Tax Planning for SaaS – Cameron Keng, CPA, JD, EA – MicroConf 2013

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0:07[Music] Wow so I just realized a little screwed because I got to follow up these guys and you can tell from my slides they're very well designed and talking about taxes y'all so I'm gonna go over generally speaking how the tax use system works for everybody generally speaking so normally tax season starts right so we all get terrified kind of sucks everybody it's pissed people get angry at me usually really quick and then next thing that happens is you try doing your taxes right so you try avoiding the whole issue you get annoyed it's really starting to get angry right now then usually flip a desk or two and then I

0:49get all that again and then you complain why am I not getting a tax refund okay so I'm gonna tell you a bit about my background so I specialize in sucking and failing a lot and to give you an example how bad I suck I once started a bubble tea wholesale company now you may not know what a bubble tea shop is but basically it's milk tea with tapioca balls right now I did pretty well and then I failed really hard so I'm not gonna lie when I tell you that when I fail I get really depressed okay it sucks kind of works really badly at the

1:24Royal but one thing that we should all realize is failure always has a silver lining and I know how does this all come back to taxes the way it does is when you fail you usually lose a ton of money and not loss it actually isn't that bad after you lose the money because what happens is you can now go back to the IRS and say screw you give my money back because I'm broke now so kind of like how Rob said that he got a huge tax refund we're doing the same thing so me specifically I lost about by twenty thirty thousand dollars right on that

2:00whole business because what happened was I bought a crap ton of condensed milk which I found out later these companies from China were sending in also condensed milk but they were cut with flour so their prices were much lower than mine what happened was they bought my stock in the end and I lost all my money because I couldn't compete they were too cheap so I took my $23,000 loss and I asked for a refund and I got $10,000 back okay why cuz I paid that money before and I used that money after being depressed playing call of duty and all that good stuff then I plowed it right back into another

2:31business which I failed again but the point is I kept doing over and over so I just want to know let everybody know here that you know I've failed a lot in my life and if you have as well it kind of sucks but just know that there is opportunities from that failure and there always is and I know else which is what they are net operating losses if you have an account if you want to do yourself and even if you can't do it yourself you can always go to something called a wider program which is a vit a it's free from the government from the

2:58IRS they do your taxes for free and you get a refund back ok refunds are good they're your friends she gets them all right now then there's the other situation where you get a refund and then you start off going H&R Block which please dear God don't then you go to February which your shopping very happy you come here you get broke March spent way more money and then you go over to ramen again in April right so this is the process that we go through most of the time now that's not really what you want to do you want to just stay rich and kind of be one of these guys right

3:29now the first thing we talk about is online sales tax this is a foregone conclusion I don't really care what anybody says or thinks you're all screwed okay you're just it's done twenty-seven states right now already have it and this is just the beginning right now what online sales tax is right now the reason why it's always work to our benefit than the present is because one case you don't really care what it is but it's more it's cool be North Dakota and all that says is you've got to have something called Nexus means got to have some kind of connection to something right now all this law does is

4:06simple it tells you you know that one connection used to have doesn't matter anymore sucks for you woohoo but actually it's good for us why because if we let States do what they want it actually always ends up being one more complicated number to more expensive because you have to understand sales tax is not let's work as a team kind of situation it's a Pareto principle somebody's got to get the money and it's gonna be them or you and it's always gonna be them so by actually making this law we're actually benefiting by not having to let them screw us in the future so I know it sounds bad but it's not as bad

4:41as you think it may be so just understand that this is coming it's gonna be valuable for all of you to know in different states there's different rules for example in New York I once had a client they were fortune 500 and you may not think ebooks or these products are taxable they could be and the reason why is because if it's coming from let's say a computer program which you may may know how to do obviously if it comes from that then it's a report and it's an informational report so back in the day when all of us didn't have computers right one used to get in the fax that

5:16really crappy stock tip well that's all taxable and that's the stuff that they're gonna use against you so this stuff does matter next in corporations now why am I asking what about all these things specifically the only reason I'm actually talking about any of these things because I actually got specific questions from the crowd here so people ask me when they should incorporate and the answer is never my opinion unless one of these three things happen or you want to use stripe and you're not from America all right now that's a that's a good question people asked so if you want to incorporate and number one you don't

5:49have any of this stuff here that means that you shouldn't incorporate you should use a DBA doing business as it's cheap it's easy you get to fake it till you make it and I'm really good at that because that's exactly how I do all my businesses if you don't want to show you social security number you can get a tax ID number from the IRS free and five minutes and then you're good as new but if you have a lolly bility then yeah you should incorporate because you don't want to get screwed if you have profit then you really want to start getting incorporated because it does help you

6:17save money if you do it right lastly if you have an investment then you just have no choice and they always going to stick your ass in Delaware which kind of sucks just because it's a lot of paperwork for you and moving on so what do you do when you want to incorporate you talk about pass-throughs talk about corporations and general a corpse suck if you're in our crowd right now just be they're much more expensive and they cost more pastures are cool because it saved us money now there's a crap ton of different versions out there so there are LLC's LPS personal service corporations all this other stuff you

6:53don't want to care about any of them except for probably an S corp or an LLC now an LLC is good it's easy to do not too expensive blah blah blah but the key point and difference and most people will talk about is the self-employment tax it's expensive it's painful some of the guy asking them before it's like 15.3% anything you earn on the LLC will be taxable all right so you'll always pick 15.3% almost on any income from the LLC whereas an S corp you're not going to avoid it completely but it helps you avoid some of it so how does that work simple you have a company you create an

7:32S corp it's very simple it's a single page you suck it in and then what happens is you pay yourself a salary okay now on that salary you will pay the normal Medicare and all that good stuff now if you get a k1 on the extra distributions then that is actually a dividend it's not taxable because a dividend is not earned so that's how that works okay now how do you know what exactly you should pay yourself it's a really good question normally that's where people get screwed over all right so I like to use stats because I want to not get kind of I'm nothing as F work but

8:07screwed so the way I do it is I use the Census Bureau or at Weimar labor and I figure out what is my role in the company all right if you're a developer figure out your destination your location and okay I make 60 K and maybe 80 New York maybe 40 K somewhere else that's cheaper and then you pay yourself that amount and if they complain be like okay this is what the government says leave me alone and you're a good place to be now what happens if let's say you make 50 K and based on your location you're making more than that so basically at that point you're not going

8:41to really save money so it's a catch-22 you have to figure out yourself lastly tax credits and deductions now I in this talk there's no way in 12 minutes I can really tell you everything you need to do to do your taxes it's not possible my job here is really simple hopefully I give you enough information so that when you do talk to the next accountant he's not gonna be a dumbass because realistically you're gonna go two through four to five accounts and that's normal you may get lucky you may not now when you talk to these people though you need to know some things so it might

9:15help you everyone in this crowded generally will benefit from these two things are indeed tax credits and the domestic production activities deduction Rd is great because why we're all developing software so it wasn't always available to us but ever since 2007 horray now the laws change our rules are nowhere near as good as those Canadians because they get like 75% we do not get anywhere near that so how much is it's worth the way to calculate that is simple every fifty thousand dollars you earn or pay I'm sorry that you pay someone to do development you can get about two K all right nice little even

9:52number if you mean all the requirements all right requirement is you have to make money second requirement is if you are a pastor entity but you probably are you must have a w-2 so doing these two things probably only works for you if you were an S corp with a w-2 make sure you remember that because otherwise you're doing something that doesn't help you okay so with an S corp with your w-2 you can then deduct your own salary which is nice you pay yourself you just ducked yourself great then domestic production activities that will get you about I would say for $50,000 you'll get about 1125 $1,125 back so in total

10:31between these two things alone hopefully you'll save about $3,200 not a lot of money but good enough alright for someone who's making 50k it grows exponentially get such etc now what are these two things well domestic production activities is actually really funny this actually does have a different name what happened was Japan complained and then they said okay it's true but this is actually unconstitutional it's illegal so what the government did is they changed the word activities and then once that happened we got the same exact law back and that's how we have this today this will give you nine percent of your net income so whatever your

11:08income is let's say it's 50k 9% of that that's your deduction all right if you take the deduction and you figure out what's it worth to you like again it's worth one thousand one hundred twenty-five dollars about so that is two good tips I can give you outright if you have a question in all honesty what I can tell you is you probably want to not call me right now because if I answer your question it won't apply to anyone else most likely but if you ask me later feel free I'll tell you whatever you want and don't worry I don't take clients so I'm not like trying to sell

11:41anybody anything so do feel free to ask me anything else you want and that's it [Music] [Applause]