Accountant Extraordinaire Shay Davis Shares Her Top Money and Tax Secrets for Entrepreneurs

Transcription: 

Dayna Thomas, Esq.:
Hi everyone, I’m Dayna Thomas, Esquire, and welcome to Launched and Legal. Where it’s my mission to help you strategize, legalize and monetize your business. I’m so excited that you’re watching because today and in every show, I’ll be sharing the best practices and tips to take your business and brand to the next level.

Dayna Thomas, Esq.:
Now, two professionals that you definitely should have a relationship with as an entrepreneur is a lawyer and an accountant. Well, today you’re in for a treat because you get both. My guest today is Renesha “Shay” Davis, accountant, tax strategist, and founder of The Money Council. A financial services company with the goal of helping entrepreneurs break the generational poverty curse and build unprecedented wealth and inheritance for their families. Shay uses proven tax and accounting strategies to help elevate her client’s profits. And today she’s sharing her money and tax secrets with us.

Dayna Thomas, Esq.:
Shay, welcome to the show. Thank you so much for being here.

Shay Davis:
Thank you for having me.

Dayna Thomas, Esq.:
Shay, I’ll give a little background for folks. Shay is a client of mine and we became pretty close-

Shay Davis:
Yes.

Dayna Thomas, Esq.:
Because she really takes advantage of just the opportunity of us knowing. Because you work a lot in money, finance. I’m obviously legal and you’re building your business in that area and as well as helping other entrepreneurs. So it’s been great getting to know you, even to the point where we’re here today. So I don’t want to just keep you to myself, I want to share you with the world and this audience. So tell us about your background leading up to your launch of The Money Council.

Shay Davis:
Absolutely. So before the launch of The Money Council, I spent nine years in corporate America.

Dayna Thomas, Esq.:
Wow.

Shay Davis:
Big corporation, Fortune 100. And after those nine years, the company really started going through uncertainty. We had three CEOs in a matter of two years.

Dayna Thomas, Esq.:
Wow.

Shay Davis:
And with that came a lot of change. A lot of job uncertainty in ways that made me feel scared and fearful. So while I was in corporate America, I had a lot of friends ask me for money advice as it relates to getting debt free, building their foundation for their businesses. So I was like, “Well, why don’t I just go into business as being a money counselor?” That’s initially what I thought about, the money counselor. And then from that, me being the brains behind the money counselor, starting the business, The Money Council. So offering tax, accounting and financial services.

Dayna Thomas, Esq.:
That’s awesome because when people often ask, “I want to be an entrepreneur, but what should I offer?” A lot of times they say, “Well, what do people ask you for help with?” That usually will lead you to what you should be starting a business for. And that’s exactly what you did.

Dayna Thomas, Esq.:
So you started The Money Council and so what services does The Money Council offer?

Shay Davis:
Yep. So think about your business and the foundation of your business. We offer three key services that’s based on the evolution of your business. Of starting your business, needing the organization behind that. So that’s going to be the basic bookkeeping, which is the foundation. And then we also offer CFO services. So looking at insights for your business to help you make better business decisions that are data driven and help you really drive ROI to increase your sales and profit. That’s the second piece.

Shay Davis:
And then at the end of the year, we all think about tax preparation, which is really scary for some, if they don’t do the necessary tax planning throughout the year. So we offer the tax preparation services at the top of the year, which usually runs between January and April. And if you get an extension, longer. But we do that at the end of the year to support entrepreneurs, as well.

Dayna Thomas, Esq.:
And that’s awesome. You mentioned CFO services. So a lot of times we think, only these big corporations have a CFO, it sounds like something so big and something we can’t attain or even have or hire as a small business. So I think it was great. Not only great branding because having a CFO as a small business, I think that sounds great. But realistically it’s necessary. Because if people aren’t making money, but not making good decisions with their money. And not seeing, “Hey, am I spending more here and not even making up for it?” Like, even if you have those financial statements, if you’re not analyzing it properly and making better decisions based off of it, then it’s not that helpful.

Shay Davis:
It’s not going to impact your business at all. And a lot of people do think it’s scary. When you’re in a corporation, there’s a CEO, which from a small business standpoint, that’s the business owner. Every CEO should have that CFO that they can partner with. As a CEO of myself, I have all of these big ideas that will generate income. But if you don’t have someone that’s stepping you through that process to say, “Do this idea first because it will help you make money in X, Y, and Z. It’s not going to cost you that much money to launch that idea compared to some of those other capital intensive ideas.”

Dayna Thomas, Esq.:
Absolutely.

Shay Davis:
Helping you strategize around those ideas will help you like either make or break your business.

Dayna Thomas, Esq.:
That is so true. And one thing I’m also going to bring up is that I form a lot of businesses and corporations and companies. And one thing that corporations do have to include in some of their filings is who the CEO is, who the CFO is, or the treasurer, and who the secretary is. Those three roles. And a lot of times, of course, there’s a CEO or the owner of the business. And then entrepreneurs often want to hire a virtual assistant or a secretary, somebody to help with the admin stuff. But where’s that-

Shay Davis:
The CFO.

Dayna Thomas, Esq.:
CFO. So it’s so necessary, but I think people don’t think about it or entrepreneurs don’t think about it soon enough. And so I think that you’re in a great space with what you offer, because it’s true. It’s not just for these big corporations. Small businesses need it, as well, to learn how to make more money.

Shay Davis:
Exactly.

Dayna Thomas, Esq.:
So one other thing that you mentioned was bookkeeping. So can you define what bookkeeping is?

Shay Davis:
Yeah.

Dayna Thomas, Esq.:
And why is it important for entrepreneurs?

Shay Davis:
So you hear the saying, “Stay ready so you don’t have to get ready.”

Dayna Thomas, Esq.:
That’s right.

Shay Davis:
That’s what bookkeeping allows you to do for your business. It is not just something you do for tax planning, it provides other insights for your business. So bookkeeping is keeping your books organized and making sure you’re able to categorize transactions into their appropriate places. So when you have the bookkeeping done for your business, it is then easy for your tax planner or your tax preparation provider to be able to do your taxes with ease without causing you a lot of stress, overwhelm and headache.

Dayna Thomas, Esq.:
Absolutely.

Shay Davis:
And then the other thing from a foundational standpoint is bookkeeping allows you to make those insights about your business. So one thing that a lot of entrepreneurs do, for example, is they might run a sale. But they’re not thinking about all the components of their business, of what it takes to run the business. So when they run the sale, they might think, 50% off. But they’re only considering the cost that it took them to purchase the product or provide the service. They’re not thinking about all the other fixed expenses associated with it. So bookkeeping allows you to understand those insights so that you’re able to be strategic about things that you want to do for your business.

Dayna Thomas, Esq.:
Absolutely. And I ask you about that because I like to be honest with the audience. Because everyone doesn’t know everything from the beginning. And to be honest, I wasn’t doing bookkeeping in the beginning and I had to learn because once that first year of tax time came around and it was great, like I made a good amount of money. But then when it came to, well, what are your expenses? What are deductions? I’m like, I know it was a lot. So you learn from your mistakes along the way. So I’m so glad that we’re having this conversation because bookkeeping, just like a CFO or someone that assists with your finances, is not just for major companies. It is for small businesses, it’s for new businesses, as well. So we’re getting that information today.

Dayna Thomas, Esq.:
So along the lines of that, what would you say are three mistakes that you often see that entrepreneurs make with their taxes, their finances, and just money in general?

Shay Davis:
Yep. So what I would say is when it comes to taxes, a lot of people think that we do the taxes at the end of the year. And most entrepreneurs don’t understand that taxes are paid four times during the year so that it minimized the impacts of your pockets and the impact to your cash at the end of the year. So not making those estimated taxes is like a huge mistake that I see, especially when there’s profit in the business.

Shay Davis:
The second mistake that I’ll say is that I see so many entrepreneurs that we’ve already talked about in the beauty space that offer sales without understanding the overall-

Dayna Thomas, Esq.:
That’s true.

Shay Davis:
Pricing, structure and cost structure of their business. So they end up selling at a loss and then at the end of the month, they’re like, “Well, why am I losing money?”

Dayna Thomas, Esq.:
I did a sale. I sold more than I ever did.

Shay Davis:
Exactly. This is a large month-

Dayna Thomas, Esq.:
But you had to spend more-

Shay Davis:
Exactly.

Dayna Thomas, Esq.:
Than you made.

Shay Davis:
Exactly. And then the third thing I’ll say is for brands that actually sell something that’s tangible. We have federal taxes, we have state taxes. But for those companies that sell tangible products, there’s also sales and local taxes. And depending on how big you are, those rules are so complex where you can trigger all states, depending on how much you sold into that state.

Dayna Thomas, Esq.:
Oh my goodness.

Shay Davis:
So not understanding those elements can really make or break your business. So it’s really important that you strategize with an accountant to understand everything that’s impacting your business, because everybody wants a piece of the pie.

Dayna Thomas, Esq.:
That is so true.

Shay Davis:
So I always say, the five P’s.

Dayna Thomas, Esq.:
Oh, tell us.

Shay Davis:
Proper planning prevents poor performance. So that’s what you need to think when you think of an accountant, bookkeeper and tax planning.

Dayna Thomas, Esq.:
This reminds me of legal services because a lot of times people don’t even want to think about legal services because it’s just like so much. But it’s so important. And people like us are able to break it down into small pieces so that it’s not so intimidating for entrepreneurs. And so that’s one of the goals that I have, especially with this show, because there’s so much that entrepreneurs have to think about.

Shay Davis:
Yes.

Dayna Thomas, Esq.:
And sometimes it’s easier to focus on the fun stuff like branding and your logo and all that good stuff. But when it comes to these things, it’s so important because you could make money all day. But if you can’t keep the money-

Shay Davis:
Exactly.

Dayna Thomas, Esq.:
That you’re making and make better decisions than in the future, it’s going to be hard to grow.

Shay Davis:
Exactly.

Dayna Thomas, Esq.:
So S-Corps, when I see you on social media-

Shay Davis:
My favorite thing.

Dayna Thomas, Esq.:
I see a lot of information that you share about S-Corps. So tell us what an S-Corp is, what the benefits of an S-Corp is, and then also when should an entrepreneur elect to be taxed as an S-Corp?

Shay Davis:
Yep. So an S-Corp is not an entity formation status.

Dayna Thomas, Esq.:
Say it again. Say it one more time.

Shay Davis:
It is not-

Dayna Thomas, Esq.:
Say that one more time.

Shay Davis:
An entity formation status. Okay. An S-Corp is an election that you take with the IRS that you have to get permission for. And there’s times when you do it. You have to do it before March 15th to get credit for the full year. And if you do it after March 15th, you won’t get credit unless they’re extenuating circumstances.

Shay Davis:
The benefit of an S-Corp very simply is it allows you to slash self-employment taxes. Self-employment taxes are a component of your federal income tax. But it really helps you slash self-employment taxes. And the percentage is not a static amount. The more you make, the more you’re able to save. So as far as when to do a S election, you’ll see a lot of these influencer CPAs that talk about 40k is the magic number. But you want to do an S-Corp election. When the benefits of the savings from self-employment taxes outweighs the compliance of having to do all of the bookkeeping necessary with it and the accounting fees associated with that S election.

Shay Davis:
So getting with an accountant like myself, we’ll help you understand when that break even analysis makes sense for you. But 60k is usually around that threshold where the benefits outweigh the cost.

Dayna Thomas, Esq.:
Okay. So I want to talk to the viewers because this part is so important. I see it all the time, I get this question all the time. Should I be an LLC? Or should I be an S-Corp? That question does not make sense. And you’re going to learn that today and you’re never going to say that again. You can be, or have an LLC, and also elect to be taxed as an S-Corp. An LLC, a corporation, those are business entity structure. So that is what you file. You file the paperwork with your state to form your business entity, which can be an LLC, can be a corporation. However, you can also take it a step further and file a document with the IRS so that you can elect to be taxed as an S-Corp. So you can have an LLC, but then elect to be taxed as an S-Corp. So an S-Corp is not a structure, it’s a way to be taxed by the IRS. All right. So now you know.

Dayna Thomas, Esq.:
I want to expand on that a little bit. So in terms of when to elect to be a tax Corp. Because I also agree that it’s not a magic number. So tell me if this would be true. Say someone is in their first year of business and say they make $80,000 that year. But it took them 75,000 to make that 80,000. Would you agree that they should not elect to be an S-Corp at that time, because they have 75,000 in legitimate deductions?

Shay Davis:
Yeah.

Dayna Thomas, Esq.:
And so your taxable income is really only $5,000, right?

Shay Davis:
Exactly.

Dayna Thomas, Esq.:
So you don’t need-

Shay Davis:
Exactly.

Dayna Thomas, Esq.:
To elect to be an S-Corp because if you’re only paying taxes on 5,000, it’s not going to be very much.

Shay Davis:
Exactly. So I want to expand on that. Because when you elect to be taxed as an S-Corp, the compliance requirements are that you have to become an employee of your business. So if you’re only making $5,000, what they say is you should be making a reasonable salary, a reasonable compensation. So at 5,000, there’s no way that you’ll be able to make a reasonable compensation because 5,000 is not reasonable per IRS standards. So in that situation, their net profit is five. So no, you wouldn’t do it.

Shay Davis:
Now on the other angle, say for instance, you are a brand new business that started year one. And in year one, you made 80k in profit. It’s past March 15th, you set yourself up on payroll at the beginning of the year because you had the forecast, you had that CFO that told you were going to make 75,000 or 80,000, and you missed the deadline. There are situations where you can do a late S election to be taxed as an S-Corp for that first year of business for that full year. So there are situations where I would recommend you do the late election, so that you can get credit for those tax deductions and tax advantages for the S-Corp.

Dayna Thomas, Esq.:
Okay. Awesome. So on the flip side of my first example, now that entrepreneur is in year two and they make 200,000, it was a great year, they make $200,000. And they now, because they’re a little bit more seasoned, they become more efficient. They only had to spend 80,000 to make that 200. Now it’s looking like the S-Corp is the-

Shay Davis:
Yes.

Dayna Thomas, Esq.:
Right thing to do, right?

Shay Davis:
Yes, absolutely.

Dayna Thomas, Esq.:
Awesome.

Shay Davis:
Now, when you’re in that second year of business, this is where it gets tricky because the government, the IRS says, if you can forecast … again, CFO is important. If you can forecast that you have the ability to make 200 in net profit, you need to get your S election in right before March 15th.

Dayna Thomas, Esq.:
Got it.

Shay Davis:
That’s the deadline. There are situations where you can get late S election status, but those are very rare for businesses who are in their second, third year. So in that situation, I would say yes, but you would need to do it before March 15th.

Dayna Thomas, Esq.:
Awesome. So the takeaway from that is that if you have not elected to be an S Corp and you feel like you’re paying so much in taxes and you just made so much money this year, then definitely speak to your accountant, your tax professional about electing to be at S-Corp by the March 15th deadline.

Dayna Thomas, Esq.:
So taxes. So for someone who is watching and saying, “You know what? I’m so inspired to do my tax planning correctly.” So what are the basics of tax planning for someone who is ready to do things the right way?

Shay Davis:
Yep. So again, back to the five P’s, which we already stated. Tax planning allows you to understand what your profit is going to be throughout the year, so that you can appropriately plan to either reduce your taxes legally by the tax code or put the money aside so that you can pay them on time, based on the estimated tax deadlines that are designated throughout the year. So think of a sinking fund. That’s what tax planning allows you to do is understand your tax obligation with the IRS and allows you to plan to legally reduce that obligation.

Dayna Thomas, Esq.:
Awesome. Legally reduce it. We like it. So speaking of that, what are a few business deductions that entrepreneurs normally don’t think of? So we hear about your office expenses, if you pay staff, like we get those things. The reason I’m asking this is because I came across this story one time where someone deducted their yacht as a business expense, and they got audited for that. And after the audit, the auditor from the IRS said, you know what? It is a business expense because they said they were using that to … I think they were in real estate. And they were using the yacht to wine and dine and entertain their potential clients because they were in a high net worth industry. And that was what’s required in order to compete in the market. So we would never normally think a yacht. But what are some things we normally don’t think of that they can deduct?

Shay Davis:
So going to that, the IRS will allow you to write off something that is ordinary and necessary for your business. And before you take any deduction, you should always talk to an accountant because there’s tax law and tax cases that you’re allowed to say per reasonable basis. And under this industry standard, the client can do this. As long as that is denoted in your tax return, it reduces penalties and interest and all of that.

Shay Davis:
So some of the things you hear about is home office deduction. But a lot of people don’t understand that if you own a home, the depreciation associated with that home can also be taken off-

Dayna Thomas, Esq.:
Awesome.

Shay Davis:
As a tax deduction. So make sure that you get that. The other piece I’ll say is that retirement planning often goes undone for an entrepreneur. And one of the tenants at The Money Council is wealth building. So retirement planning is usually the last thing on the list, but the IRS allows you to write off up to 58,000 from a retirement planning plan.

Dayna Thomas, Esq.:
I did not know that.

Shay Davis:
You didn’t know that?

Dayna Thomas, Esq.:
No, I didn’t.

Shay Davis:
Oh, we should chat.

Dayna Thomas, Esq.:
That’s fantastic.

Shay Davis:
So yes, they allow you to write off up to 58,000 and there are three different types of retirement plans for that. One of the popular ones is the S&P and solo 401k. So if you are a new entrepreneur and say, for instance, you’re a side hustler and you are making profit in your business, it’s up to 58,000. So you could invest your entire profit from your business if it’s under that and get a tax write off for it. So I strongly recommend folks invest in the retirement option so that they’re able to take the max deduction there. Because it only improves your wealth situation and we all got to retire at some point. So why not do it?

Dayna Thomas, Esq.:
Absolutely. So in speaking of deductions, I want to talk about something that I went through. So I bought two properties in my life, so far, and I’ve been a full-time entrepreneur when that was happening. And so I learned a lot along the way. Because in one breath, I want to use all of my available deductions so that I can legally pay the least amount in taxes as required to. But then when you’re buying a house, you can’t deduct everything-

Shay Davis:
Exactly.

Dayna Thomas, Esq.:
Because then it looks like you make no money-

Shay Davis:
Exactly.

Dayna Thomas, Esq.:
And you can’t afford the house.

Shay Davis:
Exactly.

Dayna Thomas, Esq.:
So help us with that situation, just what would you advise a client from a tax perspective on how to balance that?

Shay Davis:
So I always say do a twofer. So we just talked about the solo 401k. A lot of entrepreneurs don’t know about this tax strategy. It’s not often used, but it can be done. So when you invest in your solo, 401k, you’re able to get that tax deduction in the year that you invest in it. But during the year that it’s time to decide whether you are going to get a house. We actually did a live about this. There’s two ways that you can qualify for that home mortgage. So it is based on your tax returns and they’ll look at certain metrics related to your net profit, your debt to income ratio and all of that. But the nontraditional way is bank statement loans. So those might be higher in interest-

Dayna Thomas, Esq.:
I started hearing about that. Yeah.

Shay Davis:
Those might be higher in interest, but what it shows is your change in equity month over month. And as long as your bank statement shows improvement in that you’re able to afford the home, you can get the home that way.

Dayna Thomas, Esq.:
That’s right.

Shay Davis:
And then the other thing is down payments. Down payments is anywhere between 12% of the home value and it can be more. So one way to leverage your down payments and get that money if you don’t have a lot of cash sitting is tapping into that solo 401k that we talked about. So that solo 401k is used for retirement, but they do allow you to take a loan against your solo 401k. I think it’s within five years and as long as you pay it back within five years or over the course of your primary residence, then that’s an option for you too.

Dayna Thomas, Esq.:
That is amazing. So I know that a lot of our viewers are mind blown right now with all that they’ve learned on how to be better entrepreneurs, how to make more money, save their money, all that good stuff. And I know they want to know how they can contact you so that they can just be a part of your world, learn more from you and your services. So how can viewers stay in contact with you and reach out?

Shay Davis:
So the easiest way is going to be on Instagram, that is our primary platform. And you can go to @theMoneyCouncil. There’s three ways to spell it, so make sure you get the spelling right. Or if you want to understand our services, you can just go to The Money Council spell anyway, to understand what we do as a business.

Dayna Thomas, Esq.:
That’s awesome. I’m not going to let that slide because you said spelled anyway.

Shay Davis:
Yeah.

Dayna Thomas, Esq.:
Which is important because a lot of people get domain names wrong.

Shay Davis:
Yeah.

Dayna Thomas, Esq.:
But you invest it in your brand enough to buy it with the incorrect spelling.

Shay Davis:
Yeah.

Dayna Thomas, Esq.:
So that you can capture the audience that’s meant for you. So-

Shay Davis:
Exactly.

Dayna Thomas, Esq.:
Kudos to you. Thank you so much for being here.

Shay Davis:
You’re welcome. Thank you for having me.

Dayna Thomas, Esq.:
And I can’t wait to even continue the conversation.

Shay Davis:
Absolutely.

Dayna Thomas, Esq.:
Thanks, Shay.

Shay Davis:
Thank you, Dayna.

Dayna Thomas, Esq.:
Be sure to share today’s show with someone who can benefit and visit MyASBN.com and subscribe. If you have any questions or comments about today’s show, I would love to hear from you, send me a message or comment on Instagram at @daynathomaslaw. Remember to tune in next week and every week to make sure your business is launched and legal.