As a business owner, what’s the best way to optimize your finances? And as a mom, how do you grow your family while growing your business?
From boundaries to maternity leave, from tax strategy to teaching kids about money, Kristy Runzer and I chat about it all on the OnRoute to Wealth Podcast. If you’re a business owning mom, you NEED this. Listen to the full episode here.
The Business Journey with Kids
My business journey started when I was (unknowingly) 8 weeks pregnant. We brought my first child back as a souvenir from Europe! Timing is everything, and it all worked out the way it was meant to.
I always knew I wanted to be a business owner because I watched my parents both own businesses. I saw the flexibility it gave them to be very present parents, as well as the hardships.
I knew it would be hard – so I wasn’t shocked when I didn’t get maternity leave with my first. Fast forward to today and I got over 8 weeks with my fourth child – and that’s due to the boundaries I learned to put in place for myself over the past few years.
I learned in 2019 to put up boundaries and say “no” to clients who weren’t the right fit. If a client isn’t the right fit, that’s okay; I try my best to help them find someone else who will be the right fit for them because I want clients who respect my time and my business. And my best fit clients understood I needed 100% of those 8+ weeks of maternity leave.
Planning for Maternity Leave as a Business Owner
If you’re a business owner who wants to take maternity leave now or in the future, here’s the good news: you usually get about 40 weeks to prepare for this. Here are some things that helped me in planning for my most recent maternity leave:
- Know that for most entrepreneurs your income will be slightly reduced. Since 2018, I’d transitioned my clients to retainers, so I could anticipate exactly what my income would look like for that time period.
- Know the income isn’t going to magically start pouring in the door the minute you come back from leave. Although I took 8 weeks of leave, I prepared for 12-16 weeks of reduced income.
- Have personal and/or business savings to fall back on.
- Have more recurrent income to fall back on.
Tax Preparation vs. Tax Planning
As a tax strategist, I’ve seen a lot of confusion over the difference between tax preparers and tax planners/strategists.
Tax preparation is a retroactive process. It looks back at what happened over the last year, what your numbers are, and the amount you owe.
Tax planning, on the other hand, is proactive and looks ahead. It looks at opportunities now and in the future to reduce your tax bill.
Think about it this way: if someone tells you to do something, you begrudgingly do it. You instantly don’t want to do it because you’re being forced to do it. And that’s what tax return preparation and filling is – the government tells you that you have to do it.
The government does not, on the other hand, require you to do tax planning and save your money. But who doesn’t want to keep more of their money?!
My tax practice focuses on this, and that’s what lights me up – because I’ve had clients who have saved life-changing amounts of money on their tax bills through strong tax planning.
I help my clients get the most bang for their buck and look at the entire financial picture holistically. We work throughout the entire year to balance the short-term savings with the long-term savings and find the most strategic plan for taxes. It’s not just about knowing your business numbers, which you DO need… but there’s more to it than just that. It’s a key piece that many business owners miss.
Tax Planning Examples
To get a sense of the benefits of tax planning and how it works, let’s look at some examples.
One popular tax strategy is filing as an S-Corp. It’s not as beneficial as it once was before the Tax Cuts & Jobs Act of 2018; but once you hit the $80k-$100k gross revenue mark, you should think about it. But don’t just jump into it; understand that to be an S-Corp, you need to:
- File an S-Corporation income tax return
- Be on payroll with a reasonable owner’s compensation
- Make sure you’re calculating your numbers correctly
So while it’s important to look at the tax savings of an S-Corp, it’s also important to look at the additional expenses it will cause.
Another tax strategy is retirement planning. It can be a complex process when you’re a business owner – there are so many options out there! You need a financial advisor and tax planner to work together to make sure you’re achieving your financial goals along with your retirement planning.
A strategy I love is hiring your kids. I LOVE talking about this one because it’s a missed opportunity for most people, but here’s the catch: document, document, document. The IRS is going to come after you if you are arbitrarily paying your kids. They have to actually do the work (what a great opportunity to teach them about work and responsibilities that come with money!), and you need to work with a qualified tax strategist to have documentation of it.
And to put into context how tax strategy plays a role here: if you’re paying your kids on an S-Corp, they’re still subject to FICA taxes. If you’re paying them on a Schedule C and they’re under the age of 18, you don’t have to pay those. Again, your tax professional should look at the big picture to decide what will be most beneficial for you, your family, and your goals.
Teaching Kids About Money
If you decide to hire your kids, this is an awesome opportunity to teach them all about how to have a healthy relationship with money.
The most important aspect of teaching kids about money is being open with them. That doesn’t mean you have to tell your kids exactly how much you make; it means sharing with them how money works.
Example: “Mommy and daddy go to work. When we go to work, we use our knowledge to help people. When we help people, we get money in return, and we use it to pay our mortgage, pay for food, and our cars. If there’s money leftover, we use it to go on vacation, donate, and give to those less fortunate.”
Last Christmas, I made a sheet of charities and the kids each got to pick which one we sent money to. That was a great way to get the kids involved in giving, and was a way to help them have a healthy relationship with money while understanding the importance of giving.
Want more? Check out the full conversation here.
*This is not tax advice for anyone reading or listening. I am not your tax professional. If you would like more information on working with our firm, you can download our Services Guide here.
