Disclaimer: The content in this blog is for educational and informational purposes only and is not intended as legal or financial advice. You should always seek counsel of your choosing.
Entrepreneurs, and especially, speakers are often underserved by the DIY mentality and the seeming abundance of free information. Free information is free, but the cost of it to you is really high.
For example, starting to worry about taxes in March is a huge disservice to you. Once the year is over your options are down to very few – mostly tax deferral vs. actual lowering of your taxes.
As cliché as this may sound, knowledge is power.
If you know how much income you brought in so far and how much you have in deductible business expenses, i.e. your travel costs, cost of clothing and makeup for your speaking engagements, you know whether or not you have the tax money available. And if not – you have 4-6 months to make that money.
But, most importantly, you can actually do something to bring that number down, proactively, before it’s too late.
An Important Must-Do
Before we talk about some speaker-specific opportunities that often get overlooked, I’d like to mention something that’s critical.
If you get speaking gigs under your own personal name and deposit payments into your personal bank account and pay for expenses using your personal cards, you should consider opening a separate bank account for just speaking.
I don’t love when clients commingle personal and business items of income and expenses for 2 reasons:
- It makes it very difficult to get a quick pulse-check at different times throughout the year to assess your position (for taxes or a home purchase or whatever!).
- It makes it very hard to defend an expense deduction if you get audited! It is very easy for the agent to assert that your expense is a personal one and you may have to find that meal receipt where you met with your agent and had lunch.
The Tax Deferrals
The few strategies that are still feasible after the year is over are deferrals. What that means is you could defer a good chunk of the tax: set it aside for yourself for later, i.e. retirement, or your immediate future, i.e. Health Savings Account (HSA).
If you make a deferral decision in April, usually you have to part with a larger chunk of money – yes, you’re saving the tax but you are funding the retirement or HSA account. If you keep your records up to date, in November you could get an idea about how much you’ll need and you can set aside money as you go in smaller chunks making it easier and manageable.
Why should you defer for retirement? Well, think about this:
- When do you want to retire?
- What lifestyle do you want to have?
- What do you want to do?
- How much money do you need per year?
Currently, at 62, average life expectancy is about 20-22 years. Which means if you retire at 62 with $2 million dollars (and perhaps do an occasional speaking gig), you’ll have about $100,000 a year to pay bills and enjoy life. Is that enough? Well, you tell me!
Remember, knowledge is power – when you know – you can course correct.
The Geeky Item You Need To Know About
This may change with the new administration, or may not, but as of right now there is a magical deduction called QBI. Just remember that name for now. No need to become a tax expert just yet! It gives you as a speaker and business owner a lucrative 20% off the net income you made for the year. And saves you 20% of tax on that income. How awesome is that? It’s pretty awesome.
There is a catch though. SSTBs – aka Specified Service Trade or Businesses (those in specified professions like performers/speakers, accountants, doctors) lose the deduction if they make over about $200k single and $400 married total income from all sources, even beyond speaking income!
However, there are legal ways of getting around that, with proper planning.
If you’re a speaker, chances are you’re also an author, maybe a coach, too, or all of the above. If you are, especially if you are an author, you can really benefit from separating these different activities.
Here is the deal: speaking and coaching ARE those SSTBs – those that lose the deduction after a certain income. Authors are NOT. Which means you can have a separate business of speaking and coaching, and another one being an author. And you may lose the magic deduction on the speaking and coaching business, but you will get it for your author business.
Don’t get me wrong – you will need pro help to set this up so that it’s not just a surface setup. But if done properly, this can put a lot of tax money back in your account.
Entities & Things
You probably already made that decision or just operated under your own name cause it was simpler. Or you’ve had an LLC. Or an S Corp. Here is a little recap that can help. If you find this part useful for your setup, you can still change a few things before the year is over. Chop chop, my friend.
When it comes to entities, most traditional accountants only think 1. As in 1 entity. When tax strategists like me advise clients, in 99% of cases we mean a multi-entity structure. As with separating streams of income (speaking, author-writing, coaching), a structure could come in handy. Having several entities will allow you to separate the businesses, set personal financial goals and keep more of your money as you grow your businesses.
And, again, you will need pro help creating one that’s perfect for you. Business is personal so don’t expect to find a cookie cutter setup on Google. You are a one-of-a-kind person and a one-of-a-kind speaker, and your life and work goals are unlike anyone else’s. So the setup should serve you.
Know one thing: at the minimum, you should have an LLC – a Limited Liability Company – to have limited liability, but left as a default entity LLC will result in the highest amount of tax.
So, note when you’re making $75k+ in net profit and reach out to a tax planner to do the entity restructuring for you. Do it before the year is over to potentially make it retroactive.
Simple Year-End Things You Can Do
Last but not least, let’s talk about some year-end things you can still do.
If you have clients you bill at the end of the month, wait with the billing at the end of December. Bill them in January. As many speakers use cash basis for reporting taxes, chances are that you do too. And so if you bill clients on January 1, you lower your income for the year that just closed, and will pay less tax.
Most cash basis entrepreneurs can also legally prepay expenses due in the next 12 months with no issues. So if you know you will be paying office rent, a coach, a car lease in the next months – and have cash – prepay and take the deduction this year. You have to pay it soon anyway!
Cleaned up an attic lately? Feeling generous? Do it before December 31 and get a receipt from a 501c3 organization. Take that deduction.
Have kids over 7? Supporting a relative or a friend? Are they in a low tax bracket? Income shifting to a lower-earning person is a treasure trove. If done right (with the paper trail and money trail, i.e. you’d need to have payroll for children, timesheets, etc) you can save upward of $8000 per child per year in tax on a $12,000 payment to the child!
Bottom line? Know your numbers and use November and December wisely.
For traditional accountants, November and December are the slowest months. For tax planners – it’s the busiest time! We know what the income & expenses are looking like, and implement strategies before the year is over so that our clients can save on tax.
About the Author, Tatiana Tsoir
Tatiana Tsoir, CPA, MBA is an author, speaker, visionary accountant and a tax & numbers expert. Over the last 16+ years she has worked with business owners to help them manage their money, numbers and taxes and become the boss of their bottom line. Tatiana is now committed to empower entrepreneurs so they can make money doing what they love and change the world with their passion by becoming the true CEOs of their businesses.
If you’re early into your speaking career, check out her book “Dream Bold, Start Smart” and get resources on her website www.tatianatsoir.com
If you’ve been at it for years and would like to learn more about the few strategies mentioned above, schedule an intro call at www.workwithlinza.com