Save more on taxes, with Carlotta Thompson

Save more on taxes, with Carlotta Thompson

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Jake Anderson  0:00  
Here we go.

Announcer  0:07  
introspective, inward looking, self examining, characterized by or given to introspection. Welcome to the introspective podcast, your compass for internalizing the path towards optimal lifestyle design, business success and mindful entrepreneurship with your host, Jake Anderson.

Jake Anderson  0:31  
Hey, we are back for another episode here on the introspective podcast. And today is going to be an interesting conversation. I think for anybody, especially this being, you know, financial freedom, how we build wealth in our businesses in our life, we got to think about that thing called taxes. I know, I know, it's not something that we all, you know, think about too often, it's not the most prettiest thing to really think about in business, but it's definitely something that is really critical when it comes to, you know, acquiring more wealth and how we can you know, increase cash flow and, and just playing the tax game. I mean, it's, I think, I think it's like a 75,000 page document for the for the tax code or something crazy like that. And we got to know how to navigate through the tax code and having somebody by your side, and somebody who's an accountant, somebody who understands taxes is critical. I think it's probably the most important person to have in your business. I always say there's two people you need to get in your business as a good accountant, and somebody also who is good with legal and an attorney. So that's my little piece of advice. But today we are going to dive into taxes and get into that conversation with Carlotta Thompson, who is a former IRS auditor who started a ministry changing the lives of business owners with the mission of helping them save and pay the least amount of tax legally possible. After working for the IRS, he realized they were not in a place to actually help small businesses and later left her government position after seven years to transform her ministry into Carlotta. Thompson and Associates, Carlotta created her National Tax strategy firm to be unique from every other accounting firm in the US incorporating what Carlotta learn about the inner workings of the IRS with tax law and auditing financials for small businesses, experts in tax strategy, the professionals at her firm create and implement a custom strategy strategy plan for their clients that infuses technology into all elements including bookkeeping, CFO services, as well as tax preparation. So without further ado, I welcome to the show Carlotta Thompson, Carlotta, how are you doing today?

Carlotta Thompson  2:50  
I'm so excited to be here. And guys, I'm not the normal accountant that's like really, like, you don't want to listen to him. So keep your radio on, keep your podcasts on, like we're gonna dive in. And I'm just going to throw as much tax savings advice as I can at you. And hopefully get you excited about the most boring subject in the world, which is taxes?

Jake Anderson  3:12  
Well, I you know, I will say for having conversations with you to talk about something like taxes, and I know it can be boring, but you make it fun, like you have the energy to bring to the table. So no, I think people like if you're listening right now, like you got to know this stuff like period like you got to you have to educate yourself. Financial Literacy includes understanding the tax code. And if you don't, I mean, you don't have to know an expert level, but you need to be familiar with it. And in this episode, you know, Carla and I are really going to have this discussion. And we're really going to uncover some things I think that you probably didn't even know existed, and probably some things you were completely unaware of. So if we can just raise your awareness to understand this, I think it's going to set you on a much stronger path. And I want to start off with this, Carla, because I find it really interesting that you were former IRS auditor and now you're working with business owners on tax planning and strategy. And it's like you have this inside scoop on what goes on on the inside the armrest. And I think for a lot of people, they're probably thinking like, Oh my gosh, like, and this is my question like, as a former IRS auditor, what were some of those, I guess triggers that, that cause those agents to look a little bit deeper? And like, what were some of the things that maybe people need to think about when it comes to even like just working with the IRS? Like what are the things that they really look for and what triggers them to kind of go a little bit deeper with people or with businesses.

Carlotta Thompson  4:49  
So your biggest audit triggers are usually not what your accountants say, like I can't tell you the number of times that I get a client they're like my accountant said Office deduction was a red flag and then like, ah, like, quit speaking things are red flags that aren't red flags like they were never on the inside. And you're not going to have very many accountants that leaves the rest because guys, it's it's a pretty sweet gig to be an IRS agent. But I had so much more like I wanted to do and, and I have this extreme desire to help entrepreneurs and give back and in my way of helping them give back is to pay less tax because entrepreneurs want to give back to their communities, they want to give back to the things they believe in. So if I can help you bail us out, but you can give them away. And so that is a why I started the ministry. But the things that are the red flags at the IRS are things like your income, not matching the income that they have on file for you. So the IRS gets lots of these documents from your bank and from PayPal and stripe and all of these different places. And if that income that you put on your return is not more than the income or at least equal to the income that is reported from all these different places, like you're going to get audited, it's it's part of it like they do a matchup, and they're gonna send your stuff out for audit. Also, there is a code on your tax returns cut a next code, it is the industry in which you are saying your business does in this code is extremely important to the IRS when they're looking at how much money you're you made, what your expense ratio is a compared to other people in your industry. So if you accidentally are a podcast host, and you put an X code on there for grocery store, you couldn't get audited like it, it's you're gonna get a get a score that is that is weird. They're gonna be like, why not have the same types of expenses? Why did you have more in, you know, advertising than these people? And so it's really based on that they score and the government knows how much percentage that a normal business in that industry reports for different levels of expenses, right. So the other day, I was doing an advertising company, and they had $400,000 of ad spend, but they weren't they have their own mix code. And their next code was was something that would normally not have any advertising expense, and or very minimal. And so that is going to trigger an audit because the government's going to be like, Oh my gosh, why are they spending $400,000 on ads, and they're a, you know, beauty parlor. I don't know what I can't remember what the code was. But that code is very important. The third thing is they're looking at other expenses. So if you've got other expenses on your return, whether you're a Schedule C or an escort, and they are a large number, and they are not detailed out what they are, and and on schedule C's it doesn't even matter if they're detailed out in a Schedule C is a sole proprietorship, okay, it's like if you're only putting your stuff on your personal tax return, and you don't have an S corp, or a partnership. So on those schedule C's, if you've got a lot of large other expenses, even if they're detailed out, those come through for audit, and I was also I was an auditor, but the way the government classifies returns is the computer classifies them, and then they come out to review for classification. And so the higher level agents would go in, and we would classify for a couple of weeks a year, and we classify hundreds and hundreds of returns to come out for audit. So we would look through the actual return and say, Oh, that looks high. This looks high that outside. And so we could send those out for audit. So I actually classified the return. So I know exactly what we were looking for when we're classifying. Um, I try to when I do a tax return, I'm trying to even those expenses out where I know that the percentages lie in the end, it's not that it's it's not that it's wrong, right? Like you might have an expense for

your clicking your whatever you use, you said click up like you might have that under advertising. And another person might have that under office expenses, another person might have that interest supplies that another person might have that other expense. The thing is you have to when you're doing a return to kind of get those red flags to go away, you have to massage those into different categories for what you know, the IRS, their percentages are so if I've got somebody that has put a whole lot to add, but really those could go into other categories. I'm going to move those massages into different places because I know the IRS is looking at those percentages. And then also, sometimes the government just comes out with what's called a NRP audit and that's kind of national research project and then those out research projects, everything has to be audited on the return to $1. And that is not normally what the IRS does. But in these research projects they do. And so what the IRS says go through goes through all of that return. And they say, Okay, this is the standard for what as which we are looking at, and this was audited to the dollar on every line. And so they use those to then put it into those percentages where they look at everybody else's return. So there's different ways you can get audited? Yes. You're kind of be open to being audited. You just got to have crap in order. So whenever you do get audited, you'd be like, now you owe me money, not I'm gonna owe you money. And that is the biggest problem, that I would see what the IRS like I would go into an audit. I was like, why do you need to get this? Why do you do this? I'd be strategizing with this with the taxpayer. They're like, Can you tell me any of this? And I'm like,

I have no idea.

But getting that question over and over, like, let's fix that.

Jake Anderson  10:57  
That would be nice to get audited. And the IRS is like, Oh, actually, we got to give you a check. And that's like, yeah, that's right. Yeah, give me a check. So let's, you can make it out to Jake Anderson, and sign it. And we'll you know, we'll get into the bank. But, you know, and I'm familiar with NAICS codes, I remember in my banking, you know, because I used to use those when they would look at it. And by the way for, you know, just a little, you know, from the banking side of things. I remember, it was the SARS reporting and the Ctr is when they were reported as ctrs to the IRS, you know, is mainly on the SARS, I remember SARS stands for suspicious activity reports, and they would use its NAICS code to look at any kind of a disparity, and like last convenience store, bringing in like a million dollars a month and in cash, or something really out of that.

Carlotta Thompson  11:47  
Yeah, anytime you deposit 110 $1,000 into the bank, you have to report right, and the government gets all that stuff. So it pulls up on your account. And they then extrapolate those numbers. So they know if you get this much in cash, what you should really be making in every other area. Or if you get this much in PayPal, what you should be making in cash. And so they'll go in and do audits based on just percentages, everything is percentages. It's not that you deducted some, you know, something unusual, it's that usually think your percentages are out of line with everyone else. And I'll tell you a cool story right quick. I was at the ER when I was at the IRS. I did this audit on on a business owner and I was a very thorough agent. So I did everything that I was supposed to on the RF side, but also, if a person was missing a huge deduction, and I'm like, Oh my gosh, let's get this. I'm gonna get that in there, right, because my job as an IRS agent wasn't just to penalize everybody audited, but it was also to make sure that return was substantially correct. So I did an audit of an oil and gas company. And the, by the time I was done, I was an oil and gas expert, I had to take my findings to the oil and gas expert of the solara the IRS and just go head to head with them. And I'm like, Dude, this this accountant, Miss $300,000 of tax, not tax deductions, but like they missed $300,000 that these people got back at a refund. They got so when I got done with the audit, they got a 300,000 refund had they had been dealing with any other auditor, they would not have thought that because we didn't have most auditors don't didn't know, I've been saying testicles since I was 14. I know Taxol, like the back of my hand and walking talking like, I love tax code. But if you don't have an accountant, or an auditor that was standing up for you, like you would miss that stuff. And so having someone on your team that that is passionate about learning this stuff is huge.

Jake Anderson  13:57  
Way back up, you said you've been studying tax since you were 14 years old.

Carlotta Thompson  14:03  
nerdy, super nerdy. But like when I was setting up my bar one day, and this YouTube, we would get booklets on how to prepare your taxes and your parents and get them in the mail and it'd be like how to do 40 how to do a Schedule C. So I would read these booklets that would come in the mail, and I loved it. So I when I was 14 I knew I wanted to be in the business of helping people with taxes. So yes, I've been doing it for a long time.

Jake Anderson  14:36  
Wow. That's so cool. I had no idea that you've been I mean, since 14 years old. I don't think I've ever met a 14 year old. Just growing up or you know, just through parents or like yeah, you know, they're really into the tax code. It's like really well, that's that's that. That's a great thing to be learning at a very young age because you're going into the real world under The cat tax code, you're way ahead of probably any other 18 or 19 year old or 20 year old with that whatever year it is when you start kind of getting into the real world. So,

Carlotta Thompson  15:08  
yeah, when you go to college and you get those student loans, like I went into a place, get your taxes done when I was 18. And I was like, No, you can do this, and this and this, and this. And the person that they're gonna attack is like, Oh, my gosh, like, and they're, you're right. And so we got like, like two or $3,000 more in refund than what we would have gotten. And then they were like, Do you want to come to work for us. So I actually went to work for a firm like at 18, doing taxes. And I went to the class because at this firm, you could you could take a three day class, and you could become a tax professional. And I was like, this is a freaking joke. And so I went to the class, and I taught some of the class. And I was like it because I've been studying it for so long. And I knew a lot more about it. And then like, I wanted to become an IRS agent, because I was like, these are the people I'm going to get in trouble because these accountants don't know anything. And then I went to the IRS. I'm like, Oh, yeah, that's not really how it works. They don't care what your accountant does, they just want to make sure that they reported all the income pretty much and that is the main thing.

Jake Anderson  16:15  
So what I'm just kind of Curiously, knowing that you've been this passionate about taxes for so long. What is there anything that stands out to you? Because I know and I read, there's a reason I'm asking this question. I'll preface with that. A lot of people are looking to kind of discover their purpose. And they're kind of lost in this track of life. And like, I want to find something I love. And I don't really know what that is. And, and I've been there, I know what that feeling very well. But for you, since you discovered it since 14, I find that to be really unique. And I'm just curious, like, what was was there like one thing, or one or two things that just really jumped out at you with with taxes that just said, this is really what makes me connected with us to the point to where, since that age, all the way up into your adult years, it's still remained not just that's extremely rare to find. So I'm curious to know, like what jumped out at you that really locked you into this passion that stuck with you for so long.

Carlotta Thompson  17:19  
So I always loved taxall. Like I loved reading about it. I think it's really cool. It's interesting. And so I started very young. And then whenever I got into college, I was like, I was better at it than I wasn't anything else. And I love business. And so I was always an entrepreneur, I was the one selling candy at the playground at five years old. But I never really thought I would have a firm. I would never thought I would be a business owner because I just thought like my track was to be an IRS agent. And I would do that forever. And it was interesting, and I loved it. But, but what what trigger me, or what's different, like when I was 14, it was all because it was calculations. And it was like when they sent you the book. It was like learning to do the calculations. And I loved math. And it was like the math of it all. And then whenever I became a teacher, it was more like, Oh my gosh, I can help people. These people screwed me over. And they almost took $2,000 that I could get from the government, I got to help you. And then when I went I actually had a stint in public accounting before that. And I went in with audit businesses. And at that time, it was more like, Oh, these business owners like they're hiding money, and it irritates me. And so then I was like, I wonder if I could get into white collar crime and things like that. And so when I became an IRS agent, I really wanted to either send people to jail because they were screwing over the government, I was paying taxes on it. Or I wanted to get onto accountants who were not who were doing a huge disservice to their business owners. And so every every part of the journey has been I've been excited about it for different reasons. Now I'm excited about it because I love ministry. It's something I'm very passionate about. And I have convinced myself or God has convinced me that this is how my way of giving back to the masses, even if I don't believe in what you believe in. I know, just like Elon Musk and said the other day, Bernie Sanders was like, two people have half the, you know, wealth of the world or the country or whatever. And this can't this can't happen and it was Bernie Sanders was talking about. Ilan must be one of them. Right and Ilan came back and he was like, dude, I do I am creating, I'm boarding this money so I can free life on Mars. Like that is huge. The government's not gonna create life on Mars for us, okay? So entrepreneurs are the ones who are gonna make The difference. And if I can just be a little piece of that, and Ilan gets to keep more of his money, so he can create life on Mars, whether I think that's silly or not like, he freaking cares. It's life on Mars. And Jeff Bezos is the other one. He worked recently went through a divorce and, and his wife came into all this money in dude, she gave more money away than anyone else, like that year. And entrepreneurs want to give back. And if I can help them, Jeff Bezos, he didn't pay any, you know, Amazon didn't pay any taxes, these r&d credits and credits that the government, the government controls entrepreneurs money by giving us tax strategy by giving us credits and deductions. And they do that so well invest in these things. So no, I feel like, definitely, that's where I'm at right now. And in 20 years, it may be for a wholly, totally different reason,

Jake Anderson  20:55  
what it seems like the common denominator that I find with each, each reason, right of the journey seems to be that you just you really have a heart for integrity, you have, you know, like, because I'm hearing that, like, I saw that, you know, these accountants were not, you know, doing their job correctly. They were, you know, screwing people over what have you. And then I saw that, you know, there's the small businesses and they're not, you know, capitalized. And so it's like that heart for, you know, helping and serving, you know, those people really stays consistent along the journey. Right. And, and then, you know, and obviously, you know, I'm the same way I'm a numbers geek, too, you know, it's like you get you get excited about it, you love the calculations and kind of the gut that it's like my man right here Einstein in the background with all the calculations around them in the in the picture, it's just like that same kind of thing. And, and I do you know, one thing, and I'm glad you brought this up, because you're talking about like Elon Musk. And by the way, Ilan Musk, when he responds to anybody who jabs at them for as well for his success, he always has, like, the best comebacks I love here in his little comeback some things in it's really funny to listen to, but, but one thing I've noticed about, you know, from my, you know, do my looking glass into the tax code. And what I've seen is that I feel like taxes, incentivize innovation, and incentives, like, you know, what I mean, like, and that's what entrepreneurship is, it's like, we're in we're finding, like, if you want to save on taxes, go be a creator. And there's all kinds of open, you know, things that you can save on taxes, when you are actually creating and adding to the world. And that's why, like, you know, I have a little bit of a difference. And I want to hear from you, because I think, you know, this is something that there might be people out there, it's like, oh, the only people who can actually win in the tax code are people who are really really wealthy because they've got a source and that's just not true at all.

Carlotta Thompson  22:59  
The key to to not paying taxes Yeah, I'm in freakin business, like have a business and you definitely open up the world to tax strategy and all tax strategy is, is turning a personal expense into a business expense or maximizing out a credit that's already there. The thing so like when I go in and my secrets on how to pay the least tax, I'm one of them is quit asking, Can you deduct something and start asking how can you deduct it? So I don't know if you heard the story of the meals, but like, I wanted some freakin meals dried, and I was like, Let's buy meals? How can we make them a tax deduction? And me and my partner, my business partner was like, how are we going to do this? Because we both liked right. So we are going to pay our farm, which we already have a fee to have the meals in our ads to be our client sells as of Budweiser with say, our Clydesdales of our new show that we're creating called How can I detect that. So these mules are going to be our mascots. And we are going to pay them rent them from our other company, which will then pay to feed them and really, we're going to use them we're going we're actually bringing in one of our other partners who is coming in, and we're going to write them to, to the bank and right out and we're going to make it goofy because that's what sells is goofy but like really on the flow side. Like that's gonna bring us in a lot of leads that otherwise wouldn't be brought in. And the only thing in business is, it has to be reasonable as the ordinary necessary and it can't be lavish. And those are the three things that the IRS goes with. So, you know, a lot of people were like, how can I deduct my dog? Well, you put them into a way that will bring you in money, or you use them as protection of there's court cases of where, you know, a business owner that had a manufacturing company was allowed to deduct all this caffeine and people are like how can I ended up my guess you use them in your business. He those cats were there they were at the manufacturing plant in order to keep mice away and the government, let them have it. Like, it's not that you can deduct these things, it's how can you make it a business deduction? How can you turn that family trip into a business trip? How can you maximize out, like you said, you're working on software, and you're changing things like there's r&d credit for that. There's so many credits out there that the government just wants us to, they want to control our money by giving us credits. And you know, that's why real estate is. So it's a real estate is a big portion of your strategy when you're an entrepreneur, because you make money in entrepreneurship, and you write off all the things that you can write off, and you get it down, but you're still going to get that you know, larger profits, whenever you start making like four or five, $600,000 a million dollars, look at Trump, he paid $750 in taxes on on his personal taxes, obviously, proxies and axes and all that, but on his on his individual return, he made $750. And the way he did is he made all of this money in business, but you can just make money in business and keep it all you have to invest it back into something else. So So the biggest way to invest that money, and the biggest strategy is investments. I mean, it's real estate. So that is that's where you go, you go great. You go make a whole lot of money in business, and then you invest it right back into real estate. And that real estate will then turn into generate racial wealth. Hmm,

Jake Anderson  26:33  
yeah. And I remember was the book Rich Dad Poor Dad, I was a big concept in that book, they taught right now the real estate and the tax advantages and, and it really there. So I think there's like four, four, remember correctly, I think it's full, like with real estate, you get, you get the tax advantages, you get the appreciation of value, there's income that can come from from the piece of real estate. And I think there was another one, there's like another financial benefit,

Carlotta Thompson  27:07  
is generational wealth, because what happens is 500 that so say, I buy a property for $30,000. And I get to pay off that $30,000 of expenses, right? But then that property's worth 100,000 in 20 years. So I get, I get $100,000 property and I have no tax the tax value in it. But then when I die, I get to leave it to my kids. And my kids now inherit that and maybe now it's worth $500,000 my kids get that at $500,000. Now they get to rent that same property out that I have zero in tax wise, they can now have $500,000 in depreciation so they could just start writing that off again. Now they get $500,000 in expenses for that property that had zero in.

Jake Anderson  27:52  
Yeah, wow. That's It's crazy. Just like, I think financial literacy is just financial literacy, right? It's just understanding how to think about things. From a very sad in a very savvy way, you know about in just understanding the tax code and how all these things really play together in wealth building investments, like they all work together. So I want to ask you about because I think this is something that probably a lot of entrepreneurs are thinking now that we're talking about these tax breaks that people may be missing when it comes to tax season and at the release of this episode. You know, I'm in fact, I believe the release of this and I have to go back and look at the schedule. I think it is actually April 15

Carlotta Thompson  28:41  
to may 15.

Jake Anderson  28:42  
I know I know. I know we got another month but but I wanted to really because it's it's for people I just want to make people aware that you might be in probably are missing some some tax breaks and leaving some money on the table. So you've worked with a lot of business owners clearly you've been in the game for a while since 14 you've been studying this and I'm curious to know like what are some of the like, what are some tax breaks that you typically see entrepreneurs missing? When it comes to kind of working through this and maybe it's I'm sure it's probably different for for everybody because everybody has different businesses but are there some common ones that you typically see missed?

Carlotta Thompson  29:26  
Yeah, so I'm gonna say they're different based on where you're at in business. So the ones I see common for my new entrepreneurs who are just starting is they don't know what they can get up so they're like really skeptical to the that anything like if they don't, they didn't give a receipt. They're like, I'm not gonna do that. And actually, you can deduct some of that without a receipt because of the Cohen rule, but we won't get into that. So the biggest Miss deductions for new business owners are first of all, your attorney business, personal assets into business assets. I don't ever First, the accountants take this and I do not know why. But when you start your company, you can actually, obviously, you're bootstrapping into something. I mean, when I started, I used a personal computer that I had had, I've had this desk for 10 years, I had, you know, my couches, everything that I put into my home office was stuff I already had. Well, as soon as I start a business, that becomes business property, if I give it to the business, right, so I can deduct all of those things, I can depreciate those and put those on, as personal assets are now starting your business juice. Another thing is, a lot of times as business owners, we'll get guests that we use in our business, especially when you're first starting. So maybe someone gives you a camera or someone's giving you lighting or whatever you Those are also deductions, even though you didn't pay for them, you get the fair market value of what the person paid for them that it came from, because those are going into your business. So it's a get less like you're gifting, you're getting the gift, and then you're turning it into a business asset. Also another is home office, a lot of people are like, I don't want to do a home office, my accountant said it was a red flag, it's not a red flag, Oh, my gosh, deductor home office. But also another thing is mileage. A lot of people leave mileage on the table. And it's, it's free guys, like find a way to make your make your trips into a business trip. I always say have go to the bank often and go to the post office often, and make your trips that you're taking into business. Because it's free money, you're taking the trip anyway. I mean, me, it's it's 20 minutes into town. So if I'm going to go 20 minutes in detail, that's 20 miles each way. So that's, that's about 20 something dollars in a task deck, and every time I go to town, so what am I going to do, I'm going to sit down and go to the post office first, and I'm going to go wherever else I need to go. And then I'm gonna go back to the bank, and I'm going to come home. And you might be like, well, that's a lot of a lot of trouble, really, because once you start planning your trip, to be a business deduction, you do it one time, and you never think about it again, because now that becomes what you do every day. And I use mileiq on my phone. So I make sure that I'm tracking all those miles, it's becomes really simple just to make a little shift in your drive. And now that whole trip becomes deductible. If I want to go to Little Rock, which is about an hour and 15 minutes from here, if I want to go there on a date, I'm going to make sure that the primary reason I go there is for business, I'm going to make sure I'm going to a store to buy things for our real estate business, I'm going to make sure that because we're doing it anyway, my gosh, all we talked about is business. That's another thing, making sure when you're going out with your spouse at least once a week, not every time you eat out, but at least once a week you're going out. Mills are 100% deductible this year, if they're at a restaurant, you're going out, you're taking a picture of that mill receipt, you're deducting it, because those are things that people are leaving on the table. And then you can use it up that whole mileage trip because you're going out to dinner, you're going to the store to get office supplies or whatever, even if you're not doing anything and you're going out to dinner with your mate you're talking business that's a whole trip is a business deduction. And so biggest thing with the IRS, and I don't want to jump but don't let me forget, get to tell them the biggest reasons why things get disallowed on tax returns.

Unknown Speaker  33:13  

Carlotta Thompson  33:13  
let's get let's get that get to that in a second. But that's my tips for new business owners, my tips for people who are already in business and what their what they leave on the table. First of all, their entity structure is not the best structure for saving the most tax. So a lot of people are like, should I be an LLC? Should I be an S corp, Chevy, whatever. I tell everyone to be an LLC, but not to be not to take me on that for legal purposes, but for for strategy purposes. So if you have another reason for legal purposes, I'm no lawyer for tax purposes and LLC is the best because the LLC is not recognized by the IRS. So you get to tell it how to tax you. You can be a sole proprietorship you can be a partnership, you can be an escort. So there are a multitude of ways that you can be taxed on just being an LLC. So when you're setting up your business as a be an LLC, and then like if you freakin hit the sky running and you get to $5,000 and you're only in two months, like we can switch you to an S corp, right? And then that would be the best structure for you. If you have if you're in a partnership with someone who's unrelated to you, make sure you do a partnership with two S corp holding companies. That way you can get the most tax advantage. The second biggest thing I see are people aren't using strategies to their advantage that are low hanging fruit. So for instance, if you're already in business, you're making some money are you doing the investor role where you can rent your house your cell for 14 days a year guys? This is literally 1000s of dollars in tax deductions just for using a different part of your home for business. Now, a lot of you're like I've heard all these strategies before and i'm not i i know that they're there but how do I implement them? You don't have time to implement strategies like that's not your job, really only tech strategy, implement Asia firm in the US actually goes and does all the implementation for you. So we only get do all the invoicing for you to rent your home to yourself, we go and do the comparisons, we actually get it implemented for you, all you do is use your home for what we say to use your home for. So whether it's a meeting, or it's a business event, or it's doing I had a client in December, do a whole series by a Christmas tree. And it was like the 14 Days of Christmas. And, and she had to be by the tree out in her main living space to Fort to go coincide with with her series. That's why she didn't use her home office, right? Because it has to be separate from your home office, because that's a whole nother deduction. And so still being creative in the ways that use the rest of your house. So you can bring your house to yourself. It's 14 days tax deduction, the business tax free income to you, by putting your kids in your advertising. Like why is everyone doing that I'm seeing all these. I'm about to create an ad with this Aqua four ad and it has the two twins laying there and holding the Aqua four in the middle. And I'm like your kid your kid your product. Because those babies, the Gerber baby gets paid $25,000 a year used to be $40,000 a year, why are you not using them and people will be like, Why don't know how to do it. Because it's not just easy. Like go pay the kids like you have to set up a family management company for the kids, you have to keep documentation, you need a firm that does all that for you don't quit trying to do it yourself. Because you're never going to save the tax dollars if you're trying to implement all these things, because you need to be focused on your business. But do remember $1 in tax savings is equal to $7 in revenue. So if you make $7 in the normal business, you've got to pay overhead, you got to pay your contractors, you've got to pay your employees, you know, then you're left with your profit, what you have what you make, and then you get hit by the government's taxes is 30 to 50%. If you're doing no strategy, so you have to focus on strategy. Because if I say if you say $1,000 a year in taxes is $7,000 that you didn't have to go make. Hmm,

I know it just went on a rant.

Jake Anderson  37:05  
I'm feeling the energy here. And I've got a couple follow up questions. So the first one is, and I think this is probably this is what was going through my head on certain things is like, how far does How far do you take it like and what I mean by that is specifically like, every, I'll just I'll give an example. Every year I go to Vermont, to see my in laws. And it's a trip, right, it's a trip to take the family. If I go up there, and I say you know what there's going to be I don't know, maybe we take a day, not a whole day, but maybe like an hour and I say Becky, we're going to talk about my business. And we're gonna you know, I want to strategize on things and I want to discuss it with you. And there's going to be you know, whatever there, there's an hour carved out there and work and then the rest of the trip is all fun vacation. Like is that is that is that could that be a tax break

Carlotta Thompson  37:57  
would not be a tax section, that's a tax deduction comes up. Like if you're sharing a personal trip into a business trip, you have to have more business business work than personal work, also, there has to be a normal reason to go there. So just because you're talking to your wife, they're like that one count, let me give you an example of what would count. So we're starting the show, and we're like, we're gonna do this show, that's going to bring tons of money into our company, because it's Goofy, and it's funny, and it's fun. But the the, the offsetting the offsetting excitement of it is our family is all going to be involved in the show, it's kind of like Ryan, that your kids might watch on TV, and he makes $76 million a year like the dude is getting paid, and his parents are paying him and his parents are making a lot of money. So we're doing the same thing. But um, our in our company is going to, it's probably going to be set up as a separate company just so we don't have any. So the IRS can't say, well, like that didn't bring any money, I think we're gonna do an affiliate fee, from our show to our accounting firm. And that way, the show actually does make money from the accounting firm for every lead it brings them. But, um, nonetheless, we're going to be like, how to make your Disney trip a tax deduction and like go over all the things that our kids are going to get to go to Disney World for free. Like, obviously, you can't do the same thing. But you could take your kids to Disney World and do a video and it and it go in with the purpose of your business. So I have a guy the other day that that had some kind of product that his kids were going to do. We're going to be in his ads and they were going to shoot ads out there. And the purpose of the trip was going to be for business and that that is the key that the primary purpose is for business. Gotcha. But the government says if you if you are there on a Friday and a Monday and you do business on Friday, Monday and it means a full full day of business or a reason why you have to be there and you can't do it but vfm but a full day business, Saturday and Sunday are also considered business days, because it would not be smart for you to drive back. So then that's already four business days, you can tap on three more business personal days to that. And it'd be a be more than not a tax deduction, right. And so a seven day trip, pretty much, you could work two days and it'd be considered fully, it's not a full deduction, but if your travel fully deductible, your meals are partially done. Does that make sense? So is there is ways but like, does it make sense? Honestly, um, it depends on how much you want to travel. And also, for most of the entrepreneurs that are gonna hit the big things, they're gonna hit the things. They're like, Oh, my gosh, I, I want this, how can I make a tax deduction. So they're gonna hit the ones that are really the drivers of it, I'm going to say my guys that are making a few million dollars a year, they don't care about their family vacation. Like, it's usually not something that's on their radar, but they because they're already hitting those bigger strategies that are much bigger than a couple $1,000 in vacation travel.

Jake Anderson  41:11  
That's good. And then thank you for explaining that. Because I could see, and this is, this is me thinking this too. It's like, I go to Vermont for a week, you know, and I just carve out this little time to talk business does that count? And so it doesn't, because it has to be the primary purpose of it has to be for business. And which makes sense. And I'm glad you clarified that just for anybody that's thinking of doing anything a little sneaky, they're on the other on the other end of the headphones here. So so just keep that in mind. I want to get to, to talking about because you're talking about things that get disallowed on tax returns, making sure we kind of cover that. So let's kind of go into that, like, what are some things that people need to be thinking about in that regard.

Carlotta Thompson  41:55  
So the biggest thing, and what I have a course that I teach, like the basics for people who are coming into this, and one of those levels is audit domination. And the reason why is because you can do that whatever the crap you want to on your return, and it doesn't matter until you get audited, right. So you can say whatever you want to. And when it gets audited, that's where the where the real things come into play. So the reason the biggest reasons why things get taken away in an audit is because you don't have the documentation. And a lot of times we were like what documentation do you need? First of all, for travel, you always have to have documentation It is one of the was one of three places that the IRS is like, you got to have documentation. And that's going to be travel, mileage and meals. Okay, so meals, you have to have the receipt, what you talked about, and then obviously the date and amount will be on there on travel, you've got to keep all of your receipts and a log of where you went. And on mileage, you have to have some kind of log. And those are the three things that you have to must 100% have receipts on everything else you can face on the kohen roll, if you know what it was. I like to keep receipts for everything. But if I want through your books, and you've got you know, say $5,000 on Walmart here, I'm going to question that. And if you don't know exactly what you bought, then I'm going to be like, Hey, this is disallowed, cuz you don't even know what you bought. So the biggest thing is keeping records of everything. I'm not putting everything. Most of you have accountants that see you once a year. And you want to take what they say to the freakin bank. I've seen terrible returns come from CPAs I've seen things like Oh, hold vehicle that didn't belong to you being written off. And you're like, Well, I didn't know that the IRS doesn't care, you didn't know you signed that darn return. And you act like you're oblivious to everything that's done it you're not in your job is to review that return. And if you see something on there that is, is crazy. You need to ask what this is like, you know, oh, this red Silverado this obviously on the return you signed? And a lot of people were like, well, I don't even look at that when I signed it. Well, let's, I don't I don't want to sign something. It's kind of like a banker. And I wouldn't want to sign something until I reviewed it if it meant I could go to jail for it in there. And there are actually times where, you know, I would, I would audit something and I'd be like, I don't have that business. And maybe it was the accountant got confused. Really, most of the time it's because the accountant didn't want you to owe taxes because they knew you were very price sensitive on how much tax you were going to owe. And so they would just make up, grab it and put it on the return and you think that doesn't happen. It happens every frickin day. And whenever the IRS finds an accountant that does that they all go in on all the returns that accountant did. So don't play that dumb card I didn't know open that Dharma turn up and look through it. And a lot of people get anxiety and they're like, I don't know what these numbers mean. Guys, if you'll look through the return, you know what it means. It says wages, you know, if your wages are about accurate and says gross receipts, if your gross receipts as 100k, and you made 200 million, you know, that's a problem. But all the time I see it like I was helping a guy the other day, and he was like, he was like, well, I made this much. And I was like you were doing doesn't show that. And he was like, what I had this visit, I was like your return doesn't show that. Like, I have like one little piece and you have like 20 other businesses? It was it was like, did you even look at this? Really? No, we just trusted them. Don't be trusting people with things that can send you to jail. Like that's, that's ludicrous. Secondly, the biggest reason you're getting audited is because your income is not matching up quite try and hide your income that you can find so many deductions, that will totally oblivious that income, if you would just do show your income and focus on tax strategies and focus on expenses. A lot of entrepreneurs will think, Oh, well, I'll just, I'll just not report this. And what happens is they get away with it. And then they're like, I'm not gonna report this. And then and then eventually the government, I did an audit of a restaurant and he was like, well, I got away with it for so long. I just kept doing it. And like our first call, I called him and he was like, I was talking to him, you know, cuz I'm real personable. And and people just open up. And that's another thing, do not talk to your IRS agent on your own. Like, that's terrible, a terrible idea. Get someone to represent you. You don't need to tell them more than you should. But the first guy he was like, I gotta be honest, like, and this is why he didn't go to jail. My I've got two sets of books, what's on my return is not correct. And I'm like, you got two sets of books. He's like, Yeah, because I don't report all this side of my income. And I'm like, he's like, I never hired an attorney.

Like, I know, I'm going to do, but he didn't go to jail, because he was honest, when we came up, you know, I because I have a heart. And I was like, I'm going to stick it to this guy, because he was honest. But you as an entrepreneur will never get ahead by not reporting your income. And secondly, you'll never get ahead by not knowing your numbers. If you don't know your numbers, how can you grow a business? And I say this because I have fallen into the same trap like I do everybody else's accounting, and sometimes mine gets lacks, and I'm like, ah, in last summer. And when I say accounting, like I mean like in depth numbers, like I like the calculations and stuff. Well, last summer I did i a cost per client on on my stuff on my clients out Holy crap, I was like paying like $4,000 out of pocket to have some clients that pay me like 300 bucks. And it was like, so eye opening, right? So we raise our prices, and now we don't lose money. But we're losing so much money on things that we didn't even know because we, we were doing our books, but we didn't know it per client. And so I will say like having a CFO there and having someone else there to help you run the financial arm of your business is super important. And then also you being involved. Like you said, you got to know some tax law, you don't have to know it all like you don't need to be aware, right. But you also don't need to be an act like you don't know what's going on. I always say in business, I always figure it will study whatever I'm going to outsource. So I'm not going to hire you to do a podcast until I know a little bit about podcasting myself because I need to know that you're even doing it right. Like, if I have no clue what I'm hiring you to do, how can I even know if it's a good value? And so I learned a little bit about everything. But then I was talking to a guy today and he's like, you know, I am pretty much a CPA but not not with with a degree. And I'm like, why you're an entrepreneur and you own four businesses and you have all this other stuff he's like, cuz I can't find any one that will do all of this. And I was like, dude, if you would just hire someone, like your businesses would be through the roof, but you don't even have time to look at the business because you're so focused on the accounting. So I say it insane like hire a team to help you but know a little bit about what you're getting into.

Jake Anderson  49:25  
And, and going into the whole CFO side of things which for anybody listening on know what that standard said Chief Financial Officer, the person who's really in the in the numbers in the in the financials, and in helping with implementation, and that's something that you also that you help with companies, you actually provide CFO type services, right?

Carlotta Thompson  49:47  
Yeah, so we only have one package. And if I can't, if you don't get anything else out of this, I'm on tech side, get this one thing, simplify your business. You cannot scale complexity, and you I only need to have one service. I tried to have three packages even on the one business and it doesn't work. If you get to a million dollars, you need to have one service. After we passed a million dollars, now we're looking at buying another firm, another brand and firms to go under it. Because we don't want to cloud what we do over here. Our firm is the only firm in the US that does tax charging implementation, but it's also a holistic approach. It is very, it's not very profitable compared to other accounting firms. But for me, it's not about the profit, I mean, yes, to have to make money in order to grow. But it's for me, it's about the impact over here. And so over here, our focus is on helping business owners pay the least tax relief possible through tax drafting implements implementation, in a holistic approach to bookkeeping, tax and CFO services. So the way we structure everything, and you have a strategist that knows everything about your business, they do your bookkeeping, they do your taxes, they do your CFO services, what do you mean, they can't have very many clients, right. But the biggest thing I saw the IRS, the biggest problem I would see is there were too many hands in the books, there were too many hands in the return. And so you know, you in a traditional firm, you go to a partner in the firm, and you hire them to do the services. And so the partner will talk to you, they are looking at nothing else you did except they're talking to you. And then you've got the tax preparer over here. They're in one department, usually on the other side of the office from the bookkeeping department. And it's sad, but none of the three departments ever speak to each other. And so they you know, they get missed all kinds of things, I'll be like what's, but I'll talk to the partner, because when you go into an audit, you're talking to the partner, I'm like, why did you not catch this? And they're like, well, bookkeeping did that. Or Well, they always have a reason of why they're, it's their clients fault. Or it's another part of their firm spot. And I'm like, you, you don't you can't fathom the number of times I have found personal income, like personal money you deposit in your business and gross receipts. Like how do you do this? Like, I don't, I don't get it. They're like, Well, I mean, it was it was just cash in the bank. And I'm like, Did you not ask them? Did you not ask them because like, you just charged you just made those people pay tax on $100,000 they put into their business from their own darn bank account. And it's stuff like that, it just blows my mind. But then on the other side, you know, whenever you go into night, I don't know how many times you were like, Oh, just disallow that, Oh, just just it makes my heart it just makes me want to, to shake them. Because I'm like, this isn't your money. This is money and once you have an accountant involved, you're not involved anymore. So unless your accountant is really passionate, you're going to have a much harder tax bill and when I came out with the IRS had this big group of old white men who bullied me because I was like if y'all would do your friggin jobs a lot of these people would not owe as much tax no like well your job as an IRS agent would have been to to help them and I'm like no the IRS proves income it's your job to prove expenses and so many of you are just like oh just this low it oh just this low and I'm like that was your money you went just this alone with Don't try to help them and I would try to help but I would sit with people for hours trying to help them recreate seven then I get in trouble by magic because that wasn't my job but my heart so have someone on your team that that gives a darn about your money and treats it like it's theirs.

Jake Anderson  53:42  
Yes, that's so true. And I think you know going back to kind of that original point of educate yourself have a little bit of awareness of what's going on so you know what to look for. I think it's really important to and and I love the model I love what you're doing especially I can definitely tell you're very passionate about it. So it's it's it's amazing and I want to I want to get into like how can people get connected with you if somebody is interested in taking you know taking the opportunity to explore this package with you by the way I completely agree with you one offer take it to a million simplest simplicity is the key to scale like it's it's so important. I mean a lot of people try to do way too many things get way too broad it's it's it's so it's so important just a little plug there for for re emphasizing that point. But like for people who are looking to get involved and working with you and and just getting connected with you How can they get started?

Carlotta Thompson  54:42  
So you can go to Carlotta that has everything on it. You just jump on a call with our team and then also we have the course that you can also be a part of so it's Carlotta Thompson comm that's my name. pretty prevalent. If you even if you misspell it on Google, you can probably find me And yeah, just go there and and our website has all the information like I said, we have one offer for most business owners I think we have we have one thing that's like a consulting thing for multimillion dollar business owners but for your level and if you're listening this podcast, just jump on a call with our team and see if it's a good fit but it is all on the website. There's a handout you can download. It tells the whole package and everything and definitely it's worth remember in the end this will be my leaving point because I know we're kind of at our limit but remember it's not what your tax professional accountant charges you. It's what they cost you. Hmm

Jake Anderson  55:45  
nice. That's that's a quotable line right there were quote carding that one out that is good. I love that. It's not what your tax professional charges you. It's what they cost you. That's that's, that's some real talk right there. Love it. Awesome. Well, for anybody listening, you know, we're going to include links to connect with Carlotta in the show notes and to get access to those show notes. You can also go to just introspective podcast comm backslash Carlotta Thompson that ca RL Ott ATHOMP s o n, we're going to have all the you know the notes the video clip for the audio I'm sorry for the for you to where we come takes a lot of these big takeaways and organize it for you there in the course to get connected with Carlotta to you know, learn about her services and hop on a call, definitely look into this, this is really important because I think that it's almost the the opportunity cost i would i would say is is really can be pretty substantial, especially if you're not aware of anything going on with your money. And it's easy to kind of let that go sometimes, especially when you get busy, like find some time to focus on this and give it the attention it deserves because times are ticking. And you know, if you let time go by it starts to really add up in terms of wealth that you could be leaving on the table. Carlotta, thank you so much. This has been amazing connecting with you and learning about all of you know all the ways that you help people and I love your heart and how you serve and I can definitely see that. Especially considering this started for you since 14 years old. It's really impressive to see that that fire is still going strong with with helping people and tax planning and financial strategy. So again, thank you so much for being on the podcast.

Carlotta Thompson  57:34  
Thank you so much for letting me be here. It's

been awesome.

Jake Anderson  57:39  
All right.

Transcribed by

For our third Introspective interview this Financial Freedom Week, we have Carlotta Thompson here to tell us about taxes. As a former IRS auditor, Carlotta started a ministry changing the lives of business owners with the mission of helping them save and pay the least amount of tax legally possible. After working for the IRS, she realized they were not in a place to actually help small businesses and later left her government position after seven years to transform her ministry into Carlotta Thompson and Associates. Carlotta created her national tax strategy firm to be unique from every other “accounting firm” in the US: incorporating what she learned about the inner workings of the IRS with tax law and auditing financials for small businesses.

Taxes are something that we cannot really remove in the equation when it comes to our financial freedom. It’s not the prettiest thing to really think about in business but it is something really critical when it comes to acquiring more wealth and increasing our cash flow. In fact, there’s a saying that either you play the tax game or the tax game will play. For this episode, Carlotta is here to guide us in playing the tax game legally. And, we’ll be hearing more about her tax strategy implementation firm’s best practices. So, make sure not to miss this very important and crucial deep dive!

What You'll Learn

  • What to keep in mind when it comes to working with the IRS
  • Identifying the tax breaks that entrepreneurs are typically missing out on
  • The importance of documentations in auditing

“It's not what your tax professional accountant charges you. It's what they cost you.”

-Carlotta Thompson

Learn how to avoid getting audited and why you need to get someone to represent you when you speak with an IRS agent.

Connect with Carlotta Thompson

  • LinkedIn: CarlottaThompson
  • Clubhouse: CarlottaTax
  • IG: @CoachCarlottaT

Resources mentioned on this episode

Helping businesses nationwide pay the least amount of tax legally possible:

Schedule a call with Carlotta Thompson & Associates:

Follow this Podcast

Thank you for taking a deep dive on today’s episode of the Introspective Podcast.  If you found this episode to be interesting, valuable, and provided some fresh perspective for your entrepreneur journey - then head on over to Itunes to subscribe and leave a review with your feedback.  If you’re not an Apple user, then feel free to leave a comment below with your thoughts.  Your feedback is paramount to the success of this show, and provides direction for how I can best serve you.

-Your friendly Podcast Host, Jake Anderson 

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