PoP 158 | S-Corps, LLCs, and Tax Structure for Private Practice with CPA Ron Harris

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Accountancy for Private Practice with CPA Ron Harris

Today we’re talking about S-Corps, LLCs, and Tax Structure with Certified Public Accountant, Ron Harris.

For a free 15 minute web video conference with Ron Harris, click here.

Meet Ron Harris

Ron Harris CPARon Harris, CPA, is the Managing Partner of Harris Group CPAs, located in Traverse City Michigan. Ron is a graduate of Central Michigan University. His career started at a large local firm in Lansing Mi, where he was a manager in the Audit Department. In 2000, he purchased his firm in Traverse City and  transformed the firm from an audit and tax practice to an accounting, consulting and tax practice. The firm uses the best internet technologies to work efficiently with their clients. Ron serves as the Vice President of Mt Holiday Ski Area and is involved in other local business associations.

His Skype is rharriscpa

Meet Joe Sanok

consultant headshot JoeJoe Sanok, MA, LLP, LPC, NCC is one of the world’s leading private practice consultants. He is the owner of the Traverse City counseling practice, Mental Wellness Counseling. Joe helps counselors to start private practices and grow them.



Podcast Transcription

Pop 158 | S-Corps, Llcs, And Tax Structure For Private Practice With Cpa Ron Harris

[0:00] Music.

[0:26] Are doing awesome in your life at practice of the practice world headquarters downtown traverse city.
Me and this week has been so fine i’ve been getting ready for piano and practice even though the time this a.
But need to have all of these people flying in and we’re gonna be doing consulting and wine tasting i just love these in person events whether it’s this most awesome conference or brewer practice,
i’m just so excited to hang out with people,
so he if you want to hang out the next event that i’m doing is september twenty ninth and thirtieth my wife and i just got a vacation rental down in asheville,
it’s in the mountains and they give you a dozen eggs when you get there from their chickens and the goats and they have massage therapists there,
and is the same price as your can typical hotel so if you wanna hang out in the mountains in autumn in asheville north carolina had an over to practiceofthepractice.com/brew,
and then re direct you to landing page it’s only a thousand bucks and you’re gonna get too full days of consulting growing your practice and are lying there is just gonna be so much ri meaning return on investment,
so loved hanging with you get to know you help you grow your practice into and really focus today format,
with allison for your engine carter but today i have ron harris with me and.

[1:57] I’m gonna let passed me tell future me about.

[2:02] Well i pri recorded the intro and just not a good hand for that so i may not do that again so here’s me.

[2:09] Today i’m so excited have ron harris up here on the podcast is the managing partner of harris group’s up is located just right here in traverse city michigan he’s a gradual central michigan university,
and his career started a large local firm in lansing michigan where he was the manager,
in the audit department in two thousand he purchased his firm in traverse city and transfer on the firm for just an audit and tax practice,
tune accounting consulting and tax practice and he uses the best internet technologies to work efficiency efficiently with his clients so ron harris welcome to the practice the practice podcast.
Thank you joe i noticed that your buyer didn’t have that you’re also joe sam axe cpa and there will we have to be careful with.
There’s something in jail that’s true us as counselors we know that as well so the run is actually my cpa and he and i were talking about all they can ups and downs and i’ve had in my practice regards to knowing.
When should i have an llc when should i be ask where can all the airs people have and i wanted him to come on the podcast just share with you guys about,
what it takes to run a practice from a can of accounting standpoint so run but we just start with like what are some of the things that’s kind of the typical small business does incorrectly.

[3:29] Well what we will find is documentation and how are.
Normally small businesses thank on small i don’t even have an accounting system and i would are you that’s incorrect.
Every business needs to have an accounting system you is quickbooks,
you’re lying quickbooks online were quickbooks desktop were there is because you need an area to house all of your documentation.
You only way we can put a.
Salad can be tax return together is that we know we good population of all business expenses during the year.

[4:10] That like i think about how i was doing it up till how we met like a year ago and,
i tried really hard to convince so bad at keeping track of stuff so i actually brought my wife and my book-keeper but i was literally taking receipts,
the manager or and at the end of the year i would put everything that i’ve labeled marketing in an envelope everything i’ve labeled you know,
connections with other people so when people for starting out if they do that like.
In and out of the would recommend that because that would the worst or is there something you.
What is worse when you be having a holder that says marketing the reason we’re writing accounting system.
Is it faster or you know your business you should have your own checking account for the business you should have your own credit card for the business.
When you coming all your business expenses in your personal expenses and how to get full-time.
More blah area is very rude to say.
And so we can really define that population and we know everything that ran the business checking account is for the business and everything on the business credit cards for business.
Makes a lot easier for tax return together to do task plans during the year.
When somebody uses their personal checking account for both business and personal activity.
You know what’s gonna happen is you’re gonna miss some expenses are gonna be something i can’t remember was dinner last thursday was at a business dinner or something i can’t remember.

[5:49] You’re always know how many times you were best buy and buy some beer you equipment well.
You know was that from home to erase that or accessories for your computer.
If you have a separation between business and personal it really makes it very using fishing in a year or during the year to provide some financial statements to the business owner.
Well and i would guess it and one side if you’re missing things that you could be riding off in your paying taxes you don’t need to or on the other side of your.
Getting your own personal mixed in your business i imagine the isn’t to find that either so i can either way it’s not a good sitch.
Why not really comes back on you have a clear picture of what the business is doing how you know me here if you not having good solid financial information should a business decisions.
But i definitely can’t go upstream and a little bit like to talk about how people should structure and then the bank account and go to the white house that whole flow,
but les is gonna talk a little bit about you by this business and two thousand,
tell me about it kinda how you got into accounting and why its important to you and then we’ll go back to some of the business side of it so i don’t know.
It’s really simple ass how i got into town i was sitting in eleventh grade in high school accounting one one hundred one ears.

[7:19] My career choices and two bags i was either gonna be a truck driver.
Recount now a lot of people think i’m joking when i say that but i am devon’s.
In the truck driver aspect i low because you can see the country you’re gonna see you every state.
In this beautiful country and i thought it would just be awesome incl love traveling at times it really do it.
Well the person but when i realized what are dryer makes which they make good money.
But doesn’t realize when you have a family and a little more difficult to be home so i really loved that accounting class and maybe was because of teacher was teaching at,
but that lives in reno i think maybe a hole in my regular dr truck for the rest of my life with.

[8:11] So it seems that wasn’t about accounting eleventh grade they you just loved it so much.

[8:17] Oh is very analytical person and you know so i hold everything down backs in the numbers in is of county for me.
Is very loud and i know for a lot of people they think that well you know numbers don’t make sense to me well.
No numbers they just the statement i understand i can do i notice a pattern i can interpret what a certain number means on a financial statement.
Moms are very good that you’ll understanding how numbers relate your business in that’s going really hard drive.
By reading financial statements is working with my clients i can only hope to increase your business i can tell we’re making.
Mistakes in your business or whether or not.
Acquiring you officer a new division is gonna make sense or in a new vehicle or business is gonna make sense we can handle eyes are there in and trinidad a little business decision,
it is the greek army fucking hate numbers and how people run their business,
buy explaining what was never miss their business and you know how i can however.
Well i think that’s one thing that i didn’t expect in bringing on an accountant was just how much time it’s freed up and also time doing things that i really was bad and i didn’t like doing and then to let,
you guys do and you’ll love numbers years then doing what you do best and i’m doing what i do best and.

[9:51] To me it that was just something i did for see happening so quickly in switching over to having accounting vs just kind of putting receipts in a shoebox basically.
You know what i have an agreement with one of my clients electrician.
We agreed i will not the wires in my house for my building people up to the counter you know it you’re really into you use crackle you are good at.
We were back in and together we’re gonna make a better business for you because worked okay signal one good.
Um i see that on my finances.
You have to one in this is really good when you have walking have her business you back and you have to understand that you know how you every single ask for your business.
You focus on what you are good at home in most towns are not good account and that’s perfect because you know we are.
And from her we can build backend to support every practice out there margarita small to know how.
You are all in or all your.
How’s i have practice is to focus on business the focus on how they’re gonna be better if their job and not worry about a month and a half ago on my car.
You leave that to somebody else who understands.

[11:22] What the numbers mean and how to unlock ray i mean like just i think it was earlier this week maybe was last week i got a packet from you guys that was a had four different forms i’d never heard of,
and it just had sign here sign here submit this is for your records and it would’ve literally take me three or four hours to just figure out,
am i supposed to file these forms like how do i file these forms am i paying the right amount of money cuz i switched over to an escort this year,
and just get in a packet spend literally two minutes all i had to do was.
Put the stamp on the envelope and send a in because you’d sent like you know the envelope with the proper address on it’s just,
is dummy proof and then i can actually do podcast i can do the things i enjoy doing rather than figuring out which format to submit to the state or the government,
yes that one and i was so my finances,
one of the things we do we solve problems you didn’t know you have in ways you don’t understand right and we wanted,
the package received was your order and payroll water require documents needed by.
Messages you when inside one lol and yeah we’d probably then had,
other tax payments automatically getting your home in all it took for you on your day was less than five minutes.
Well let’s back up a little bit so there’s two major groups are really listen to this podcast for the most part it’s people have small businesses there starting usually private practices their more on like bootstrap side of things.

[12:56] Where they can do it themselves they will but the if,
if they can do it you know they’re gonna pay a little bit of money into something than the other side of people have growing business is growing private practices they may have,
a couple of ten ninety-nine the maybe exploring bringing some w twos they’re looking to steal their business so let’s come and,
talk about some of the things that each of those two groups do it may be starting the people that are starting a private practice.
What are they need to consider before they even figure out there structure like where do we need to start why he has the structure on.
In small businesses alot of people just starting a business will run accounting clerks office and file with the va.
So i’m going around here is doing business is around here is our well.
That is required some levels but it doesn’t give you any liability protection.
So if i’m performing accounting services under the va which is really just me acting as an individual.

[14:02] If i mess up one of my time ago and sue me for everything i have my house all my assets an eye on with y’all outside of my crackers.
Do we always recommend a minimum setting up a single member limited liability.
Now course the rules for sees you change my stays on so this is where we only want women to say it’s all your will attorney setting this up we do not set up.
Any businesses we are referral attorney to make sure there’s properly.
Where the llc will get a small business liability protection what that means is if you don’t by chance you get sued by on.
Yeah i’m going to go after using the assets within the sea lice my current check my business checking account balance or maybe my receivables or something like that so far different number.
Where are my sunglasses that are being held outside or me for you’re in total personally.
Translate counselor definitely just doing a DBA like just rule that out and at minimum you want to be a pea LLC or an LLC depending on your state.
That’s actually correct okay.
What’s the wind when does it make sense that would make sense for someone just starting out to jump to i can’t s corp or is that kind of the other group the people that are growing.

[15:23] Welcome to the ball you know when we were always in we have.
The good thing that is sometimes the attorneys are just gonna pigeonhole you into something that isn’t necessarily where you wanna go so it’s good to have a conversation had a.
So my question is your next level is from an llc and then you can go to ask corporation there.
Are big drop-off point are there many reasons for you than whatever joan aspiration.
But i think the biggest thing from a movie just started avenue is are having orgies right about.
If you have employees me so you’re gonna be running payroll.
Then it makes sense to ride moving on that one of the requirements if you are asked corporation or llc.
Is that the owner of the us corporation providing services with an expiration hasta k in payroll.

[16:32] So you’re gonna have employees anyways we’re gonna go and recommend that we sight read and exploration room start now when you see employees that wouldn’t include ten ninety-nine contractors i assume that’s correct would not rude,
ninety nine hundred ninety nine hundred are not considered employees.
I’m by rule is you have control over is services for you.
So just for people that have never heard of these terms before i feel like they’re in their accounting one one classroom school,
what’s a w two is coming your typical employee and cracked me rank is you’re the what maybe i should let you do this cuz your account usually and like i’m not account now i actually have one on the show right now so,
how do you what the quick bullet points of w two vs a ten ninety-nine.
So i have to stay in my system for example i told her to be here at eight thirty and she can live just work five days a week and she has to do what i howard.
What’s an employee i control the situation a contractor is.
Hey i need some artwork designs for my business here’s the answer go ahead and do it.

[17:42] Sell eight wraps you know when the mp under schedule they are completely invoice me for service when they are completely.
And and cracked if i’m wrong but the way that i describe often to my consulting clients is when you think about the person that may mower your lawn,
you wouldn’t tell i don’t like your red shirt you need to wear a blue shirt when you’re at my when you’re my place you wouldn’t say you have to cut it on tuesdays eighty and would be cut it sometime this week,
in the same way a ten ninety-nine contractor see a counselor you can’t tell them hey i don’t want to wear flip flops to work you can’t tell them you have to only see people at these times,
always there more on the w two territory.
That’s the one in the key to paris all control you control where person works with the.
If you control it probably would you use employee if you don’t control that relationship.
I miss more a vendor relationships than there and i’m in certain states i have,
stricter employment laws in california texas utah tends to have them they look down upon ten ninety nine’s a little bit more than other states and that’s why working with someone like ron it’s really important to have someone that understands,
not just national but state line on that’s where you’ll have an accountant look at that is really important,
but some of the size i want employees they say no i don’t red wine please and might like contractors eventually then it sounds like a pllc or else you might be best but if they want to have employees right from the get go.

[19:17] Then probably jumping to ask what would make sense but correct me okay,
so what else so you file then new private practice what do we need to consider in like that first year two of private practice regards to expenses what they can write off all those things.

[19:34] Interesting as a question in a way that i am always available per class will be answered this more camera.

[19:44] And i look at me the answers so easy and obvious understand why you questions all.
Or where you can rock is anything that has to do with your business and so you think about percent is.
Yeah i think problem is pale evaluating hours now is such a big an unknown variable while i really see that doesn’t universal.
Caroline for a business expense you know it was for your business you can write.
Now i have to be legal you can buy marijuana or does it have to be a business expense but.

[20:25] And yeah you take it boil it down as one using gps or.
You’re my soul will always only find from amazon lol i do it with myself on my.
No email my eyes are you my cell phone so does a business expense yeah there’s some personal aspect to it but.
Predominantly it’s a business expense so you look at every single fans from the same point and say well was it for my business.
If you can say yes and prove that was reasonable and necessary for your business that can be expense so you have a break for example i love you just wanna car.
I’m doing the tax return did you write up my will.

[21:12] As with what do you mean are you physical therapy mr you know i am you know i sell products.

[21:21] Well i somehow how is your cool business expense well sometimes i have some of my rights over where and how we cocktails and pool.

[21:33] Oh okay i guess sometimes i go swimming yeah owner of my will.

[21:39] And is it now to one thousand using it as a business expense.
And i said well whatever also you were married nasser you to do your job you need how.
You know you as a cpa i need help how to layers computers absolutely right to have a whole new my job now actually now.
That’s when the irs was it reasonable and necessary for you to do your job.
If you pass that test if you will the irs is generally an all expense.
So think one question i get a lot that i defer is can i write off meals what kind of meals can i write off what would you say if has irs you that.
So the irs you business nails to use a harley or a client or any business relationship is a large.
That is a business meal on you see you have the documents always with what the business topics were discussed.
You again you can sell it as part of it is.
You know i look activity i get you make dollar seven dollars and jimmy johns sauce for five dollars in your house and this is larry lunch.

[23:02] Well everyone has a lunch.
Whether or not it’s a business deal is all predicated on did you conduct business while you were at lunch just because you a lunch doesn’t necessarily mean it was a business me are you actually have to conduct business.
So the irs saying i need who is with them what the business was house.

[23:22] Okay so then other than kinda keeping track can filing for new practices any other kind of big things that we wanna make sure we note in the first couple years of business from an accounting standpoint.
Yeah i think you know we had our ups or what it.
So what’s a tune junior usually use unit example having employees you know when we look to your.
I didn’t evaluation so you know we could save some money so no money you saved having with eight grand ten grand something like that crazy this number.
And also we let them go we can bird mutual has corporation we can say you eighty nine thousand dollars how can the hands on the net income in your business.

[24:12] Um do you guys have a complex that why white wire we do that but in short.
If you’re filing your practice on a schedule c i am your time for all of that on the subject to self employment tax.

[24:29] Which is fifteen point three percent so let’s say for example you had a hundred thousand dollars in your back.

[24:37] That’s gonna be subject to self-employment taxes fifteen point three percent plus regular income tax no.

[24:46] Twenty percent twenty five percent thirty percent depending on what other income you may have household.

[24:52] What we can do to ask for operation we have today which one payroll.
But let’s see about hundred thousand profit we doing payroll or fifty thousand.

[25:05] No instead of the four hundred thousand dollars be subject to self-employment taxes which your social security and your medicare.
Only fifty dollar that is subject to those taxes so i can we,
so i’m fifteen thousand three hundred and social security taxes you’re going to have a roughly seventy five hundred dollars and social security taxes.
Now listen administration ball and some other use you’re gonna pay generally.
Is someone around eight hundred thousand dollar not in public knowledge that the number i use before we do a version that.
You can see your significant savings of seventy out so that you that goes to the you know that’s why you wanna have an advisor where us up,
you just file your taxes on turbotax you remember no say turbo tax is gonna have a couple of boxes as you know up her dress corp and see you my.
You know so you don’t have to be working with an advisor to make sure that their your saving all the taxes.
It is as much federal taxes as possible with the season move us into the people that are growing a practice to say someone that.
Sixty seven thousand dollars are looking at bringing on contractors are w two’s what should they be aware of this may be different from the people that are just starting a practice.

[26:30] You are going to your tax will they have a consistent income stream year your year you know that you are the star right decisions are so hard on structure is there a better structure state taxes.
Dead kevin continually be looking at.
I always miss you guys waiting we’re er what could a potential change in their structures save them and taxes.
So i know some of the things you advise christina and myself and was looking at retirement looking at five twenty nine accounts for kids looking at the sa contributions can maybe talk about.
So the tax benefits of using extra income or extra can a savings that you have towards that and how that affects the tax situation.
Share in such as retirement contributions obviously very important we can probably house or i can sing at.
It is a contributions all anything you you’ll of that high.
Becomes a deduction against your regular taxable and how.
The house is the retirement as you get suction extract one call but also have that money growing for your retirement.
And twice a week probably to another is on that will one day recommendations order is based on budget you know who is locked away in a retirement account and because you’re essentially paying your cell and getting a tax deduction.

[28:01] What you get to that point your practice where you how they’re sa extra money.
You need to help these other avenues such as retirement age is a is.
To make sure that you know there are other avenues anyway to say today’s tax dollars and the rules some dollars tax-free on board.

[28:25] So what did i miss interesting questions about starting a practice are growing a practice in any kind of next steps that they missed in that.

[28:35] What’s the what’s important you know when i do this everyday at my practice for sixteen years i spend a portion of almost every day.
Working on my crackers working on the business aspect of owning a cat for.
Sometimes business owners we get lost in the day-to-day grind i need your answer or our i need to do this hope you can hear this actuated.
Yeah you know i always wanna make sure that is in were all business owners or i should say in the beginning where all business owners.
And you need to think about your business.
Now what do you do not know providing counseling services not provided me for a tax return you need to think about the business.
All the professional here at and how can i have a better business how to operate more efficiently so so that doesn’t matter your day one of having your practice or a or five years and having practice.
Every day or monthly minimum you should spend some time on how am i running my business what can i be doing better in my business and it is the most important anyways.
We are.
If you are thinking about your business than somebody else is gonna do your business better and could potentially take your customers from.
I feel like you can’t answer this already but every counselor in the world were listening right now any final advice you wanna make sure that they had yeah i’d.

[30:10] I guess i jump the gun will early no that’s okay i can have it open ended question for an open ended question hope person foremost.
Is documentation and organization of i been through the water to my career.
In the class you have great documentation and organization sale road you know very minor adjustments any.
The ones you were disorganized.
You know that was a very painful experience for the customer of mine because the irs was asking questions.
So i go back to documentation organization is one of the workers but that has just really.
State is you guys think about your business as a business.
And you’re continually tree in the line what kind you better and getting ready customers are more in really you know look at.
You who are leaders in your industry or a newly wed what can you take away from them what can you do better and really can.
Oh awesome refine the way your services to your customers.

[31:26] That’s awesome one quick question that just came to mind is how long do we need to keep all of our tax documentation and i have these boxes of tax documents like for an audit how far back do you need to keep it.
So the irs is on the home base left rear cycle.
I’m so we just completed twenty fifty tax return so they’re still need your twenty thirteen.
No that doesn’t mean you’re cute three years i file so i would say any business owner music keep a minimum of seven years documentation on file.
If the irs finds something in a few hours friday and go back as far as the one.
So definitely seven years i made a home for your all your receipts.
Bank statements and she got when he for seven years okay but they could go back farther than that if they feel like fraud is involved,
next track of your committing fraud please stop listening to my podcast i don’t want any part to do with that they keep all of your documentation to show has actually dropped,
so ron you’re giving away a fifteen to thirty minutes depending on people situation free initial consultation you’re gonna do over the web so it doesn’t matter where in the united states you live,
on cuz you’re an account in the states you probably not looking for people outside of the states and we have a bunch of people in australia new zealand canada.
Runs play not your guy for those countries.
Tell us just so we can kind of pre-qualified people so we don’t waste their time we don’t waste yours like who are the people that should probably contact you.

[32:56] Who are the people that maybe should contact somebody different well if you want to.
Using seeking advice trusted advisor we want you to dance.
There are a lot of yourselves out there that don’t wanna pay to work through professional well you know i wanted you know if you wanted to yourself that’s fine.
We really want to help clients that want to grow want to be efficient that want to focus on doing their profession.
And how to build backend support system to allow them to grow to be able to grow with them so you know you’re just a simple answer with heel.
Nine hundred nine liters know who is your recently we cannot so how.
If your been in practice for a few years and some things like iraq today you see jason are recommended we got new.
How you know.

[34:00] So we don’t work with people who are you or are on a mission is this and understand that there’s a cost involved with working professionals.
That’s why you generally in fifteen to twenty minute conversation do when the.
We can kinda horny and what are not working do that for each other all i receive many appointments and you know you can generally tell right away.
This person is looking for some free advice and i want to go somewhere else or hey what you really brought up a point that i cast no one’s ever talked to me about it need work somebody better.
And other people who work for,
I loved one before we started recording you said that it’s people who want to participate in the process and for me it’s,
when I look at the Roy on my time I mean I can show up and do counseling for you know two hundred bucks an hour or I can do Consulting higher than that.
So pain running his team to save me hours and hours like i would be the most,
over paid under qualified account if i was doing my own accounting still in so the more i think that you can evaluate want this on my pc.
In a round of it maybe not but i think contacting him if your kind of questioning whether your situation is best for you is great.
Cannot wait to take your business to the next level,
also harrisgroupcpa.com/joe is gonna send you to a contact page where you can schedule a time with ron and his team.

[35:31] To evaluate their set your situation i’m gonna have that in the show notes as well also if you an email him his email is our harris.
Harris group cpa and that’s h a r r i pass this one is there to run think you so much for being in the practice of the practice is your vacation very much.

[35:50] Music.

[36:00] So if you’re looking for a cpa that knows their press knows how to optimize your tax situation and do payroll that’s just all inclusive,
you should definitely contact ron over harrisgroupcpa.com/joe,
he’s my own account he is giving me so much great information to help me optimize my situation.
And i think he’s gonna be able to help you to pass again that’s harrisgroupcpa.com/joe,
it’s any of your free fifteen minute consultation and just what to fifteen to thirty minutes or can not just can in your situation i.
Not getting gas money also if you want to hang out the actual that the light at that link is practice at the practice.
Poor slash through it and all this is going to be over the show notes which is practice at the tax does that count for slash session one fifty eight.
Thanks for letting me into yours into your brain you are amazing and keep taking action and everything you learn to.

[37:00] Music.

[37:09] Special thanks man sounds to sexy and build the we like your music in this podcast is designed for i think it thirty two information record.
I discovered this with the understanding committed post what is the publisher rendering legal accounting clinical or other professional information if you need a professional you should find one.

[37:27] Music.