The Basics of Business Banking with Rocco Tundo
Rocco is a CPA (Certified Public Accountant), and he actually specializes in working with small business and event professionals. Today we talk about finances, bank accounts, deductions, contractors, and more! He also mentioned that because 2020 was such a crazy year, people are getting a head start in finding accountants and financial advisors for the tax season, so if that’s something you’ve been thinking about, I definitely recommend doing that as soon as possible.
Hey Rocco, we are so excited to have you today. Do you want to give yourself a little introduction?
Sure, thanks for having me. My name is Rocco Tundo, and I’m a CPA. I do taxes and accounting for individuals and small businesses. I’ve been a licensed CPA since 2011, working at this firm full time since 2007, so I have a lot of experience with small businesses, with individuals, as well as setting people up for success with bookkeeping systems and figuring out taxes in general. It's always a foreign language, especially for new business owners. So that’s just about me, I love helping small businesses. So let’s get started!
I love that! I think we have a ton that we can, and will, cover so I’m excited. I really think this is going to be an episode where people can take notes and really dig into it, because everyone needs this kind of help, I’m sure. To get us started, let’s talk about the difference between sole proprietorship and LLC, and how that affects bank accounts, too.
Yeah, that’s a great question. That’s probably the number one question I get from new clients. So, someone inquires with me, usually they say, “Hey, I wanna make myself a legit business. How do I do that?” You can be a sole proprietor - that’s probably the easiest, least expensive way. Sole proprietor just means you trade as yourself, you’re not a separate entity, you’re not a separate LLC. If you’re a sole proprietor, really you can start whenever. You can use your personal bank account, you can do business and file taxes on your personal returns. So everything is very easy.
The problem with that is separating your personal self from the business. That’s where even if you’re a sole proprietor, I always recommend doing two things. I recommend getting your DBA, your trade name with the state. That means doing business as Your Name. Let's say you’re a photographer, and you start a business and your business’ name is Your Name Photography. Instead of doing business as yourself, you want to register that photography name with the state. It really doesn’t cost a lot. It enables you to do advertising with that name.
Also, the big thing I recommend is you open up a business account. So with your trade name, you would go to the IRS, get your federal ID number, it’s called your FPIN. With those two things, you can go to any bank and open up a separate business checking account. I feel like that’s the number one thing that helps businesses separate your personal expenses from business. I feel like that's a good segue to getting a bookkeeping system, like QuickBooks, and keeping yourself organized.
So what would you say are the important reasons to open an account with a DBA, instead of opening another account at separate bank and just saying that that’s your business account, but it’s not official?
You could do that, and it would probably be the simplest thing. Just open a separate personal checking account. I’ve seen people do that, and that's fine. The one thing with doing a DBA is it registers the name of the state. With photographers it’s a little different, because if someone has your same name and is doing photography, they could register their business with the state and you can’t really do business with that name. With a generic name, you would want to register in your state so someone else can’t take that name. I always say it’s a cheap way to make sure nobody can use that as a trade name in the state you’re doing business in.
Gotcha. So once we’ve got separate bank accounts, I know that keeping track of everything is a hot topic for you. I also know you’re a strong appreciator of bookkeeping systems, so what do you recommend to people to keep track of it all?
I’m a QuickBooks Online certified pro-advisor. I love QuickBooks; people probably think I’m selling it. I actually don’t get anything from Intuit or Quickbooks, I just love the system. It keeps track of everything really well, so I’m a big proponent of that. There’s different versions of it. A lot of people do their taxes on their own when they start off, especially through Turbotax, which does offer a Self-Employed version. Now don’t get me wrong, Self-Employed is fine, it’s good for people starting out. I personally don’t like it because there’s a few things I’d like it to do that I like setting up in the QuickBooks system. I’m just going to go over these real quick.
In Self-Employed, you can keep track of expenses, everything’s good, but you can’t customize categories. Especially in certain industries, there are certain categories you want to keep track of that Self-Employed doesn’t have. So let’s say you outsource your editing as a photographer. I like creating a category called "photo editing" because for some people, that might be a big expense. In the self-employed version, you can’t create that custom category. You have to go pick contractors, and put all the information in there. But in the contractor category, you might have second shooters, copywriters, and different things. So if you want to keep track of categories like that, Self-Employed is not going to be the option for you. I would tell you to go with the next step up, which would be Simple Start. Anything above Simple Start will have that customization ability.
Another big thing, this is a segue into the contractor stuff, is you can’t keep track of your 1099s in the self-employed version, so you have to get Simple Start to track those. That would be any time you pay second shooters, or anything like that.
For someone who’s probably a little bit smaller, what would the benefit be of doing something like QuickBooks as opposed to just keeping an excel spreadsheet of everything they spend?
Spreadsheets are good. If you’re first starting out, QuickBooks might not make any sense if you don’t have that many expenses. I would say to make the jump to using an actual bookkeeping system, there isn’t a magic number of how many expenses you have, just when you’re ready to take that next step to stay organized. If you’re only doing a few sessions and it’s kind of like your side hustle, you’ve just started and you have a couple jobs here and there, a spreadsheet’s probably fine. But if you’re full time, I would 100% recommend going to QuickBooks. For figuring out when to switch, I would always say to ask an accountant.
I know for a lot of people who are LLC or sole proprietor, it can be a slippery slope to figure out tax write-offs, deductions, and stuff like that. Can you tell us what the most common write-offs are, and maybe what comes from our personal accounts that could also be a business expense?
That’s another question that I normally get. For common write-offs, anything using your business, I can go through a few specific to wedding professionals.
I would say you’re going to have equipment rental, renting lenses or anything for a wedding. You have permits or licenses, so if you have to shoot in some park, or federal ground, there’s always some type of permit fee. Business insurance, camera equipment, anything like that is a common write-off.
There’s some stuff that you might not think of that you could use personally, but not for the business. For example, your cell phone is the number one thing that makes people say, “Oh, I didn’t know I could deduct that.” With a cell phone, you use it personally and for the business, but as you know, you’re on Instagram, you’re posting stories and reels. You’re pretty much using it all the time for your marketing and everything like that. If you’re full time, you’re pretty much only using your cell phone for business. Basically, you can take a percentage of all your cell phone costs. Not just your bill, but let’s say you buy a new phone, or you buy a case, or whatever. You can put all that stuff through the business, and then just take a percentage of whatever you think you use for business versus personal.
This applies to everything else, there’s an internet expense, and your house. You use that personally, but you can take a percentage for the business. Your home office, if you have a dedicated office space, you can take a percentage of all your utilities and your rent. So there’s a lot of different expenses that could be mixed with your personal, but you want to keep them all tracked. Sometimes if you use Turbotax, it will guide you through doing a home office. I wouldn't say it’s complicated, but that's something you would probably want to ask a tax professional, just because calculating the square footage and getting the correct deductions for the home office might be a little complicated. I think it would be worth outsourcing for that specific deduction, because it can be pretty big.
I never realized that that kind of stuff could... The phone, definitely, was one of the first things where I was like, “Oh! I could totally write this off!” But that’s so interesting. As somebody who is apartment shopping right now, and works exclusively from home, that’s so good to know.
The one thing you want to make sure regarding the home office is you have to have a dedicated space. It can’t be your living room, or your kitchen. It has to be like a corner of a room, or something where you have a desk and your computer and monitor. You only use it for that business. Then you can deduct a percentage of that space.
Gotcha. That’s awesome. Now, when I did taxes last year, I did it through H & R Block I think, or something online. When I was doing expenses, I had a lot of food and entertainment stuff, like client meals, or client gifts, or getting food at an event, and other things along those lines. But they basically said, “We don’t do that anymore,” so I was wondering if you have any clarification on that kind of stuff?
What they did away with is the entertainment part of the meals & entertainment deduction. So entertainment means taking a client out to a concert, or anything entertainment related, but the meals part is still a 50% deduction. That’s always been like that, so if you take a client or a vendor out for food and drinks, you can take 50% of that deduction on your taxes.
Do they honor anything, say if you’re traveling for work and you get food out? What someone told me last year is, “Well, you eat anyway,” so they don’t count that anymore.
If you’re traveling outside of your home state for work, that would count as part of that 50% deduction. Now, if you’re just at your house and you go get Chick-Fil-A or something, it probably won’t count. It’s meant for taking clients or vendors out or some sort of business meeting.
Another thing I use that for is if I do a big styled shoot, I usually try to get lunch for everybody. It sounds like that would fall into that category.
Exactly. Styled shoot expenses is a good segue into a question I get all the time. Styled shoots, branding photos. A lot of people ask, “Can I deduct hair and makeup?” or anything like that. For a styled shoot, anything you buy for that specific shoot, if you're blogging or posting about it, is totally fine. The gray area is what you do with that stuff after you’re done. And this is a question I always get: "What do I do with it? If I take it and use it personally, not in the business anymore, do I have to sell it to myself?” Technically, you’re supposed to, but not a lot of people do it. A lot of people will then convert that stuff to their client closet, and they’ll offer it to their clients or models. There’s different options. When you buy stuff for a styled shoot you have to think, “Okay, what am I going to do with it after?” But anything like hair and makeup, specific for that styled shoot, is definitely deductible. If you have to get branding photos done, and you need makeup and hair done, that’s all good and you can deduct that. It is a gray area - normal haircuts don’t count. You can’t go and get a haircut and then deduct it.
Yeah, that’s interesting. I wouldn’t have thought about that, but styled shoots are definitely something that a lot of people in the wedding industry invest money in, so that’s very good to know. You were talking about branding sessions, too. If I were to pay for headshots and stuff, that sounds like that’s all covered.
Yup, that’s all good.
Interesting. I have a lot of bookkeeping to do this year!
You and everyone. This year, especially with all the paycheck protection loans, the PPP loans, and the unemployment, it’s going to be a crazy year for taxes. I feel like a lot more people will reach out just because there’s a lot of unknowns with the available credits, and things like that. So just as a caution out there to anyone looking to outsource it, I would say reach out sooner rather than later, and not wait until tax season.
Yeah, that’s so smart, I agree. So then, I know we’re going to go into a whole section of contracting out, but there’s something I want to mention first. I think there’s a... what's coming to mind is a $600 limit? So when you hire out, if it’s over that you have to do a 1099, but if it’s under that you don’t?
Yup, that’s exactly right. So with a contractor, anytime you pay them over $600 in a year you have to give them a 1099. If you’re not sure whether you’re going to go over $600 with that person, I always tell people to get their information anyway before you hire them, just in case they do go over $600. What happens a lot of the time is you’re like, “I’m only going to use them a couple times, they might not go over $600. I’m not going to get their information.” Then let’s say you go over $600, and in January you realize after you do all your bookkeeping for the year, you’re like, “I paid them $700. I have to go get their information." That’s where a lot of people get ghosted, then you can’t get their address in time to give them a 1099, and that’s where the trouble starts. So I always tell people to get what’s called a W-9. You give it to them to fill out, they put their name, address, social security number or their federal ID number, and then that gives you the information you need to give them a 1099. You always require that before they get paid. They have to fill it out because they want that money. You don’t give me the W-9, I’m not going to give you money.
Personally, I have someone who is a non-shooting assistant and she’ll come to a handful of weddings with me, and it typically is under $600. What is the way to notate that if I’m not sending out a 1099?
You don’t have to notate it anywhere, you just want to make sure you are recording her payments. If you’re going to deduct different contractor payments, there is a category called contract labor or contractors. If you’re going to put all those expenses in there plus other people, you want to make sure you have some sort of receipt or something that says this person was here for however many hours you paid them for, and however much you paid them per hour.
That kind of leads me into the contractor pay. You always want to make sure you have some sort of... not like an invoice. I know some contractors do invoice whoever they’re working for because then you have some sort of receipt. But I would say get some sort of paper, word doc, or something that says this person worked for me on this day for however many hours, so they can’t come back and say, “I didn’t report this on my taxes, so you can’t deduct it.”
Right. So it has to be reported on both ends?
Okay, cool. While we’re talking about deductions, too, tell me about how mileage and car payments work.
That’s another great question. The big thing to know with mileage and auto is if you have an LLC, you can actually buy the car in the name of the business. I usually tell people if you use the car more than 50% for business use, then it’s definitely a good idea to buy with the business. So let’s say you buy with the business, you title it, you get the auto insurance in the business name, you can run all the expenses through the business and deduct whatever percentage you use for business. Let’s say at the end of the year, you calculate your mileage and you come up to 70% business use. You drove 10,000 miles total, 7,000 of that was for your business, you deduct 70% of all your expenses, including the cost of the car. That’s one way of doing it.
If you do it that way, you can’t do mileage on top of that. It’s an either/or. You can either take the mileage expense, whatever the IRS is giving you per mile. If you have 7,000 business miles, you take that 7,000 and multiply by whatever the IRS is giving you. For 2020, it is 57 ½ cents per mile. So you multiply that, and that’s what you would take as an expense. So you can either take all the expenses like gas, repairs, and the cost of the car, or you take mileage every year. If you don’t buy the car in the business, you don’t have a choice. You have to do the mileage.
Before you buy your next car, you have to make that decision. Should I buy in the business and put it all through there, or just keep taking mileage? The mileage keeps it simple. You don’t have to keep track of all the expenses. Those are the two big things.
On top of the mileage and expenses, there’s two expense categories that you can take in addition to those. Even if you’re taking mileage, you can deduct parking and tolls. Those are the two expenses you can take with mileage. You can’t take gas and repairs and all that, but you can take parking and tolls. So definitely keep track of those even if you’re doing mileage.
Awesome. That’s all so good to know. Are entrance fees into parks and stuff for sessions included?
Yes. That goes along with permits and licenses. Anything that you have to buy counts.
Interesting. I definitely am a person that needs to be better at keeping track of all this stuff. Last year I tried really hard to do it month by month, when I remembered. It’s so funny because I went into my files the other day and saw I had a 2020 spreadsheet. I opened it up and I had started it in February, but there was nothing on it because the world quickly changed in March. And I thought, “I’m going to have a rough time at the end of the year having to go through every single thing.” But that’s just one really good reason to have accounts separate, because then you can just go into one account and know everything.
Exactly. And that’s the thing, people have multiple perso