More Money Podcast - 183 Tax Time Prep Like a Pro - Lisa Zamparo, CPA & Founder of The Wellth Company

Episode Date: February 13, 2019

It’s that time of year again. You know, the time to start thinking of getting your taxes done. Most people dread it, I love it (because I’m a weirdo), but as the saying goes taxes is one of the two certainties in life. To give you a head start this tax season, and to help you change your mindset so you don’t hate it, I’ve got Lisa Zamparo (CPA & founder of The Wellth Company) back on the show. You probably remember her from episode 137 where she joined me to discuss how to be responsible with debt and credit. Well, she’s back and is sharing some amazing tips on how to do some tax time prep like a pro! Also, as Lisa mentioned, if you want to get one of her tax season self-care kits, sign up to work with Lisa before February 21! 4 Steps for Tax Prep Tax prep is super easy, you just need to give yourself some time and know what to do. Here are 4 steps you can take to get prepared like never before! Step 1 – Download my tax prep checklist. Step 2 – Get some stationary, boxes and tools that are pleasing to the eye to get you excited. Step 3 – Actively try to switch your mindset about tax time. Remember that by taking the time right now to make a system for tax time, you won’t have to do all this heavy lifting next year. Once you’ve got a system in place, it’ll be 10x easier next time! Step 4 – Start preparing tax return. If you want to do it on your own, use online tax software like SimpleTax, UFile, TurboTax or H&R Block’s Online Tax Software. Make sure to Google for a promo code to save money. If you need some help with your taxes, hire a professional tax accountant to help you (like Lisa!). Step 5 – If you’re self-employed, make things easier for next year by using some online accounting software like Freshbooks, Quickbooks or Wave. Step 6 – After you’ve filed your taxes, if you get a tax refund, be smart about it! Don’t just spend it. Use it to pay down debt or invest for your future. Follow Lisa LisaZamparo.com Instagram: @lisa.zamparo Twitter: @lisazamparo Facebook: Lisa Zamparo For full episode show notes, visit https://jessicamoorhouse.com/183   Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello, hello, hello, and welcome to episode 183 of the Mo Money Podcast. I am your host, Jessica Morehouse. And for this episode, we're going to be talking taxes with my favorite tax gal, Lisa Zamparo. You may remember her from, I guess, an episode over a year ago now, which is crazy. She was my special guest when I did the Millennial Money Meetup number four. I guess that was the fall of 2017. Wow, time flies. And we did an episode, so you can still find that in the archives, all about debt and credit. But she really, in my books, is like the go-to person when it comes to taxes.

Full disclosure, she does my taxes and she makes taxes fun, which is why I wanted to have her on the show because she's just the nicest, most positive person and absolutely loves taxes and will make you fall in love with taxes. So we are going to talk about all things taxes, whether you are just an employee and maybe your taxes are fairly simple, but you just need some guidance in terms of how to organize things a bit better this year so it's not so stressful. Or if you're self-employed like myself and have no idea how to navigate that, we're going to talk about that too. So a lot of great stuff in this episode.

You're going to love it. And before I get to that interview with Lisa, here's just a few words about this episode. You're going to love it. And before I get to that interview with Lisa, here's just a few words about this episode's sponsor. This episode of the Mo Money Podcast is supported by the Canada Deposit Insurance Corporation, CDIC. Have you ever been told to be careful where you put your money? Because if your bank goes under, you'll lose everything. Here's the thing. That person has no idea what they're talking about. Thanks to the Canada Deposit Insurance Corporation, our savings are protected. You see, CDIC insures deposits at its member financial institutions around the country in

the event of a failure. They currently protect over $792 billion in deposits. And in their 52-year track record, they've handled over 40 failures. Guess how many people lost their protected deposits during those failures? Zero. Not a single dollar of deposits under CDIC protection was lost. You may be wondering, awesome, how do I make sure my savings are protected? That's easy. Since coverage is free and automatic if you bank with a member of CDIC, just check your bank's website to see if they have that purple CDIC logo in their footer. Or visit cdic.ca to find their full members list. To learn more about how CDIC protects you and your savings, visit cdic.ca. Once again, that's cdic.ca thanks lisa for joining me on the show once again

well actually this is not really once again the last time we you were technically on my podcast but it was a live recording of our millennial money meetup about a year ago that's right we had so much fun that night that was so much fun and was still, it's one of my top downloaded podcasts, which is crazy. I think just people, because it was, the focus was about, it wasn't about taxes. It was more about kind of debt repayment. And I think people really wanted to find out some of the juicy stuff that we talked about in that episode. Totally. Paying off debt is top of mind for a lot of people. So that makes perfect sense. I know. But this episode I'm so excited about because we did join forces last year and did a

webinar all about how to kind of do taxes the right way if you have a side hustle or you're a freelancer or you're self-employed. Because me being a self-employed person, you being the tax expert, it was so great because I feel like, you know, I have lots of people on the show that are, you know, entrepreneurs or side hustlers. They talk about making money, but what we don't talk about is the tax implications. And when I'm dealing with financial counseling clients and I'm dealing with someone who is self-employed, a lot of the time I ask them, so how are you setting aside money for tax time? And they aren't. And that is a big, you know, big problem. And, you know, we need to fix that. So they're feeling really stressed out

about that, too, because they're totally unavoidable. So even if we're not dealing with it right away, it's that thing that's always on the back of your mind of like, eventually, I'm going to have to deal with this. Exactly. And you'll be happy to know that in 2018, it was the first year that my husband, Josh, who, well, you do, I think everyone knows this. You do my taxes. You do my husband's taxes. Full disclosure. Full disclosure. But he, this is the first year, 2018, that he actually set aside money in advance to pay his taxes. Before, he would basically just be like, where do I have some savings? And usually kind of dips into his emergency fund. So he's literally so excited and happy. I'm not even joking. He was talking to a friend on the phone the other day who's also self-employed and he was bragging about how he saved up money for taxes.

And he's so excited because he's been self-employed for like 12 years. That's amazing. You're obviously such a good influence on him. It's taken 12 years though, but that's okay. It's okay. Better late than never. Yeah. Better late than never. And so we have plenty of to talk about, obviously. I want to start off our conversation, not talking about self-employed taxes, because we will dip into that. But for the listeners who are listening, who are not self-employed or don't have a side hustle, just have that full-time job where the employer takes off part of their paycheck, but they still have to file their taxes. What are some things,

still, it's still stressful. Even if from my point of view, I'm like, oh, those were the days, it was so simple to file my taxes. It's still going to be stressful and overwhelming and just not a pleasant time. So what are some things that people that are salaried employees or people that work for a company can do to kind of alleviate some of that stress and be a little bit more prepared this tax season? Well, I think kind of like in health, prevention is the best medicine. And we're talking about this at a great time because the tax deadline is still a couple months away. So I think the best thing that you can do for yourself to make taxes less stressful is to make a commitment to start

tackling it today. It's never too early to get started. I saw this really funny meme from the Simpsons of Ned Flanders saying, January 1st, time to get started on your taxes, Neddy. I love that. And then there's the other sex. I remember that episode. It was like, he just like did it like on the first, it was like a cute. And then of course, Homer forgets all about it. Like Marge is like, did you follow your taxes? He's like, yeah, I did it a year ago. It's like, no, this year. And then he just like tapes a bunch of stuff. Oh, anyone who's a Simpsons fan, find that episode because it's actually hilarious. And it's just like, yeah, that's the two different people tax time. There's the Ned Flanders like me who enjoys it. And then there's the Homer that's like panicking and it's the day before or the day of the tax

deadline and is literally like just panicking and going crazy. Yeah. So in that situation, I would definitely rather be Ned Flanders. And there's a couple different things that you can do to make that happen. So like I said, the first is just making that commitment to yourself that I'm going to start early. The second thing I think is, is like breaking down the task of do my taxes into actionable bite sized steps. I love that quote that says like, the way that you eat an elephant is one bite at a time. Any big goal that you have to accomplish is literally done step by step or piece by piece. And the same is true for your taxes. So that was step number two is acknowledging, okay, I need to chunk this down and make it into little mini tasks. So then people might wonder like, okay, well, I don't know what the steps are. So the first step I would encourage anyone to do is get online and look for some sort of a tax prep checklist of all the information that you need to gather, which I have on my website. Go to Jessica's website, download that checklist, and you can check the first thing off your list of download the checklist. And it is so satisfying

being able to knock things off your list. So step number one, super easy. Step number two, then is look at that checklist and highlight the pieces on it of what's relevant for me. Then you want to go gather up all of that paperwork. And if you want to make that piece fun, I highly recommend, I say, quote unquote, investing in some cute stationery. I know like it's an appreciable asset. It's not actually investing in stationery, but if it makes you feel good about doing your taxes and you're going to enjoy the process more than I think that's worth spending money on. 100%. I know. I totally know what you're saying. Cause it's like for certain things that I hate doing, if I buy something that's pretty like a nice, like I know this sounds so nerdy, but I usually do, you know, my like yearly goals and

have it on a cork board, but I kind of hate the cork board I have. Cause it was very cheap. I got at Walmart for like no money. And I'm like, I have been delaying like putting up my goals and I'm like, I'm going to invest in like a nice cork board. And now I'm excited to do my goals. So I totally don't, I totally know what you mean in terms of like getting some nice stationery or some nice like boxes to organize your documents in. You should see my desk right now is covered in pink, purple, blue, and green folders. I specifically bought beautiful colors. Yeah, because I have to have papers on my desk.

So I want something that looks nice. Yeah, I love that. All right, what's the next step? So the next step, well, I think this is almost a proactive step then if you're doing this anyway, is shifting your mindset into, okay, now I'm getting myself organized and this might feel overwhelming, but I'm willing to do it this year

because I only have to feel overwhelmed once. Once I invest in understanding what I need to gather, where it's going to come from and like what it's like to do my taxes. Once I get that, it's the same thing every single year. So setting up those folders or setting up that place of this is where I'm going to put all of my information for next year so that I don't have to go through this process again. Yeah. I feel like that's kind of like a cheeky step to throw in there because it's not exactly for this year's, but I find, again, I'm really into that mindset stuff. So anything that will make you feel more optimistic or more like hopeful about the future is really important in my books.

Yeah. No, it makes a lot of sense. Yeah. After you've gathered up all the paperwork, the next step is to start preparing the tax return. So you've got a few options. I mean, one, the easiest, not the easiest, but I guess the simplest is like the do it yourself option. There's lots of online tax prep software. Some of it's even free. Some of the most popular ones are TurboTax. I think I've used Ufile before when I was not doing it professionally. That was the one that my family used. H&R Block does it for free. I think I was just going to say SimpleTax. I love the SimpleTax calculator. I use that. Yeah, me too. I think you're the one who showed me it and I use it all the time. It's amazing. So how do you pick a software?

I think they more or less all kind of do the same thing if you're picking one of the bigger brand names. So again, in the stream of choosing things that are fun to use, I'd say go to the websites and pick the one that looks the most intuitive to you or that you just feel drawn to. Yeah. And for lots of those too, and this is what I tell people is I'm like, you probably won't want to do this. But back in the day, I was so frugal. And so like into taxes that I did this, I tried out, I think, a couple different softwares. And you can do your whole,

you know, put on all of your tax information, and they only charge you like the ones that aren't free, only charge you if you want to actually file your taxes with them so you can technically try out like three different softwares and see kind of the results you get like in terms of like how much you owe or your um tax refund and then choose the one that gives you like the best answer that's interesting because technically they should all give you i know they should but they don't i've tried it don't know why. It could just be that they, maybe some software pickup, another, like a certain tax credit or like, I have no idea. Cause technically if they're all supposed to do the same thing and it's very straightforward, they should give you the same result. But sometimes they don't. Again, this was several

years that I did this, like back in my, like, I don't know, I was 25 or something like that. So maybe like seven or eight years ago, but I remember doing one with TurboTax and one with Ufile um and yeah I got like a slightly different um number from one of them and another like hot tip is if you are like a first time user of one of those there's always like promo codes to get a little discount yeah definitely so google it anytime I'm gonna buy something, I take 30 seconds to Google promo code just to see if something comes up. Always. I always do that. It's just like, why not? It takes two seconds. And again, depending on your financial situation, when I was in my 20s and I was broke, saving $10 on filing my my taxes was like huge.

Absolutely. Those dollars add up. It's really important to be cautious or to pay attention to what you have when you don't have a lot because that's going to set you up for being really successful when you are earning more money. Absolutely. Do you find that, because this is a question I get a lot is, you know, some people think that, you know, when you're younger or when your taxes are fairly simple, it's all right to use one of those online tax software programs. But when you're

older or your taxes get more complicated, you need to hire a tax professional. Is that true or not true? Or like, what are your thoughts on that? Well, I think I'm kind of biased. I'm a tax professional, so I would always recommend getting professional advice. But I think I'm kind of biased. I'm a tax professional. So I would always recommend getting professional advice, but I think you're right when it's simple. If you are somebody who likes to do research, you know, you like to figure things out and you don't feel scared by ambiguity, then I think absolutely you can do it yourself. Cause you know, you can, you'll figure out the software. You'll be curious about what are the deductions, just like you did the way you were comparing different, um, the different.

Yeah. Programs. That's the word. Thank you. To see what the results are. Um, like if that's your jam, I think go for it. But if there's anything inside you that feels nervous, or if you think that you're going to be late or skip doing it because you're not sure, then I think it is worthwhile to invest in having somebody help you. Um, and I even do tax coaching where I'll help somebody in their first year and show them how to do it. And then they can go back and do it themselves the next year, unless something more complicated comes up that they want some help on. Well, that's a good idea. Cause I feel like when it comes to taxes and especially like us millennials, I feel like, especially like once I,

it was like the first year I had to do it myself. I'm like, my parents had throughout universities always just filed it for me. And then I'm like, I have no idea what it means to do your taxes. And it was so daunting. I thought like I had to like download a paper and write it down. And it was like 80s style. I thought that was still the thing that people did. And then I realized, oh wait, now there's like programs out there that make it really easy. Yeah. And I've even seen the TV commercials now where some of the bigger software companies are giving access to CPAs virtually. So if you're doing, I can't remember which one it was. I think it was TurboTax I saw, but it could have been Ufile. They have that like call a CPA.

So while you're doing your taxes yourself, you can either chat with, I don't know if it's over a phone or just chat, but you can get in touch with the CPA to get their opinion on it. So I think if you're going to do it yourself and that option comes up and it's free or affordable, I'd say absolutely go for it. Ask your questions once and then you'll be so much more confident for the next year. Another question I just thought of that I've been getting recently is, you know, I get asked for like, Hey, who can you recommend? Obviously, I recommend you when I can because you do my taxes. I like your work. You're good. Aw, thank you. But what's another way that people can find like a list or like how do they find,

how do people find, you know, a tax accountant? Like I was trying to do research and it's like, it's not super like easy. And like, how do you know who's good? I really think the best way is through referrals. Going with somebody who, who, somebody who, you know, has used them and can give you that personal validation of, yes, I really like working with this person. I mean, you can go through Google and search, you'll get some of the bigger companies that are coming up. And I think that that actually can be really helpful for people who are self employed in a specific industry to search for an accountant or tax firm with your industry, like tax for makeup artists, tax for photographers, finding somebody who's specialized in what you're doing. They're going to have the most

detailed about what's deductible and how to help you pay the least in tax and make the process really smooth because they're doing more or less the same thing for everyone. Absolutely. You mentioned that you're a CPA. In order to be a tax accountant or someone that helps people file their taxes, do you have to be a CPA or no? No, you don't actually. Anyone can apply for an e-file license. You do have to defend why you think you're professional to do it, but you technically don't need to have a certification to do it. I think it's nice to look for that, but I mean, I don't want to speak poorly about people who have the like on

the ground experience. I do know some people, for example, who have a lot of personal experience with investment properties and they've done their own taxes and have learned a lot about personal taxes with investment real estate. And they now, you know, by doing it for family and friends, and then they built out a business to do that. And like, they're not a CPA, but I would hands down refer someone to that person because I know that they have that experience. So that's where that personal recommendation is really important. Okay. That is helpful. That is helpful to say. I'm sure lots of people are thinking about how am I going to do my taxes this year? Like, I think a lot of the time too, as we do get older and our lives become more complex,

you know, doing it ourselves just isn't the case. I mean, that was the case for me. Once I became self-employed, like there's no way I'm going to try to do this by myself, take me forever. Yeah, trade off of cost and time. Yeah. So yeah, well, that's another question I get too is like what in terms of kind of cost, obviously, you know, I think everyone can figure

out that it's cheaper to use one of those softwares than hiring a professional. But in terms of like how much a professional costs, what are some of those price ranges people can expect to see? I think you can probably get a basic personal tax return, meaning you're somebody that has only T4 income. Maybe you have an RRSP contribution, like very, very basic, simple, as low as $50. If you're going to work with, um, with a CPA firm, um, they might charge more because they have more overhead. You know, they have, they have a cost to license their firm and they have staff and their own licensing. So that just inherently makes it a little bit more expensive. And perhaps maybe they have a little bit more experience. It really depends on where you're,

where you're going. But I think the range for the basic personal is somewhere from $50 to maybe $150. What I've seen for sole proprietors, or if you have an investment property, that will usually be somewhere in a few hundred dollars, $250 to $350, a couple hundred bucks. But again, like, I think for me, that would be worthwhile to pay somebody a few hundred dollars to do something that would take me hours to do it because my time is really valuable in running my business. So I'm always looking for people to help me do things faster, more efficiently and better quality. Exactly. And if you are self-employed, it's a business deduction. Exactly. I was like, Oh, it's a business expense. Okay. So let's kind of talk a little bit more about self-employed taxes because they're a headache. I just saw in my Facebook group that someone was freaking out because they really focused on debt repayment, and they have a side hustle, and I think they made $10,000 from that side hustle. But that employer that was that side hustle employer wasn't really taking off enough tax. And so they, I think, put in their numbers in a tax calculator and they're like, I'm afraid,

like she doesn't know for sure, but this calculator said you may owe $3,000 to $4,000 in taxes. And she's kind of panicking. What would you say or what would you kind of recommend to someone in that situation? Well, I'll tell you first. What would you say or what would you kind of recommend to someone in that situation? Well, I'll tell you first what I would not recommend, which is quote unquote, forgetting to put your side hustle income on your tax return. I tell everyone that absolutely the worst thing that you can do is knowingly leave income off of your taxes. And this applies to if you're somebody that earns cash tips, any sort of cash income. I know it's really tempting, but there always is a risk that if you were audited, the CRA could somehow trace it back if you're depositing it into your bank,

or they can look at your lifestyle and say, this doesn't make sense, the amount of money you're earning versus what you're spending. And that can get you into some trouble. Plus, I like to be able to sleep at night. So I don't ever want to worry that somebody is going to catch up with me on something like that. So that's the first thing is you've got to claim it. Now, what you can do is offset that income with business expenses. And maybe what she could do is really look at the range of potentially deductible expenses. I think most people in general understand what a business expense is. It's something that you're spending in order to earn revenue. And in general, it's also incremental or additional to your personal life. So you probably wouldn't have spent that or bought

that thing if you were not in business. Now, obviously, there are some gray areas because when you're self-employed or have a side hustle, you've probably chosen an industry that's also a personal passion of yours. So me, for example, I really love to buy books about business and personal finance. Now I was buying them before I ran my business, but now when I buy them, it's through this lens of wanting to stay up to date

on stuff that's happening in the industry, improving my knowledge to help my clients. So again, like that's kind of, it could be considered a great area, but because I do it through my business and it is very directly tied to keeping me up to date, I think that is a business expense. One of the bigger gray areas is the meals and entertainment. So it's not a deductible business expense. If you've just bought yourself lunch while you're working in a coffee shop, you really do need to be either with a client, with a potential business partner, or if you're buying that food either to review it for a blog, to put it in a blog post as some

sort of a prop, then it would be a deductible expense. Yeah. Yeah. There's so many things too, for how I organize my business expenses. So I know how much to kind of set aside for tax time. I have like one section of my budget or like one tab rather, where I put all of my, I'm like, these were our 100% business expenses. If someone asked me to defend it, I could. And then for the ones where I'm like, well, I probably like that expense may not be 100% business. Like maybe it's gonna be 50, maybe 70. I won't know until I talk to Lisa while we're doing our taxes to figure it out. I put that expense in my personal expenses. So I know this is kind of a weird, but for me mentally, it just makes sense where it's like, I've got my, these were our a hundred percent business expenses. The other ones that may come into play while I'm

filing my taxes, I'm putting them in personal. And then when I do my taxes, those are kind of like basically bonus expenses where I'm like, oh, great. I am going to hopefully pay less tax than how much I saved. That was like my kind of way to like basically make it a little bit more fun and also hopefully pay a little less tax, which in my mind is like my version of a tax refund. Yeah. Like a little bonus. Yeah. So we'll see. So like, that's why I always put my cell phone in my kind of personal spending, even though most of it honestly is business, but we'll just deal with that while we file the taxes. That's a good one.

So there are two other expenses that are completely legitimate business expenses that some people shy away from claiming because they're a little more complicated. And that would be the home office deduction and motor vehicle expenses. So the home office, you can claim it if, if you work more than 50% of the time in your home office, or if you use that space exclusively for business or to see clients. Okay. If you fall into one of those categories, then you can claim a percentage of your rent if you're renting. If you own the house, it's a percent of your mortgage interest and insurance, not the principal payment. A portion of your utilities.

You can even claim a portion of your cleaning costs to maintain the space. How do you figure that one out, though, if you clean it yourself? What you probably have to do is keep receipts for all the cleaning products in your house that you purchase and then it's you would the same with any of those other expenses utilities you take a hundred percent of the cost for the year and then you allocate a percent to your business based on the square footage of your workspace as a percent of your total living space for most people that's somewhere between 10% to 20%. And that can really add up. I've seen that make a huge difference for side hustles in particular because it can be a really big number.

What if someone like myself has done a... Well, I guess there's a couple of things that are probably pretty simple. So for instance, if you were to do any kind of repairs or renovations or decorating for your home office, that is like your primary, you know, like you said that you use a 50, a more than 50% of the time as your home office, is that considered a business deduction? I think that's kind of in the gray area of you. You'd have to be able to defend it. Um, now like, again, to be transparent, I did the same thing when I started my business, I bought some new furniture. Um, I did. I painted the space. So that stuff I did put through as a business expense because I wouldn't have done it.

I wouldn't have redone the office if I wasn't planning to work out of here. So that felt legitimate to me. Where I would caution you is you can claim a portion of the maintenance of your house. So if the furnace breaks, for example, you can claim a portion of the maintenance of your house. So if the furnace breaks, for example, you can claim a portion of that. But that's where I would get professional advice because if you own the house and you start claiming things that are called capital expenses, which means they're actually like improvements to the house, then you can affect the principal residence exemption when you go to sell your house. So there is just that one

distinction that I think is really important. And that's why you don't claim, for example, a portion of your mortgage, because you don't want to like taint your house to say when you're selling it, that actually a part of this was expense for business. So that portion of my house is not sheltered when I sell it. So that's getting a little bit into the nitty gritty. And I don't think we want to go down that rabbit hole, but I would just caution to say, yes, there's absolutely a wide range. And that's a case where I think it makes sense to hire a professional to ask them these questions, add up all of those expenses, just like you do, and then bring them and say like, okay, what do you think I should claim? Because like I said, you never want to

leave income off your return, but you also don't want to pay more in tax than you have to. That's also silly. Yeah. Like the goal is to pay the amount of tax that you really should be paying. Exactly. Yeah. It's not to not pay tax. Yeah. Avoiding tax is tax evasion and that's illegal. That's bad. But not paying more than your fair share is called tax planning and it's very smart. And legal. Exactly. So I guess like the kind of takeaway from that is if you're not 100 sure about all those business expenses just keep all of those receipts just in case even if like you can't claim it it's good to have the receipt just in case totally to uh to put away so in terms of like um preparing like and keeping yourself organized throughout the year which can seem like

a daunting task as well what are some things that you suggest to some of your clients to keep them in check, like some accounting software or just like some strategies? Yeah. Now we're talking about sole proprietors, right? Yes. Yes. We're not going to get into that corporation stuff. That's a whole other level. Yeah. Well, bookkeeping software is the best thing that you can do for your business, even when you're just starting out. If you only have one client or you're like only a hundred dollars in income, I just think it's really great to get in the habit of using it because if you plan to grow your business at some point, you're going to need it. And the last thing you want to do is implement new software of something that you don't really understand like accounting, unless you're an accountant, when you get really

busy in your business. So that's a really great thing to invest your time in, in those first couple of months of starting up. And they have software that you can get for free. For example, wave apps, they call it wave accounting. Um, but they have software that's a hundred percent free. You can even send invoices and have clients pay with their credit card. Now you do pay a fee for, for that part of it, but the actual monthly fee for your software is $0. So it's super affordable. And my favorite thing about Wave is their receipts app. So they have an app, every bookkeeping software comes with an app where you take pictures of receipts and you can stuff it into the bookkeeping software. What makes Waves different is it uses optical character

recognition to extract the data from your receipt. So you don't have to manually type in the date, the amount, the vendor. It does all of that for you. And I've just found that to be a huge time saver. I actually have my clients who are using paid software like QuickBooks or Xero or FreshBooks. I have them using an extra piece of software called HubDoc that does the same thing that the Wave Receipts app does for free because it's that amazing. I think possibly the last time I checked out QuickBooks Self-Employed the app, I think it kind of did the same thing. I remember taking a photo with it and it did recognize some of it, but you still have to double check that it's completely accurate. Yeah. You'll always have to do that, but I think anything where you can get rid of typing stuff in is really helpful. Yeah. Actually. Yeah. Because

I'm like, I use FreshBooks and I don't believe it. I think I have to do it manually, but now I'm in the habit of it. So it's like, it's not a big deal, but yeah, that would be nice if it just did it. Yeah. And then it's really helpful to do that on the go, not to wait until tax season. I know that's kind of annoying because now we're in tax season and I'm telling you, you should have done the year ago. But like I said, at the beginning of our conversation, this is a great time to invest in the habits now. So that next year's tax season is easier on you. Absolutely. Another thing that I usually suggest to people just to keep things organized and simple is I, uh, for all of my business expenses, I always use one dedicated credit card. I don't use it for anything besides business expenses.

And then I connect that credit card to my FreshBooks and it automatically, whenever a purchase happens, it automatically creates an expense in that FreshBooks. And then I just have to go in and kind of like tweak it a little bit so it looks nice and is accurate and includes the tax and all that stuff. But in any case, like I think having a dedicated credit card is so, it's the way that you'll remember just keeping track of how much you're spending, number one, but also just like keeping everything in one place. Totally. And I think I would take that one step further and say you should even have a separate bank account where you deposit your income and pay that credit card from. It's just really helpful

to know if you're not going to use the bookkeeping software regularly, having a separate bank account helps you know if your business is profitable. Because if you can't pay the credit card bill at the end of the month, you know that you're not earning enough to cover those business expenses. So it's an easy way to kind of keep tabs on your cash flow. And here's a little tip. Even if you are in business, if you're a sole proprietor, you do not need a business bank account in order to use it for business purposes. You only need a business account if you're incorporated. So you could even use a personal savings account that's free for your business, especially if you're in your first couple of months and don't expect to

have a ton of transactions in it. So there's really no reason not to do it. Yeah. I'd say like the only thing that I had to do, and I am a sole proprietor still, is I do have a separate specific business checking account, but that's because I run my business under a different name than my personal name. So that's just one thing to think about. You might have to register a name. Like you said, if you're doing it other than under your own name. So one question that I think I posed to you last year when you were filing my taxes was, you know, we've talked a lot about how to get organized with your business expenses, but how much should you be spending on your business as a sole proprietor? Like, is there kind of a rule of thumb? Like, you know, how do you

prepare, I guess, instead of basically doing a full year and then seeing how much you spent, how do you kind of budget for business expenses every year? Such a good question. That's one of my favorite things to talk about. So off the bat, I'll say I got these benchmarks from a book called Profit First by Michael Michalowicz, which I'm not going to try to spell, but I'm sure we can put it somewhere in the show notes. And profit first is, it's a really simple breakdown of exactly what you're asking, the kind of cashflow benchmarks that a small business should have at different markers of income. So what I'm going to share with you are the benchmarks for businesses under $250,000 of income, because that's where most of us start. So the first thing he talks about in profit first is that income or revenue is a vanity number. What we really care about is gross profit or gross margin, which is your income less the direct expenses that you need to spend

in order to earn that income. So in a service business, your gross margin is usually very similar to what your income is because you are the person delivering the service. But if you're somebody who is selling a product and your product sells, retails for $20, but it costs you $10 to make and ship that product, then what you really care about is not the $20 of income per product, but the $10 of profit on that product. So the benchmarks then that I'm going to share are a percent of your sales less your direct expenses because you can't get away from the direct expenses. So after those are paid for, you first want to set aside at least 15% for taxes. And that usually will,

what I have found with a lot of businesses in the first year is that ends up being enough to cover their HST and a good chunk of their personal income tax as well. Now, that's really a blanket statement. You need to do the estimates yourself to make sure it's going to be enough because it's not enough for everyone. But if you're starting with not putting aside anything, 15% is way better than nothing. And the second piece is what you're going to pay yourself. And I usually advise to pay yourself 50%. So that's a nice, easy thing to remember at the end of the month,

whatever's in your bank account, half of that is for you. 15% is for tax. 30% is what you should be spending on your operating expenses. So when I'm looking at a business and saying, is their spending sustainable? We'll add up all their overhead expenses, which are different from the direct costs because the operating expenses are what it costs you to run the business. So things like rent, paying your lawyer and your accountant, marketing costs, travel, meals, all those sorts of things. 30% is the benchmark. Now, again, when you're first starting out and your income is really low, you might find you're like way over that 30% threshold. So I think it's also helpful to split those operating costs into what are my one-time startup costs that are not going to be happening all the time, but this is what I'm investing in order to get the business going versus what are my

repeatable monthly expenses that are required to keep my business going. And that's also a really helpful way to budget because you know, while the operating or sorry, the startup costs are things that that's money that I have to fund either from my own savings, maybe from going to get a business loan or getting a grant, the operating ongoing stuff you ideally want to be able to fund right from your business operations from your income. So it's that kind of ties into the mindset of bootstrapping that you'll know how much you can spend on those expenses or what's affordable to you early on in your business based on how much you're earning. But again, there's that push and pull, right? Because if you're not earning a lot yet, you do need to invest or put some money into the business to get it going. And that's where

it's really helpful to get professional advice from an accountant or a business coach to talk you through those decisions. Yeah. Those are some really helpful benchmarks because as someone who pretty much dove in headfirst without knowing any of this until I'd done like a year of business and kind of like, oh, I did it all right, but I could have done it better. Those are some really good starting points. And that sounds like a good book recommendation. Profit first, you said? That's right. And anyone who's been writing these numbers down and did the math, they probably noticed that that only added up to 95%. The last 5% is your profit. So the way he does it is actually that 5% comes first. The first thing you do is set aside 5% in an account that's called profit. You pay it out to yourself at the end of

the quarter of the year as a little bonus, or you reinvest in the business. And you set aside taxes, then you pay your operating expenses, and then then you pay yourself or pay yourself then your operating expenses. But it all kind of gets done at the same time. It's really just how you think about it. Yeah. I want to take a look at some of those numbers and probably the book and see what I'm currently doing and what it suggests to see if there's like a way to kind of optimize what I'm currently doing. Because what I'm doing works, but I'm always looking for a way to make it a little bit easier. Yeah. When I first did that assessment on my business and if you go to his website, he has tools to help you do the calculation of where you're at right now. I was way off. Like I was paying myself maybe 10%. And that's why I never

felt like I had money. And I felt like my business wasn't a success because I was in, I was making the mistake of thinking, well, you got to spend money to earn money, but it's very much just like in personal budgeting that you don't want to get in the habit of spending more than you're earning. So if you can train yourself to only spend money that's in the bank, then like you just make smarter decisions. I got way more frugal, I guess. Or I like to say I became a better steward of my business finances when I knew what those benchmarks were and started playing within them. Yeah, definitely.

Awesome. That's so, so helpful. I mentioned here and there that you do taxes. So you run your company called The Wealth Company. Do you want to kind of share a little bit about what The Wealth Company is about and what kind of things you do? Sure. Well, the first thing I'll say is it's The Wealth Company, but we of share a little bit about what the Wealth Company is about and what kind of things you do? Sure. Well, the first thing I'll say is it's the Wealth Company, but we spell it a little bit different. It's W-E-L-L-T-H because I believe that true wealth comes from well-being.

And I try to infuse that into everything that we do in our company. The advice that we give, the way that we operate our business, the way that we help our clients operate, it's all focused on how does this help you live your life in a way that's more balanced. So that's like the first thing. Now then, aside from that, the Wealth Company is a financial advisory firm for mostly female-led startups, small businesses, and self-employed women in Toronto. So 90% of my clients are women. But in general, I'd say we really work with millennials. Most of our clients are under 35. I don't know if that's actually the cutoff for millennials. I don't know anymore. I keep on hearing different. Yeah, I'm like, I have no idea what a millennial is anymore. Yeah. But really, we focus on people in the

first decade of their career that are accumulating, they're growing, they're thinking about, you know, retirement in the long run, but really where they're at right now is like, how do I grow this as fast as possible without burning out? Yeah. So we offer services in three main categories. The first one, like we've been talking about today's taxes. So we do personal taxes, sole proprietor taxes, and we even do corporate taxes. So anything you need for taxes, we can handle. Now we're not tax like experts. I don't do cross border stuff, or if you have really complicated situations, I have people that I'll refer out to. But yeah, we do the basic taxes. We also offer bookkeeping services. So either if you want to

have a bookkeeping coach to teach you how to do it all the way to you just want somebody to take it off your hands, we can help you with everything and anything related to bookkeeping. And we're not stuck on one bookkeeping software. We love all of them. So we'll work with lots of different stuff. And then the third thing is we consider ourselves like part-time CFOs for our clients' businesses and their life. So in addition to that stuff that's a bit more transactional, we do a lot of advisory work. So on the personal side, that looks like helping you strategy strategize. How am I going to buy my first house? How am I going to pay off debt? How am I going to save for retirement? And on the business side, that looks like, how do I afford my startup costs? How do I turn my

variable income in my business into a salary? How do I get funding from grants and from venture capitalists? Anything that a CFO would help you with, we can do. Nice. Wow. One-stop shop. Great. Well, thanks so much for joining me on the show. Before I let you go, is there one or two things, we could stick with one, things that you want to make sure that people really take away after hearing our interview together? Well, aside from the technical stuff that we've talked about, I would really like people to take away that tax time does not have to be stressful. And if you can find a way to shift your mindset around it to think more optimistically about it, then that's setting yourself up for more success. I think in general, we're really lucky to live in this country in Canada, where we have access to free healthcare,

free education, like there's so much that is made available to us through the taxes that we pay. So while we're saying, you know, we want to pay as little as possible, we also want to pay our fair share, because we're contributing to a really beautiful place that we live. And on that note of making taxes less stressful this year, for the first time, I am giving away free tax season self-care kits to anyone who does their taxes with me and signs up before February 22nd. So inside the tax season self-care kit are all of the things that I have been using for the last few years as I've built up my business that have helped me manage my stress during tax season. Because I am doing multiple, multiple, multiple returns. It's a really busy time of year for me. And so I can understand it's really important to stay balanced. So there's some fun stuff in there. Some of my

favorite coffee drinks and teas. I have a coffee mug. There's some cute station stuff a little bit of like beauty products and I also have um a tax season playlist of uplifting music most of it related to money and taxes I love it that you can listen to to set the mood I love that and where can they find more information about you and to uh get in touch with you absolutely I live mostly on Instagram. My personal account is at Lisa.Zamparo. And in that bio, there's a link to our business account at The Wealth Co. And there's also links in there to get to our website, which is thewealthcompany.com. Awesome. Well, thanks so much for taking the time to chat with me, Lisa. Happy tax season. Thanks, Jessica. It's always so much fun chatting with you. That was episode 183 of the Momany Podcast with Lisa Zamparo. Make sure to check her out at her website, lisazamparo.com. Also check out the show notes for this episode at jessicamorehouse.com slash 183. You'll want to check that out because I am going to be putting information about the

stuff that we talked about, some important links in case you couldn't remember, but you're like, I want to check that book out or check out that resource or check out that thing that we talked about, some important links in case you couldn't remember, but you're like, I want to check that book out or check out that resource or check out that thing that they talked about, but I'm going to forget in like five minutes, go to the show notes. And the easiest way to always do that for all of my episodes, just look at the number, whatever the number of the episode is and go to jessicamorehouse.com slash whatever that episode number is. So for this, it's jessicamorehouse.com slash 183. Also, you want to get organized this tax season. This is the time to do it because it's like early and you can get your taxes done and get your tax refund, you know, earlier or just get it off your

plate. Download, and this is for my Canadian and American friends, download my free tax prep checklist at jessicamorehouse.com slash tax prep checklist, or just check out the show notes. There will be a link in there. There's a wonderful PDF I've created that basically shows you all of the potential documents you may need on hand in order to file your taxes. It doesn't matter whether you're going to work with a tax accountant or use some sort of online tax software. No matter what, you're going to work with a tax accountant or use some sort of online tax software. No matter what, you're going to need these documents to fill in this information or send this information to your tax professional. So make sure to download it, jessicamorehouse.com slash tax prep checklist.

Okay, don't go away. I have some important things that I want to share with you. But before I get to that, here's just a few words about this episode's podcast sponsor. This episode of the Mo Money Podcast is supported by the Canada Deposit Insurance Corporation, CDIC. Did you know that if you bank with a member of CDIC, your eligible deposits with that bank will be protected up to $100,000 in each of CDIC's seven different categories? So if you had $100,000 of eligible deposits in an account in one name and $100,000 of eligible deposits in a joint account, your entire $200,000 would be protected at the same financial institution. That being said, CDIC does not insure stocks, bonds, mutual funds, or other investments. Just cash and term deposits like GICs with original terms to maturity of five years or less.

There's quite a bit to know about how CDIC protects you, so why not test your knowledge with their free trivia challenge at depositinsuranceendurance.com. Or to learn the ins and outs of how CDIC works so you can feel confident about the safety of your savings, visit cdic.ca. Once again, that's cdic.ca. All right. First and foremost, super important if you listened to last week's episode with Melissa Leung, or if you missed it, here's just a reminder that I am running a contest giving away copies of her new book called Happy Go Money. If you want to learn how to get happy with your money, this is the book for you. So make sure to go to jessicamoross.com slash happy

go money or check out this show notes. So you can enter it will take you two seconds. And then you'll be in the running to win a free book that you will get in the mail from yours truly i will personally mail it or just get amazon to do it depends on where you live okay um so make sure to do that free stuff who doesn't love free stuff but next right now i want to give some special shout outs to some fabulous listeners who took the time to give me an itunes review let's get to these. Raya D. from Canada says, authentic and relatable podcast, not intimidating for someone just starting to explore the world of finance. Fabulous. Thank you so much for listening. And thank you for taking the time

to give me an iTunes review. Next up, I've got HS Richie from Canada. Jessica, I am so grateful for what you do. I was feeling frustrated with all these experts, quote unquote, not explaining things in a way I could understand. I started to think that I was stupid. Then in my job, I started taking on more and more complex billing cases. And as I explained to others, I thought maybe I am smart, but no one had been explaining things in a language I can understand. And now I have you. Thank you. Wow, that is amazing. And totally know how you feel.

Actually, I feel like a lot of people listening know how you feel. Feeling that, oh, I'm just bad with money or I'm dumb or I just don't get it. I'm not good with math. 100%, no. That's not what personal finance is about. Personal finance is for everybody. If we all earn money, if we all spend money,

yes, we can learn how to manage it correctly. And I'm so glad that I was able to help you understand it better. Because like you, I hate people that are all about the jargon or all about the, you know, just crap. Like they just, I feel like if you can't understand how someone's explaining it, it's because they probably don't know what they're talking about. Am I right? So thanks for your review. And last but not least, we've got another review from Amy E. from London, Ontario, Canada. I just love these podcasts. I have learned so much and never expected to find it so enjoyable listing to a finance podcast. I know. I think a lot of people are surprised by that. Jessica really knows her stuff and her delivery is so genuine and refreshing. I highly recommend this podcast. Well, thank you so much, Amy. And thank you for listening. If you haven't already done it, make sure to, you know, spend just a tiny little moment of your busy,

busy life to give me an iTunes review and I'll give you a shout out on a future episode and I'd love you forever. Okay, that is it for me for now. But of course, as always, I'll be back here next Wednesday with a fresh new episode of the show. In the meantime, get your stuff together. And if you don't know what I'm talking about, I'm just being like, if you have been meaning to tackle some of your financial struggles, make this the week that you do it. Don't wait until Monday. Start today. And you can easily get started with starting a budget, tracking your spending, just being more mindful with your spending by checking out my free resources on my website. JessicaMorehouse.com is where you can find all of those goodies.

I'll see you back here next Wednesday. Have a good rest of your week. This podcast is distributed by the Women in Media Podcast Network. Find out more at womeninmedia.network.