Zac: Okay, so with that, this is Built by Liquidation and Resellers Podcast, talking about liquidation. Today we have on Mark Two, right, of Reseller Academy, Reseller Tax Academy. Is that the business name that you're going under? I know there is two of them. Mark: I th that's the that's the name of my tax course, reseller tax academy. my my website and like my social media YouTube channels and stuff is not your dad CPA. Zac: Awesome. Well, before we get into like all of the questions that people have come to me with, give us a brief kind of history of how you got into being a CPA and then why you've chosen to f it seems like chosen to focus on the reseller side of things. Mark: Yeah, so quick history. I mean, I I did accounting in college. I I worked for a big accounting firm and then later a small firm and then went into corporate finance, but became a CPU CPA early on because they they want you to get certified. and a few years in I decided to just start trying to do taxes on the side on my own, because I had some exposure to it through my work. so I started you know think like just over ten years ago now and about the same time I also started blogging. So I had like a financial blog online because I had followed a lot of people and and blogging was a lot more popular then and and I was like I could do this. Like I I'm interested in the financial aspect and and I was a good writer. So I went to a few conferences and I just I met a lot of people and in Yeah, just just found some new relationships that way. And ultimately ended up on a podcast that was eBay focused. So the hosts told me they had like 10,000 listeners who all sold stuff on eBay. This is like 2015 or something. And I I hadn't heard about eBay for a long time. I was really surprised that it was still such like a vibrant and booming community. And Zac: Yeah. Mark: and and once I Did that, I I started getting more reseller tax clients and eventually just realized there was something something big there. So I just decided to start specializing in taxes for resellers and helping resellers with their finances. And and also about that same time I started selling doing FBA through Amazon. so I did that for like eight years. so yeah, I I think it's I still think it's a really good niche to be in because there there is so much opportunity and it has evolved over time, but yeah, it's kinda how I end up here and and also a lot of them are content creators and do YouTube and I I also have started focusing more on on that aspect of things as well. Zac: huh. It's funny you mentioned I tried to be an accountant in college. That's one of the things that like I went to or went to college and I wanted like I I changed several times. I only made it a year and a half. but I wanna I think the when I dropped out I was my I don't even know if you could call it a major yet 'cause i I didn't even finish the the first two years, but I had wanted I thought I wanted to go into accounting and I realized I enjoyed looking and thinking about money but not like in that aspect, if that makes sense. I'm not Mark: Yep. Zac: very good. I can tell you what I've made. I'm very like I could tell you if you ask me today on a deal or this week, I can tell you exactly what I've made. But up until this year, 10 years, 12 years in, I've not been very organized as far as like our books go. which I think is pretty common amongst resellers in general. I think a lot of especially in liquidation, a lot of people are more like hustlers than actual business owners or that's w how it comes off. So with that, what do you this is a very broad start to the conversation, but what's a common mistake that resellers tend to make when it comes to their taxes? Mark: I mean there are a few common mistakes that I see. One is just doing too much too soon. Like a lot of people don't realize that it it doesn't take a lot to just get started. And p a lot of people worry about not having the correct type of business or they think they have to have all these things in place in order to just start. And that delays them, you know, they're they're forfeiting Sales that they could otherwise make just by jumping in because that's all you really need really need to do once you jump in and start selling on eBay or or wherever, if it's liquidation, like you are a sole proprietor by default. The IRS classifies you as a business in that moment. Like you don't have to go out and have an LLC or an S-corp, or sometimes people even do like C corporations from day one, and that's not what you want to do. so don't do too much too soon because then that can just be annoying to have to go back and unwind all that. and then just like you were starting to mention, just having a good record of your business activities, so keeping track of your income, your expenses. so that's that's the bookkeeping, record keeping, whatever you want to call it, just having a record, or at a minimum, just a separate bank account. where you're separating all of the business stuff from your personal and that's gonna make it easier later on for tax purposes or just for your own benefit of knowing how your business is doing. Zac: profitable you are. Yeah, we get that a lot where people, you know, I think they they do get a little stressed. Like I don't I'm afraid to start. Maybe it's an excuse that they give themselves because I mean I think people look for excuses, but I get that a lot where I don't know where to start with my business with my LLC with forming everything. So you're saying the best thing to do is just to start and then decide later how you should form your entity because there's different entities you can decide on. Right, you have your LLC, S Corp, C Corp. For resellers, typically, I mean, obviously, I think it imagine it changes. We for the longest time we were in LLC, we res structured our business to to be an S Corp as of twenty twenty six. But what's the difference? Explain the difference to people and what most resellers should probably fall under and what why it's important. It's obviously it's important to get started. But it's still important to form some kind of entity sooner than later, I would imagine, at least from a liability perspective. Mark: Yeah, and that's what I was gonna mention because if you are a I mean, so many people start just by selling their own stuff. You know, you have clothes lying around. So if if that's you, there's not a lot of liability there. So that's why I say for most people it's okay just to start. Like if if you're selling cl reselling clothing on eBay or Poshmark or something like that. It's there's not the same urgency to have an LLC from day one, but that's different than if some if you're going to be selling you know construction equipment where there is more risk. So so if that's the case, I might consider actually having an LLC in place on day one or some type of insurance or something that limits your liability if there's ever any issues. so it it just depends what you're doing. For most of my clients. There's there's not that urgency, and then you can kind of layer those those business entities on as you go. But the main reason you would do an LLC for, or I mean the reason they exist is for that limited liability protection. If anything ever does happen and you get sued, they can only come after your business assets. They can't also come after your personal assets. but sometimes even if you're not Doing it for the liability. A lot of people will form an LLC because certain vendors or banks might not work with you unless you do have an LLC. So that's the reason I see a lot of people do it. It it just can sort of enhance your the how people perceive you, you know, your level of like legitimacy or or professionalism. so those are the the main reasons. And one thing that an LLC does not do for you is really give you any new tax savings. A lot of people think or or even still say on TikTok or wherever, like, go go do your LLC so you can save on taxes. So an LLC is actually taxed the exact same way as a sole proprietorship. Or, you know, all all these solopreneurs. So there it it's it's the same. But an LLC is a stepping stone to what's typically next in the progression, which you also mentioned, which is the S Corp. So you can't go straight from a sole proprietorship to an S Corp. You usually have to first have in place an LLC. and the S Corp does save on taxes if you do it at the right time. because as a sole proprietor or an LLC, Your profits are not only subject to regular income tax, but they're also subject to self-employment tax. So Zac: Correct. Mark: self-employment tax is basically an additional 15% on top of the income tax. So that's a huge chunk that surprises a lot of people when they get started in this industry or just in small business in general. So with an S-corp, that self-employment tax. Portion on your profits disappears. So you so if you're making a hundred thousand dollars profit as an S-corp, you're basically saving fifteen thousand dollars. and that only will increase as your profit increases over the years. So, There are a few extra like requirements of having an S-Corp stuff you have to do, but it's it's not super complicated. but but yeah, that's the typical progression. So sole proprietorship, LLC, and then if it makes sense you can layer on an S-corp. But yeah, I'll just I'll stop there. Zac: No, you're good. So something 'cause the LLC, that money, it almost it's like it's like your personal income, because it it crosses through or passes through, correct. So if your business as an LLC makes half million dollars a year, then Zach or Mark would have made half million dollars that year, right? It passes through. Is that accurate to say, or is that to to keep it kind of simple? But an S Corp is is two separate entities. So now the business made the half million and Zach would have gotten paid through the business in a sense. Or not in a sense, that's how you would have to pay yourself Mark: Yes. Zac: a reasonable salary through the S Corp. So Zach now personally, say I made of the half million, a reasonable salary would be a hundred and fifty. So Zach personally would have made a hundred and fifty. My business would have made the five hundred or subtract what I paid myself. Mark: Yeah, so so an S-corp actually also retains that that pass-through component. So you do have to pay yourself a salary, and the leftover profits are still treated as if they're passed through to you. So those will show up on your individual income tax return. Zac: Okay. Mark: where it is totally separate is if you have a C Corp. So that's where the company is actually taxed and you're taxed. Zac: Got it. Mark: But that's not something I recommend for most small business owners. But with the S-Corp, there is a separate tax return, but the tax but there's typically no tax directly on the S-Corp itself, because it all passes through to you and Zac: well. Mark: then you're taxed at your regular your regular tax rates. But you do have a bunch of savings typically. Zac: Got it. right. 'cause as far as like so for us, you know, we when we fur when we started, everything was real estate, right? And the bank loves they you know, they like to see more money on my personal tax return, they did, right? 'Cause in the beginning, everything was bought in my name 'cause I was the only one that could get the the lending, right? And then as that that in that real estate portfolio is grown, it's its own entity and now that can go out and get its own real estate, it's separate. But in the beginning, the bank really liked to see the LLC is all that money passed through to my personal tax returns. And it helped us it helped us go out and get loans. Cause that's one thing that and that I I I understand it to an extent, but it's like it it sucks for lack of a better word. I'm trying there's a phrase that I'm looking for and I can't find it. But the bank wan we all are trying to save money on our taxes. We all want to show the least amount of money possible because we don't want the government to to take our profit. But the bank, when you're going out to try and buy real estate, wants the opposite. They want to see as much money as possible on your tax returns because that's how they're you know more comfortable lending. So maybe you can answer that question. Is there a is there a happy medium are there some things that we can do where we can show profit to the bank where they're happy, but we can still And we're not trying to hide money, but we're also trying not to pay. There's that fine line. We wanna like we want to we wanna find the line, right? Where it's acceptable, it's legal, it's safe, but you know, w I like to push that line where we can. Mark: Yeah, there's definitely some tension there, and and that's a another similar and common scenario that I see is people are just trying to get a mortgage for a a new home. So they want to show as much money as they can on their tax return. But the more money you show, the more taxes you're gonna Zac: Ha ha. Mark: pay. So then they have to just you know, cause cause there are s you're supposed to you're supposed to claim, you're supposed to report your business activity. You know, all your income, all your expenses typically, but there are some deductions that you don't necessarily have to show. Like you don't ha there are two different ways you you don't have to claim the home office deduction. So somebody could leave that off and it and make their income go up a little bit. But then you're paying more tax. So yeah, there is definitely Zac: I've heard the home office thing is kind of like a sh like it's not a surefire way to get audited, but it's I've heard different people talk about having the home office and deducting that is somewhat of a red flag when the IRS is looking over your tax returns. Is that true or is that just like to scare people? Mark: I think it's I think it's an idea that has persisted that might have some basis from a long, long time ago when it was less common. But I mean, especially within the last 20 years, so many people work at home and and claim the home office deduction. as long as you have the records to back it up, there's really nothing to fear there. And Zac: huh. Mark: yeah, and it's just so common and typically I I mean I've never seen it flag an audit or anything. And even if it did, if you had the records to back it up, it's it's not a big deal at all. I I encourage all my clients to take it. I'm actually making a video about that right now. Zac: So the records. I hear that a lot with from our accountant and what kind of records should we keep? We wanna claim the home office. How do we what kind of record are you talking about? How do we keep it? What kind of proof are we looking for to hold on to? Mark: for your home office specifically, I mean you just you just have to have a space in your home that you use regularly and exclusively for the business. so you'll have to know how many square feet that space or room is. And you can show that pretty easily by measuring it or with your you know, the plans for your your home. And then just have you divide that into the total square footage of your home. I mean, that's pretty simple to show. And if you use the simplified method, that's all you need. If you use the regular method, that'll take that percentage and it'll it'll it'll take that percentage and deduct that percentage of your utilities, your mortgage interest or rent. Homeowner's insurance. So you just have to keep a record of those bills. But even then, like very rarely would you ever have to actually produce those to show somebody. So even if you don't have a a a folder or digital folder where you're storing all that stuff, you can usually go go download them from somewhere if if anybody ever asks. So it's it's it's nothing to be really intimidated about. Zac: We just keep have some kind of proof that you use and work in your home office. Is there a certain amount of time you need to dedicate to that home office per month for it to count as a home office? Or if I just have a space in my home that's set up to work, is that kind of close enough? Mark: I that should work as as long as it's your your principal place of business is what they call it. Like if you're doing like even if you're out going around sourcing, like talking to people, if if you do all your your admin work from that space in your home, you know, pay your bills, do the bookkeeping, t some people are labeling stuff and then it then it'll qualify as long as it that room is you know, as long as it's not also a get guest bedroom or your you know, your where your dinner table is and stuff like that. Zac: So it needs to be a dedicated space that's your primary source or primary office. So if I have an office in town at my warehouse, I can't also write off my office at home. Is that what you're saying? Or you can do both. Mark: usually it it has to be your principal place of business that you use regularly and exclusively for the business. There is it's called the I forget the name for it, basically like an exception where if you do all your administrative work from home, even if you do have another office at the warehouse, you can still take the home office deduction. So there is kind of an exception there, but yeah, the main rule is regular and exclusive use in in that it's your principal place of business. So depending on anybody's individual circumstance, you can always, you know, look into those more and see if it applies. Zac: Okay. Okay. moving moving forward, we get a lot of questions about your sales tax and resale certificate. A lot of people get confused with a sales tax certificate and a EIN number and they try to use the EIN where they really need to have that resale certificate or the sales tax number. Really quick break up and explain what both are and where you really need to have that why the resale certificate is important or the sales tax number is important. versus just keeping that EIN number. Mark: Yep, so the the EIN number, it's just it's basically like a social security number for your business. It's optional to have one if you're a sole proprietor. if you're an LLC or S Corp, typically you will need one. So that's the EIN. That's just your business identification number for federal purposes. The sales tax ID. or or reseller certificate stuff. well so let me start with the the reseller certificate. If you want to avoid having to pay sales tax on the purchase of inventory that you're gonna sell, then you typically need to provide your vendor with a reseller certificate. And that's what tells them that they don't have to charge you sales tax and they keep that on file. But listed on that reseller certificate has to be proof that you are authorized to collect your own sales tax. So for that, you need a sales tax permit or a sales tax ID. So before you can get a reseller certificate, you have to register with your state or county to get to get a sales tax permit. that's basically getting registered. to have the authority to collect and remit sales tax and you get an ID as part of that, which goes on your reseller certificate. I think yeah, I think that's the basics. Zac: So if you have the resale certificate and I am avoid not avoiding, but I don't I don't have to pay sales tax on my purchase, but that also means I need to be collecting sales tax on my sales. Mark: Yeah, in theory, in unless you're selling through a platform who does it for you. Zac: like whatnot TikTok. They're already collecting those those taxes. So okay, example time. Let's say I I get my research certificate. I go out, I buy a pallet at my local pallet warehouse. I provide them I think it's an S7 form at least in Georgia, ST5, ST5, I think, whatever. I give them that. I don't pay my 7% sales tax in the state of Georgia. But then I go to the flea market and I go and I sell my palette at the flea market. Nine times out of ten flea markets are purely cash. Was I s supposed to be collecting sales tax and reporting that at the flea market or are flea markets fair game to do whatever you want? Mark: Yeah, I mean in that scenario, most likely you were you're on the hook for collecting the sales tax since you're Zac: No right. Mark: selling to people who are in your same state. and if the flea market is not taking care of that for you, then yeah, y you in theory would have to collect the sales tax and then remit it to the to the state. Now, in in some states, every state's a little bit different. like in some states, certain types of clothing are not subject to sales tax or just certain items have different sales tax rules. but assuming there aren't those exceptions, then then yeah, you would be on the hook for that. Zac: So if I flea market seller, I made two thousand dollars at at the sale this past Friday, I put that money in the bank, now it's reported, I at some point someone could come along asking where their seven percent is. Mark: In theory, yeah. Zac: Over. Mark: And I mean, do most of those sellers pay sales tax? Probably not. Zac: Yeah. No, I mean I I I I'm sure it's extremely uncommon. I know like at the very least they're not collecting it at the booth, but I think it's important for people to understand that just because you're not collecting it at the booth doesn't mean you're not on the hook for it. If you decide and you should report it. I mean, I think in the beginning a lot of people, you know, can't give the advice, but they don't report their their cash sales because they don't want to pay taxes on But what people don't understand, if you're not reporting your cash sales, you're not putting that money in the You can't put that money in the bank. If you're not gonna report it because it's cash, you can't go putting it in the bank because now there's a record of it. And you want there to be a record of it because if you're gonna do anything outside of reselling, like for us buying real estate, it's impossible for us to go out and buy real estate with a briefcase full of cash. Nobody you can't you can't buy real estate with literal cash. It has to go in the bank. And if you put it in the bank, it's gonna get reported at some point. So Just a fair warning to the flea market sellers out there, you know, if you're not reporting your sales tax, it seems like, you know, you should, or you should do something else with that money. anyway, moving on from that, it's really good advice. People I don't think they understand. I don't I think a lot of times it's just ignorance and they don't go looking. They don't ask the question, so they don't get the answer. because I've done, I mean, I've dealt with a lot of flea market sellers. over the course of the last twelve years. And, you know, I don't think a lot of them think about it. I think a lot of them view it as a yard sale, maybe. And answer that question, we used to put on some massive yard sales back in the day. It wouldn't couldn't be considered a yard sale because it was s it was so big. but what are the rules on yard sales and is there a certain limit to is there a certain amount of sales that you can have in a year before you have to start repairing? reporting that as income. Like if I'm just Joe Blow clearing out my garage, is that different than having a yard sale every weekend from a tax perspective? Mark: Yeah, I mean like a a one-time garage sale typically is not anything that the IRS or your state would come after for not reporting. but I think that's probably because I mean a lot of that stuff you're selling for less than you bought it for. So you're you're probably not even you're recovering some of the costs, but you're probably not even generating an overall profit. So Zac: Okay. Mark: if If you did report that in your taxes, like you'd show a loss and it wouldn't be, there wouldn't be tax assessed on that anyway. but technically, if you if you are realizing a profit, then that stuff should be reported. Most people probably don't, and they'll probably never have any repercussions for that. But Zac: Yeah. Yeah. Mark: like, but technically that should go on your taxes. Zac: Got it. Okay. So I mean, 'cause I imagine it's pretty difficult for the average person. I bought a microwave five years ago. I'm I'm selling it at my yard sale for a twenty five dollar loss. I probably didn't keep a record of that microwave from five years ago. So I am probably safe of just decluttering my home, but if I am out there essentially having a flea market in my front yard, I'm on the hook for those sales. Based if I'm generating a profit consistently, Mark: Yeah, I mean if exactly. Zac: that's probably a a better way to to say that if I'm consistently generating a profit, I'm probably on the hook for those sales. Mark: Yep. Zac: Okay. So I have a question myself. so getting back more to the liquidation side of things, I buy a truckload, okay, and let's Walmart General Merchandise, I don't know how famili f familiar you are with the liquidation side of reselling. I don't know how many liquidators you work with. so a Walmart general merchandise truck for the sake of conversation costs seventy five hundred dollars. There's twenty-four pallets on that truck. should Traditionally, resellers don't keep a very good inventory of the product because it's sell like again, it's a hustler mentality. As soon as that truck lands, you're starting to sell the product. How should you keep track of the profit from that one load? Right? Because a lot of those aren't manifested. So we have a pr we look at it or we used to look at it when we sold this way. We looked at it as a price per pallet. So it's $7,500. You have roughly $275 in each individual pallet. And then if you wanted to go further, you could give you could assign each item, you know, a cost per unit. But what would be the best way of keeping up with that inventory to to I guess keep up with your profit? You need to keep up with the profit per load, I guess is what I'm asking. Mark: Yeah, I mean there are different ways you can track it depending on what types of internal metrics you want to track. for for tax purposes, you can you can either just go the super simple route where you use basically it's it's called the cash basis for inventory, where you just deduct all $7,500 immediately. And you don't have to worry about like allocating it across pallets. so you just you take that $7,500 deduction on your taxes, and then you basically forget about it. or if you use the accrual method for inventory, which which was historically was required up until a few years ago, that means you don't you don't deduct it until you sell it. So so then you're forced to figure out. To allocate that cost somehow. So yeah, you can do it per palette, you can do it per item, but that gets really tedious really fast because then you're having to track everything and what sold when. So for somebody in liquidation, that's probably not the method I would recommend. You could also do more of an average costing method. and that sounds complicated, but like I I have a spreadsheet people can use for that that kind of just it's like a rolling average. so when you sell an item, it it tells you exactly what the cost was of that item. or kind of a middle middle ground is and and a lot a lot of my clients, bookkeeping clients, do this, is they'll just use a reasonable estimate for how much inventory they have on hand at the end of every period. Zac: Mm-hmm. Mark: And then based on that ending inventory, you can back into the the number of of how much you've sold. So you basically just back into your cost of goods sold deduction number based on how much you have left over at the end of every month or the end of every year. so there there are a few different ways to do it. I mean, I I would hate to get into like the weeds of like the mechanics of all that here, because I don't want Zac: Yeah. Mark: to bore people, but it is stuff I talk about like in my course or in some of my YouTube videos. so just don't feel like you're trapped into a really tedious method because there there likely is a better fit for you if you're feeling that. Zac: Got it. So we've traditionally used the cash basis method just because it's the simplest one. To me, it was always simple, right? I paid $7,500. That's my cost of inventory. And then it all just kind of bleeds out. if say somebody was doing the cash basis and wanted to switch two years in, can you decide in 2026 I'm doing cash? 27 or 28, I want to switch to the accrual method. Is that acceptable? Is that a at again a risk of flagging something? Mark: yeah, you definitely can switch. I mean, they don't want you switching back and forth every year. I think I they want you to like if you do switch, they expect you to stick with it for at least five years. there's typically just like an adjustment that has to be made in the year of the switch. You're either gonna get a big deduction or you're gonna have to basically reverse a deduction that you already took, depending on which way you're switching. if it's not a super significant adjustment, like nobody's gonna notice typically. It just depends. I mean if it's if it's a significant number relative to your amount of sales, it it could raise a question. But if you fill out the forms correctly and and have the documentation then it there's n really not a lot of risk that it backfires on you. Zac: I was just curious. So this and you might answer you might have answered this question with the previous answer when we were talking about the different methods, but someone asked on our Facebook page the other day, how do I have a truckload and it's customer returns, right? So there's gonna be some inventory that's perfectly fine and some inventory that's damaged. microwave's broken, I paid for it. Can I write that damaged inventory off some way? Or is it just, well, since it was broken, it doesn't get sold and it's just it w winds up as like a wash in the losses. Mark: if you're using that that cash method for inventory, then it would already have been written off. Like it's already deducted, so there's nothing else to do there. If you're using the accrual method, then yeah, you would just you'd basically treat it as if you already sold it for zero dollars, which means you can you can deduct it. So if like if like you have half of a pallet or half of your palettes that are obsolete, you can basically just write those off immediately. Zac: Got it. So if you're the accrual method, you'd write it off okay. That may it seems like to me the cash method is just simpler for resellers a little bit. is there a benefit to doing the other one? 'Cause again, simpler's not I think the simplest way is generally the best way to do it, just so it gets done, but it's not always the best way from a tax savings perspective. So For resellers in general, I think the at least for liquidation resellers, right? Because there's a lot of different resellers out there. FBA people are it's a different deal, right? Because I'm buying X amount of, you know, cases. I don't know what you sold. We we did FBA for a long time and that's a little bit different. It's more wholesale to me, because I'm buying one thousand of I'm buying a thousand cameras and I'm selling those thousand cameras over time versus liquidation is a little bit messier. so is there a bet Of the two methods, is there a better one for resellers in general from a tax savings perspective? Or is it really, hey, you're a liquidator, this is it's a messier like inventory. If I guess yeah, I hope you get what I'm trying to say. Like I'm I I didn't finish school, so some of the times I try to like keep it simple because I I've always kept it simple for myself. And a lot of people that I meet also write we it liquidation Is I love the the industry because there's such a low barrier to entry. Anybody can do it that has a hustle mentality, but we run into a lot of people that just don't understand the tax part and or a lot of the business part. You're kind of learning as you go. So circling back to that question from a tax perspective, cash basis versus accrual basis, which one do you recommend? Or is it really just come down to your situation? Mark: Yeah, the the cash for inventory is definitely simpler. The benefit of the accrual method for inventory is that like you're not deducting it until you sell it. So then when you look at your books, the the deductions are matched and happen in the same period as the the sales that it belongs to. So Zac: Okay. Mark: so it it it can allow you to to glean more insights from your your your books. That's the main thing. But other than that, like the tax benefit, it it all evens out over time. Because like with the cash method, if if I spend $50,000 on inventory in December, I get a big deduction now. But when I sell that stuff next year, I'm not gonna have any deductions to offset those sales unless I'm continuing to buy inventory. So it just it evens out over time. You do get the deduction. It's just like, do you get it this year or next year? Zac: Yeah. Got it. so speaking of deductions, and that's a good segue. I know a lot of people want to save money on their taxes. That's that's my biggest thing, right? Like where can we save money? I like to get super creative and you know, our real estate lets us get a little more creative than if we didn't have all that. But what are some tax what I this is I think this is a good segue into real estate, but before we get into the real estate side of the tax savings and how you can kind of use that with your I think resale business. What are some tax saving th things, some items that some our resellers can do today to start saving money on their taxes next year? 'Cause we're coming up on the end of the year. There's you've got what, we got three months left in twenty six to to make some deductions or to save some money before we owe all these taxes coming into next year. Mark: Yeah, and that's another reason why why the books are so important, because all those expenses that you're incurring and you know, recording in a spreadsheet or bookkeeping software, those are all gonna be most likely gonna be deductions for you. So that reduces your taxable income on your taxes. So and a lot of people like are not even are not even aware. what they can deduct or that they can deduct like these everyday basic business expenses. But basically like any expense that you incur for a business purpose is going to be deductible or at least partially deductible. So anything f you're spending for business supplies, you know, for shelving, for business subscriptions, your bookkeeping subscription, like training that's related to your your industry, like your inventory, Zac: like you're Mark: the platform fees, vendor fees, bank fees, like pretty much anything that's on your books that's business related, you can deduct. And there then there are some that people some that people don't think about like or forget about, like your mileage. Any mileage that you're incurring in your vehicle for business purposes is going to be deductible. Zac: Yeah, we use mileage IQ, which is it's an app that anytime you get in the car, it tracks your mileage. And then when you get out of your car, was it for business or was it for pleasure or what personal, whatever, and you just it's a s it's a button, it's super quick and it keeps a record of that throughout the year. 'Cause it I didn't do that for the first several years. And I'm like, how do you track that? But there's there's apps for everything. So mile IQ is the one I use, but you know, keep going. I Mark: Yeah, it's pretty that's that's the one I typically throw out there. the one exception to mileage is they they don't allow you to deduct mileage for your commute if you have a commute. And that means from your home to your main place of business. So if you have a home office, anywhere you're going to and from your home office for business purposes is gonna be deductible mileage. If you have a separate warehouse or place of business that you're going to, that that trip is not deductible. Zac: Got it. Mark: but yeah, mileage, the home office deduction is one people forget about or are too scared to take. you can deduct the the business portion of your cell phone and internet. Zac: Business portion just being a realistic portion of the bill based on how much you're on the phone or using the internet for your business. So some safe number that Mark: Yep, exactly. Zac: you're comfortable defending. Mark: Yeah, so lot of times you you might show a profit on your books. you have a positive cash flow, but based on the deductions you're allowed to take, you can get your taxable profit down to zero sometimes. You know, if the home office deduction is big enough or so so yeah, you're you can really get your your taxable income and your tax from the business optimized. and still be in a good spot with your business. Zac: So for the people that watch, and again, I think our our biggest push that makes us different is the real estate. We've got a lot of real estate at this point, we've got over 20 properties and 40 doors, mixture of commercial and residential. And that's honestly become almost I spend more of my time on the real estate stuff than I do the liquidation stuff anymore, just because of how we've we've changed our liquidation business around. For people just starting, I push people all the time. If you're making a lot of money today, don't assume you're gonna make a lot of money next year in this business because it it it's it's so fickle. And the product you have access to today, you will not have access to it tomorrow. So I love the real estate just because it's it's tangible. I understand it. Again, I'm I'm a simple person. I understand that if I continue to to repeat the same things over and over, I it builds upon itself. But explain to people. the best way to start moving money out of your business if you are interested in buying real estate and you want to start setting money aside for what are the how do we want to do that the best way possible for from a tax perspective. Mark: It's less complicated than than people think, especially if you are a I mean, yeah, a sole proprietor or an LLC or even an S-corp. Like you're it's it's usually as simple as just moving money from that business bank account or the account you use for business. Just you just transfer it into your personal account, like it's as simple as that. And that's considered to be an an owner distribution, is what they call it. it's not a deduction because you're taxed on your profit. regardless of money you take out of the business. you just want to make sure that it's it's money that's actually that's actually yours, that you actually have equity in the business as opposed to, you know, pulling out money because you got a big loan and now you're just taking it for yourself rather than using it for business purposes. But if it's it's if it's actually earnings that have accumulated from your profit, you can take that out at any time. Zac: Okay. So you we've pulled the money out for a down payment on a property or pay cash for it. separate LLCs for the property, or do you want to buy your first piece of pro would you rather see somebody, let's say most common first purchase besides the home, I think for most entrepreneurs is the building that they're in today. So would you rather see somebody buy that building with their current entity or buy that property and put it in a separate LLC. Mark: Yeah, that's that's a good question. Zac: For example, what we've done at least in the b the first property we bought that we used our business for, we were still fairly you know, we were like five years in. So, you know, not that we were struggling, but we just bought, you know, one point two million dollar building. It was eight grand a month, our mortgage. So the business paid that. Fast and we also bought it with an SBA loan. So fast forward three or four years after the the time had expired for the the prepayment penalty, we transferred that. more or that loan to a different bank, but we at that point we'd had other real estate. So we transferred it from our original business entity into our real estate holding entity. So we moved it out of it. mostly because at some point we knew we would want to be an S corporation. So this is a I mean I'm getting off topic, but answer that question for it first because I have another question. Or not a quite a The question that people have, but answer that question, would you rather see somebody buy their building that they're currently working from with their current business or do you want to move that into a separate LLC or does it really even matter? Mark: It probably I think it does matter based on your goals and it it might matter it probably matters based on the individual circumstances, but yeah, there are various reasons. It it just depends. I right now I would lean toward doing it separately. I mean, 'cause if you're buying the building, you know, what if your business moves out of there? and then you'll own it with a separate entity and then somebody else moves in there and they can pay you rent. yeah, I'd I'd have to look more into that one because I think it can it can vary. But but may maybe that's the answer to remember right now is just make sure you evaluate that one. There's there's not one set recommendation. So that that's just something to look into further. Zac: Or every every situation is a little bit different. Now, if I have an LLC, this is how it was explained to me. It maybe, maybe they were wrong, but I have an LLC versus an S corporation. If I have an LLC and I my building is owned by my real estate portfolio and I charge myself rent, it doesn't really, it's not a deduction for my liquidation company because both entities are owned by an LLC. So it's really just a pass through. it's gonna show up on my taxes like anything else would. Or not really show up on my taxes. It's kind of a wash. There's no deduction for the real estate entity or there's no deduction for the liquidation entity. And there's not really a cash liability for the real estate part because all of it shows up on my personal taxes still. Mark: Yeah, I mean there there might be some reasons to do it, but but that is something to remember because a a lot of people do get excited about that idea like, I'm gonna, you know, pay myself rent and then take this big deduction. But on on the other side you're having to recognize that rent collected as income, so it it does offset to an extent. Zac: Yeah. I think so we've always done it mostly because I look at even though they come they up until this last year they came on our taxes the same way. I looked at it as the real because we have obviously we have more than one property. If I had more than if I had one property, I wouldn't bother with charging myself the rent because it wouldn't matter. But since we have an entire portfolio and people that work for that company, we we want to charge ourselves fair market rent as if we were just any other tenant because for me If my business can't sustain fair market rent to myself, then I'm better off leasing that building out to somebody else that can't afford to do it. so one of the big reasons I love real estate mixed with our resale business is well, I get to buy a lot of stuff a lot cheaper for our properties. so like we you know, w go to a renovation, we get flooring for a whole lot cheaper than you know, going to Lowe's or something. But what are some tax benefits that you can kind of marry together? You've got your resale business. You're starting to buy or starting to look at buying real estate. What are some tax benefits of owning real estate while also owning a resale business? Mark: yeah, the I mean the first thing I'll say is I I do have like a lot of my clients have one, sometimes two or maybe even three rental properties. When when you get up into more than that, I would probably encourage someone to have a a real estate-specific CPA or professional who they work with, because there are a lot of real estate-specific rules. That your average CPA and tax preparer won't be familiar with. because yeah, there's like I mean, I I don't even remember if I remember the terms in my head, like real estate professional designation, material participation, like passive and active, like there's all these different things that apply to how you might be operating your property that'll that'll determine whether or not you can deduct all the loss right now or whether you have to deduct it over time. but but definitely those those opportunities are there. How those play with the Zac: The real estate professional, you've got to spend 700 plus hours managing the real estate side, and you have to be able to prove to prove you spend that much time. Otherwise, you don't get that benefit. The benefit's pretty substantial. I forget the numbers. we've been able to claim that the last two years just because of how much real estate we have and how much time I can prove that I spend on it. But you know, to your point, it has to grow to a certain level. You can't you can't claim 700 plus hours on on two on two rentals. At least I mean I guess y you could try, but Mark: Yeah, then it it depends if they're long term rentals or short term rentals. Yeah, you you just want to make sure you're you're working with somebody who's familiar with those rules. But yeah, so as far as like how that you know in integrates or were I dunno the word, you know, plays with the the the resale side, yeah, it just depends. Like are you working with like active losses or passive losses? But but I mean the the thing that excites me that you were mentioning is just the fact that you can use the the resale or liquidation business as the vehicle for the the cash or investment that you can then put into the real estate or or you know maybe it's some other venture you have to to fund that and get that going so it eventually can start funding other stuff. Zac: Correct. Yeah, it's super to me it's super important. Have some really good success short term and then they expand, they grow their business, they they take on more overhead and then the industry changes again. And with liquidation, a lot of our viewers that that watch understand like and I mean even just general resale. I mean, you you were an FBA seller. How much has FBA changed over the last several years just with what's gated, what's not gated, their fees. It's huge changes w when you're selling on someone else's platform that you can't control. what you can control is the what you do with your profits today. And that's really our the point that we try to make is like you can control that. You can't control what happens next year. another question before and I always tell people I always you know I try to take a like an hour or less than of everybody's time. One, because you're busy, we're busy, but also people's attention span seems to teeter out close to an hour. I mean my attention span, I have a hard time watching 20 second TikToks at this point. Like if it's not doesn't immediately capture my attention, we're moving on. but donations are a big question that I know I've had in the past and I've gotten kind of different answers on them. So we get obviously in liquidation and resale in general, we get inventory extremely cheap, right? That inventory that could be donated in order to to take deductions on our taxes. So let's use an example of a truckload of baby diapers, right? Easy item to donate. The cost of a truckload of baby diapers say is $15,000. Say that retail value is $100,000. And I want to go to my local women's shelter and donate those diapers. What's my tax benefit? What do I get to write off? Mark: Yeah, I like, I mean you do get a deduction. Unfortunately, you don't you don't get a double dip. Like you can't deduct more than you already paid for it. So you spend fifteen thousand dollars. if if you use the cash method for inventory, you you deduct that as cost of goods sold immediately. And then you go donate it, you don't get an additional deduction for donating it. Zac: Got Mark: So it's it's it's basically you're For donated inventory that's obsolete or whatever, you just all the only deduction you get is the original cost of goods sold deduction. Zac: So I spent fifteen, I essentially lost fifteen thousand dollars. I don't get that write off the value of the diapers, which would be like a hundred grand. Mark: Correct. Zac: Okay. 'Cause well, you y you know, you you talk to people and that's a big one I think that is misunderstood. Just because there's value like this is the value of the product doesn't mean you get to take that value off your taxes. Okay. Well that's good to know 'cause I said it's been it's been discussed in a lot of these liquidation groups, like we've got, you know, donations to to to make. So before we wrap up, I do want to s is there any advice you have for resellers getting started and before the year end? I know we've talked about a few times, but any any anything that I missed that you think is important to resellers that are Either they're just started or they're, you know, they're five years into their journey that you think they should take the time and and work on today. Mark: Yeah, I mean it really comes down to the basics, just k keeping that bookkeeping record, having a separate account that you're running all your business activity through. one thing I don't think we talked about was staying on top of quarterly estimated tax payments if that applies to you. So, you know, as as if I have a W 2 job, my employer is is taking taxes out of my paycheck and they're sending that on to the IRS all throughout the year. When I'm self employed, nobody's doing that for me. So that's where quarterly estimated tax payments come in. So if if you're gonna owe Zac: And so you estimate what your tax will be be at the end of the year and I can pay that instead of having one massive bill due in April or whenever you file your taxes, I can chip away at it throughout the year. Is there any other benefits besides that? Like besides being able to chip away at, you know, a quarter at a time, is there another benefit, another savings we get by doing that? Mark: I mean, yeah, it's it's mainly just because it's it's a requirement. The benefit is you avoid penalties for paying late. Zac: Got it. Mark: So it it does benefit you in that you don't have to pay a huge chunk at the end of the year. But then if you if you do wait to pay that huge chunk at the end of the year, they're probably gonna assess you late fees for not having broken it up and paid it throughout the year. Zac: Got it. Okay. Mark: So, in not everybody's required to do it, it just depends on how much tax you're gonna owe versus how much tax you paid the prior year. but that's just something to be aware of to go and see if you will, you should be doing that. yeah, and then just making sure you have the right entity type, you know, the assessing should I have an LLC, should I would I benefit from an S-Corp right now or next year, and then looking into that. Yeah, th those are kind of the main things, just optimizing your your your situation by making sure you're taking advantage of all the deductions that apply to you. Zac: Just keeping a record. How do I t how do I what's the best way to write off a vacation? And can I? Or how do I do it where it's where it's okay? I'll have another great question in a second, but answer that one first. Mark: Yeah, I mean, as as long as it's mainly based on the primary purpose of the trip. so if if your primary if you have a conference, a liquidation conference in Las Vegas, and you're flying out there for, let's say, four days and then flying back, if if the majority of the time, let's say two or three of the days you're at the conference. But the fourth day you you just t take a personal vacation day. You can still deduct the flight, the travel to and from Vegas and and the three nights of the hotel room. But the fourth night, any any local charges or meals would be personal. But but most of the trip you'll have been able to deduct. Like I I have a few people who helped me in the Philippines, and like two years ago I took My wife and two of my kids, we all flew over to the Philippines and I basically deducted the whole thing just based on what we were doing over there. But but it was definitely felt like a vacation as well. So Zac: Yeah. Mark: it's one to take advantage of, but not not to abuse too deeply. Zac: Is there a difference? So I'm flying to Vegas for a conference. Is there a difference in how I fly? So if I fly first class versus coach, there's I don't know, you'll you'll have the correct verbiage, but like explain is there difference? It can I it's a reasonable ex some you know the term I'm looking for. It's if you go out to dinner and I take I take a group of people out to dinner for business. If I do it once a year and it's a three thousand dollar expense, that's okay, but I can't do it every week for three thousand like I can't do that every week. There's reasonable level of I'm at a loss for the word, but maybe you'll Mark: Yeah, there there is a term. I mean, if it's for a business purpose, you're probably okay, but if it's I don't know what the term is, like if it's extravagant or like excessively extravagant or something like that. Like if you take Zac: Yeah. Mark: you know, some some clients out Yeah, it it's it's basically like using common sense. Like are you deducting like a three thousand dollar steakhouse bill when you could have gone out back and spent a hundred bucks, you know? So they they they would in theory have a problem with s excessive expenses like that. Zac: Is it also based on the level of your business to some degree? Like because I have a business that does several million dollars a year, it's reasonable to expect that I'm gonna fly first class versus coach because I get more done sitting up with more space or does it really matter in the slightest? Mark: Yeah, I d maybe, but it may not matter either. Like I don't I don't think like paying I don't know how much an extra hundred or a few hundred for first class, even if your business is pretty small at that point, I don't think that's gonna be a problem. It's still deductible if you're flying out for a business purpose. Zac: Got it. So just ball out. That's what we should be telling people. Just go ahead and live your life. Mark: Yeah. Zac: You can write it off. so Mark: I mean yeah, I d I don't want to operate my business too conservatively. Zac: Yeah, what's the point if what's the point of all the work if you can't have fun with it when you go out and have fun? We have a few in liquidation, we have a few companies out there that are mystery box companies, and they put prizes in the boxes. PlayStations, Louis Vuitton, bags, that kind of stuff. I'm guessing all of that, that's a way to write off you can write off all those expenses because you're putting it in the box as a prize. Is that fair to say? Like an advertising expen expense to a To a degree. Mark: Yeah, for sure. Zac: Okay. I figured I'd ask. I think I mean that's that's everything I had from all of our people. When do you start paying people? that's a good question. If if you still have time, payroll Mark: Sure. Zac: is a big one. I get that question a lot. When should I hire my first person and how does that look? Should I pay them as a ten ninety nine contractor or should I put them on the books? I don't think we talked about payroll in the slightest yet. So Give us a little bit of insight to to how that works and what's okay, what's not, and why you shouldn't pay people under the table. Maybe you disagree you should pay people under the table. I don't know. But as a accountant, I imagine you don't suggest that. Mark: Yeah, if you I mean the simplest way to do it typically is just to hire contractors because you can and it I mean you can pay them you can pay them in cash, you can pay them through PayPal or Zell or Venmo or or whatever. if you pay them more than I think it just went up. It used to be if you paid them more than six hundred dollars, now it's more now it's if you pay them more than two thousand dollars, you're supposed to send them a ten ninety nine. So they get a copy of it, the IRS gets a copy of it, and then they're supposed to report that on their taxes. But you don't have to deal with payroll or like withholding taxes or any of that or a W-2. If they if they don't control their own schedule, like if you give them the hours, if you know if they have a fixed location where they work, if you give them the tools, then they should probably be W-2 employees. Like if you have a warehouse and and they come in every day. so if so if they're an employee, then you do have to put them on payroll and that means I wouldn't recommend doing it yourself. And doing it yourself means, you know, you're the one filling out the payroll tax forms, you're the one submitting their their taxes to the IRS and to your state. So I would get a a payroll company like Gusto is typically the one I refer to my clients. but yeah, they they you you they basically set it all up for you. You know, you put in the the basic details, but But yeah, then then you the you're withholding some of their payroll tax, but you also have to kick in a portion of their payroll tax as the employer. So so having employees is a little more expensive to you as the employer. and then it's a little more record heavy, but you might be required to do it based on what type of roles your workers have. Zac: Sure. Yeah, it's typically most people warehouse, they're gonna have people coming in Monday through Friday to work. That is a W two employee, not a subcontractor that you give it to ninety nine to. Mark: Yeah. Unless you're just like, hey, I want you to here's the job I want done. You can come in whenever. Like if they have more flexibility, there is an argument for them to be a a contractor. so that's just something to look at. Zac: Got it. So they don't have a schedule, it's on their schedule. If they bring their own tools, subcontract is fine. If you are a employee that comes in every Monday through Friday from nine to five, working on my laptops, my equipment, unloading my trucks with your my forklift, I should probably pay you a W two salary or n hourly or salary, I guess. Either one. Mark: Typically, yeah. Zac: Okay. Well, very cool. Well, I think that's everything that 'cause I went through all the questions. I I posted several times on our groups. you were coming on, not you specifically, just that a CPA was coming on to help with some reselling questions. Now that you've come on, we get to announce that you are the one that came on the show. so I want you to plug all the stuff that you want to plug because I will post that with it. You mentioned a spreadsheet or a worksheet for people. I do get that question a lot how they should keep up with their sales. I've had, you know, I've built some but I think yours will probably be better to refer them to. So drop all of that information on us real quick. I'll plug it when we start advertising the the show, especially where people can find you because you offer an academy and you obviously offer CPA services as well. Mark: Yeah, so I yeah, first place I would just go to my website, notyourdadcpa.com, and you'll find all the other stuff. I mean, I'm I'm trying to put out more videos on YouTube. so it's not your dadcpa on YouTube, Instagram as well. But then yeah, my I have a tax course reseller tax academy. Which I would say is really good if you are just starting out or even if you've been doing it a few years and you just want to get a handle on the tech side of your business. and then I also have what's called my financial insiders membership. And if if you go on the annual plan, then the my courses are included in that. So those are those are two good options for you if you want to get some a good foundation, or if you kind of want to have a CPA in your corner all year round who you can ask questions to. but yeah, feel free to email me, DM, or whatever. I I do taxes as well. So there's there's always Turnover and a little bit of room for new clients every year. So if you need help, just go to my website and you'll see that on there. But yeah, happy to help. Zac: Awesome. Well we appreciate you coming on, spending an hour with us. yeah, you answered all my questions. I appreciate it. You a lot of fun to have you on and super inf informative. So we we thank you again and we'll I'm sure I will talk to you later because I always have I have a lot of questions. So thanks again. Mark: Yeah, sounds good. Zac: Okay, appreciate it.