Strategic Year-End Tax Planning for MSPs

Transcript

Steve: [00:00:00] Welcome, welcome, welcome everybody. I see you’re all starting to filter in. I’d like to welcome you all to Office Hours by Alternative Payments. While you all are filtering in, I am going to enable, launch a poll. The poll answers are, I believe they’re anonymous. We’re, we’re not, we’re not adding your answers to some.

You know, secret database or anything. We, we just like to know who we’re helping. So that way we can tailor these office hours, events to our audience. So if you could take a moment to answer these poll questions, that would really help us. Um, I promise we’re not going to add you to a sales funnel, unless you say, please contact me, we’re going to leave you be, okay.

Um, so yeah, please just, Take a moment, fill that [00:01:00] poll out. While we do that, um, I’m going to let you know about a couple of other things we’ve got going on. I’ll have one more poll in the middle of the event, and then, uh, at the end of the event, when you leave, there’s going to be an anonymous two question survey to gauge how you liked the content and what we can do better next time.

Uh, so, with that said, while you guys keep filtering in and doing that poll, we’ll see you next time. I would love to introduce you to our panel. First, we have Baxter Lanius, CEO of Alternative Payments. Baxter has a background in finance and M& A. He is a wealth of knowledge, so please take advantage of that knowledge.

Ask your finance and M& A questions. Next, we have Paul McCann. I am the founder and CEO of Red Earth CPA, and they are an accounting firm that specializes in supporting MSPs all around the U. S. So, again, wealth of knowledge all around accounting and [00:02:00] taxes, so please pop your questions in the Q& A as we’re going through this, and I will make sure the appropriate person can answer that.

It’s December 5th. Some of you guys are probably swamped with project work, and others are already checked out with Christmas music playing in that little jukebox in the back of your head. Uh, just me? Okay. Uh, however, Paul put together an amazing presentation on tax planning. I know that sounds, uh, really weird to say, but, uh, we got to look at the slide deck.

We worked together to, uh, You know, put together an agenda that we really think is going to help you guys out. And I’m, I’m excited for this one. And I think Paul and Baxter are excited for this one as well. I’m going to do my best to keep this light and entertaining. Paul and Baxter are going to do their best to keep it highly educational.

Uh, so Paul, how can we get Baxter to buy me an Apple Vision Pro now that it’s the end of the year? Oh, 

Paul: that’s an [00:03:00] easy one. Well, you got to put the expense report together and then, uh, set it in. Okay. 

Steve: Approve, approve, approve, approve, approve, approve, approve. Yeah, 

Paul: exactly.

Steve: All right. Um, Paul, please, uh, feel free to dive right in, man. 

Paul: Well, well, first of all, for, for having me back. Uh, Um, I hope it’s amazing and exciting, but I will settle for engaging, and if you stay awake, that’s a win, so I’m happy with that. Uh, thank you, uh, to, to, to Baxter, to Steve, uh, having me back, and, and want to, want to kind of distill some nuggets.

We’re at the end of the year. We want to, we want to figure out, we have 26 days left in the, in the year, uh, if you’re a cash basis taxpayer, which many small businesses are, most small businesses are. Then you have 26 days to make, uh, taxable, tax related transactions that [00:04:00] impact how much you pay on April 15th.

Or before. So that’s the spirit of what we’re looking at. And also, um, I think, I mean, we, we’ve talked about this a little bit, but, um, seven habits of highly effective people is, uh, Stephen Covey talks about staying within your circle of control. And, um, there’s a circle of awareness and there’s, uh, there’s a lot of things, certainly in an, in a, uh, an election year, there are a lot of things that are outside of our, uh, And it’s all in your circle of control.

Taxes, one of the reasons I like tax planning or thinking about and talking about this right now at this time of the year, is it is within your circle of control, but in 27 days it’s not in your circle of control for many things. So for 26 days, we have relevant ideas of things that you can do, of steps that you can take.

Uh, so I’ve put a few things together for everyone and want [00:05:00] to, uh, I want to go through that with you guys. I threw a disclaimer in there, you know, this is the same old stuff. I’m not giving specific tax advice, so, uh, I put this in there.

We were, we were discussing this, and this is a, uh,

there, I only have a few steps on what I’m, what I’m saying, and it’s, it’s very high level, I’m not going to get in the weeds on certain strategies and talk about all these, I, I’m really talking about your business income, uh, as your, as your MSP, and I’m talking about, uh, a tax credit, and then some other additional details, but when you’re looking at, you know, most people on this call are.

Business owners and many, if not most, high percentage are also taxed in a pass through entity. A pass through entity would be an S corp or a partnership. Many small [00:06:00] businesses are taxed that way. So the impact of that, as many on the call are very aware, that is if your business has a good year, You get to pay the taxes on it and it flows into your personal tax return.

It doesn’t, the business doesn’t write a check for the most part to the government for the income taxes that the business owes, it comes to your personal return. So what I’m saying is that there’s a connection between what your business does and how much income your business reports and how much you have to pay in April.

So the first step to managing your business is managing your personal taxes. is to manage your business income. And that is, that is very, very simple. That if, if we can manage what we have at the business entity, we’re going to manage what we have on the personal tax side of things. So, this is a, [00:07:00] uh, I, I, I threw a few things on here, and let me define my term here.

Deferred Revenue is used all the time in MSPs. Uh, this is set up when you work, if you integrate your PSA into your accounting file, your PSA, uh, integrator will talk about deferred revenue. Deferred revenue means your company, uh, somebody has paid you for services that you haven’t performed yet. And you’re like, okay, um, prepayment.

That’s a common way people call it. Uh, this is, this can be problematic. I’ll talk about that in a second. Uh, there’s also prepaid expenses. Um, what does this mean? If you can manage, if you can manage what, uh, let me back up here. Most people are on an S corporation which is a ca and file taxes on a cash basis.

So, the industry, however, in the MSP industry, if you’re benchmarking, [00:08:00] if you’re with TrueMethods or if you’re in Evolve, if you’re, if you’re doing some kind of industry benchmark, you want to know your profitability based on your accrual income or your book income. The, the difference is you file taxes on the cash basis, but you use the accrual basis for all of your book income.

internal management reports. This, this is kind of the challenge. Um, this is a, a, a big opportunity for a mistake. And what do I mean by that? I mean that deferred revenue, while it’s used all the time, is taxable on the cash basis, but it’s not included in income if you’re on the accrual basis. So if you have a big prepaid revenue, uh, that people have given you money, that on the cash basis is taxable.[00:09:00] 

And that’s something I see people get caught up on quite a bit. Um, 

Baxter: well, and ultimately, Paul, right, like, the, the complexity from a tax perspec perspective and the gamesmanship that people are able to play from a tax perspective basically is nearly all about, This, which is when you account for revenue coming in the door and when you account for expenses going out the door, and is it money going in the, coming in the door, or is it an invoice coming in the door, or is it money going out the door?

I was talking to our team yesterday and I was giving them this example, uh, which is I can, as a, as a business owner, I can create an invoice for a hundred million dollars. I can book that a hundred million dollars as revenue and show that on my income statement [00:10:00] as a hundred million dollars revenue business.

So we don’t use PSA software at alternative payments, but let’s say I did and I created an invoice for a hundred million dollars and all of a sudden the business. That’s a hundred million dollars in revenue. That’s amazing. That’s incredible. You know, we’re a unicorn, guys. Like, let’s fucking go. Um, but it all has to do with the cash versus accrual basis.

And that’s obviously not cash that’s coming in the door. Um, which is, which is clearly, obviously, the difference between, you know, all these items on deferred versus prepaid expenses. 

Paul: Yeah, I think, um, good point, Baxter, because I think what you’re saying is we’re also not talking about gap, uh, accounting.

So we’re not talking about, well, it’s a, you know, oh, we, we booked this income and, and we’re not worried about publicly traded companies here. We’re, we’re talking about cash in and cash out, because that’s how most people are paying their, their taxes. If you’ve received the cash, it comes in. To your hits, your bank account, or it’s in your possession and are [00:11:00] constructively received.

It is, is the phrase, then it’s taxable. And if you send the check. Then you get to expense it. That is in contrast to what Baxter, your, your, your, uh, illustration of just sending an invoice. I mean, that’s, so, so these are, as you mentioned, Baxter, these are the games that, that we can play. Um, so if you manage.

So I just wanted to kind of camp out on this first one, because if we manage the, if we spend time thinking about that, and that’s what I really wanted to do, like, let’s, let’s just think about where our taxes are and what we can do right now on December 5th to minimize our taxes. And most, most bang for the buck is going to be at the business level of being able to manage how much we want to pay in taxes, essentially, because it is within our circle of control.

So there’s deferred revenue on their books. That’s money that you’ve received and that will be taxable if you’re on the cash basis. [00:12:00] Um, but you can also prepay expenses and marketing expenses, professional fees. If you have money sitting around in the account, you got a good year and cash is in the bank, you can call up your vendors and say, Hey, I’d like to, I’d like to pay for this service.

And that on the cash basis. You can deduct those if it’s within the next 12 months for many expenses. 

Baxter: And the other thing that I think is important to hone in here, Paul, is, is the reason why the business income is more important is because for the majority of MSPs and the majority of business owners, the majority of your income and the majority of your net worth is gonna come from your business 

Paul: a hundred percent.

Baxter: So the reason why the business is most important to deal with first is because everything then is implied based on your business’s success. Assuming, again, that like, you know, 100 percent or 50 percent or 60 percent of your net worth, both on the income basis and valuation perspective is based on that business’s success.[00:13:00] 

Paul: Yes. And, uh, so you can also delay sending out invoices. I put a case study together. This is just a very quick example. I was recently talking with someone and, uh, the situation is not exactly where they’re at, but this is close enough. It’s an S corporation. S corporation means that they are reporting their invoices.

For their management purposes, they are reporting on the accrual basis, but on the tax purposes, they are paying on the cash basis. So there’s a distinction. Uh, let’s say 300, 000 expected net income. So we counted up their expected billings and receipts and the expenses for the rest of the year. And we said, Hey, it’s going to be 300, 000 by the end of this year.

Um, if we don’t do anything else. The deferred revenue on the books is 50, 000. So they have customer prepayments of 50, 000 and, uh, their monthly meant managed revenue is, is recurring. And so it’s, it’s pulled. It comes in automatically through their, their process, [00:14:00] the AR process. And they have an additional project invoice where they have completed everything in a project.

They’ve even purchased the hardware for the client and sent them the hardware and they have, they have 100, 000 invoice to send. And that, that’s really, uh, when we were sitting around talking about it, I said, well, what is it, where are we at? And they said, well, we also have this project that we’ve completed.

And, uh, they’re saying, well, what is it, and if they send that invoice and the, if they send the invoice and the customer pays, well, they have an extra 100, 000 of income in the last, in the next 26 days that they will all of a sudden need to pay out in taxes next year because of that transfer was made before the end of the year.

Uh, so I think really, and also the other thing here is they have a deferred revenue. So not only do they have the 300, 000 of net income. But on the cash basis, you [00:15:00] have to add in that deferred revenue. So that’s what I, that’s what I, I don’t want people to forget about that. That’s my, my point with that.

So they don’t just have 300, they have 350 if you add in the deferred revenue. And then if you add in the hundred, if they bill it and the, so if they bill this in December, Uh, let’s say they do it on the 23rd, they send on the 23rd and the client’s in net 7 and they, or they, they pull it, they, they bill the project income and the client pays it and they say, Oh, I have an opportunity to reduce my taxes.

They send 100, 000 in on, on, uh, 1230. Now, all of a sudden this client has 450, 000. So the, the, the, the, uh, challenge here is. is how do you manage that, the income, and I think this client would love to send the invoice on 1231 and get paid after the first part of the year, so that’s, that’s one of the things that they walked away with, but I think the real, my [00:16:00] takeaway here, if I could give, leave you a takeaway, think about where you’re going to be, count up where you’re going to end up, you know, begin with the end in mind, And then figure out, are you, are you comfortable with that?

Do you know what the taxes would be on that? And do you want to mitigate that in any way? 

Steve: Hey, so someone asked a question that I don’t, I feel like it’s as simple as checking a box. How can you tell if you’re paying taxes on a cash or accrual basis? 

Paul: That is a great question. Uh, that is a great question.

If you are, uh, if you’re filing, if your company’s filing an 1120S, you can go to page two and on page two of the 1120S at the top, there’s a little check box and it says accrual or cash, so it’s on your tax return, open it up, take a look at the second page of the 1120S and it’s right there. I think it’s a section B if I’m, if I’m not.

Steve: And then do you, do you have, like, say I filed, [00:17:00] uh, Accrual last year, do I have to file accrual this year or can I switch back and forth? 

Paul: The right answer is no, you can’t switch back. The technical answer is you could, but it’s very painful and you don’t want to do it. 

Steve: Okay. So, so that’s something to keep in mind then is, you know, picking the one that you’re going to go.

And, and obviously if, if you’ve got a lot of deferred revenue, you Every year, like Brad, uh, said three customers were like, Hey, I can pay you for the next three months for our taxes. And he’s like, what about my taxes? So if you, if you get a bunch of deferred revenue at the end of every single year, it might not be a bad idea to, to be filing accrual.

Unless there are other caveats that I’m not thinking about here. 

Paul: Well, that’s And I know 

Steve: we’re getting in the weeds here, so Yeah, 

Paul: I, I, most of the time cash basis is [00:18:00] preferred simply because people don’t want to pay taxes on money they haven’t received. 

Steve: Gotcha. 

Paul: That’s primarily, and it’s, if you’re having trouble with your accountants right now, switching to accrual will mean, uh, twice as much work.

So that’s, those are just some things to keep in mind. But if you’re using a software like Xero and it automatically puts you on accrual, that doesn’t mean you registered wrong. Accrual with the IRS. So I’m talking primarily to English, you know, American, American taxpayers here. Uh, so if you’re using Xero, it automatically comes with as accrual.

I think sometimes QBO does as well. Uh, that doesn’t mean you file that way. You don’t have to file that way. You can make a choice to do that. But once you make that choice, it’s, you got to file that way each year, or you have to make a special election and go through a bunch of hoops. And it’s, it’s a pain.

Baxter: Paul, what percentage of businesses file accrual versus cash? I mean, my understanding is it’s like 90 percent cash, but 

Paul: Yeah, I’d love to know that. My experience is [00:19:00] almost everything’s cash. 

Baxter: Yeah. 

Paul: Uh, until you’re larger, like it used to be tax cuts and jobs act. It used to be, Hmm. They moved the numbers. Uh, it’s, I think you can go 20 million in revenue and still be on the cash basis.

So they bumped it up significantly. Now, most of the time you get to that level and your VCs are going to want accrual basis. And I mean, all your benchmarking wants that anyway. 

Baxter: Yeah. Yeah. I mean, I think my, my, I think for most businesses should be accounting on a cruel basis. and then paying taxes on a cash basis.

Obviously, there’s always edge cases and always Companies that fit outside the box, but certainly the accounting on an accrual basis is super important. 

Paul: And that’s an industry standard. I mean, that, that is when I, when I started serving MSPs, like that is every, everybody is, is, you know, hook, line, and sinker in that methodology, which is, which is the [00:20:00] correct way.

But I want to say that when you do that, you have these little things. If you have a prepaid expense on the accrual, you have to back that off or deferred revenue. You have to back that off for tax purposes and it can catch you by surprise. 

Baxter: And then 

Steve: we have, oh, 

Baxter: go ahead, 

Steve: Baxter. 

Baxter: No, I was going to ask this question, which I think is a really good question that Mark just asked.

Yeah, 

Steve: yeah, so, um, before we go to Mark’s question, I want to go to Matt’s question. Um, he asked, in QBO, can you change for accrual to cash? Now, with QBO, we’re talking about the accounting side of things, not the tax side of things. So Uh, you, I mean, I think the answer, correct me if I’m wrong, Paul, the answer is yes, you could change from accrual to cash.

I think, I think the better thing to say, though, is why would you want to? Because, um, as, as we’ve already alluded, most, most MSPs, uh, in your, uh, [00:21:00] Tax bracket are our accounting and accrual and paying taxes in cash and you can See what cash you haven’t collected by looking at for example your AR report And I’m sure there are some other reports that you can either look at Uh, pre existing reports, so you can get creative and make your own reports to help you understand, uh, how your, your cash flow and, and cash reserves and all that stuff are looking, even though you’re accounting on an accrual basis.

So am I, am I correct with that, Paul? 

Paul: Yeah, you are. Uh, you can do that, you can make, Uh, a setting, good, great point though, Steve, uh, they, just because you change it in QuickBooks doesn’t necessarily impact your taxes and vice versa. And also you can go up, you can go to the gear icon on top, right, and go to accountants and accounts and setting, and then you can change it from cash to accrual, but you can do it a lot easier if you just pull the report in QBO, go to reports, and there is a [00:22:00] cash and accrual, and you toggle the button, refresh the report, and it will, now I will say that’s like, uh, that’s really kind of like, Remedial accrual, it doesn’t really get down to the, if you’re going to go be technical about it, you’re supposed to accrue wages, you’re supposed to accrue, you’re supposed to account for prepaid expenses and, and all the other things.

It’s kind of like just dealing with the bills and invoices. 

Steve: Yeah. And, and obviously the best thing we can tell you is, you know, talk to your accountant or, uh, uh, tax advisor that you work with locally. Um, if you don’t have one, we know a guy. Uh, Mark had a great question here. He says, what challenges have you seen with MSPs that are franchises, where the National Franchise Organization requires you to pay their franchise fees on an accrual basis, but your accountant is managing your taxes on a cash basis?

Paul: Well, uh, not just that, but you’ve been throwing sales tax. 

Baxter: Before you jump in, Paul, I think [00:23:00] the other thing that’s interesting about this question is, Mark’s asking it in relation to the franchise dynamic, but this is just, this is a dynamic of all businesses at the end of the day, uh, right? I mean, obviously there are franchise fees attached to it, but You know, everybody has this challenge around accrual versus cash, how to manage it accordingly.

Sorry, I just wanted to 

Paul: No, that’s exactly what I was going to say, Baxter. I wasn’t, I wasn’t going to limit it to a franchise. If you’re doing sales tax, there are states that require you to report an accrual. And maybe you’re paying it on the, maybe you report on your income taxes on the cash basis, but your state requires you to pay a sales tax on accrual.

And then, so then you have these really ugly negative balances on the cash basis on your balance sheet and it drives your account nuts and that’s part of it though.

Baxter: But sorry, sorry, just to, I guess to hone in on that question. I mean, the challenge [00:24:00] ultimately is around. Deferred revenue and prepaid expenses. 

Paul: Yes. So just make sure that, you know, what your taxable number is going to be, even though you have a few things on your balance sheet, look, you’re counting, reach out, it’s a five minute call.

If you have, if they are, they’re in your books, they will be able to tell you at least this. It’s a little bit longer to figure out what your income’s going to be at the end of the year. But it’s, you know, like I said, 26 days, you can do something about it. And then, and then, Baxter, I mean, you and I have talked, Steve, we’ve talked about, you know, moving accounting from your prefrontal cortex so you don’t have an amygdala hijacking.

Uh, taxes are, are a lot of that. So if we can, if we can move it out of that side of your brain, so that at April 15th, you know, exactly, I mean, what I want my clients to know exactly how much money they’re going to have to pay. in April every year, so they’re not ever, not, they’re not ever, um, surprised by it.

Baxter: But, and then the, the other dynamic which I think is interesting with franchise businesses is you’re [00:25:00] most likely paying a franchise fee tied to gross revenue and not necessarily profitability. Right. So if you would actually rather have a lot of deferred revenue and all your customers are paying you cash up front.

But you’re then paying the franchise on a lower revenue number over time. Um, so, like, to play the game I can hear the gamesmanship. If you want to play the game. Which, happy, Mark, to connect with you later. Sounds like 

Paul: due diligence, Baxter. 

Baxter: You would want all your customers to pay you, you know, up front on an annual contract.

If you can, so for 12 months, and then, you know, I don’t know how your franchise structure is based, but you would then pay monthly franchise revenue fees to whoever it is, um, because then you can use that [00:26:00] upfront cash to invest in the business for all different reasons. Now, there could also be a marketing expense fee tied to it.

There may be a profitability component, but I haven’t typically seen that with franchise businesses. Um, so, you know, that’s a little bit more detail, but happy to connect off, offline, um, or connect with Paul directly, because I’m not a, a certified, I’m a accountant in training, and Paul trains me every week.

Paul: Oh, what are you talking about? Every week? You sat through, you sat through all these, all those due diligence, I know your timing, I mean, Uh, yeah, the, uh, is it, uh, the second, the second component, so I really only have a few things. The first one was just managing your business, the timing, your revenue and expenses, and you have control to be able to do that.

This is a little longer. I get this question quite a bit from MSPs because they’ve heard about the R& D tax credit, so I just threw it in here. I thought it would, let’s, let’s talk about it. This is not a deep dive into it. Steve, have you ever run [00:27:00] across the R& D tax credit? 

Steve: Well, um, I have not, um, tried to use the R& D tax credit.

I have a buddy who I will not name, um, and I swear it’s not me, uh, who, he decided to buy, like, you know, Nintendo Switch and, you know, some video game systems, and he, he told his accountant that he was doing R& D to determine if he was able to, uh, to, uh, Provide tech support on those devices. So what, what I was thinking is maybe we can, uh, maybe we can get some Apple Vision Pros, and, and, ’cause what I’m thinking is I want to, I want to start, I wanna start doing these webinars in the metaverse or whatever.

Yeah. So, you know. We can use AI, Steve. And then maybe that Steve, his neck will turn.

Paul: Yeah, well, you know, you’re in a business where Ordinary Necessary does [00:28:00] cover a lot of tech toys. Uh, the, I do run into this, and I do, I just put this on there because I ask clients, uh, prospects that come in, they, have you ever filed for an R& D tax credit? And had a conversation this past week with somebody, uh, new.

Uh, just trying to get to know their business. There’s four components of it. This is very high level. Technical uncertainty, process of experimental, experimentation, technological in nature and qualified purpose. So, most of the time, MSPs have something that qualifies because computer science as a, as a segment is specifically called out by the R& D tax credit.

So they, the government wants to give you A discount on your taxes just for doing some things that you already are doing. And that’s why I bring this up. Is this a cure all that you’re going to get done in the next 26 days that are going to impact your taxes? No, but you could get a study that could also impact it for up to five years in the future as well.

Um, [00:29:00] I’m, this is really an awareness guys. That’s really what I want to bring it awareness to. There are things you can read the slide here, but these are some common activities that people are, are doing. Uh, and some of them, I know that you’re looking at this and saying, I’m already doing that anyway. Um, yeah, that’s.

That’s what I’m saying. You, you probably are doing this. Now, they are, again, the states have R& D tax credits, the IRS has R& D tax credits. It is a reduction in taxes based on the money you’re spending. Most likely, you’re already doing that right now. Um, I mean, you know, improving manufacturability of a product.

Well, if you’re, if you’re doing that right now, you can get some credits on that. But how much, right? Show me the money. How much can I possibly get? Now this Like, this is why I put a disclaimer on the front guys, I mean, it is, it is all over the place, but I have seen some [00:30:00] absolutely amazing numbers that I just want to make sure that I’m at least mentioning this as a tax strategy to a bunch of MSPs.

California has a 15 percent state tax credit. QRE is Qualifying Research Expenses. There’s a few different words that, phrases they use. But you’re looking, I mean, if you’re spending 500, 000, and may, that may or may not be a lot of money, um, but you can, you’re looking at 100, 000 of tax savings. Reminder, tax credit is not the same as a deduction.

A deduction, a deduction is kind of like an expense. A tax credit means a dollar for dollar on the amount of taxes that you would be paying.

Yeah, 

Steve: I 

Paul: don’t 

Baxter: get it. Okay. I think there are a lot of, um, good use cases. Yes. And when MSPs are developing software [00:31:00] technology, and it’s really innovating. 

Paul: Um, this, yeah, I think you’re right. I think, Baxter, I mean, this goes back to, is there a process of experimentation? And, and that, that’s kind of the litmus test.

It’s worth throwing it out there because I hear this question quite a bit. Does it really qualify? What I do is I partner with a, a, uh, reputable, and I use that word, uh, accentuate that word, reputable tax credit organization, uh, that will, will do good research and, and look for these expenses. That’s what, that’s what I do.

I’d be happy to, to send people, to make an introduction or send people along to that.

Alright, so we’ve done managing your business. I threw in a few other things that, that I just wanted to spend a little bit of time talking about some of the, the errors. I don’t know if I want to call them errors, but maybe [00:32:00] sand trap that business owners run into. 

Baxter: Limited gamesmanship. 

Paul: Okay, I like that.

That’s good. If, if you are running an ask corporation and you are paying yourself Um, your wage, you have to be on the, you have to be on the, on the payroll as an owner. And that money is then your salary is subject to payroll taxes. So this payroll tax rate is just FICA. Once you get to 168, 600, Above that amount, only Medicare is in at 1.

45%, so you lose most of this. This is not income tax. So, if we’re, we’re not talking about income tax, we’re talking about payroll taxes here. The amazing thing about running an S Corporation is that if you reduce your own wages, you pay less in payroll taxes. Now, you, I, I know, most of you guys understand this, um, but I’m talking just to a few people who may not have The thought [00:33:00] about this, I ran into somebody recently and they were looking at giving themselves a bonus at the end of the year as an S corporation.

So, as an S corporation, you don’t want to pay yourself a lot of money. The goal is to pay yourself little money. Uh, I’ve run into, run into, and why is that? Because if you were to take a distribution, and a distribution is a fancy way of saying a dividend, But you were to take money from the company and you were to transfer it into your personal checking account.

There are no payroll taxes on that. Um, there is, the rate is zero, the amount is zero, and if you increase the amount of money, there’s something, uh, in the Tax Cuts and Jobs Act, basically 20 percent of your profits you get to take as an expense. So, if, however, you take a bonus, you’re going to pay 15. 3, that same exact amount of money, you’re going to pay 7, 600.

The RocketMSP Podcast On that, [00:34:00] and you’re gonna lose out on that 20% of the amount, which will then come through as a, that it increases your taxes. So your adjusted gross income, what you end up paying taxes on, on a personal, excuse me, a personal amount will be much, I mean, it’s just a whole lot higher.

So the game here is as, and talk to your, talk to your tax advisor. Just set it up. Um, you, if you, anything below that amount, if you modify your. Salary. So if you were to take a $50,000 less, if you’re making a hundred, if you’re paying yourself $160,000 this year and you said, I’m gonna drop it down to $110,000 in 2025, you’re gonna save yourself $7,650.

Right off the top and payroll taxes that you personally, or your business pays. That’s a, that’s a big ROI. And you’re like, Oh, well, Paul, you can’t really do that because it has to be [00:35:00] reasonable. There is also a, uh, this is where I go back and I talk about the, there’s, there’s a balance between, anyway, talk to your tax advisor about that.

This is a, if you’re, if you haven’t thought a lot about your owner compensation, As an owner, paying yourself a high wage is not the way you want to do it. You want to pull it out as a distribution. I, I just want to say that. So, so 

Steve: how, I, I’ve been told that you have to pay yourself a reasonable salary, but I think reasonable is, Objective or subjective?

I don’t really know the right way to use it. Um, so, uh, Andy says, How little can we pay ourselves as an owner? We’ve been told 150, 000 will not cause flags with the IRS. I’ve been told that the, the amount you pay yourself is, uh, Obviously dependent on how [00:36:00] much is available to pay yourself, but you know, here in Northeast Ohio, you could get away with paying yourself between 40, 000 a year.

Paul: Well, uh, your mileage may vary on this one. This is, again, the disclaimer. Reasonable is highly subjective. Steve, to your point, if you’re in an S corporation, the IRS will sue people for having Your compensation too low. However, if you were a C corporation, for example, the IRS will sue you if they think your compensation is too high.

So what, yeah, no, I’m serious. And so what tax people do is they go to the court cases for the IRS against C corporations and take those arguments. And they put them against the S corporation and vice versa. Um, so all of that to say there, it varies based on how much money you’re pulling out of the company.[00:37:00] 

Um, but what I would recommend service leadership puts together every year. And unfortunately it was, uh, November 30th. If you contribute to their compensation report, they give you a free copy of it. And this, this really, uh, levels the playing field as far as what your, what the compensation is for the market.

Has a lot of different factors, but that’s a market rate. That’s not reasonable. Um, what I say, and I’m not gonna, I mean, it’s a rule of thumb that people don’t like to say out loud. I go ahead and tell, I say basically a third of how much money you pull out of the company is in wages. So if you’re, you know, if you’re pulling out 450, distribution, 150, 000 in, in wages, then that’s, that’s right on your wages is 33 percent of your total amount that you’re pulling out.

Steve: And I think that’s, all of that is, uh, enough for you to have a one bedroom apartment in San Francisco. So, [00:38:00] um, you know, you’re, you’re probably, you’re probably right on track there. 

Paul: Well, you, yeah, I have no idea about that. So not in that mood.

Rule of thumb, people really don’t like to be pinned down on that one. I have, uh, talked to a lot of clients that have come from different accountants. They have a lot of different ideas on that one. Uh, talk to them about reason, like there’s a difference between market based competition, compensation, and reasonable compensation.

The purpose of this slide. It’s just to say, don’t give yourself a big bonus when you have the opportunity to take a distribution. 

Steve: Sure. Now, should you never give yourself a bonus? Should it always be a distribution? Um, 

Paul: well,

uh, well, I mean, I don’t, I would rather take a distribution personally. I don’t think I’d ever lose myself cause you’re going to be having withholdings at 21 percent right there off the top. Uh, that’s going to go to the federal government and you’re gonna pay payroll [00:39:00] taxes on that if you want to do that.

It’s okay. I think there’s a reason you would want to do that. And if you’re trying to increase your wages at the end of the year for some reason. Now, I do have to say, there’s a caveat here. If you’re concerned about your future Social Security benefits. Then you want to pay yourself. The more you pay yourself on your wages, the more you receive in future compensation.

And as a guy who’s, uh, my brother-in-law passed away at age 32, and my nieces are on, uh, social security disability or, or survivor benefits that that hits home, uh, for me, the amount that he paid into social security is. It does have an impact. So I don’t like to, I don’t like to think about those things, but I do, I do think that I should at least disclaim that the payroll impacts that.

Baxter: Yeah, but I mean, generally, generally, right. You want to avoid double taxation at all costs. And the bonus structure is just double taxation because you’re being taxed at the corporate level and you’re [00:40:00] taxed at the personal level. Whereas the distribution strategy on the left. The RocketMSP Podcast is brought to 

Steve: you by the R& D team at Microsoft.

The R& D team at Microsoft. The R& D team at Microsoft. The R& D team at Microsoft. The R& D team at Microsoft. The R& D team at Microsoft. The R& D team at Microsoft. The R& D team at Microsoft. 

Paul: Uh, no, I can’t because they all do that. They either have a flat fee or they will charge a little bit more when you get the credit.

Uh, that’s another strategy I’ve seen. 

Baxter: Yeah. I don’t 

Paul: know anybody that you might talk to your tax repair. They might know somebody, but people who are in the tax credit game, I don’t, I have not seen any hourly billing 

Baxter: or not 

Paul: much, [00:41:00] 

Baxter: the biggest, the biggest thing to avoid is just limit as much, uh, any upfront payment as possible.

Right. So. You don’t want to come out of pocket for an R& D tax credit that’s a non cash event, or based on their estimate. You want to come out of pocket when you receive the 100, 000, and then you can pay 20%. I think the lowest that I’ve seen is probably 15 percent on the R& D side as a share, but I haven’t seen anything lower.

We, we take advantage of R& D tax credits. Uh, they’re, they’re great. Um, but, you know, never, never come outta cash just because you’re taking on incremental liability 

Paul: and, and please do business with a reputable company. Yeah, there are so many charlatans out there. Uh, there’s, there’s one out there that has a whole team of attorneys just to sue the people who don’t pay them their fees.

That’s allegedly, that’s allegations. I’m certainly not going to say who [00:42:00] that is, but do your, do your research on that. 

Steve: That’s a bummer. And then if we’re developing workflows, processes, automations, et cetera, for clients, is that R& D? That, I guess to me, I would not think so because I, that’s like what they’re paying me to do for that.

Paul: Yeah, the distinction between it is if you’re contracting being paid to do that for the client, then it’s not, there’s no process of experimentation there. So that’s not research and it doesn’t qualify based on that, but there’s a, it’s a, it’s a thin line on what exactly it is. And, and I bring this up just because I want people to make sure that they.

It’s a strategy, right? It’s something that is a potential you’re in the right industry. You’re doing the right stuff for the strategy out there. It could work. Um, you want to work with somebody who’s really good, who is qualified, who does this, uh, and, and can document and support that with the IRS, [00:43:00] that, that’s it.

Baxter: I think there’s another, another decision point, which is, uh, do you plan to sell that software? So if Paul’s paying me, if I’m paying Paul to do my taxes. And simultaneously, he’s building a technology product to automate or optimize tax prep that he plans to distribute, monetize, and sell one year, two year down the road.

Two years down the road, then I would suspect, you know, again, I’m not, I’m, I’m not an accountant, but I’d suspect that would be fine to allocate the hours spent on that development of that tool within an R& D tax credit structure. Um, which again, just whether you plan to sell it, whether you plan to monetize it, if you’re just utilizing it for clients who are then paying you for that type of work, [00:44:00] you know, it seems like that would fall into a little bit of a.

And 

Steve: I want to add that, you know, it’s one thing for, for, let’s say ABC company, uh, hires you, the MSP, to go in there and, uh, make them more efficient and help them automate processes. That’s a great start. That’s something that they’re hiring you to do, and they’re expecting you to use your existing knowledge and expertise to just do that work for them.

That’s not research, that’s just doing your job. Whereas if you are starting an MSP, and you go out, you buy an RMM platform, and now you’re going to start I was wondering RMM platform? Maybe you don’t even have any clients yet. And now you’ve got to start writing scripts and testing those scripts to see if they’re going to automate the functions appropriately.

That [00:45:00] might fall into the R& D, um, uh, uh, um, squad. Would you say it does or does not, Paul?

Paul: I would work with a really skilled, uh, group of people who can qualify you. CYA, Paul. 

Baxter: CYA. Everybody, CYA. Stay away. 

Steve: Fair enough. All right. So 

Baxter: I’m happy to give accounting advice. 

Steve: Well, bottom line, bottom line, don’t, don’t go buy a Nintendo Switch and say it’s R& D, got it. Yeah, you’re gonna 

Paul: have trouble with that one.

Steve: One more question, uh, Eric heard about something called Qualified Small Business Stock at Build It Live. 

Paul: Does that 

Steve: make sense for most MSPs? 

Paul: Uh, I think it’s 1202. I think that’s what he’s talking about. Um, yeah, that, it could. Um, that is referring to, uh, uh, selling, uh, a C corporation stock without, [00:46:00] um, qualified selling on a, it’s, it’s like a tax, uh, capital gain free, you don’t have to pay taxes on the, uh, the sale of a C corporation for a qualified business.

And that, yeah, that can make sense. There definitely is an exclusion out there. There’s, there’s a lot of things. There’s, yeah, definitely there is an option for that. I would definitely talk to, with your tax person about that and see if that makes sense for you. 

Baxter: I mean, I think the challenge with QSBS is that it needs to be filed when you’re filing the entity.

So you can’t really backdate QSBS, but when you create, let’s say a new MSP or a new business, Um, and your goal, ultimately, is to sell the business. QSBS provides a 10 million, uh, tax credit or savings. I’m not sure. It’s tax 

Paul: free capital 

Baxter: gain. Tax free capital gain. So, if I sold my business after, and I think it’s long term capital gain, so if I, if I started at MSP today, filed for [00:47:00] QSBS, and then sold the business for 10 million in four years.

I would then receive 10 million of cash proceeds and not be required to pay any tax on it. 

Paul: Yeah, that’s amazing. It really, but you have to structure it right. And 

Steve: I did a quick AI search. Um, it’s a special type of stock that can provide significant federal tax benefits when sold. The company must be a domestic C corp.

The gross assets must be under 50 million. At least 80 percent of assets must be used in qualified business activities. Um, and then there’s, there’s a bunch of other requirements for investors and, and whatnot, but, uh, there’s a 100 percent tax exclusion for stock acquired after September 2010. 

Paul: Huge, huge, definitely.

Baxter: Yeah, it’s a big, it’s a big saving. 

Paul: The next one I want to talk about is retirement. And this is a, this is [00:48:00] kind of a boring one. It’s on the business level. It’s, you’re like, oh, well, we were talking about retirement. There’s all kinds of strategies out there about individuals and how these strategies, you can move money around.

I want to highlight these. There are four. Three on this. And there’s one more it’s called the, uh, for military, but these are three here. If you have ever thought about starting a retirement plan, if you do not have a retirement plan for your company, boy, the government really wants to give you money. They really want you to start up a retirement plan.

There’s a big, big push. They know the government knows the people who are looking at it. It’s. It’s not political, uh, both sides of the aisle know that this is an issue. So they’re throwing money and tax credits at people who start up. So if you start up a retirement plan, specifically, I mean, if you’re getting into a higher cost, if you’re using your third party administrator, your TPA, and you’re spending money on that.

You get a credit for starting up one. If you give money into your 401k, you get a credit for putting money into that. And if you require your employees or, uh, design the [00:49:00] plan that they automatically enroll, you get a credit for that one. Uh, you know, I feel like I’m at an Oprah show with this one. So I wanted to throw this one out there.

Everybody gets a credit. They want retirements. This is at the business level. This is not a personal level. Uh, this is what the business can, this, if you have an S corporation, this will flow into your personal as a general business credit. And, but I just got back, um, really, uh, listen to somebody talk about this this past week.

And just wanted to, to communicate that this is the year talk to somebody about this. It’s a great thing. It’s good for your employees, good for retention, and it’s a credit out there. 

Steve: Hey, so I’ve got one more poll I’m going to launch real quick. Um, this one, you know, it’s, I don’t know if it’s anonymous or not.

I’m not really worried about who says what. Um, we’re, we’re thinking of doing some research to determine if it makes sense for us to build a community around [00:50:00] these office hours. So that way, uh, you MSPs can, uh, talk about finance, accounting, M& A, mergers and acquisitions, Brad, um, and so on and so forth. So, uh, Yeah, um, so, so yeah, just let us know if that’s something that would be of interest to you, and, uh, we will, we will keep it moving.

Um, we, we talked about, um, oh good, Ideas for a Good Year. I was, I was just about to say, you, you talked about the retirement thing, um, and I see number four here is Employer Children. Can you employer children and and give them a retirement plan. Like, do you have to be eight? I never even thought about this.

Do you have to be 18 to have a retirement plan? No, no, you have 

Paul: to have earned it or you have to have earned income. That’s what they want. So yes, the answer is here’s the other thing. You can employ your kids and they pay income [00:51:00] taxes at their rate. If you are a, not an S corporation, if you are a sole proprietor or in a partnership, You can employ your children as an employee and they do not have to pay payroll taxes at all.

So there’s this amazing. And so if you pay them 13, 000 for doing work that would generate, you know, let me qualify that, that it has the fair market value of the work has to be 13, 000 or you have to substantiate that somehow they can take, you can deduct that from your business. They can take the 13, 000 and they could buy shoes and a car and whatever else.

And they didn’t pay any income taxes on it. And you were able to deduct it. 

Steve: Now, do I actually have to give them the money?

Paul: Alright. Is that a custodial? Who’s the owner of the custodial account there? Alright, yeah. I threw these up there. If you’re taking tax advice from TikTok, uh, I really, I can’t recommend against that, but there are a couple of things on here. This Augusta rule number six, uh, there it is legitimate. [00:52:00] It really is legitimate that you can rent out.

This comes from Augusta, Georgia, where they have the masters, you know, and every April people show up and they have these beautiful houses that are located next to this historic golf course. Well, people who live right next to a historic golf courses know that they can make a fortune by renting this out.

To the golfers and the teams that come around every year. If you rent your house out for less than 15 days a year, that’s tax free. So the strategy, and I’m, this is a legitimate thing. I’m not, this is not on the fringe at all, but if you’re primary residents and you’re able to rent this out for 14 days.

If you’re under 15, then you get to keep that money and you don’t have to pay taxes on it. Um, so, what the strategy here, and this is the end of the year, people have holiday parties, and I have talked to a number of people who, their business, because it’s a corporation, will rent the primary residence of the owner or management, [00:53:00] and they will have a house party.

The business pays the house, the owner of the house, for using their, their house, and then that is tax free income. It’s a deduction to the business, and it’s tax free income to the owner. So, you’ll see that on TikTok quite a bit. It is legitimate, you do have to be fair market value, and that’s gonna be a challenge, but it is a way to reduce business, business income.

Uh, if the, if, for some reason, you had a stock, uh, maybe Intel, or, Um, a couple other ones that had a capital loss by taking number three, if you just take a loss on that one, it’s offsets all the other gains, um, that’s limited to 3, 000. If you don’t have any other capital gains to offset it, it carries on in perpetuity, but these are a couple of things, uh, pass through entity tax, uh, on a state level.

If you’re, make sure you’re paying your past three entity tax, uh, that is, uh, [00:54:00] offsets, reduces your income on your taxable income. Talk to your tax advisor about that. Mega Roth backdoor contributions, kind of a, kind of a quirky one. Uh, you have to set up your, as an owner of your company, you can contribute up to 69, 000 into your 401k.

That’s the law. Mega Roth backdoor is a way of, uh, Getting up to that limit. You have to talk to a third party. You have to find a TPA that will allow you to do that. But it is kind of a quirky strategy you want to work with on that one. Um, and yeah, I think that’s about it. Oh, don’t forget to reimburse yourself, reimburse yourself for the shareholder’s home office and mileage.

Just some extra expenses you probably had sitting around for the year. You forgot about that trip. And before the end of the year, cut a check to yourself. Put it in your bank account, expense it from your business, reduces your taxes, and it’s not income, it’s just a reimbursement. 

Steve: Thank you sir. Great. Now you said that [00:55:00] you’ll, we’ll see the, the tax advice on TikTok.

You know that the TikTok algorithm is smart enough to know what you are interested in. None of us are seeing tax advice on TikTok , I assure you. Mine is, uh, dogs and cats being silly and people cooking delicious looking food. Yeah, adults. That’s my for 

Paul: what An accountant is on TikTok

Accounting is the profession that certain industries call themselves around family, so they don’t have to tell people how they’re making money. 

Steve: Yes. Now, we have just a few minutes left. I have a few questions here in the Q& A section. If anybody else has any questions, please let me know. Toss them in now.

I want to, I want to try and rapid fire. Give us, give us the quickest answer you can. Uh, question number one. We currently have a simple IRA. We are transitioning to a 401k. Will credit [00:56:00] still apply with that as it’s not startup? 

Paul: Yeah, um, there are some that will. The, the, that asks you if you had an existing retirement plan, so one of those is disqualified if you’ve had one in the last three years.

But the other ones, as far as enrolling, that is still available and contribution, automatic enrollment and contribution will still be available. Um, but you gotta remember a lot of these, a lot of these retirement plans, they’re happy to take your money and there are a couple, I have a, um, Somebody I work with, I’d be happy to send somebody an email if they want to send me an email directly, uh, make an introduction.

They’re, you know, they, they want assets under management. They’re not charging upfront, crazy upfront fees. So these are credits for the money that you spend with the TPA. So if you find a 401k that doesn’t charge a whole lot of money to set it up, which they shouldn’t because they want your money. Um, there’s not a whole lot of money.

There’s not a, you know, it’s a credit to offset that. So you still get the credits on the contributions. You still get the [00:57:00] credits on the automatic enrollment. 

Steve: Gotcha. 

Paul: So, yes, mostly. 

Steve: Uh, Brad’s currently in LLC. Next year he’ll be in S Corp. Does he need to wait to be in S Corp to get the tax credit for the retirement plans?

Paul: Although, if you’re setting it up right now, I’m not sure it may make sense just to wait until Jan 1, if you’re on the calendar year. Um, just because you might have more expenses in that year that would take, would count towards your credit for the entire year rather than taking just 26 days of the rest of this year.

Um, because you would use up a year of eligibility. Some of these are multiple year credits as well. They go on multiple years and you can apply for them year after year. So it’s kind of the skip that keeps on giving. for listening. Uh, in the, in the tax code. 

Steve: Cool. Uh, if reimbursed for the home office setup, I assume we cannot have the tax advantage or personal returns for the home office.[00:58:00] 

Paul: If you have an S Corporation, you are allowed to offset, you have your, uh, you have the rent of your home office, and then you have the insurance, and the allocable insurance and allocable taxes. That’s what you can offset for that. And, um, or you get 300 All right, excuse me, up to 300 square feet at 5 per square feet.

And then you just make a simple deduction. So you can take some expenses against that. So you can also, it’s not, it’s not exactly a dollar for dollar. It’s not a great tax idea. Uh, it’s not like a, oh my gosh, you’re going to amazing. All the rent you pay yourself is automatically, you know, tax free. That’s not the case.

This is not, I want to distinguish between five and six. Because the Augusta rule is not your home office. So it’s, the Augusta rules are different. 

Baxter: Generally what I’ve seen on the home office side is, you know, [00:59:00] the, the limitations are really, really small. And so there’s just not that much of a benefit that you’re actually able to expense, unfortunately.

Paul: No, number five is really, really a lot smaller than the other ones. Uh, some of these, some of these are, are bigger ideas. Some of these are, they’re not amazing strategies. I mean, some of them are, are just. Just keep this in mind, you know, the, the, I thought. But it’s 

Steve: the 

Paul: snowball effect, 

Steve: you know, you, you, you, sure, one of these isn’t that great, but if you’re able to employ all six of these, the R& D thing, you know, a couple other things, you know, then, then you’re, you really start to look at a nice big savings.

I, I almost said check, but you’re not getting a check, you’re just writing a smaller check. I 

Baxter: want to, I want to address this last one before we jump, because I think it’s a good one. Annual tax filing costs for a 1 million revenue business. This is AverageCPUneed is what. 

Steve: I think the best answer is it depends.

Yeah, that’s ballpark. Ballpark. Time 

Baxter: ahead. 

Paul: Got ballpark. If, if I, so here, [01:00:00] here, here’s an answer. If you go to TurboTax and you put an S corporation, they’re gonna charge you at 1850 for you to do it yourself. That’s what TurboTax will do on an scorp. 18. 

Baxter: 50. 1, 

Paul: 850. That’s how much Intuit charges you to do it yourself.

Steve: Wow. 

Paul: What are you charging?

I usually, uh, I usually work on clients all year long, so it’s not necessarily priced separately, although I’m willing to talk if people want to talk to me. 

Steve: Now, to clarify though, Matt said he’s an LLC doing a million in revenue, so Matt, I think the question is, are you an LLC filing as an S Corp, or are you filing as an individual?

Because if you’re filing as an individual, then you’re doing it on a, uh, a Schedule C, and, and the price to do it on TurboTax, now you’re looking at like a couple hundred bucks, and, you [01:01:00] know, I don’t know if Paul, Yeah, you know, that’s, that’s for the, the fancy one that they give you the audit protection and all that, right?

So, um, at that point, to have a, a professional do it, um, gosh, I mean, we’re talking 10 years ago now, 5, 10 years ago, I remember professionals doing it for like between 5 and 800 in my local area, but those were not people that specialized in MSPs. Those were just, you know, the, the local mom and pop people.

Text people that weren’t H& R Block. 

Paul: The value play is really, when you start running a business, The tax deductions are out there. The amount of money you spend on tax prep should pay for itself multiple times over. Uh, and, and it’s probably on us as tax preparers to really show people where they, we saved them money.

Uh, but yeah, there’s, you probably have somebody you’re working with really well. I would just, if you are happy with them, definitely. Make sure [01:02:00] you make an appointment, do some planning with them. Um, and lastly, I would say, don’t let the tax tail wag the dog there. If you are looking at running your company and eventually selling it, the amount of money you make in your business.

And this goes back to the last time I was on here, I made a comment about the best KPI, uh, according to some people, the best KPI is how much money you pay in taxes. The, if you are running your company. You’re going to pay more in taxes. If you just start throwing expenses in there to reduce your taxes, you limit as an asset of your, on your balance and your personal financial statement, the value of your business goes down by doing things to reduce your taxes.

So, you know, it’s, don’t, you know, don’t swap it out and, and, and be very careful about how you’re doing these things because more income through your, your company means a higher asset value on your company. 

Steve: Yeah. And, um, what, what I said, uh, I don’t [01:03:00] know, two times ago, I think still rings true. Um, there was, there was a book and I’m sorry, I don’t remember what book it was.

I keep thinking it’s profit first, but it is not profit first. Um, Anyway, so there’s a book I read, and, like, chapter one blew my mind. Uh, the more you’re paying in taxes, the more profitable your business is. So if your goal is to pay as little in taxes as humanly possible, or to make it look like your business has a loss, so the government somehow magically gives you money, that just means your business isn’t making any money, and isn’t a viable business at that point.

So, um Please, don’t, don’t feel like you have to get your, your tax burden down to zero because, uh, a, a successful profitable business will never be there, um, unless you’re Apple and have figured out how to offshore all of your, uh, [01:04:00] all of your assets to some other country somehow. Um, with that said, it is 5.

04, so we are late. Uh, thank you so much to everyone that stuck around. I. And thank you, Paul. This was fantastic, a wealth of information. And I hope, uh, I hope all of you guys, uh, took something away from this. I hope you all sit down with your accountant and talk tax planning. If you don’t have an accountant, feel free to reach out to Paul.

You can go to redearthcpa. com and, uh, we’ll catch you in a couple of weeks at the next Office Hours event. Take care, everybody. 

Paul: Thank you.