Wondering how entrepreneurs and people who are self-employed are taxed? Does reading that just make you want to curl up in a ball for the rest of the year? Thing is, if you’re paying money to the IRS, then you’re making money. (That’s supposed to lessen the blow, but financial planning as a business owner can be a sensitive and overwhelming subject.)

Which is why I was so glad Kate Snelson agreed to share her public accounting knowledge with us. We tackled a lot in this episode! From W-9s and 1099s to LLCs, quarterly taxes, and planning for retirement. You’ll walk away feeling much more prepared for Q4 and next tax season!

In this episode, we cover:

• When to talk to your tax preparer / accountant

• How to determine your best tax structure

• If you should register as an LLC, sole proprietorship, or S corp

• What you should buy at the end of the year—if you buy anything

• What to pay attention to with your cash flow

• If you can write-off things like the purchase of a car

• How much money you actually get back with tax deductions

• How to make smart financial decisions as a business owner

• What you need to know about W-2s, W-9s, and 1099s 

• If you should be paying estimated taxes or not

• How to avoid penalties and interest on estimated tax payments

• Retirement planning for business owners

• The tax implications for your business if you have kids

• Tax changes to expect in 2024

• What we can learn from Harry Potter about taxes

Are you feeling more prepared for next tax season as a business owner? Be sure to say hi to Kate on Instagram!

More About Kate Snelson

Kate Snelson is a CPA and mom living in Oklahoma. She has spent 6 years in public accounting working in firms ranging from small local to top 25 in the US . After having her first daughter she realized that she wanted more time freedom and began her own business working directly with small business owners.

Links and Mentioned Resources

Harry Potter

Guide: Your Tax Calendar; Dates You Don't Want to Miss!

Connect with Kate Snelson

Instagram

Facebook

Booking Link - mention you heard Kate on Colorful Conversations

Connect with Katie Decker-Erickson

Book Your Coaching Strategy Session with Katie!

Business Coaching for Interior Designers

Facebook

Instagram

We'd love to hear from YOU!

Click here to fill out our listener survey!

Subscribe to Colorful Conversations with Katie Podcast

YouTube

Apple Podcasts

Spotify

More about Colorful Conversations with Katie

Welcome to “Colorful Conversations with Katie”! Join us for a vibrant webcast where we seamlessly blend the realms of design and business in a fun and professional setting. Available on YouTube or any of your favorite podcast platforms!

Hosted by the dynamic Katie, a seasoned expert with nearly 20 years of experience in both fields, this engaging series promises to ignite your creative spark and sharpen your entrepreneurial acumen. From exploring the latest design trends to uncovering strategies for building successful ventures, we dive deep into the colorful world where aesthetics meet profitability.

Whether you’re a budding designer or a savvy entrepreneur, this webcast is your go-to source for inspiration, insights, and a dash of lively conversation. Tune in and let your imagination, business and life take flight!

This episode provides general tax information only and is not professional advice. Laws change and vary by location; always consult a tax professional. The host and guests' opinions are their own and not official guidance. We're not liable for any actions taken based on this content.

This post may contain affiliate links, so I may earn a small commission when you make a purchase through links on my site at no additional cost to you. 

This episode of Colorful Conversations with Katie is brought to you in partnership with Leah Bryant Co.

The unedited podcast transcript for this episode of the Colorful Conversations with Katie podcast follows

Katie Decker-Erickson (00:00.982)

Hey Kate, welcome to the show.

Kate Snelson (00:03.269)

Hey, I'm really excited to be here. Thanks for having me.

Katie Decker-Erickson (00:05.85)

We're so glad to have you. I mean, I don't know any business owner that's like, yes, I get to talk accounting. But this is why we hire people that love to talk accounting and tax structure and Q4, which we are knee deep in. I don't know about you, I'm not quite sure where 2023 went. And the fact that we're up to even having this conversation, it's kind of nuts.

Kate Snelson (00:29.009)

Yes, I know a lot of times when I say, oh, I'm in accounting and tax, right? People's eyes glaze over, except for those small business owners. They're the only people that really seem to be like, oh, what is it you do? Let's have the conversation. And I always tell my husband, I'm like, I'm everyone's favorite person in March and April, you know, the rest of the year. I'm not that high on the call list, but March and April, I'm on the speed dial for sure.

Katie Decker-Erickson (00:52.59)

So true. Oh my gosh. But the big thing about March and April is if we wait until March and April, like we were just saying before we got started recording, the year is over. Like it's done. Like December 31st, the IRS really doesn't care what you do at 1201 on January 1st. Like it's signed, sealed, delivered, and done. So moral of this big story is talk to your tax professional in queue for, and don't wait until November. As a tax professional, when do you like to see

Kate Snelson (01:11.283)

Yes.

Katie Decker-Erickson (01:22.524)

and say, let's talk about where we're at as a business this year. What do we need to do to like save this year from a tax perspective and not have to pay as many taxes as we potentially would if we weren't being strategic? And also, how do we need to plan for next year? When do you like to see people raise their hand and ask for that conversation?

Kate Snelson (01:42.297)

I like to do a face to face in September. You're like right around that third quarter due date for an estimated tax payment. And then every business has its own cycle.

Right, so some people I can talk to them in September and say, great, what does the rest of the year look like? And they're like, I'm out on vacation. I'm on holidays. We are done. Um, which gives me a lot of information. And some people are like, Oh no, we're ramping up for the end of the year. And then we have conversations about timing. Like don't take a bunch of deposits for projects. You're not starting until January, you know, that you're not going to start paying expenses on. And we can talk about timing those end of year things.

Katie Decker-Erickson (01:52.15)

Yes.

Katie Decker-Erickson (02:01.313)

Yeah.

Kate Snelson (02:18.097)

Because as you know, right, when you're a service provider, all of your customers would love to prepay you in December. They want to get a December expense. You don't necessarily want to take all that in December. So it's kind of a good time to plan. But I like to see everybody in September.

Katie Decker-Erickson (02:36.275)

So if you haven't done so already, moral of the story.

Go call your tax professional. If you don't have one, call Kate. And we'll put a link for that down below because you desperately need one. One thing too I think that's really important is tax structure and understanding how your organization is structured. One thing we went through last year with you is saying, wait, just a hot minute. We no longer need to be an LLC. Even as an S-elect, this is not a good idea for us. We need to be a corp. And it dramatically changed the amount of money we were paying in taxes. And what was so great is because we had

In the fall of last year, we could implement those changes in January of this year. It just made for a lot cleaner break and less. I'd like to thank you and our and Alicia hated us a lot less because we got the timing a little more right on it as far as timing it with the calendar year. But how do you know when what you should be structured as? Like because a lot of times I think businesses start like, yep, I started as an LLC. It was just me out here. And then, you know, they hired this contractor.

over here. Next thing you know we have a virtual VA and then we have someone and it's like is this still a good idea but we don't ask that question because we're just so busy marching. What is that look like? What do we need to be aware of?

Kate Snelson (03:48.929)

Mm-hmm.

Kate Snelson (03:53.533)

It really depends on where you're at in business and your long term goals and how much that business is really going to fund your life. So people who are just starting out, they're barely making money. They're just, you know, maybe it's their first year. And I get the question a lot. Do I need to be an LLC? Can I just be a sole proprietor? And so.

Katie Decker-Erickson (04:01.107)

Mm.

Kate Snelson (04:11.369)

There the answer is it's the exact same for a tax perspective, whether you're an LLC or you're just a sole proprietor, you're still going to get all those deductions. What you lose by not being an LLC is some liability protection, which is really great in some industries. In some industries, maybe it's not so true in my industry. I want the liability protection, right? But there are some industries where maybe it's, right? But there are some where maybe your risk is a little bit lower.

Katie Decker-Erickson (04:11.458)

Well, that's a good one.

Katie Decker-Erickson (04:24.351)

Yep.

Katie Decker-Erickson (04:32.318)

We do too. Yeah.

Kate Snelson (04:37.865)

which is fine too, but then I always want people to think about where you're going also, because if you are going to start having an income, which I hope is everyone's goal or a net profit that's pretty sizable, you're not going to be able to make an S-corp election, which is pretty tax advantageous if you're not first in LLC.

Katie Decker-Erickson (04:42.04)

Mmm.

Katie Decker-Erickson (04:46.915)

Sure.

Kate Snelson (04:55.545)

And people say, oh, well, can I do this for a while and then become an LLC? Absolutely, by all means. But just know that when you become an LLC, now you have to get a new EIN. Now you have to update all your payment. There's a little more administrative hoops to jump through. So for me, I think it's always worth starting out as an LLC and spend a few hundred dollars and just know that that's what it is. But I always feel like it's better to start with at least being an LLC. And then from there, mm-hmm.

Katie Decker-Erickson (05:21.282)

So start with an LLC. Yeah, don't go as a sole proprietor because if you do wanna S-Elect, you can't S-Elect as a sole proprietor. You can only S-Elect as an LLC and that comes with wonderful tax advantages.

Kate Snelson (05:34.597)

Right? So LLC first. And then when you're losing money, it's better to not be an S-Corp, right? You wanna be just an LLC, a single member LLC. When you're making money, you maybe wanna be an S-Corp, and it depends on how much we're making and how consistent we expect that to be.

Katie Decker-Erickson (05:37.042)

Okay.

Kate Snelson (05:51.793)

So I typically say when you're making about $40,000 to $50,000 net after all of your expenses every year and you expect that to be consistent or to increase, it's time to think about becoming an S corporation.

Before that, your tax savings are really eaten up by the fees of a payroll processor and extra tax return. So you're not really going to save much on the whole scale. You know, you might save some in income tax, but now you're spending in other places, you know, six in one hand, half a dozen in the other. So I say, you know, when you're about 40 or 50, net income consistently expected to either steady or increase is the time to start thinking about the election.

Katie Decker-Erickson (06:12.276)

Mm-hmm.

term.

Katie Decker-Erickson (06:21.282)

True.

Katie Decker-Erickson (06:29.262)

Great point. And thinking about end of year and tax savings, because I feel like everyone has this like December 29th, we've made it through Christmas meltdown of like, okay, should I go buy a bunch of stuff to save on taxes? And it's like, maybe would be my answer. What would be yours though? Like, how do we know what to buy and should we buy?

Kate Snelson (06:44.539)

Right?

Kate Snelson (06:53.393)

My answer is always, what does your cash flow look like? And just setting realistic expectations. So we need to know that if I owe $10,000 in tax and I go spend $10,000 on equipment, whatever my business expenses, my taxes in zero, right? Every dollar we spend, we're gonna save maybe 30 cents of tax. So don't burn through all your cash, right? So I also will don't burn through all your cash. Just know if you go spend $10,000.

Katie Decker-Erickson (06:57.006)

Smart.

Katie Decker-Erickson (07:10.337)

Bummer. Yeah. Oh, I like the other math a lot better. Yeah.

Kate Snelson (07:21.425)

You might have a $3,000 reduction in tax. And the numbers vary depending on how close you are to different tax brackets. But that's a rough estimate. So if you've got $17,000, that's fine. Right. You can spend the 10 and then you still have seven. If you've only got 10, don't go buy stuff. You know, that's not the way to do it. So think about, you know, cash flow.

Katie Decker-Erickson (07:24.211)

Mmm.

Katie Decker-Erickson (07:41.29)

Yeah, girlfriend, you're not going shopping. Yeah.

Kate Snelson (07:44.297)

Right. And then overall, I also tell people, is it would you normally if it wasn't a tax decision, spend a dollar to save 30 cents like on something frivolous? If it's something you need, we can be strategic. But on something you don't need, it's not I mean, you're still spending more than you think you are either way. So a good thing to think about is if you have the cash flow to pay your taxes.

Katie Decker-Erickson (07:49.677)

Hmm.

Katie Decker-Erickson (07:57.761)

Yeah.

Kate Snelson (08:06.701)

In addition to extra purchases, think about things that you can prepay. Can I pay for a year of Microsoft at one time? Can I pay for a year of my hosting platform at one time in December instead of paying monthly? Or are there expenses that I know I'm going to use in January? I know I'm going to need paper this year. I know I'm going to need, you know, X, Y, Z. Those are things to think about. The other thing that.

People, I think sometimes, get confused on cars. If you are in a business, and this super depends on your situation, but a car or something you can finance out, you get the expense in the current year that you actually signed the paperwork, even though maybe those payments aren't gonna happen until later. So you can kind of balance that with cashflow a little bit. I could go buy some equipment and finance it out over the next three years, but I get that tax expense in this year.

Katie Decker-Erickson (08:33.698)

Sure. Yeah.

Katie Decker-Erickson (08:40.034)

Very much so.

Katie Decker-Erickson (08:48.884)

Interesting.

Kate Snelson (08:59.505)

so it doesn't have such an impact on cash flow.

Katie Decker-Erickson (09:04.15)

That's really smart.

So if I'm hearing you right, we're gonna make smart purchases if we need it. We're gonna make sure we have our taxes first. And this takes us right back to where the conversation started. If you take nothing else from today's episode, please contact your tax professional ASAP. And you can send me a thank you card later. But yeah, that's the way you know how much you're going to be spending potentially on taxes going into Q4. So if you are we am I affording a rema paper or am I going to go refi the new vehicle? Because I need to do that. Then you have the information you need to make a smart financial decision. If I'm hearing you correctly.

Bye.

Kate Snelson (09:36.369)

Absolutely. Yeah. So I think the first step is figure out what do we think a good and it's going to be an estimate, right? We can't we're never perfect but get an estimate of what we think we're gonna have to pay in taxes and Balance that with some reasonable helpful purchases. Not just I went into this I'm another thing that I always mentioned people think oh, well, can I buy some land or some property right an investment piece at the end of the year and Just know that that's not going to generate a current year tax deduction

Katie Decker-Erickson (09:43.618)

Sure.

Katie Decker-Erickson (09:58.959)

Oh, interesting. Yeah.

Kate Snelson (10:05.333)

So that's not the best plan. People think about it a lot, right? At the end of the year, like, I'll just buy this commercial property. That was like $300,000. Now I should have no tax. But those kinds of long-term investments, they're not current year deductions.

Katie Decker-Erickson (10:05.384)

Mmm, cashier good.

Katie Decker-Erickson (10:19.434)

because you're not getting the interest right off because you haven't been paying on it all year. You're not going to get that deduction.

Kate Snelson (10:25.489)

Right, and now it's considered an asset, so it's just not a full year deduction. Real property is what we call buildings and land. Those have a much lengthier depreciation time, and the 179 options are just not as good as tangible property. Thinks we can depreciate quickly.

Katie Decker-Erickson (10:41.046)

This is why I love talking to Kate, because occasionally I'm like, wait, what did she just say? Like, she's so much smarter. Thank you for sharing that. Yes. Okay. Should I send or collect W9s or 1099s? What do I need to know about that year end? Because it's not just me paying my taxes. We also owe paperwork to everyone we have contracted with over the year in one, anybody over, is it $600 is the threshold?

Kate Snelson (10:45.345)

I'm sorry.

Kate Snelson (11:05.437)

Right, anybody you pay over $600, depending on the method you pay them. So we're talking for services, not for goods. You're not sending $99 right to everybody you buy a physical good from, but anybody who provides a service for you.

Katie Decker-Erickson (11:15.896)

Sure.

Kate Snelson (11:17.245)

if you pay them over $600. But then you have to look at how you paid them. If you paid them through like a third party credit card processor, you wouldn't issue a 1099. If they're an S-Corp, they're not gonna get a 1099 from you. And if you paid through a business, PayPal, I'm gonna say that, business, I hope we all heard that, not your personal PayPal, not friends and family, a business PayPal, then you can kind of skirt the 1099 rolls. Definitely.

Katie Decker-Erickson (11:25.763)

Mmm.

Katie Decker-Erickson (11:40.645)

But I've been mode Kate doesn't that count? They are. Yeah.

Kate Snelson (11:49.465)

And so this is the time to think about timing, especially if you're in a business that kind of has a lull in the fourth quarter. January is really busy. January, you're making that last estimated tax payment. And then you've got 1099s and W-2s are all due at the end of January. You're trying to close out your books for the end of the year because you wanna get your tax return done in February or March. So January's busy. So the more legwork and information gathering we can do now.

the better. And so this is when I get questions people. Someone was asking me for a W9. Is it okay for me to send that to them? So anybody that you provide services to should be requesting a W9 from you.

Anybody who provides services to you, you should be asking them for a W-9. Now, gold standard for the IRS is that you would have gotten this document before you ever paid your service. Right. Cause it's the only kind of leverage you have for them to provide their personal information is if you say, great, you're not getting paid until you do. Um, no, occasionally if it's our first year in business, we don't know that rule, it slips our mind, one goes through the cracks, whatever it may be. Now's a good time to say.

Who do I not have a W9 for? Or to reach out to your people that you've worked with for years, who you got a W9 from three years ago, and say, hey, I just want to make sure your name, EIN, and address haven't changed. Just then in January, when you have to slap that on a 1099 to send them.

Sometimes people don't tell you when now all of a sudden they're an S-corp and they shouldn't have gotten a 1099 or they became a formal LLC instead of a sole proprietor and you issued a 1099 to their social security number. I mean, it causes matching issues. And so the more information gathering we can do now, the better prepared we're going to be for January because it is really just a race to get everything done.

Katie Decker-Erickson (13:25.55)

Hmm.

Katie Decker-Erickson (13:29.261)

Mm-hmm.

Katie Decker-Erickson (13:38.602)

It is a hard race. It's a sprint against the clock. And I always feel like, we were talking a little bit before we started to about the emotions of taxes and whatnot, but I always feel like I'm like, I'm still writing checks to the IRS and we're on what month? Because of the way those payments all hit. It's like Q4, end of the year, and then, oh, Q1 again too. And I'm just like, wow.

And every CPA I've ever had, and there hasn't been a long list of them, but they're all like, yeah, but look at it this way. If you're paying money, it means you're making money. And I'm always like, you know, that

makes it slightly sweeter, but it still hurts. It's a lot of payments on the front end. And two, to your point about getting it done now, man, it saves your CPA so much time, or whatever your tax professional is, from running around going, we need all these tax ID numbers. We have to issue 1099s. Because I think a lot of small businesses, too, don't realize, if you don't issue those 1099s, the IRS can come after you, and there's a penalty clause

Kate Snelson (14:34.84)

Mm-hmm.

Katie Decker-Erickson (14:45.442)

person, hey, we used this amount of money, or you spent this amount of money with us, or we used you for this amount of goods. Like, that's a big thing.

Kate Snelson (14:54.269)

And a lot of people don't understand the IRS incentive. They don't necessarily care who you spent money on when they're thinking about your tax case, but they really care if Sherry Smith has $15,000 of income that she's not reporting. So it's really more about matching her income and her tax return. But as business owners, there is a question on your tax return that you have to disclose. Were you required to issue 1099s and did you actually do it? So.

Katie Decker-Erickson (14:58.183)

Mmm.

Katie Decker-Erickson (15:10.476)

Yeah.

Katie Decker-Erickson (15:22.306)

That's big.

Kate Snelson (15:22.429)

You know, we want to be, we want to toe the line there to disclose that correctly.

Katie Decker-Erickson (15:28.298)

Yeah, we don't want to visit you behind bars or have you writing massive checks with interest or that's just like the worst case scenario. Nobody wants to end up there. We were joking about Shakira's talk situation at the moment and just like, you know, paying the government is a very real thing. We should do that. We absolutely should do that.

Kate Snelson (15:37.406)

Yes.

Kate Snelson (15:45.173)

Yeah.

Katie Decker-Erickson (15:47.646)

Just saying, which kind of leads us to estimated tax payments. What is the value of estimated tax payments? And one thing until I got there in my own business was understanding that estimates does not mean it's a good idea if you feel like it. Estimated tax payments are very much maybe estimated, but are required. Very required. We learned that in one quarter. Explain. Go down that road for us and explain that.

Kate Snelson (16:16.073)

Yeah, so think about if you're just a traditional employee, you're W2, you're having tax withheld every pay cycle and the IRS is getting that money from you and they're using it, right, to float the government, to the extent that we have money for the government, they're using it to float that. And so when you're a small business owner, right, when you're a small business owner, they don't wanna wait until April 15th to get all that money they should have gotten throughout the year.

Katie Decker-Erickson (16:31.23)

Yeah, ish, heavy on the ish.

Kate Snelson (16:41.653)

had you been self-employed, right? It's not their bag. They wanna get their money all the time. And so they require quarterly estimated tax payments. And then if you do not make those quarterly estimated tax payments, what happens? Right, you owe the same amount of tax, whether you pay it quarterly or you don't. But if you don't pay quarterly, they're gonna calculate and tack on penalties and interest, which could be substantial. The penalties and interest, they run from the date you should have made the payment to the date you did make the payment.

So if they are at the end of the year and you should have paid $10,000 and they break that up to the first quarter, you didn't pay the first quarter. So penalties and interest, that clock started April 16th through the end of the year. Then the next quarter, June 16th through the end of the year. So it can add up pretty quickly in the States, have their own version of this too. If you're in a state that has income tax, it's not just the IRS. There are a few.

Katie Decker-Erickson (17:12.718)

Thanks for watching.

Katie Decker-Erickson (17:29.921)

Hmm.

Katie Decker-Erickson (17:33.703)

Oh, it's a double header.

Kate Snelson (17:33.717)

clauses. I have them like get out of jail free. Yeah, if you're in a state with income tax, they also want their money. So, and there are a couple of clauses, right? Me too. I get that. But, there are a couple of clauses that can kind of save you from making estimated tax payments in an early year, or a couple of things to just know about when you're thinking how close is my estimate. So there are two ways that you can avoid penalties and interest.

Katie Decker-Erickson (17:41.874)

Ugh. Everybody wants their money.

Katie Decker-Erickson (17:48.202)

It's true, it's unilateral. We all feel the same way.

Kate Snelson (18:03.857)

And it's by paying in 90% of this year's tax through estimated tax payments or withholding. If you have a significant other that works or you also have a W-2 job. So any way that you pay in, as long as you pay in 90% of this year's tax, they won't charge you penalties and interest. Or if you pay in 100% of last year's tax, you won't have to pay penalties and interest. So they thought, man, if you're a bad estimator, you don't work closely with the CPA. You know, this year you had tons of income. You had a huge, we don't, we don't know what's going on.

Katie Decker-Erickson (18:07.985)

Mm.

Katie Decker-Erickson (18:18.084)

Mm.

Kate Snelson (18:33.501)

They kind of made a rule for the average person who can simply look at last year's tax return and find the total tax line, not the amount that you either got back or paid at the end of the year, but the total tax line. And if you paid in at least that much, you can avoid penalties and interest. It doesn't mean you're going to avoid writing a fat check in April. You're just going to avoid the extra penalties and interest.

Katie Decker-Erickson (18:53.354)

Yeah, I have to share my husband's gonna love me telling this story. But one of it was our year end tax payment. I was it last year and I actually recorded the video of him when I told him what we were gonna owe just because like I knew the reaction was gonna be visceral and it is like still one of my favorite videos and I'm he's just sitting there and he's just shaking his head and there's like all this silence and just oh, it's the best ever. I still go back and it makes me laugh because yeah, it's a chunk of

that we end up writing, but you know what? That means like again we're making money. Speaking of allocating that money smartly and strategically, let's talk about retirement planning because a lot you think

Lady, I'm just trying to make money for today and make my payroll or get my contractors paid or whatnot. Yes, rule number one in business, pay yourself first or you're not going to get paid. Like we have to do this. And part of that is retirement planning because you don't wanna be the poor little old lady living on social security only. And even if it's a small amount.

Where do I start if I'm an LLC? Let's say we've done, I don't want to say the correct thing, but I think we'd both say the smart thing. And we're not a sole proprietor, we're an LLC, and I come to you and I say, gosh, Kate, that makes perfect sense, but what do I do? Do I need an employer-sponsored program? Where do I start with the idea of thinking about going down that road? I realize this is a little bit out of the realm of taxes, but can you steer, it affects our taxes,

Kate Snelson (20:27.081)

Yeah.

Katie Decker-Erickson (20:29.684)

real way and it's another way to get a good deduction and still take care of yourself.

Kate Snelson (20:34.525)

Yeah, so my first advice would be find a financial planner that you enjoy. Right. I know a little bit about the retirement space, but I am certainly not a financial planner. So the first thing I would say, talk to a financial planner and let's have a conversation. It's almost split. Your tax preparer can help in some cases tell you what kind of deduction you're gonna get for our contribution and your contribution limits depending on the plan. It's based on a percentage of your income.

Katie Decker-Erickson (20:59.268)

Mm.

Kate Snelson (21:02.181)

But your financial advisor is going to be the one to say, great, what are your plans? Are you going to have employees later? Because certain plans, if you're contributing a large amount for yourself, you're obligated to contribute that same percentage for your employees. Do you want to do that? Do you not want to do that? What are your cashflow? How much cash do you have? Some plans you can put $7,000 in a year, and that's great. In some plans you can put $46,000 in a year, and that's great. So what does our cashflow look like? That's gonna depend on what kind of plan we have.

And then kind of our overarching, our lifetime goal, I would say. Right. There's some debate between traditional retirement plans and a Roth retirement plan. Right. So a Roth, the money is taxed today. When you withdraw it, it's not taxed. Traditional is the opposite. It's not you get the deduction today. And then when you withdraw it, you're paying tax at that point.

Katie Decker-Erickson (21:41.282)

Yep.

Kate Snelson (21:53.429)

And balancing that with your tax rate, and obviously we're not mind readers. We don't know what's going to happen in the future. But you try to think if I'm at the highest tax rate today, is it better to take the deduction today and then later pay the tax when I withdraw it as a retiree with a lower income, potentially at a lower tax rate? But your financial advisor is going to be the one to kind of help, you know, the ins and outs of the plans.

Katie Decker-Erickson (21:57.938)

Mm-hmm. Nope, sure don't.

Kate Snelson (22:16.617)

And one thing that people should keep in mind, there are different plans where you can make contributions up until the due date of the tax return for that year. So 2023 is going to be due April 15th, 2024. We can make contributions up until April of 2024. But for some plans, the plan itself has to be established before year end.

Katie Decker-Erickson (22:27.23)

Oh, interesting. Yep.

Kate Snelson (22:38.377)

And that gets confusing for people, right? So you have to at least do the legwork by year end. So if you've got cash right now that you think a retirement plan is an option for you, now's a great time to talk to an advisor. They should be able to get you set up with something before the end of the year. But certainly looking into future years, it's always worth talking to a financial advisor.

Katie Decker-Erickson (22:40.315)

Yep.

Yeah.

Katie Decker-Erickson (22:57.634)

Gosh, it's so worth it, because you've got to take care of it. You have to pay yourself. There's nothing worse than doing something you love and getting to the end of the line of life and being like, I'm broke. I never did that. I mean, I got to do what I love, but I have no retirement. I don't get to retire. That's like a horrible place to be. We don't want anyone to be there, ever, ever.

Talk to me about, one thing we always talk about on this show is the work-life balance and kids and all of the things. There are tax implications to your kids and your business. That's right, if you have kids, this can actually be helpful for your business. But there's some caveats, there's some things you have to know about that. What do people need to know when it comes to, I've got kids, I want them to start working for my business, is that a good tax move and how if it is?

Kate Snelson (23:44.593)

Absolutely. So think about when the tax code was made. We haven't had a huge change to the tax code since probably the 80s. I mean, when Trump was in office, there was some changes, but they weren't huge. In the 80s, it was really revamped a little bit. Yeah. And so in the 80s, there were mom and pop stores. We don't see as many of them now, but there were.

Katie Decker-Erickson (23:56.627)

significant. Yeah.

Kate Snelson (24:04.221)

And so they wanted to create a tax advantage for these small stores that had their kids working part time in their stores, right? Between school hours just to make ends meet instead of hiring other employees.

So if you have an LLC, a sole proprietorship or a partnership, but only if both owners of the partnership are the parents of these minor children. So if you have a partnership with three people and one person is not a parent of your minor child, it's a disqualified entity. If you have an S corporation, which is an LLC, but with that select, it's a disqualified entity. And corporations are also going to be disqualified for this. But if you've got minor.

Katie Decker-Erickson (24:26.082)

Mmm.

Katie Decker-Erickson (24:42.471)

you need to be an LLC.

Kate Snelson (24:45.722)

And you might have to have a couple of different entities, right, to float this strategy the best for you. But if you have at least one LLC where the owner is a parent, a full-time parent of these minor children, your kids are under 18.

You can pay them to work in your business. It has to be true payroll through a W-2. They have to get a W-2 at the end of the year. You have to file all the right tax forms. But what you pay them for being your minor kids, you're not gonna pay Social Security and Medicare tax. We call that FICA. It's 15.3%. They pay half, you pay half. Nobody's gonna pay it if they're your minor kids working in your business. And if you pay them, right? And you're not gonna pay it on their behalf. No, thanks.

Katie Decker-Erickson (25:22.46)

My kids are not going to pay FICA, no. They'd be like, FICA what? Yeah, yeah. Yeah, no, I want to spend that money. Yeah.

Kate Snelson (25:31.176)

and

Definitely and if you pay them up to the standard deduction for the year and it changes every year It's adjusted based on inflation right now. It's quite high, you know in the ballpark of thirteen thousand dollars Um per kid that money is going to be completely tax free So now your business has a deduction of thirteen thousand ish dollars per kid and your kids have income But it's completely tax free. There was no payroll tax because it's under the standard deduction. There's no income tax Because you did it as a w-2. There's no self-employment tax. So you've just shifted thirteen thousand

Katie Decker-Erickson (25:59.67)

Mm-hmm.

Kate Snelson (26:04.223)

from your higher tax bracket to a completely tax-free situation. Now the rule there is, right, especially if you have multiple kids, it adds up quickly at $13,000 a kid, but the rule is the money has to go into an account with their name on it. So you can't say I paid my kid but they never touch the money, right? Put it in an account with their name on it.

Katie Decker-Erickson (26:09.863)

Amazing. Yeah.

Katie Decker-Erickson (26:20.15)

Gotcha.

Kate Snelson (26:25.105)

Certainly, depending on the age of your kids, people with older teens who are in sports and have a car and a cell phone, it's gonna be real easy to spend $13,000 on your kid, right, from this account. So we're gonna use tax-free money, right? So use tax-free money to fund things that we're already paying for. If you've got younger level kids.

Katie Decker-Erickson (26:33.974)

Yeah.

Can we just talk about braces? I mean, my gosh, seriously.

Kate Snelson (26:47.325)

Might be a little more difficult. What are we going to do with this money? Think about now that you've paid them via a W-2, they've got earned income. You can pump into a Roth IRA for them and go ahead and get them set up for their future. If that's one of your goals. Or you can just let the money sit. You can put it in a brokerage account. Yeah. 529s are a little tricky because if you're in a state that has state income tax, you can get a deduction for a 529 contribution. And if your kids make it from their account,

Katie Decker-Erickson (27:01.87)

529.

Katie Decker-Erickson (27:08.215)

Are they?

Katie Decker-Erickson (27:11.732)

Uh...

Kate Snelson (27:14.569)

They don't have any state tax burden to get the deduction compared to you would.

Katie Decker-Erickson (27:18.294)

and the government isn't giving us any money back. Yeah, that's a bummer. That just never seems to quite happen. Never seems to happen. So yeah, moral of the story, talk to your CPA about that too or call Kate because there's a great way to be able to do that. And I think for all the blood, sweat and tears we put forth as parents, it's nice to know that there could be some ROI.

Kate Snelson (27:25.188)

No, if they're not nice like that.

Kate Snelson (27:30.514)

Mm-hmm.

Katie Decker-Erickson (27:40.662)

Don't get me wrong, hugs and kisses are great, but it's nice to be able to offset some of the financial impact of people under four feet tall, as I affectionately call my children. Because yeah, it does add up.

Kate Snelson (27:41.085)

Yes.

Kate Snelson (27:49.905)

And you might get a little creative. I mean, because you do have to support the amount that you're paying them for the amount of work that they're doing. So sometimes people say, gosh, you know, my kid is five. What are they doing in my business?

And you know, to that I would say let's think about, you know, your marketing. Are five-year-olds models being used in advertising? Certainly every day. Are you marketing yourself as a mom business owner? Are your, is your family appearing in your marketing materials? You know, there are ways that we can get creative to be able to pay these younger kids, you know, until they're what, 10 and they can manage our social media for us.

Katie Decker-Erickson (28:29.102)

Oh, yeah, maybe eight. I mean, yeah, it's insane, literally. I had the craziest thing happen over the summer. Oh, I'm not even kidding you. Yes, mine would put him out there if I would let her. The six-year-old, the nine-year-old, my husband and I were going on a walk and the six-year-old's still asleep. And I said, well, if something goes wrong, just call me. And she just paused and she goes, I don't know how to call you. Can I just text you?

Kate Snelson (28:33.399)

I mean, certainly mine could record TikToks.

Katie Decker-Erickson (28:54.51)

Because she just voice-detects her way through life. I'm like, serious parental oversight, must address how to make a phone call. We're clearly lacking that in our business acumen. I was like, yeah, that'll do, and then we'll get back around to that parenting moment. But yeah, I mean, there's tons of creative ways. One thing my nine-year-old does is she organizes all of our samples. She loves it. Like the nine-year-old orderly, methodical, color-coding all the paint colors into their proper, it's great.

Kate Snelson (29:14.721)

Mm-hmm.

Katie Decker-Erickson (29:24.604)

Dewey Decimal System at the library anymore. So this is their alternative to go in and create order out of tangible things. I'm like, have at it. Go for it. It's a great solution. As business owners, as we get ready to launch into 2024, you reference the 80s being massive tax overhaul.

Kate Snelson (29:32.542)

Yeah.

Katie Decker-Erickson (29:42.29)

Anything major that you're like, yeah, we see this coming down the pike next year, and you should be aware of it, or is everything pretty much sitting tight because it's an election year and nobody's gonna make big changes for fear of upsetting the apple cart.

Kate Snelson (29:55.953)

Right now we're sitting tight. There is some talk about changing the child tax credit to be a higher amount. I think just to, you know, right? Please. That's something that hasn't... It hasn't been changed, you know, I mean it was changed during COVID, but we haven't had any, you know, sweeping indexing of it. And I don't know about you, but mine certainly cost me more than three grand a year. So it would be nice. They're kind of talking about that.

Katie Decker-Erickson (30:03.926)

Yes, please. Yes, yes, please. Can anybody else raise their hand for that? Ha ha ha.

Katie Decker-Erickson (30:22.126)

So true.

Kate Snelson (30:23.813)

Other than that, everything is kind of stable. I mean, you know, we've got a lot of political shifting going on right now that really kind of hampers any big tax changes. I mean, we've got, you know, pre impeachment hearings going on. We've got an election cycle coming. So it's just right now it's kind of hold tight.

Katie Decker-Erickson (30:40.234)

Everybody's just basically locked up being mad at each other. I feel like it's just we're all busy finger pointing and being angry, so we actually can't do anything productive. Like, it's just kind of where we're at.

Kate Snelson (30:50.417)

We do have, because of the way some of the changes that President Trump made were put in to law, a lot of them have some sunset provisions that'll be coming up, you know, during the next term. So I would expect we'll see some change there, whether it's, you know, continuing and extending some of these provisions to have sunsets or if we're just going to see them fall off.

Katie Decker-Erickson (30:58.403)

Mm. Yeah.

Katie Decker-Erickson (31:02.475)

Gotcha.

Katie Decker-Erickson (31:14.798)

Okay, super helpful, so keep an eye on that. Awesome, this is beyond helpful, Kate. Thank you so much. Let's do rapid fire. I love our rapid fire round. One book that has changed your life, professionally or professionally. We've.

Kate Snelson (31:27.153)

I would say Harry Potter. Harry Potter. That was, I'm a Harry Potter kid. You know, I kind of grew up in that time. So that probably was the first book that made me love books.

Katie Decker-Erickson (31:32.718)

I love it!

Katie Decker-Erickson (31:40.242)

And you can't beat that like you absolutely can't beat that and no one's ever said Harry Potter. That's awesome We have not had that before

Kate Snelson (31:46.941)

Maybe you have guests who read some self-help or some more business books. I'm a fiction reader, so.

Katie Decker-Erickson (31:53.774)

I call it mind candy, and I think when you're working in an intense environment all day, there's times all I want to watch is E-network or Selling Sunset or something that has, it's completely mindless dribble and it's exactly what my brain needs. And I'm pretty unapologetic about that. I'm not going to lie. What would you tell your 20 year old self if you could go back in time?

Kate Snelson (32:04.303)

Yeah.

Kate Snelson (32:09.33)

Yes.

Kate Snelson (32:16.625)

I would say think about the life you wanna have and build towards that. Don't get so caught up in establishing a career and climbing the ladder. You might end up like me and look around in six years and say, I don't want what's at the top of that ladder. Right, and then you pivot to being self-employed and the experience I got, climbing that ladder was great. But really think about the end destination, almost reverse engineer what you're going for.

Katie Decker-Erickson (32:25.127)

Mmm.

Katie Decker-Erickson (32:40.81)

I totally agree. I call it scaffolding.

Pick your destination and scaffold out of that. And that's what really, you know, like you, running your own business, having young kids. That's why back in 2007, I had not met my husband. I didn't know if I would ever have kids. But I knew that this trajectory I was on was not gonna set me up for a life that would allow me to take my kids to school, pick them up from school, go on a field trip. Not all this happens every day, but it just wasn't going to be the norm. And that was my massive reset button.

Kate Snelson (32:44.433)

us.

Katie Decker-Erickson (33:13.196)

I feel every part of that. It takes courage and I was in my mid-20s when that happened. But yeah, can you imagine if you could do it out of college and start building that? That would be epic.

Kate Snelson (33:26.009)

Right? It would have been much different. But me, you know, I had my first kid and I thought, I don't want to work 65 hours during tax season, you know, every year for a quarter of the year. It's just not for me. So I would just say, think about what you want, big overarching life goals, and try to find a career path that can fit into that.

Katie Decker-Erickson (33:38.611)

Now, any good?

Katie Decker-Erickson (33:47.118)

Absolutely, that's one thing we talk about so much, is it's not just about scaling your business. It can't just be about scaling your business. It has to be about scaling your business to your lifestyle. So if that means you're an introvert and you need that time to revamp, how do we build you a business that allows you to revamp? But we talk about this all the time in coaching. If you're an extrovert and you just wanna work with people all day, you're not gonna be happy sitting in a design center, picking out samples by yourself. You need to be in a collaborative environment. How do we get those to work

doing what you love. So important. Speaking of time, what is your best time hack? We love time hacks around here because I still can't figure out how to get more than 24 hours into a day, and that's probably a really good thing. But how do you hack it?

Kate Snelson (34:19.062)

Yes.

Kate Snelson (34:31.189)

I would just say, and this might be a little off the wall, but I would say don't be afraid to say no. It's so hard when people come to you and they're offering you money. Oh, prepare my tax return. I know we just have two weeks, but I'll pay you a huge rush fee on it. But you know, in my life, that means I'm going to sacrifice again those things that I don't want to sacrifice time with my family, time to myself, time to read, time to go to the gym, you know. So I just say don't be afraid to say no. It's hard to turn down people offering you money.

Katie Decker-Erickson (34:37.239)

Mmm.

Katie Decker-Erickson (34:55.883)

Yes.

Kate Snelson (34:59.401)

But if it's gonna compromise your big goals in life, don't be afraid to say no. Don't overfill yourself.

Katie Decker-Erickson (35:01.014)

Mm.

Katie Decker-Erickson (35:06.586)

It's so true. You can't be like we would say you can't be everything to everyone or you're nothing to no one So pick your things and do them well

Kate Snelson (35:11.851)

Yes.

Yes.

Katie Decker-Erickson (35:16.946)

Yeah, thank you so much, Kate. This was a fabulous conversation. We will put in the show notes everything you need to know about getting a hold of Kate if you're going, that is the woman I need to help me run my business. We will absolutely provide you with a link for that. If you have additional questions, don't hesitate to let her know. And thanks for listening.

Kate Snelson (35:17.732)

Okay.

Kate Snelson (35:34.697)

Bye, thanks for having me.