really reveal themselves and become a pain.

Dr. Sharp: Yes, that makes sense. I know. I’ve heard that story so many times. Getting hit with big tax bills.

Eddie: Yeah. And at around $40,000 to $60,000 is when you want to start thinking about whether or not to become an S-Corp. That’s when you want to start running the numbers, maybe with an accountant. But the rule of thumb is around 10% tax savings by becoming an [00:44:00] S-Corp.

So if you’re making just $50,000, then you might save around $5000 in taxes. And if you’re going to pay 1500 to maybe $3,000 in taxes, you could very well come out $1000 to $3000 ahead after taking into account costs. And so all that hassle may not be worth going down the S-corp route but I don’t know, $3,000 I’d take that.

Dr. Sharp: Absolutely. Sure. It’s all-important. So again, another maybe dumb question. I feel like I know just enough about this stuff to be completely dangerous. I’ve heard from both accountants and practice owners that something changed over the last year or maybe two with the tax code or something where being an S-Corp was not as [00:45:00] advantageous. Is that totally off base? I’m not sure where that came from. I never really looked into it.

Eddie: No, it’s still clearly advantageous. We’re on the up and up with the tax code and changes to it. If anything, one of the big changes that happened in the past four years was the standard deductions, which is not really a business issue. It kind of made buying a home and donating to charity sometimes major things for certain households, it made those two things negligible. As far as tax savings go, it doesn’t really play. [00:46:00] It is not a tax saving anymore.

Dr. Sharp: I see. Fair enough. Like I said, just enough to be dangerous.

Eddie: Yeah.

Dr. Sharp: Great. Is there anything else to say about becoming an S-Corp or considerations with that side of things?

Eddie: Yeah, I think the biggest thing is if you’re not already a legal entity and you’re making money, like just rough numbers upwards of like $70,000 plus in revenue, it might be a good time to just go ahead and become an LLC. That way, you will have the ability to become an S-corp say this year or next year, whatever year it makes sense to become one. [00:47:00] You don’t have to elect to become an S-Corp ASAP. It’s the one thing you can do retroactively as long as you’re an LLC or PLLC, whatever the preferred legal entity is in your state. That has to be there in order for you to be an S-corp.

And just to give you an example, a new client just started with me maybe two months ago. She is making like $140,000 profit. She made that much that the past two years and she’s not an S-Corp though. So she’s been paying a pretty good amount of taxes. And so there’s a chance that we will be able to retroactively turn her into an S-Corp all the way [00:48:00] back to 2018 because that is when she became an LLC in her state. And that could result in a windfall of more than $30,000.

Dr. Sharp: That would be great. Good luck to her. Well, and I’m thinking of… I was just talking with a practice owner, literally yesterday who’s been in practice for maybe 10 years and is not an S-corp and they are doing quite well. And it’s surprising and mindblowing, but it’s like, where is this information? Why didn’t anybody tell you? Why hasn’t your accountant told you this? She has an accountant. I’m like, “What’s going on here?”

Eddie: She might have a good accountant who is great to work with, but he’s on that spectrum of playing it conservative and they just have a [00:49:00] flawed interpretation of the tax code. This is the way that we do it. My prior employers did it. It’s been blessed with our Ex-IRS auditor employer.

Dr. Sharp: Oh, wow! There we go. Great. People have questions often about what is an accountant versus a bookkeeper? Can that be the same person? Should it be different people? Can you talk about that relationship at all?

Eddie: Sure. The profession is accounting. It’s the umbrella term for all of these different roles. You have the bookkeeper, and that is someone who is organizing your expenses and your revenue, the [00:50:00] ins and outs of money. Typically, they’re organizing it around like QuickBooks or some other bookkeeping software. We use Wave primarily. And so they’ll typically turn it into…

And when they’re done organizing it, they’ll spit out some sort of financial statement and share it with a client. And that clients can use those financial statements as information to make decisions for their business.

Another organizer is the tax preparer. And they take information directly from you, from your household or your business, and organize it into some tax software.

Then you have, let’s say, tax advisors. And so that’s a role that we have baked into our monthly bookkeeping. A tax advisor has knowledge of the tax code. [00:51:00] And they become familiar with your current financials and they can help you to make tax decisions, come up with tax strategies to have you pay as little as legally possible towards taxes towards the IRS, towards your State.

And then beyond that, you might hear about the CFO, advising services. That’s another cool emerging service where they’re partners, coaches perhaps, and their goal is to help you increase the bottom line, grow your business be it financially, or increase the number of therapists psychologists you have on your team. Whatever your goals are financially typically business-wise, [00:52:00] a CFO can help with that.

Dr. Sharp: Yeah, that’s fascinating. I know I had an external CFO on the podcast, I don’t know, six months or a year ago. It’s fascinating to see the different delineations of this whole area. And I like that you highlighted all of those because I think again, for a lot of us with this avoidance thing, it’s just like numbers. And to know that there are different people to help them with different aspects, whether its goal setting or like a vision for your practice finances versus saving on taxes, these are all important jobs. It just depends on what we need.

Eddie: Yeah, absolutely.

Dr. Sharp: Well, let me see, I wanted to maybe touch a little bit, and I know this is not exactly your area of expertise, but just retirement planning and [00:53:00] things that we need to consider or can consider especially for those of us who are self-employed, which technically I think is all of us in private practice. What does retirement planning look like? What should we be thinking about with that?

Dr. Sharp: Yeah. I believe they say the best time to start saving for retirement was like 20 years ago. The second best is now. And so I think that’s one of the big things there is just to start throwing something towards a retirement fund. It might be as little as $20 a month or something like that. Certainly, you can afford that. And that’s just like the domino to just get things going because fortunately we probably need to save a lot more than we typically can afford [00:54:00] for retirement. And so we just need to work towards increasing that number.

Your savings rate is the biggest factor in how big your retirement fund can become. Something that I look towards is always trying to increase my savings rate. And it started out by just going little by little. The easiest place to start with a retirement fund is an IRA account. There are two types, traditional, and there’s Roth. Either is fine. If you don’t want to overthink it, just go with Roth. Either or flip a coin, something. They both have their benefits. Traditional allows you to take a tax break now, a Roth [00:55:00] gives you the tax break when you retire. Either is fine.

And that is good for anyone that can contribute up to $500 because it maxes out at $6,000. If you can contribute more than that, then you’re looking at something like a 401k. And so those are the two options. There’s absolutely more than that, but just to keep it simple, you can’t lose with those two options.

Dr. Sharp: That’s great. Yeah, we’ll keep it simple. And even just emphasizing for folks that you are responsible for saving for retirement once you’re self-employed. That’s not a thing that just happens. Some people overlook it. I’ve definitely worked with practices in coaching who don’t know that. So simply knowing.

Eddie: Yeah. It’s also [00:56:00] a source of reducing your taxes. If you want to get into the tax reduction game, a great place to start is to throw money towards retirement.

Dr. Sharp: There you go. I like that. Yeah, it’s like we’re ending up where we started with deductions for taxes. What else? I know you’ve worked with a lot of practice. You’ve talked with a lot of practice owners. What else is out there that I maybe haven’t asked about in terms of major areas, topics, things that we get tripped up on, or could use some help within the financial world?

Eddie: This is even outside of accounting, but just personal finance, just like literacy around that, knowledge of that is a big area of improvement. Most Americans need a lot of help in that area. And you [00:57:00] can either start with reading or maybe a financial planner- someone who can hold your hand, tell you what to do. But I think just getting the knowledge yourself is a great place to start. How to manage your personal money. That also carries over to your business. How to budget or how to approach purchases?

One of my favorite books is Your money or your life. I can’t try to think of her name, but it’s your emotional attachment to money. That’s just a book that causes you to look at that and how you approach things. And what that means for your happiness. And that could [00:58:00] create a lot of a fundamental change for you and how you handle your personal and business finances. The money we spend we’ve got to earn that money back.

And so, if you’re spending a lot of money, that’s just so many more hours got to work. So just being real conscientious about that, not beating yourself up about your spending or shaming yourself which is something I’ve experienced, but just being more mindful and what it’s doing for you because we’ve worked so hard for that dollar. It’s just tough when you’re struggling for it.

Dr. Sharp: Yeah, absolutely. I mean, I think a lot of us probably agree that mindfulness is [00:59:00] an attractive option to deal with almost anything. So just if nothing else, if we just highlight doing some reading and some self-study to help you be more mindful of your spending and where that is at, that’s going to be helpful.

Eddie: Yeah, absolutely. I’ve got two more book recommendations for certain people. If you have debt issues, credit card issues, Dave Ramsey’s Total Money Makeover, that’s kind of the go-to that can give you a systematic plan for tackling your finances. There’s often a financial numbers approach to tackling your finances. And then there’s a behavioral approach and he’s got a behavioral approach that gains it. [01:00:00] It just seems to be a lot more successful than the ideal scenario.

Dr. Sharp: Yeah,  I’ll second that, that was one of the first money books I got however many years ago. I know a lot of families that have done that system and had a lot of success. We did it for a long time and have a lot of success. So, I totally agree. That’s a good one.

Eddie: Yeah. And then there’s this kind of… on the opposite end of mindfulness to money or a good behavioral approach is this guy, I will teach you how to be rich. I don’t have his name, but he can be kind of polarizing/attitude, but he’s got some really good suggestions on just handling your money, creating some systems so you don’t have to spend much time handling your money. Take a look at the [01:01:00] summary and see if it works for you.

Dr. Sharp: Yeah. I can totally second that one too. I’ve read that one as well. I take a lot from that. You’re right. He does have a vibe for sure. I don’t know how to describe it exactly. He’s very direct and a little bit sarcastic and flips it around, but super smart. I mean, the principles I think are right there on point. 

Eddie: Yeah. I’d like to see him and the lady who wrote Your money or your life in the same room, it’d be interesting.

Dr. Sharp: Yeah. This is great. And I know you put together a bit of a landing page for listeners as well. Can you talk about what that’s all about?

Eddie: Yeah. I’m inviting you over to have a conversation with us. If you’re interested in accounting services, we offer a 15-20-minute consultation free to get to know [01:02:00] each other. Oftentimes we sprinkle in a little bit of free advice and so it’s worth the discussion alone for that. But yeah, we’re offering to do bookkeeping catch-up for the year. If you don’t have any bookkeeping in place we’d be happy to do it at half the cost from January through October. So that’s quite a bit of saving, maybe around $600 or so. That’ll get you caught up to today and we can continue your bookkeeping going forward.

Dr. Sharp: That’s awesome. Yeah. I’ll definitely have a link to that and all the resources and books that we’ve mentioned in the show notes so that people can check those out. And I’m guessing people can get a hold of you through that landing page. Are there any other ways [01:03:00] that you prefer to be contacted if people want to just reach out and learn more about your services and Wellness Fi so forth?

Eddie: Yeah, that’s absolutely a good place to start. Otherwise, if you want to reach out to me directly look me up on LinkedIn. Eddie Valls.

Dr. Sharp: Okay. Awesome. Well, thank you. Thank you for the time and the knowledge, and hopefully demystifying the numbers a little bit and helping people at least get comfortable with the idea of working with their numbers.

Eddie: Yeah, I appreciate the opportunity.

Dr. Sharp: Okay. Y’all thank you so much for tuning into this episode. I hope that you learned a little bit about finances and some things that you might be doing differently with your taxes and your practice. I definitely did. That home office deduction was a big one for me. I’m going to have to go back to my accountant and really think about that, trying to sort through that. So I hope that you took away some [01:04:00] items that will be helpful.

Like I said at the beginning, if you are an advanced practice owner and you want some support and accountability in reaching those goals that you may have set but not reached in your practice, I would love to talk with you about that. We have one cohort of the Advanced Practice Mastermind going now, and it is just amazing. These group members are crushing it and keeping each other on track and helping each other reach their goals. So, starting in another section, we have a spot or two left. You can schedule a pre-group call at thetestingpsychologists.com/advanced.

All right, take care. Hope you’re all doing well. Enjoy your Thanksgiving. And I will be back with you on Monday. Bye, bye.

[01:05:00] The information contained in this podcast and on The Testing Psychologist website are intended for informational and educational purposes only. Nothing in this podcast or on the website is intended to be a substitute for professional, psychological, psychiatric, or medical advice, diagnosis, or treatment.

Please note that no doctor-patient relationship is formed here. And similarly, no supervisory or consultative relationship is formed between the host or guests of this podcast and listeners of this podcast. If you need the qualified advice of any mental health practitioner or medical provider, please seek one in your area. Similarly, if you need supervision on clinical matters, please find a supervisor with expertise that fits your needs.

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