Toph Sheldon, CPA for the Self- Employed 2019

SEPTEMBER/OCTOBER 2019 VOLUME 3, ISSUE 7

T O P H ’ S TAX RESOLUT ION T I M E S

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The ‘Cash Flow’ Roller Coaster Ride of Being Self-Employed

When you open a new business for the first time and you’re newly self- employed, you may look at your savings and wonder what the future holds. Starting a business is a daunting task, and even more so when it’s your first time. You don’t have cash flow; you are not guaranteed a revenue stream to sustain the business, to pay every bill and make sure you have enough left over to put food on the table. During the first few years of business, your cash flow is inconsistent from month to month. Your focus is on making ends meet and you have no withholdings on your taxes. And when it comes to paying taxes, it might not all be there unless you put money aside to take care of your tax burden (something a lot of the new business owners neglect to do). This first year is like getting on the biggest roller coaster of your life. Consider the numbers. Let’s say your gross revenues are $50,000, your expenses are $20,000, and your profit is $30,000 in your first year of business. You’ve done okay in your first year and earned more than most small businesses do in their first year. You do your taxes and you owe $8,000. This puts a huge dent in your bottom line, and you didn’t even make that much! Once the math has been done, you’re barely making ends meet. This is a roller coaster ride that can last for years. Just in the first few years of business, you’re working hard to build yourself up to develop more consistent cash flow. Then, once you do have a decent cash flow, you turn your attention to any bills you fell behind on and any past due taxes you may have. Once you start paying these bills, your cash flow takes a huge hit and the roller coaster ride continues. Consistency is key. But for the self-employed, consistency can feel out of reach. Many of my clients don’t have their own employees. They can’t delegate or work as a team, which means more falls on their shoulders. When your focus is scattered and you’re trying to do so much at once, including marketing yourself

and getting new customers, being consistent isn’t on your mind; you

just want to make sure your bills are paid and food is on the table. Being self-employed and trying to make enough to survive (with the hope you will eventually thrive) can seem like a never- ending roller coaster. You have ups, downs, and sharp turns. But there are things

you can do to end the cycle, or at least make it a more pleasant ride. One of the single most important things you can do is set a consistent frugal

budget. That’s it! You would be surprised at how many business owners fail to implement this advice. They may set a budget, but they aren’t frugal with their money. You absolutely must spend less than you earn. But here’s the key: When you set a budget, it needs to be consistent month-to- month. Even if you earn more in one month than another, you shouldn’t alter your budget, as tempting as it might be. Save for the slow months, because there will be slow months, especially as you’re working to grow your business. Keep the budget static until your business has grown and your month-to- month cash flow has grown along with it.

–Toph Sheldon

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The King of Streams Is Dead

Streaming in the Wake of ‘Game of Thrones’

With the conclusion of “Game of Thrones” earlier this year, the streaming industry looks eerily similar to the first season of HBO’s fantasy series. The king of binge-watching is dead. The once-proud house of HBO Now is trying desperately to maintain its dominance, but there’s plenty of streaming royalty vying for the crown. Most interesting of all are the different tactics these services are using to win over subscribers. Netflix Gets in the Robot The most venerable of the streaming houses, Netflix has spent the last two years courting a new ally: anime fans. This flirtation with Japanese animation reached a fever pitch in June with the re-release of 1995 cult classic “Neon Genesis Evangelion.” A heady psychological drama told with giant robots, religious iconography, and tormented characters, “Evangelion” isn’t for everyone, but it’s still revered by many for its complex story. The fact that Netflix was willing to pay a king’s ransom to bring this hugely influential show back to the U.S. underscores their commitment to winning over anime lovers. Hulu’s Old Enough to Party Hulu may have looked like an upstart a decade ago, but the video-on-demand service has always had powerful friends. Thanks to early alliances with broadcasting giants like NBC and Fox, the service has always been defined by great, binge-worthy shows. Riding the success of “Brooklyn 99” and “The Handmaid’s Tale,” Hulu has turned its attention to film, releasing several classics this summer including “Drop Dead Gorgeous” and “Superbad.” By finally beefing up its movie selection, the site feels like it’s come of age.

Communicating With the IRS

4 Tips to Reduce Your Stress and Gain Leverage It can be incredibly stressful to get a certified letter from the IRS or to learn you owe significantly more in taxes than you expected. These are situations none of us want to be in, but it is the reality for thousands of Americans every year. As stressful as receiving letters from the IRS can be, you can take action to mitigate the anxiety. 1.) Work with a highly specialized tax problem solver —or in the case of the small-business owner, a CPA for the Self-Employed®. A specialized expert can help you make sure your tax returns are correct and advise you on your best next step. 2.) When dealing with collections notices, don’t assume you have to pay the full amount if you can’t afford it. You have the right to negotiate a number that is more affordable and fair for your situation. For instance, you have this option if your income has dropped since the previous tax year. The problem is that many people aren’t aware of their options when dealing with the IRS, but a CPA for the Self-Employed® will know the ins and outs of the system, granting you relief where possible. 3.) You can press the IRS. If you try to negotiate with the IRS in order to develop a more manageable payment plan and they refuse, you have the right to appeal. You don’t want to give up after receiving your first no. You should be assertive to get your issue resolved in a fair manner.

Amazon Expands ‘The Expanse’

Like many wise rulers before it, Amazon has made a bid for the throne by giving the people what they want. The multimedia giant shrewdly picked

This is why, when I represent a client who’s facing the IRS, I don’t give up. If you’re persistent and fight for what’s right, you can get a fair result. 4.) You are not required to talk to the IRS directly, whether over the phone or in person. In fact, I highly recommend against it. From the second you greet one of their representatives, everything you say goes on record. You might not know the best things to say, and what you do say can jeopardize your negotiations. Instead, if you insist on representing yourself, communicate with the IRS through the mail. This way, everything is documented, you can thoroughly plan everything you want to say, and you can have complete control over your communications with the IRS. –Toph Sheldon

up the rights to “The Expanse” after Syfy canceled it last year, delighting fans who petitioned for the show’s continuation. But Amazon’s likely trying to reach more than just science fiction lovers; the fact that “The Expanse” has widely been described as “‘Game of Thrones’ in space” suggests Amazon is hoping to convert HBO fans directly.

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Recharge Your Batteries Why Taking a Vacation Is Important

Toph and I recently took a trip without our three kids. We went to wine country in Napa Valley for Toph’s cousin’s wedding and to also learn more about tax problems for the wine industry. We returned home feeling refreshed and rejuvenated. Our batteries had been recharged.

The reality is sometimes you have to put these questions aside. Taking time for yourself, whether it’s just a quiet weekend retreat or a weeklong vacation to somewhere special, is good for your mental and physical well-being. When you don’t take time to recharge, you can end up dealing with higher stress levels. Over time, if you let the stress build, it can lead to burnout. For the self-employed, burnout can be devastating. You never want to put work ahead of your health and wellness. The challenge, of course, is finding the time to take off for a vacation. Like many things in business and life, it requires planning. Look at your calendar and find a few days or a week to take for yourself and your spouse or family. Set the time aside and commit. A great way to do this is to book airfare or accommodations way ahead of time. This gives you much more accountability toward freeing up your schedule. Make time for the things that take you away from the everyday rush. Find a place where you can recharge your batteries and where you don’t have to worry about a single thing. You will return home feeling ready to take on the world.

As much as we love family time with all five of us, there is no denying the importance of sharing “us” time for Toph and I — and of “me” time, when one of us needs to be alone and relax.

It’s easy to get wrapped up in the bustle of work and life in general. It can feel like there is always something you need to do — and it never ends. At work, there’s always an email that needs a response or a phone call that must be made. At home, it’s time to do laundry or run to the store to get groceries. This is just the tip of the iceberg for many people. If you’re a small-business owner, your plate is almost always overflowing. It can sometimes be scary to take a vacation. Should you be taking this time off? What if you miss something important? Should you be spending this money? What are you going to come back to?

–Ashley Sheldon

Classic Apple Crisp

TAKE A BREAK

Inspired by Food Network

What do you do when apples are in season but you don’t have time to make a pie? You opt for a crisp, of course.

Ingredients

Filling: •

Topping: •

5 lbs Granny Smith apples, peeled, cored, and chopped 1/4 cup pecans, finely chopped

3/4 cup all-purpose flour 1/3 cup brown sugar 1/4 tsp ground cinnamon

• • • • •

• • • •

3 tbsp all-purpose flour

1/4 tsp salt

2 tbsp maple syrup 1 tbsp lemon juice

6 tbsp chilled butter, cut into pieces 1/4 cup pecans, coarsely chopped

Directions

1.

Heat oven to 350 F.

topping. Mix in butter until it forms lumps roughly the size of a pea, then stir in pecans. Sprinkle topping over filling. Bake for 35–40 minutes, let stand for 10 minutes, and serve.

2.

In a mixing bowl, mix all filling ingredients together. Transfer to individual serving ramekins. In a different mixing bowl, combine flour, sugar, cinnamon, and salt for the

Solution on Page 4

4.

3.

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TOPH SHELDON CPA FOR THE SELF-EMPLOYED ® 9200 MONTGOMERY RD., STE. 7B CINCINNATI, OH 45242 513-342-4000 WWW.TOPHCPA.COM

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INSIDE 1

Are Your Riding the ‘Cash Flow’ Roller Coaster of Self- Employment?

2

Don’t Let the IRS Stress You Out

Streaming After ‘Game of Thrones’

3

When Was the Last Time You Took a Vacation?

Classic Apple Crisp

4

The Troubled Life of Robert Downey Jr.

Toph’s Tax Nightmares

Iron Man vs. the IRS Today, Robert Downey Jr. is one of the biggest film stars in the world. He’s beloved for his portrayal of Tony Stark, aka Iron Man, along with many other roles, including Sherlock Holmes. But his current fame came after a long streak of legal trouble that started in the 1980s, peaked in the‘90s, and continued into the 2000s, right up until he had an“aha” moment. In the‘80s, Downey was making movies left and right, even joining the cast of Saturday Night Live. He was in his 20s and riding high. Unfortunately, the success went to his head. By the mid-’90s, his jail-time streak began. He was arrested on charges relating to drugs and violating probation. In the middle of the arrests, jail time, and eventual prison time, Downey racked up a huge tax bill. It’s hard to pay taxes when you’re behind bars and spending a majority of your earnings on assembling a legal team. Between taxes owed to the State of California and the IRS, Downey owed $2 million. With every passing criminal charge and arrest, paying off that tax bill became harder and harder. It also became increasingly difficult for Downey to find work in Hollywood. He would land roles initially, but no insurance company would insure any movie Downey was a part of. There was no trust. If Downey couldn’t work, his tax bills would remain unpaid. Between recognizing the industry’s distrust of him and the high likelihood he’d relapse into poor behavior, Downey eventually realized he really needed to change his life.

In one of his mid-2000s films,“Gothika,”the film’s producer withheld 40% of Downey’s pay until production ended. This was considered insurance against Downey’s addictive behavior. The“pay withholding clause”was built into Downey’s contract before production began, and the actor signed off on it. This type of clause was included in many of Downey’s films in the 2000s.

After several successful movies in that era, Downey was back on track. He was cast in Marvel Studios’2008 movie,“Iron Man,”which proved to be a huge success for the star. He paid off all of his debts, including his $2-million tax bill, and didn’t look back. Downey has stayed out jail and remained on good terms with the IRS ever since.

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