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In today’s podcast, we are going to be speaking to some experts about the accounting and business aspects of selling digital products online.
We aren’t experts so we thought we’d bring on a Josh and Courtney Bauerle from CPAonfire.com.
They are going to be answering all your questions and a few on how they make running an online business work like:
- How they met and how they balance working together from home every single day without killing each other
- Why Courtney chose to be a stay at home mom
- Should you hire a bookkeeper right off the bat or do it yourself
- Should you pay yourself right away or wait, and which is best when it comes to tax season
- What’s the difference between an LLC and an S Corp, and which should you choose
- How do you include Virtual Assistants when it comes to taxes
- Whether or not you have to charge sales tax on digital products
- Josh’s top tips for those starting out
- Courtney’s number one tip for being in a relationship with an entrepreneur
Resources mentioned in this episode:
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Can’t Miss Moments This Week:
Each week Jocelyn and I share moments that we might have missed if we had not started our online business. We hope these moments inspire you to see the possibilities and freedom online business could provide for your family.
Last week we traveled to Portland, Maine to participate in the Agents of Change conference! It was a blast, and Portland was beautiful.
Enjoy the podcast; we hope it inspires you to explore what’s possible for your family!
You can connect with S&J on social media too!
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Can’t listen right now? Read the transcript below!
SHANE: Welcome to the Flipped Lifestyle podcast, where life always comes before work. We’re your hosts, Shane and Jocelyn Sams. Join us each week as we teach you how to flip your lifestyle upside down by selling stuff online. Are you ready for something different? All right, let’s get started.
What’s up, guys? Welcome back to the Flipped Lifestyle podcast. We had a ton of email questions from you guys lately about a lot of different questions about online business and we’ve noticed a trend that many of them are about finances like business structure, bookkeeping, how to set up your online business, what you should do with that.
And a lot of those questions we haven’t emailed you back yet because we are not experts at those questions and in fact, we struggle with a lot of those questions like what’s tax deductible, how do we set up our business, how do we pay ourselves, things like that.
We have actually just hired accountants for ourselves because all of the business aspects of going online is very confusing. It’s so different than a brick and mortar business. We decided to bring on an expert or two and let them talk to you about the accounting aspect and the business aspect of internet marketing and selling digital products online.
We decided to bring on some experts today, people that deal with this kind of information every day in their business and kind of answer your questions about accounting and bookkeeping. Our guests today are Josh and Courtney Bauerle. You may know them as the CPAs behind John Lee Dumas’ Entrepreneur on Fire in his monthly income reports. Josh and Courtney, welcome to the Flipped Lifestyle podcast.
JOSH: Thanks for having us.
COURTNEY: Thank you.
SHANE: Let’s start with some more like, before we get into the accounting questions and all the questions from our audience, let’s talk more a little bit about you guys. Tell us a little bit about yourself and kind of how your business works what you do for a living?
JOSH: Yes, we live in a small town in Ohio. We actually just moved back from Denver, Colorado due to having 8-month-old twins and all our family being here. They are a lot of work so having grandmas around was a big help. I’m a CPA and I started the business originally JDB Business solutions and is now branching out to CPA on Fire and what we do is work with almost entirely entrepreneurs and we work remotely with them.
We handle everything online, through emails, and they just scan their documents and what we do is help them get their accounting in order, help them get their taxes in order, the kind of stuff you were talking about in the opening. All the questions people have. It doesn’t really matter how much you make if you’re paying it all in taxes so we try to help them keep those as low as possible.
SHANE: That’s pretty cool that you guys do it all on entrepreneurs because we really struggled to find an accountant that understood our business. We could not find anyone. We would tell accountants, “What do you do?” It’s pretty cool that you guys only kind of deal with that entrepreneurial online aspect. That’s pretty awesome because I think it’s a little bit different than brick and mortar.
JOSH: It is. It’s a fun niche to work with. It’s a fun group of people, usually a little younger and more passionate about their business, I think, sometimes. It has been fun.
JOCELYN: Great, yeah, that is just so interesting to talk about. Like Shane said, we have really struggled just to find someone who really understands what we do. We actually just started working with an accounting company out of Knoxville, Tennessee which is kind of close to where we are. We’ll see how that goes. We just started working with them.
This question is actually sort of a more personal question and we’ll go to Courtney on this one. How did you guys meet and how did you end up together?
COURTNEY: Okay, like Josh said, we are from the same small town in Ohio. I think if you’re from a small town, you know that you know everyone in that town. I think we kind of grew up knowing who each other was but about 10 years ago, I was just a junior in high school and I think Josh might have been a sophomore junior in college. He’s a little older than me.
I played high school tennis and Josh played college tennis, and he happened to be helping that year with the tennis team that I was on. That kind of developed a friendship between us and it eventually just kind of led to a dating relationship and here we are 10 years later.
SHANE: Awesome. We just had our 10th year anniversary. That’s cool. So who wins at tennis?
COURTNEY: Definitely not me.
JOSH: I don’t think we’ve played in a long time.
COURTNEY: No, yeah.
SHANE: It’s probably best for your marriage if you just stick to doubles, I would say. I would think that.
JOSH: We have played in a couple of mixed doubles tournament and that was pretty fun.
COURTNEY: I think we lost everyone because of me.
SHANE: Come on, tennis couples on fire, that’s where you’re going
JOSH: That’s a podcast right there.
SHANE: That’s a whole podcast in and of itself. Let me ask you this because you work from home, right? This is a question that we get asked all the time so we love asking other couples. How do you guys work together and organize your business and your relationship with your family and everything without killing each other? That’s the first thing people say is, “You all are together all day long, how do you do that?”
JOSH: Yeah, I think the biggest thing we do is try come up with some sort of schedule. As anyone with kids knows, it’s kind of tough to rigidly stick to that but we try to come up with a schedule or I’m in my office for a certain amount of time during the day and Courtney is with the kids during those times, but then also schedule times that I’m out helping with the kids. Maybe on lunch break, we all go for a walk together, just try to divide up the work as much as possible but then also get Courtney helping in my business as well. What was it the other day with the podcast?
COURTNEY: Yeah, so Josh had recorded a podcast and he asked me to kind of listen to it and give my feedback. I kind of had to disappoint him and tell him I thought he needed to completely re-record it. He definitely comes to me to bounce ideas off for his business and ideas, organizational tips, maybe hard situations with clients that he has. While I call myself a stay-at-home mom, I also do have to help him out a lot.
JOCELYN: Right. What led to your decision to be a stay-at-home mom instead of doing something else? Do you ever have plans to do something different in the future?
COURTNEY: I always had the desire to be a stay-at-home mom. I think all through my life, I just kind of thought that is what I wanted to do. It was just kind of something that was in me. Fortunately, I married someone who had the same views on that for our family and so when the time came that we got pregnant, we found out it was twins, we started looking into the cost of putting them in daycare, and I worked in human services at that time and we realized that I would not be making much money after we had two infants in daycare and I would be working so that kind of led to ultimately me quitting my job and relying solely on Josh’s income.
JOCELYN: Right, I love that. I think that it is so important for people who want to be a stay-at-home mom to be able to do that, or even a stay-at-home dad. We talk to a lot of people in this online business space and just even on Twitter. There are a lot of parents who either or, or both stay at home.
SHANE: It’s crazy too how many people, one of the big things we ask our audience a lot is, “What are your dreams?” We always ask people, “Why do you want to do online business because if you really just want to do it to make money, you’re probably going to fail. That can’t be your only reason.
It’s amazing how many people say, “Because my wife wants to stay at home and raise our kids” or a husband will say, “I want us all to be together in the same place.” It’s unbelievable how many times that comes up as a common theme why people want to have an online business at all.
JOSH: Yeah and it’s just so huge, if I was working in a 9-5 job, we talk about this all the time, I’d be missing so much that I’m getting to see now. When you’re at a job, you take breaks all the time but you’re not taking breaks to go spend time with your family. When I want to take a 15-minute break, I can walk out into the living room and spend time with them.
SHANE: That’s awesome. This is kind of impromptu but we always do our “Can’t Miss Moments” every week. That’s something that people love about in our podcast. We talk about things that we would have missed if we hadn’t been home like you just said and we couldn’t walk out for 15 minutes and hang out with the kids or whatever.
Can each of you give us maybe an example of something recently that you kind of got to do and you were kind of like, “Wow, this is cool that we get to do that because we are kind of a stay-at-home family.”
COURTNEY: Well actually a few weeks ago, one of our sons, Eli, started crawling and so I think it was so cool that Josh was here to witness that because it was just a random Tuesday, I think, afternoon and if he was working out of the home in an office, he would have missed that. I was able to just go in the room next door and say, “Josh, come out and watch this.”
JOSH: I don’t think it was that calm. I think it was her in the living room screaming for me to come out.
SHANE: “My kid is the greatest crawler ever!”
JOCELYN: Yeah, that’s great. That’s really why we do what we do. I think that’s great and I think our audience will really identify with that. Thanks for sharing that. Let’s go ahead and get into the bookkeeping and accounting. We threw some questions out to our audience even just this morning and we’ve had all kinds of responses and I’m really looking forward to talking to you about these questions.
One question that we really get fairly often is should I hire a bookkeeper right away or should I do it myself? What is needed in the beginning and keeping in mind that a lot of people who are starting out in online business, they are probably not making any money. What are your recommendations for hiring a bookkeeper, like how long should you wait to do that?
JOSH: Bookkeeping is a huge thing. It’s, unfortunately, one of the most neglected things that entrepreneurs have. It’s so important. It’s going to make you pay less in taxes. You’re going to pay less to get those taxes done because your CPA is not going to have as much work to go. It’s just going to help you know your numbers.
There are two things I say when it comes to bookkeeping, either you have to do it yourself or you have to hire someone to do it. If you’re just starting out and you don’t want to pay yet, you have to be disciplined enough to work those books. Whether you’re doing it once a week, once every two weeks, even once a month, you have to take that time to sit down and crunch those numbers, see where you’re at and keep your books in order.
If you’re willing to do that yourself, absolutely, do not pay someone to do it but if you know yourself and you know that’s not going to happen, then you should hire someone to do it.
SHANE: Let me ask you this, we looked at our books about a month ago and we were like, “Oh my goodness. This is terrible.” We had no clue what was going on. When we hired someone, we are going through that process of what we all should have done. Let’s try to save some people some time upfront and just in the simplest terms, what should people be keeping up with, in their books, and what are some good tools that they can use maybe online that would help them with that?
JOSH: The two things that you need to be recording would be any time an income comes in and anytime you pay expenses. What you want to do with the expenses, a lot of people make the mistake and think you can just lump sum all the expenses together and maybe record it monthly or something. What you have to do is record them by category. You want to have like office expenses, meals, and entertainment, supplies, and advertising. You want to come up with the best categories you can and then group those expenses into those categories as they happen.
As far as what tools to use, if you’re just getting started and you’re not having 100 transactions a month, just a simple spreadsheet will work. I have a spreadsheet that I give away free on my website you can use. Once you get a little more evolved and you want to get more particular with it, I would go with something like QuickBooks Online or FreshBooks which is going to just import from your bank accounts and keep it super simple for you just click a button on what category it goes to.
SHANE: So would you say that’s a good threshold is that 100 transaction in or out threshold, like once you get to the point where maybe you’re getting like up to 100 sales or you’ve got maybe 15 things going out and 75 or 80 things going in, is that a good threshold that you probably need to upgrade to something a little more complex than a spreadsheet?
JOSH: I would probably lower that to 50. If you’re hitting 50 a month, I’d go with something more than a spreadsheet.
SHANE: Right, because that is going to take away time from your business.
SHANE: Okay, cool. That’s an awesome resource and we will link to that in the show notes for this podcast to make sure that people can get access to that spreadsheet because I wish we had had something like that when we first started out — very cool recommendation.
JOCELYN: Our next question for you is actually from our reader, Jillian. Jillian says, “How do you recommend paying yourself as an online entrepreneur? How long should you wait to pay yourself and what is best from a tax perspective?”
JOSH: This is a great question and it’s kind of a layered question. The first thing I would say is this is why it’s very important in choosing what business entity you’re in, meaning whether you’re a sole proprietor, whether you‘re an LLC, an S Corp, or a C Corp. That is going to determine how you pay yourself and how much you pay yourself.
There are different ways to do it. If you’re an LLC or a sole proprietor, you can just take out money whenever you want to. It doesn’t matter how you formally do it. You’re not going to issue yourself a salary but if you’re a corporation – an S Corp or a C Corp – you have to issue yourself a formal salary and have those Medicare and Social Security taxes withheld.
It’s super important to determine up front what type of entity you’re going to be and make sure you’re on the right one for you. Now from a tax perspective, here’s the big thing to understand with paying yourself, the IRS is going to tax you based on the profits in your business. It doesn’t matter how much you pay yourself. That’s not the portion that they determine taxable.
Let’s say you guys as business profits $100,000. They are going to tax you on all $100,000. It doesn’t matter whether you leave it all in, take it all out, or somewhere in between. You’re going to get the tax in that full $100,000. How much you take out should just be based on how much you need. Don’t worry about tax perspective from that.
SHANE: Wow, that’s cool. I did not know that. That’s awesome. Like I said, we’re just learning this stuff too because until you worked for yourself, you really don’t realize what you don’t see in your paycheck, you know what I mean?
JOSH: Exactly. Yeah, and you would think that they would tax you on what you actually take out of it. That’s what most people assume but it’s not the case. They are going to tax you on that full profit no matter what.
SHANE: Right. Let me group these next two questions together because you touched on things like an LLC and an S Corp and things like that. I think that really confuses people. It took us a long time to figure out that we needed an LLC or something. We have two readers here. Let me read both of these questions and we will kind of throw it into the same answer.
Duane asks, “Do I need an LLC when I first start out? As soon as I start my first website, should I start an LLC or should I just stay a sole proprietor as long as possible?” Rod says, “Do I need to start an S Corp to avoid double taxation? Should I have an S Corp immediately when I start my online business?”
Those kinds of questions are kind of similar. When do you go from being I’m a sole proprietor with two separate bank accounts, one for the business and one for myself, to LLC or why would you need an S Corp? Could you explain to us what an LLC and an S Corp are?
JOSH: Yeah, I can. First, to answer the question about should I start an LLC right away, my answer to that from a tax perspective, it never hurts to start an LLC with one exception, if you live in the state of California, there are very high fees for starting an LLC. If you’re not making any money, you might want to reconsider that, but for any other state, the fees are normally pretty small to start an LLC.
I’d recommend, as soon as you know you want this to be an actual business, go ahead and make that an LLC. The reason is it’s super flexible. Let’s say that you’re off for the next five years to be an LLC but then you want to become an S Corp. Well, from an LLC, you can just make an election to be taxed as an S Corp and keep that LLC, so it just simplifies things for you.
To get into your question of the difference between LLC and an S Corporation, it’s a little tricky here so I’ll try to make this as simple as possible. Let’s go back to that example that you guys made $100,000 this year and let’s say that like we said, all $100,000 of that is going to be taxed. It doesn’t matter what you take out or what you leave in.
If you’re an LLC, what’s going to happen is that $100,000 is going to get hit with all of your ordinary taxes just like if you had a job but on top of that, you’re going to get hit with an additional 15.2% self-employment tax. They are going to tax it pretty good.
If you’re an S Corporation, what’s going to happen, you are going to get hit with ordinary taxes on that $100,000 but you’re not going to pay that 15.2% self-employment tax. So it’s a pretty huge tax saving once you’re making decent money.
Now the IRS, they are not just going to let you get away with keeping all that money. What they say is if you’re an S Corp, you have to pay yourself a salary and they recoup a portion of that 15.2% in your payroll taxes. Does that make sense?
SHANE: Yeah, that makes sense. An S Corp, does it have higher fees to set up than an LLC does because when we set the LLC up, we were surprised how easy and cheap it was really over in Kentucky? Is that more complicated?
JOSH: Yeah exactly, so like I said, when you’re an LLC, you can make a simple election to say, “Hey, I’m an LLC but I’d like the IRS to tax me as an S Corporation. There are actually no fees involved other than paying someone to set it up for you. They are just going to file a form with the IRS and say, “I want to be taxed as an S Corp.”
SHANE: Okay. That basically just let you save some of the taxes because you get to pay payroll tax instead of the self-employment tax?
JOCELYN: Exactly. What would happen in the scenario of making $100,000 would probably set your salary somewhere between $40,000 and $50,000. The difference between that and the net income, you’d save 15.2% on. So if you set your salary at $50,000, you made $100,000, you’re going to save about 15% on that $50,000 difference. We’re talking over $7,000 tax savings.
JOCELYN: Right, man. That was a lot of information thrown at me all at once. Let’s pull it way back for just a second and can we talk about some of the benefits of having an LLC for people who are out there going, “What the heck is an LLC?” Can we just talk about some of the benefits of doing that?
SHANE: What does LLC stand for? Let’s start from there.
JOSH: So LLC is a Limited Liability Corporation. What it’s going to do is basically going to separate you in the business form a legal standpoint. I’m not an attorney so I’m not going to get into all the benefits from a legal standpoint. From a tax perspective, it really doesn’t mean much. Your tax is the same way if you’re an LLC as you were if you’re just a sole proprietor.
From my standpoint, it doesn’t matter whether you’re an LLC or you’re a sole proprietor. The only reason I recommend the LLC is just because it keeps those options open for the future to get into an S Corp if necessary, even a C Corp if necessary.
JOCELYN: Right and we’re actually bringing in on an attorney sometime in the near future to talk about these kinds of legal issues but just as lay people, we are not professionals in this in any way but it does kind of separate you from some of the liabilities of having a business. It separates your personal finances, I guess, you would say.
SHANE: And it kind of looks more professional too.
JOSH: It does.
JOCELYN: When we say, “Our LLC is called Sams Digital LLC.” When we say that instead of, “Hey, I’m a business,” it kind of separates you from the pack a little bit but that’s an awesome description of S Corp. I’ve never heard anybody explain it that clearly. I think I actually kind of understand what it is now.
JOCELYN: Our next question is from Shawn and Shawn says, “How do you count VAs, virtual assistants, for taxes?” Another probably a lot of different answers to this depending on whether they are overseas or people like Fiverr, oDesk, Elance, or even just local people that maybe you hire or people in the United States because I know there are United States virtual assistants. So that is sort of like a big question. How would you do that?
JOSH: As with most accounting questions, the answer is it depends. It depends on what type of VAs you’re hiring. If you’re going through a company like oDesk or Fiverr, basically if you pay the company and then the company pays the contractor, you don’t have to do anything special. When it comes to taxes, you’ll just list it all under oDesk of Fiverr or whatever. You don’t have to account for each individual you paid because you’re not technically paying them. The company is paying them. Does that make sense?
SHANE: That makes total sense, yeah.
JOSH: Okay, but if you’re paying your contractors directly, all you have to do is keep track of how much you’re paying them and for every one you pay more than $600 for a year, you’re going to have to send them a 1099 at the end of the year or more likely, your CPA will send them a 1099 at the end of the year, which basically just tells both of them and the IRS how much you paid them.
SHANE: When would someone like that become an employee though? It makes sense like overseas contractor worked for me but what if you paid, what if you had a local person that was checking your emails or doing something like that, maybe a family member or something. How do you differentiate on your taxes whether they are an employee or they are a contractor? Is there a certain money amount?
JOSH: This is a very important question because if they are an employee, you are going to pay a lot more in taxes than if they were an independent contractor. If at all possible, you want to keep people as contractors. The best way I would say the difference between a contractor and an employee is, is it comes down to control.
Are you controlling what hours they work? Are you controlling exactly how they do their job? Are you controlling what equipment they use to do their job or are you just saying, “Here’s what I need you to do every day. I don’t care where you do it from, I don’t care what time of the day you do it but this is what I need to be done.” If that’s the case, they are a contractor but if you tell them when to work, where to work, how to work, they are an employee.
JOCELYN: Right and based on some research that I’ve done, it’s a good idea for those people to send you an invoice also, correct?
JOSH: When it comes to taxes, the more paperwork you have, the better. With real estate, we always hear that “location, location, location” well the IRS version of that is “documentation, documentation, documentation.” Everything you can document, you want to document.
SHANE: Cool, so basically, you need a paper trail to prove that that person is in control of their life to keep them as a contractor instead of an employee basically.
SHANE: Right, that’s awesome.
JOSH: Where people run into trouble with that is a lot of people don’t understand that when they are a contractor, they are basically self-employed and they are going to get hit with self-employment taxes. They go do their own taxes the next year and all of a sudden, they are paying all these taxes and they go complain to the IRS saying, “Well, I wasn’t a contractor. I was an employee.” So you want to have that conversation upfront and say, “Listen, you’re a contractor. You’re going to be responsible for your own taxes.”
SHANE: Cool. This is probably a legal question but you probably want to get stuff like that like documentation. You want to document that conversation somehow, like in writing basically.
JOSH: Yeah, you even have them sign a contract as an independent contractor.
SHANE: Awesome, that’s great. Let’s swing back to more like expenses and things like that because this is something that we struggled with very early on because we don’t have as many expenses as online entrepreneurs as a brick and mortar place does. We’re not paying $1,000 a month to rent an office space in a shopping center or anything like that.
What are some things that you’ve seen like entrepreneurs’ expenses because we had a very hefty tax burden our first successful year as online entrepreneurs because we weren’t expensing much? It only cost us x amount of money to run the business whereas we were bringing in tens of thousands of dollars. What are some expenses that online entrepreneurs could look to make sure that they are not getting totally taxed to death and they are using that money for their business?
JOSH: One of the best things I like to say when you become an entrepreneur, all these everyday expenses that you had already could suddenly become deductible on your tax return. You had a cell phone well before you started the business, right, but now you’re probably using it for business. So at least a portion of that is deductible on your taxes.
You had internet service well before you had a business, but now you’re running an online business so probably most or all of that is now deductible. The room that you’re using is your home office can be a deduction on your tax return. Once you become an entrepreneur, you want to look at every area of your life that you’re spending money and think, “Am I using this in my business?” If the answer is yes, then at least a portion of that is probably going to be tax deductible.
SHANE: And it goes back to the documentation at that point as to what you’re using.
JOSH: The biggest thing, and you actually touched on this a little bit ago, is you want to have separate bank accounts. Anytime you’re paying for something that is even remotely business related, you want to be using a business credit card or business cash or whatever just so it’s coming out of a separate account.
JOCELYN: Yes, that makes things so much easier. We actually started doing that really early on and that does make life so much easier. When we did start working with the accountants, that’s one thing they said like, “Good job” because a lot of people don’t do that and it makes it a lot harder after the fact to separate all these things out. So it’s so easy to set up a bank account. All you have to do is go down to your bank.
Some states, including the state of Kentucky, even allow you to set up a DBA, a Doing Business As account. I don’t think a lot of states do that but some states do. That’s something that you can check into if you haven’t officially started a business. You can always look into doing that.
SHANE: When we first started out, we set up PayPal as our business account at first. We got a debit card from PayPal and things like that. Is even something like that okay to do for a bit if you can’t set up a DBA for some reason or something like that? Can you just use your PayPal account as kind of your business account and then your bank account as your personal account? Will that fly with documentation?
JOSH: Absolutely, as long as you’re not comingling the funds, as long as you’re not paying personal expenses out of PayPal, absolutely, that can be your business account.
SHANE: Awesome. I’ve got one more question to follow this one up. I’ve had a lot of CPAs talk to me about like I’ve got some friends that I’ve asked advice for before we finally hired somebody. You said something about your home office… is that a good idea? We have a portion of our home that we use as our office space. Is that a good idea to do that? How does that work? Do you get part of your mortgage taken off or something?
JOSH: This used to be a really complicated deduction. I’m guessing if someone at one time told you it was a bad idea to take it, it’s probably because of the old way to do it and the old way to do it is you had to take the square footage of your room that you used, the square footage of your entire house, and then take that percentage and multiply it by all your house bills – your mortgage, your property taxes, your insurance, your utilities if you had a cleaning lady – all that stuff. So it could be a little complicated, a lot of documentation involved.
The IRS actually, they normally don’t make things easier for us but in this rule, they made things a little easier. They said, “Go ahead and just take the square footage of the room you use and take $5 per ft2.” So if you have 100-ft2 office, you get a $500 deduction for that office.
SHANE: Wow, that’s cool. That’s so much easier. I didn’t even know it was that simple to do that.
JOSH: Yup and you can still do it the old way if you think you’ll come out ahead but most people, it’s pretty close and it’s much easier to just go that route.
JOCELYN: Definitely. That’s a question that we’ve had for a long time. It’s interesting to know how that works exactly. Our next question is from Eric. Eric wants to know what about sales tax and how does it work with online business? Do you have to report it for digital products? I know this is a tricky one because I know it does vary.
JOSH: Yup, this is another “it depends” answer. Generally speaking, if you sell something to someone in a state where you have no presence, meaning you don’t have an office there, you don’t have a bank account there, you don’t have employees there, then you won’t owe sales tax to that state but this always varies from state to state.
This is something you’re going to have to get on just each state’s website that you sell to and kind of figure out what their policy is, but as a general rule, just figure out if you have a presence in that state, if not, you probably don’t owe them sales tax.
SHANE: And also too when you’re accepting payments, is it a good idea to ask what state people are in so you can document that? A lot of places you go to when you buy online especially digital products, they don’t ask you anything but the credit card. They want, as fast as possible, get the money, you know what I mean?
JOSH: Exactly. In that situation, I’m guessing, they are just going to assume that they don’t have a presence in the state you’re buying and they are not going to have to pay it. If it’s feasible, you could definitely ask people but like you said, if you’re selling 1,000 a day then that’s not going to be feasible. This is a tough area. This is something even an attorney could be helpful with but if you’re selling to multiple states and tons of transactions, you’re going to want to get sit down one on one with someone and discuss it.
JOCELYN: Exactly. What about physical products, I know we have just started selling, I sell mostly digital products but I sell one book that is a physical product so I was told in the state of Kentucky that I have to charge sales tax on that. So is that another thing that it depends on the state?
JOSH: Yeah, exactly. It depends on the state of the person that is buying it and what their policy is. Your state could require you to collect it no matter what.
JOCELYN: Yes, I think the state of Kentucky does.
SHANE: From a tax perspective, forget everything, all the sales tax, and everything. Digital products or physical products, is there a gray area or are they pretty much the same as for sales purposes tax-wise?
JOSH: As far as income tax, it doesn’t matter. All the IRS cares about is how much income you make.
SHANE: They don’t care how you did it, cool. Let me ask you this real quick. I could seriously sit here and pick your brain for hours and I bet everyone out there would listen to the entire conversation because this is so confusing to people especially in the new world of online marketing. There is so much to it, you know what I’m saying?
What are a couple pieces of your best advice that you could give to someone starting out an online business, they’ve got a blog, they are starting to make a few sales. What’s kind of the nuts and bolts things they need to do from the get-go to make sure they are not looking at a mess like a year later when their business takes off?
JOSH: It’s kind of a rehash of things we’ve talked about already. The number one thing I would start with is creating a separate bank account right from the start because if you eventually hire someone to do your stuff, they are going to have to go back and look into that. If you have all co-mingled in one account, you’re going to be paying a lot of money to have them separate that. Number one thing I would do is start my own separate bank account.
After that, I would create some kind of system for recording my income and expenses, whether it’s just a spreadsheet, whether it’s getting some kind of accounting software like QuickBooks Online or if it’s hiring a bookkeeper, whatever you’re going to be committed to do, start that right from the start.
After that, the number one thing you can do to make sure you’re paying as little taxes as possible is to make sure you’re in the right business entity. We talked a little about the difference between LLCs and S Corps, but just to give you an idea of when you want to start considering a change, once you’re making I would say in a $30,000-$40,000 net income range, it’s time to start thinking of the possibility of an S Corporation. That’s when it starts to make sense that it could save you some money.
SHANE: Wow! That just blew my mind, basically. I wished I had talked to you about two years ago, you know what I mean? because we’re dealing with a lot of that stuff right now.
JOCELYN: Let me just tack one on to that too, Josh. If people are maybe out there looking for someone who is an entrepreneurial-friendly accounting firm or something like that, is there any particular place that you can go online like does anybody have a list of these online entrepreneur accounting firms? That is something that I didn’t really know much about and I actually found the accountants that we used through FreshBooks. Is there a good place to go where people can get more information?
SHANE: Like they do what you do, basically.
JOSH: I’m not aware of anything. I know, like you said you got yours through FreshBooks and QuickBooks does the same thing where they will give you a list of accountants in their area. I’m not aware of anything that will screen out who is good with entrepreneurs. The problem with my profession is it’s filled with a lot of older people and they are not necessarily on the internet. It’s tough to find, I guess, online. You’re going to have to get a personal recommendation would be my guess there.
SHANE: Maybe we could work together and we can put a resource together for people who do that. That would be awesome if we could find someone like in every state where people could go to or something like that.
JOSH: There you go. If they are willing to work remotely, they can always go to my website.
SHANE: That’s exactly right. We’re going to talk about that in just a second. Is Courtney still there?
JOSH: She’s here.
SHANE: All right, we’re going to lead up here. We’re kind of close this up here with a question for you. What is your best tip to be married to be an entrepreneur? You guys are working together to build this business on your own and we get a lot of questions too on how to structure your relationship and how to get each other on board. Usually, we always find it is one person really fired up and maybe the other person is not so fired up sometimes. How do you guys structure your family around entrepreneurship and especially online kind of remote business?
COURTNEY: I would say that you have to have, if you’re a spouse of an entrepreneur, you have to have so much faith on that person. When Josh first came to me and told me that this was his dream to be an entrepreneur, I had faith in him obviously and then he took the step and quit his job and I had to have faith then. Now every single month, I have to have faith that he is going to make enough income to provide for us. It’s constant faith in him.
It can be difficult to be married to an entrepreneur though. Josh has ADD and so he is constantly coming up with new ideas for his business, maybe other businesses that he wants to do and I have learned to kind of just nod my head and say, “Great” because I know a lot of them aren’t going to go anywhere but kind of…
JOCELYN: I totally get that.
COURTNEY: Until he finds one that he wants to continue on, then I can kind of support that and kind of show him how we’re going to do that because he is someone that he sees the big picture but maybe those little steps in between I can help him with.
JOCELYN: Yeah totally. I completely get that. Well, we really appreciate you, Courtney, taking your time to hang out with us today and Josh too. I mean, this has been great. I think that this has answered so many questions that people have had for us and we just said, “There’s no way we can answer these questions so we need to bring on someone who knows what they are doing.” We do appreciate that so very much and I know that the Flipped Lifestyle community will also.
So if people want to learn more about you guys, about your upcoming projects, or just about your accounting business and how you could possibly help them, what’s the best way to contact you?
JOSH: Yes, so they can get on our website which is www.cpaonfire.com or they can just shoot me an email directly to firstname.lastname@example.org.
JOCELYN: All right, that sounds fantastic. Thanks so much.
SHANE: Thanks, guys, we appreciate your time.
JOCELYN: We hope you guys enjoyed our interview with Josh and Courtney Bauerle of www.cpaonfire.com. We really appreciated them taking their time to explain some of the confusing accounting things that even we have questions about. So we hope that this was really helpful for you guys. If you would like to see the links that we talked about during today’s show, you can head on over to www.flippedlifestyle.com/podcast13 and you can see all the links that we discussed during today’s show.
Next, we’re going to move on to this week’s Can’t Miss Moments. We left this out of one of our last podcast and we heard a lot of things about that because they didn’t like that.
SHANE: People were like, “I missed your Can’t Miss Moments.”
JOCELYN: Sorry about that. We’re going to put those back in and so this week, it was…
SHANE: Our trip to Portland, Maine. Jocelyn and I went to Portland, Maine last week for the Agents of Change conference. We had never been to Maine before and we left the kids behind on this trip. We wanted to just go and hang out with each other for a few days. Isaac and Anna got to spend time with both grandparents. My mom and dad kept them for a couple of days and then Jocelyn’s mom and dad came over and watched them for a little while.
It was just awesome to be able to take off on a trip together and enjoy some time off and see a new part of the country and just see all the great speakers that we saw at Agents of Change, got to have coffee with Chris Ducker and Pat Flynn one night and just all kinds of cool stuff like eating lobster by the bay. Those opportunities were just not available to us a couple of years ago because we didn’t have the money.
JOCELYN: And we had to be at work.
SHANE: And we had to be at work so it was just awesome to be able to plan that trip out, spend some time together, work on our marriage, learn about business, build relationships, and just see a new part of the country. These are some of the things that online business lets us do now and we’re just really blessed and thankful for that. If you would like to see some pictures of our trip from Portland, Maine, we will post those in the show notes of this episode at www.flippedlifestyle.com/podcast13.
Also, don’t forget we will now be offering mini-podcast that comes out on Thursdays and Saturdays where we will be answering your questions that you have about online business and making money online, and what we do with our business. If you want to get your questions answered on air, you can do that every Sunday night over on our Facebook page.
Go to www.facebook.com/flippedlifestyle and we will be taking questions on Sunday night for our new mini-podcast that will be airing on Thursdays and Saturdays. thanks again for tuning in. We hope you enjoyed this show and we will see you next time.
JOCELYN: See you later, bye bye.
SHANE Do you need step by step instruction? Do you need us to help you create your digital product and get your online business started? Well, you can do that. We actually now offer a course called the Flip Your Life e-course where we show you how to create your first digital product in 29 days or less.
All you have to do to get more information on this program is, go to www.flippedlifestyle.com/flipyourlife, and that’s all one word, and you can check out everything that we do in that course to help you get your digital product created for sale online even if you don’t have a website. That’s www.flippedlifestyle.com/flipyourlife. You can check when our next session is starting at that link.