Simplifying Systems to Get Your Money Working for You Coaching Session
“I feel more clear. I just feel more organized about what the numbers actually are and what my course of action can be following our conversation. I’m also feeling a sense of gratitude for you and the way that you can actually take things that are a total mess that are happening for someone else and somehow just be able to say, ‘Oh, yeah, this makes total sense. Let’s just do it this way!’”
Meet Amanda Starfield
Amanda is a Clinical Social Worker, Therapist, Supervisor and Director specializing in being human with other humans. She has worked in or with every level of care in Massachusetts over the past 15 years and has been in private practice since January of 2022. Youth and families have been the primary focus of her practice and she specializes with young adults and those in early adulthood navigating trauma, relationships and life transitions. In addition to providing individual and family therapy, Amanda holds a larger commitment to caring for our caregivers, providing consultation on everything from therapy to supervision and leadership dilemmas.
In this Episode...
What happens when your finances get more complex? How can you simplify your systems to make sure you understand what your money is doing? In this coaching session, Linzy talks with Amanda Starfield who has recently transitioned to S-corp status with her business, and Linzy and Amanda work together to make sense of the new numbers.
Amanda is using Profit First for her finances, but when the business gained S-corp status, the method she was using became much more layered and complex, and it was no longer easy to make sense of where the money needed to go. Linzy and Amanda work together to make sense of the new numbers and to simplify the system that Amanda is using so that she can clearly see the numbers that matter most.
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Amanda [00:00:02] I feel more clear, like I just feel more organized about what the numbers actually are and what my course of action can be following our conversation. I’m also feeling a sense of gratitude for you and the way that you can actually take things that are a total mess, that are happening for someone else, and somehow just be like, Oh yeah, this makes total sense. Let’s just do it this way.
Linzy [00:00:28] Welcome to the Money Skills for Therapists podcast, where we answer this question How can therapists and health practitioners go from money shame and confusion, to feeling calm and confident about their finances and get money really working for them in both their private practice and their lives? I’m your host, Linzy Bonham, therapist turned money coach and creator of the course Money Skills for Therapists. Hello and welcome back to the podcast. So this is our season closer for season seven of the podcast, which is a very strange thing to be able to say. But time is really flying. And this episode is our only coaching episode that we’ve actually had this season so far. And it’s with Amanda Starfield. Amanda is a very recent graduate of Money Skills for Therapists. She is a clinical social worker, therapist, supervisor, and director. And she lists her specialty as specializing in being human with other humans, which I love very much. She’s based in Massachusetts and works with youth and families. And in addition to doing individual and family therapy, she also provides consultation on everything from therapy to supervision to leadership dilemmas. Amanda is a lovely human. She was like a such a treat to have in Money Skills for Therapists. And in our conversation today, we get into creating simplicity when you are in a complicated transition. So Amanda has recently switched her private practice to S Corp tax status in the United States. So now her money has to flow differently. So she was using a profit first system before, which is a budgeting system for business where you use multiple bank accounts and you divvy out money on percentages. And she had a system that was working for her. But now with her new S Corp status, the way that taxes work has changed. There’s some reimbursements she has to be giving herself. And there’s just some complexity that’s been thrown into the mix that has taken something that used to be simple and makes sense and has made it confusing again. So in this conversation today with Amanda, we dig into her numbers and we look at how to take something that is complicated, how to take her numbers and to make them clear and simple so that they work for her brain and give her the clarity to know how much to pay herself in dividends, how much to set aside for those dividend taxes, how much she needs to be putting towards her payroll, just getting her tweaking her big picture again to get numbers working in this new incarnation of her private practice. So if you are considering switching to S Corp status or recently have switched to S Corp status or have/are going through any kind of other transitions in your practice or feeling like your numbers are complicated, this coaching session is going to walk through that process of taking something that could be super complicated and making it simple and clear. Here is my conversation with Amanda Starfield. So Amanda, welcome to the podcast.
Amanda [00:03:35] Thanks for having me.
Linzy [00:03:36] I am so excited to have you. So, Amanda, you finished up Money Skills for Therapists in the Community in October.
Amanda [00:03:44] A month ago.
Linzy [00:03:45] Okay. Yeah, so a month ago. And I’m curious before we like dig into your coaching piece today, what made you decide to join Money Skills for Therapists?
Amanda [00:03:54] So I run a fully private pay practice, and I started that about two years ago now. And I did Tiffany McLean’s program, Lean In Make Bank, which really helped me start to unpack my money stories and really kind of understand what was going on for me and really deep in my clinical work as well. But I didn’t really have a handle on how I was actually managing the money that I was making. And I knew that there was more there for me and that I wanted to feel confident moving forward. And I really have this base as I was building my business of I actually know what I’m doing in terms of managing all this money.
Linzy [00:04:33] Right. Yeah. So the how. It’s like you figured out how to make more money, but then it was like, how do you manage the money that you made or were making? Yes. Okay. And today, I feel like we’re going to dig into a topic that I think is going to show just like how deep you’ve gone into the money management world. Because I know you have some questions about profit first and S Corp. So tell me, what question are you bringing to our conversation today?
Amanda [00:04:58] So I’m in this transitional period, which is a little bit confusing. So I went through your program. I was like, okay, totally understand profit first. I got these percentages down and then it was like, Well, I’m actually making enough to transition my business to becoming an S Corp, which now means that there’s different tax rates for different buckets of things, and there’s a different flow of how the money is moving. And I’m adjusting at the end of the year, but it’s actually going back to the beginning of the year, right?
Linzy [00:05:28] Yes.
Amanda [00:05:28] I’ve actually already saved plenty for my taxes for this year.
Linzy [00:05:33] Yes.
Amanda [00:05:33] So where I’m sort of putting my money, where and how I’m allocating it when it’s coming in isn’t going to be my ongoing system necessarily. And I’m very confused about what I actually am paying myself.
Linzy [00:05:47] Right? Yeah. So you’re in a transition period right now because what I’m hearing is by transitioning to an S Corp, you now have some kind of like catching up or applying retroactively to do to the new way things work to understand that correctly.
Amanda [00:06:00] Exactly. Yeah.
Linzy [00:06:00] Okay. And that’s what your accountant has guided you to do. Is these things go back to the beginning of this year.
Amanda [00:06:06] Yes.
Linzy [00:06:07] Okay. Okay. What I’m hearing is you’re going to need two sets of numbers. Right. We’re going to need to think about what are the numbers kind of between now and the end of this year to make up for the fact that you’ve already saved more than enough for taxes based on the math that you’ve done. But then also next year, you’re going to need a different set of numbers that are like your new normal. Does that make sense?
Amanda [00:06:28] Yes, absolutely.
Linzy [00:06:29] Yes. Okay. Okay. So let’s talk about first the right now. So let’s get into profit first. And for folks listening just to contextualize, if they’re not familiar. So Profit First is a budgeting system that you’ve taken on in your business that helps you allocate money kind of the same way every time to help money go where you need it to be. And now that you’ve changed your tax status, your numbers need to change because part of being an S corp is that you are going to be taxed differently. It’s a bit more complicated, but you are ultimately going to be paying less taxes. So can you share your spreadsheet with me? And we’re going to describe the spreadsheet for people listening as much as possible to have the visual.
Amanda [00:07:07] Certainly can.
Linzy [00:07:08] Okay. So now we’re looking together at your Profit first calculator, which you have gotten from the course, and now you’ve added some more pieces based on your S Corp stuff. So tell me what’s happening with these numbers so far. Like what is solid, what is working, and what is not clear?
Amanda [00:07:23] So the top number in income, that’s the past two weeks. So that was what I just allocated for my paycheck that I’m going to be getting tomorrow. Okay. What’s working is the salary and the operating expenses. What’s really not clear to me is that my tax percentage. The profit percentage, it’s really coming through the distributions, which is this other box a little bit lower. So I’ve basically sort of found that number by doing that, working backwards.
Linzy [00:07:56] Okay. Yeah. And the number at the bottom here, I’m just seeing here you have like a distribution number of 797.73 that you’re playing with. Can you just click on that so I can see where that’s pointing to? Okay. I see. Yes. So it’s taking your salary and taxes and then your owner’s distribution. I’m just seeing how you have set this up here. So your salary in taxes together is 72%. That combines the 52% that you had for your salary was 52%, Taxes were 16%. So at 72, that’s great. And then I see you have it divvied up so that salary is broken into payroll and owners distribution. Tell me about these numbers here.
Amanda [00:08:33] The payroll is what exactly what it sounds like. So that is the amount that’s going to be taxed sort of at the highest rate. So my payroll gets taxed at about 20 to 30%. So I have 30% in this spreadsheet right now. It is a little bit short for this month, so I actually had to shuffle. So this 442 in payroll tax, I actually is more like 475. So that’s one thing that’s not quite matching. And that’s because the actual just dollar amounts are lower.
Linzy [00:09:03] Yes. Okay.
Amanda [00:09:05] The distribution, it’s is it distribution is essentially like profit. It’s taxed at a lower rate. So these are sort of like the owner distributions. And the way that I’ve thought about the distributions in terms of the profit first model is to think, okay, there’s sort of like a quarterly profit or distribution that I’m thinking about, and then there’s like a monthly, you know, is there anything additional, is there anything sort of bonus, as you know, as the shareholder of my own company, that that would make sense to bounce back? So that’s sort of how my brain has wrapped itself around combining this and the profit first model together. It’s just that the profit is coming further down the line of how the money is flowing instead of right at the top being siphoned off.
Linzy [00:09:51] Yes. And this is what I’m seeing is like before we started recording, you pulled out like your whiteboard that had like, here’s the numbers your percentage. And then there was like a sub-level where things are broken into further percentages and then a sub-level below that. And I made a joke that it’s like a like a Beautiful Mind kind of equation looking. And that’s what I’m seeing here is it’s like you’re what I see is you’re really working to try to be really precise and like, really like kind of get it right. But it does add a lot of levels, like literal layers to the numbers, right? There’s like layers on layers here right now as you’re trying to figure out how to set this up. So what I would love to help you think through is how to flatten this back into one layer.
Amanda [00:10:33] Oh, that would be beautiful. Please.
Linzy [00:10:33] Yeah, I think so too. Simple is good, right? And so this is, I think, a great example, Amanda, where like, it can be informative or interesting to, like, dig in and understand, like how something is complicated and how it works. But we don’t want it to be complicated all the time, right? Like we want it that when you sit down to do your paycheck and your distributions, you have the same feeling that you used to have when you had your problem first. Where you look, it’s clear. It’s like you know exactly what you need to do. It takes less than ten minutes and you get on with your life. So we’re going to work these numbers back in to that top level. What I’m seeing here then is you right now have taxes and salary as two separate lines at profit first. Right. And these are your standard profit first buckets, right, we have profit, taxes, salary, operating expenses. There’s a big goals line there that you’re not using at this time. Right. So but it’s so it’s those standard profit first accounts because you’re an S corp and taxes and salary are now coming from the same place. What do you think about just folding those into one category?
Amanda [00:11:32] I’m totally good with that. I had it that way. And then it also felt confusing that way as well. So I just I had it combined and then I separated it. So I’m happy to put it back.
Linzy [00:11:43] Yeah. Because. And tell me what did feel confusing about it because this is also like you know, business owners choice right. So we want to think about what makes sense for your brain.
Amanda [00:11:51] Well, what’s confusing to me in general is that I don’t have clarity on what my overall combined tax rate is. So when I look at sort of the payroll tax and the distribution taxes and how those things come together, I really don’t understand what that overall tax rate is. So it was clarifying in my mind to go Well, that’s just all coming from one big bucket.
Linzy [00:12:12] Yes, I know that you were working with Sarah Johns, who’s another therapist in the course, because I had to call Sarah. And then you were on the phone. You were on the little video on the phone. So this is a joint spreadsheet that you’ve been working on together, which I love, by the way. It makes me very happy. And I know that she was working also on blended tax rate, like figuring out a blended tax percentage. Do you- have you come to that point here where you figured out kind of how things will shake out for a blended number, or is that totally still opaque at this point?
Amanda [00:12:41] It’s opaque.
Linzy [00:12:42] It’s opaque, yeah. Okay. Okay. So let’s take a look here then. So let’s zoom back out and put your average numbers in the top of this profit first box. Rather than the 335, let’s put in that safe 8000, and we’re going to see how these numbers shake out through these different kind of basically like little sum funnels. Right now, the way that things are set up, it would be 5440 would be for your taxes and salary. And of that, payroll and payroll taxes. So that payroll number pulls from 65% gets paid to you, and then your payroll tax rate is 30%. Is that correct?
Amanda [00:13:20] Yes.
Linzy [00:13:21] Layers and layers. Okay. So that means that for that 5440 breaks down into 1060 for paycheck taxes. And your distribution taxes are 285 on this same amount. I’m following you now down these little percentage roads. If we work it back in backwards, let’s just be curious about the tax numbers that you’ve now divvied out. What percentage of all the money that came in the door is that? Because that’s what we do in profit first, right, is like we take these very specific numbers and we just apply them to the number at the top. So that we’re like taking out all these different layers. So the total taxes then that you’ve identified you need to save is 1060 plus 285. And I’m using whole numbers. I’m not using decimals. Maybe I’ll make that 286. This was a big evolution, I will say. And in my own relationship to numbers, when I stopped using cents, I was like, I’mma let it go, letting go of the cents, we’re just doing whole dollars. 1346 is what’s total there for taxes. And if I take that 1346 and I divide it by the $8,000 that came in the door, it is 17% of everything. And then what would be left from that money if I take this and I minus the the taxes, 1494 would be actually going to you in salary and distributions and that is 51%. So you see what I’m doing is I’m working them back up into those numbers again. Okay, this is where we are. So what I’m noticing is, the numbers that we just came up with, were these the same or 1% off of what you had in there?
Amanda [00:15:01] They were just 1% off. They were just flipped. Which 1% went from salary to taxes.
Linzy [00:15:06] Yes. One to the other. Gotcha. Okay, perfect. So what we’ve done is like, you had taken this, you broke them out into these sub numbers. But when we zip them back up, we’re back where we were at the top, Right? So we’re back into, like, this simple framework that means that actually this piece of the top is giving you what you need. If you combine your accounts, then you would have taxes and salary together. Profit is also a type of distribution, right? So that’s something for you to think about, is where you want to keep your profit. Do you like having that separate profit account where you can take that celebration money?
Amanda [00:15:40] I haven’t been steady enough long enough in my business to really be able to like take that in or appreciate it. I really needed to because it was getting through that first year, really building myself. I really actually needed to be paying myself that rather than waiting on that as profit. Yeah. So I haven’t had that as a set up, but I would like to.
Linzy [00:16:03] Yeah, because like as you have the distributions, like you talked earlier about that idea of like taking the quarterly profit but also having like regular distributions that you’re taking every month. So if that’s the case, like you can leave that profit there. What I want to consider, though, is we want to make sure you’re setting aside enough money to cover those taxes as well. So it might be that we need to think about your tax rate and update a little bit to account for the money on that 4%.
Amanda [00:16:27] Okay.
Linzy [00:16:27] So your distribution tax, I see you have as as 15%. So that’s your personal income tax amount, The 15%.
Amanda [00:16:34] Yes. And that’s- so I actually have the profit wrapped in below in this sort of purple section here. You’ll see that I did the same thing that you just did with the taxes, rolling it back into the 8000. That’s what I did with the profit. So I actually have the profit already included in this 15% tax rate.
Linzy [00:16:55] Yes. Okay. Okay. So that was already built in. So 15% of the distribution. So those three numbers at the bottom add up to 1904, is that correct? The three numbers below. Okay. That’s how they zip up. Yes. Okay. Beautiful. Can you just highlight those three numbers together and we’ll just see if they sum up. That’s good. And then can you sum up the the 1376 down to the 285, just the numbers, right to the right. 1904. Beautiful. Okay. So the distribution total. So it looks like then there is a little bit of tax that also has to go aside. Do I understand that the way that you’ve you’ve done this math, there’s a little bit more tax.
Amanda [00:17:30] We’ve already accounted for it in the 17%. Okay. So that 285 and 1060 was added to to figure out that 17% an overall amount. So it should be accounted for. Okay. Beautiful. And this $1,060 amount is actually- there’s a buffer in that. So my payroll taxes don’t add up. They add up to less than this for a month.
Linzy [00:17:54] Okay. Okay. And have you built buffer in there on purpose.
Amanda [00:17:58] Yes.
Linzy [00:18:00] Yes. Okay. Because as I’m thinking about this, I’m like, okay, as you run your paychecks going forward. Right. Well, we’ll talk about this year and your little like kind of transition period soon, but next year going forward, it’s like when you run a paycheck, the taxes will automatically be calculated by Gusto. They’ll be remitted or you’ll remit them. And so your salary taxes are covered. Right. It’s just that that extra bit of dividend taxes that you need to think about is like putting aside enough that at the end of the year when you go to do your tax filing, you have enough money set aside for the taxes that apply to the dividend portion. And the dividend portion is not taxed with that self-employment tax. So it’s 15% less, right, than your salary. And that’s the beauty of an S corp. So it’s making sure you have that money set aside. What I’m curious about is like for yourself, Amanda, if you had taxes and salary folded together, let’s say you have your payroll taxes and salary for that together. We think of those as like one thing. I was doing this with somebody else in the course today. Earlier today, what we did is we looked at her dividend and dividend taxes separately. We broke those out on the calculator so she could see this is the dividend that’s available to me and these are the taxes that would apply to that dividend, separate from the total paycheck. What do you think about playing with the numbers that way and seeing what that looks like?
Amanda [00:19:14] Sure. I trust you.
Linzy [00:19:15] Let’s play with that. Let’s make a copy of this because I don’t want to lose your numbers. What I would like to see for you is how much money just needs to be going aside for just to cover your paycheck, like your payroll taxes and your actual paycheck itself. And then what’s available for you to take as dividends and have set aside for dividend taxes for your paycheck. What is the paycheck amount your accountant has you paying yourself?
Amanda [00:19:41] The take-home or the total? The total net is 1745.
Linzy [00:19:48] What is the gross?
Amanda [00:19:51] Gross is 1567.
Linzy [00:19:51] And your net is more than your gross because you’re adding on the 300 for the office.
Amanda [00:19:55] No, that is not accounted for in that. So that I add as an additional reimbursement.
Linzy [00:20:00] Yes.
Amanda [00:20:02] On top of the check. Yeah.
Linzy [00:20:03] Okay. Okay. So when you do a Gusto payroll run, then the number that I want to find out is how much does it cost you total to do a payroll run? Like there’s the money that’s paid to you, but then there’s also the payroll taxes that you’re paying on both sides. You’re paying the employer and the employee portion. And then we also have this 321 a month that happens coming back to you.
Amanda [00:20:23] I do better with paper than me just saving all the things online. So this I actually printed out from my paycheck that I ran yesterday.
Linzy [00:20:30] Great. Okay. Okay. So what is the total transaction that went through Gusto, then, to run your paycheck yesterday? Like, what’s the biggest number you can see?
Amanda [00:20:38] The biggest number is 2817.75.
Linzy [00:20:42] Okay. Right. 2817.75. Okay, great. And that’s going to be your gross paycheck and your payroll taxes.
Amanda [00:20:52] That is the total that was paid out.
Linzy [00:20:55] Yes. Okay. The total that was paid out to you or the total that was taken from the business?
Amanda [00:21:00] The total that was taken from the business.
Linzy [00:21:01] Yeah, that makes sense.
Amanda [00:21:03] Yes.
Linzy [00:21:03] And is this a weekly or bi-weekly? What’s your frequency?
Amanda [00:21:07] Twice a month. So the 10th and the 25th.
Linzy [00:21:09] Okay. And then one paycheck a month also has this reimbursement of 321. Is that correct?
Amanda [00:21:14] Yes. So this paycheck had 1072.
Linzy [00:21:19] Okay.
Amanda [00:21:19] That because it was the entire first quarter of the year.
Linzy [00:21:23] Okay. Okay. Yes. And what was your thinking on managing that like you have, yeah, like you said, this like catching up on paying yourself back to do. Are you planning to pay yourself back all of that before the end of the year for the whole year?
Amanda [00:21:35] This is one of the things that I hadn’t really figured out. Yeah, in my mind I was going to do the first quarter today and then I was going to see how these numbers panned out and either next paycheck or next month do maybe one more quarter. Like I don’t actually know because it’s a reimbursement. I haven’t been setting aside money to reimburse myself. So it’s essentially that that’s one of these places where it’s confusing. It’s not like I’ve set aside separate money to reimburse myself. So I just basically right now I’ve been using the distribution amounts to put towards the reimbursement.
Linzy [00:22:11] Yes. Yeah. And then next year you would want to think about this as part of your operating expenses that gets paid back to you. But you weren’t thinking about that as you’re running your numbers this year.
Amanda [00:22:20] Hadn’t thought about it like that either though. So that’s quite helpful. Yes.
Linzy [00:22:22] Is it like the way that this is broken up is it’s like, yeah, instead of paying rent to somebody else, you’re paying rent to yourself. But it is an operating expense for your business. That 321 a month is an operating expense and that 1200 a month is also an operating expense.
Amanda [00:22:33] That I have folded in the 1200.
Linzy [00:22:36] That’s in your op ex?
Amanda [00:22:37] Yeah.
Linzy [00:22:37] Okay. And is that a separate transfer or how are you paying yourself that?
Amanda [00:22:40] I wrote myself a check.
Linzy [00:22:42] Okay. Okay. So check for that. And I’m curious, like, what did your accountant explain to you about why you should do one on your paycheck and the other one as a written check.
Amanda [00:22:50] She didn’t actually specify? I think maybe just for ease of tracking. It gets much easier to go in and just like look up like check number. I don’t use checks for very many things. So it’s like the one thing that. It’s just I can look up checks and it’ll be very clear.
Linzy [00:23:07] Mm hmm. Okay. Yeah, because something that I’m noticing, like, just as we’re talking about the new complexity. Right? And I’m feeling it, like, as we’re talking, I’m like, okay, wait. And then what’s this? And then what’s that? I’m thinking, how do we create simplicity? Right. And so, wondering that I have, and this is maybe a question for your accountant is like, would you have the option of paying yourself 1521 in a check once a month rather than putting it on your payroll? And then it just can come right out of your op ex account. Or two checks, one for 321, one for 1200. But that makes it clear it’s like, okay, this is my business paying me rent.
Amanda [00:23:40] Yeah.
Linzy [00:23:40] Just from a clarity perspective, getting it out of your paycheck, especially since you have 2 transfers happening that are kind of the same thing, but a little bit different. How does that idea sit with you of maybe having those just come out of your op ex in the future as checks?
Amanda [00:23:53] I would imagine that that would make sense to her. I can’t see why not. Okay.
Linzy [00:23:59] Because, like what I’m noticing here as we’re thinking about this is with profit first, it’s nice to be able to know that your op ex number is what you need it to be, and it’s covering everything. Right. And so with this piece of like, putting it on your paycheck, you could totally do it, but it’s almost like you would want to like have that money folded into your op ex and then make it transfer from op ex to your paycheck account to make it clear like, and this is my business paying me back like it’s- I’m thinking about how do we still give you the clarity of like, what is you and what is your business within this new structure that you’re in.
Amanda [00:24:30] That makes a lot of sense to me. Mm hmm.
Linzy [00:24:31] So with that, then, what I would love to play with is let’s look at putting your salary and taxes number together to find out what the what is the percentage that’s going to cover this paycheck amount that we need to see? How do we make sure that Gusto has the money sitting there that they need for those two paychecks a month? So on your calculator, I’m going to ask you to put taxes and salary together. Like just rename one of the lines and the two paychecks together that you’re paying yourself is 2817.75 a month. Times two. Two paychecks a month. Right? 5635.
Amanda [00:25:06] That total amount from my- well, I guess like my next paycheck would be close to that too. Like I’ve been reimbursed like the next quarter. It would be closer but it won’t necessarily be quite that high on an ongoing basis.
Linzy [00:25:18] Right. Because this. Okay, so was this paycheck. This was there was reimbursement in there as well for the 2817?
Amanda [00:25:23] Yeah, that included 1072 of that operating expenses reimbursement.
Linzy [00:25:29] Oh, okay. Okay. Okay. 1072. Okay. So we actually need to bring that number down by 1072. 1800. That seems low. Amanda, you’re paying yourself 1800 twice a month. Yeah. So, 3601. That’s your salary.
Amanda [00:25:46] That’s the salary. Yeah.
Linzy [00:25:47] Okay. Right. Yeah. Because if we multiply that by 12 and then there’s little taxes there, so it’s like 40 K a year just for you. Yeah. Okay. And that seems to be like the number that I notice that gets set as like the reasonable salary is like around $40,000. Okay, great. So 3601 then is actually the number that we are looking for in your taxes and salary line. So what do you notice about the way the percentages are set up right now?
Amanda [00:26:11] Well, there’s a much higher percentage in taxes and salary.
Linzy [00:26:13] It’s giving us $5,400.
Amanda [00:26:16] Are we going to do a separate line for taxes and distributions? Is that the plan? Okay. Okay.
Linzy [00:26:21] This is like your payroll line. Then we can call it payroll. So this is like Gusto. We’ve got to feed Gusto the money that it needs to give you. So now let’s play with that percentage. Okay. So let’s start by bringing down that payroll amount. To get it to the 3601 a month that needs to be funded to run your paycheck. So now you have another 20% to play with. So that would get you- that’s like the full distribution amount. But we also want to put aside taxes for your distributions and profit. So with that, yeah, like if we look at your distributions and taxes together is like if I take the 24 that’s left and I multiply that by your 15% is your distribution tax rate. It gives me 3.6. So I would say make your distribution taxes four and then you can make your distributions 16.
Amanda [00:27:09] Does it make sense to still have a completely separate line for profit?
Linzy [00:27:12] What that does for you, if it resonates, is it gives you a spot to have like specifically celebration money. That’s the function of profit, right? Is like it gives you that little like build up and it’s like you see the money building up and you get to anticipate like, oh, at the end of, you know, December, I could just take my profit money and you had to think about how to use it. For some folks, that really resonates. Does it resonate with you to have like celebration or reward money building up?
Amanda [00:27:37] Well, at the moment I’m about a thousand bucks on average short on my personal budget. Yeah, so not presently.
Linzy [00:27:45] But maybe one day. Yeah. So let’s fold that into your distribution amount then. Let’s make that distribution amount 20% and we’ll make profit zero. So what this is showing you right now is that. You will be able to fund that paycheck if you have your numbers at 48 and it would give you 1600 that you could take as a distribution each month. And then there’d be just 320 a month to set aside to cover the taxes for that distribution. And that’s based on a 15% tax rate. How do these numbers look to you?
Amanda [00:28:16] They look good.
Linzy [00:28:17] Okay. And let’s add those two numbers together. Let’s add your payroll number and your distribution number, like the 3840 and 1600. Because this is important, right? This is what money is actually available to you. So this would mean you have 5440 coming home to you each month in cash.
Amanda [00:28:31] That would be minus about 925 for payroll taxes.
Linzy [00:28:38] Yeah. So you would look and see like what is your payroll amount and then you’d have $600 distribution. How does that sit in terms of your needs?
Amanda [00:28:46] Well, first of all, it’s just a lot clearer to understand. Yeah. And in terms and in terms of my needs, it makes a lot more sense to me. This is much clearer.
Linzy [00:28:56] Because we also need to remember that you’re also having $1,200 come out of your operating expenses to you and another 321 a month come over operating expenses. So functionally, there’s also another $1,500 coming home to you to cover home expenses.
Amanda [00:29:10] Yeah. I actually might want to actually increase my operating expense percentage to cover that. So I might actually do this.
Linzy [00:29:18] Mm hmm. And what I’m and is doing is she’s playing with numbers. This is like what we do, right, is to see, like, okay, that number doesn’t sit great, but that number feels a little higher than I need, so we’ll do a little switch. These numbers then gives you whatever your after-tax paychecks are. Do you know how much actually comes home to you on your paychecks? Like how much hits your bank now?
Amanda [00:29:37] $1,269.81.
Linzy [00:29:40] Okay. Approximately. And then we have 1440. That would be your distributions. And then we have 1521 for the two different types of rent you’re paying. So it’s $4,230 for your household.
Amanda [00:29:57] The sorry, the 1200 amount, that is one paycheck. So that’s actually that should be twice that. Oh, okay. Okay. The month.
Linzy [00:30:08] So 1269 is your take on paycheck times two of those plus 1440 plus 1521. Yeah. Okay.
Amanda [00:30:18] So 5449 that I can work with that I can like actually not be in a deficit on my personal budget.
Linzy [00:30:26] I like that for you a lot. So much. So much. So these would be your going forward numbers. Yeah, right. So this is based on like, okay, next year if 8000 is your safe number. That’s the average. Then you would be able to be paying yourself 5449 totally would be coming home to you in these different ways. Slightly complicated ways, but ways that ultimately benefit you using the percentages that we’ve set here. So what are you noticing about these numbers so far?
Amanda [00:30:52] Well, I guess it’s so much clearer to me right now that I will have like the 1521 with one payroll and then I will have the distributions, 1440 to go the other payroll. I just when and where the money is sort of being dumped out is a lot clearer to me.
Linzy [00:31:11] Great. Okay. So you can see what the flow should look like. Yes. Yes. Yes. That makes sense because yeah, actually, you do have three different amounts over four weeks. So you could create nice flow around that of when to expect those payments. Yeah. Ooh, I like that a lot. Okay. So this is now like a flattened version of what we were looking at before. That’s more clear of like, what is there for dividends and what’s the dividend tax like? What I like about looking at these numbers together, I mean, it is I can see like you’ve thought about dividend taxes that’s covered and you can set that money aside like either in the business or you could have that sitting in a savings account for home. But we know that when that tax bill comes, you have been thinking about the dividend money and saving for those distribution taxes as you go, which I love for you.
Amanda [00:31:51] Yeah, it also really clarifies for me as I’m making my profit first bank accounts, what actual accounts to make.
Linzy [00:31:58] Yes. Yes. Yeah.
Amanda [00:32:00] Because I was still very confused about that.
Linzy [00:32:02] And this would be, I think, a good structure to set up these four accounts, which are a little bit different than the accounts you had before. Yes. So now there is a second piece that we can touch on lightly, which is about catching up then for the rest of the year. So this is like a plan for next year. This year you have this catching up to do with paying yourself back for the 321 a month, right, for the running your home office. Is there any catch up to do on that $1,200 a month rent for groups or no?
Amanda [00:32:30] Yes.
Linzy [00:32:31] Okay. Okay. So it’s just like a lot of catching up to do.
Amanda [00:32:35] Precisely.
Linzy [00:32:36] Yes. Okay. Okay. There’s something that I’m curious about is have you talked to your accountant about taking less paychecks for the rest of the year and have some of these reimbursements coming home instead?
Amanda [00:32:45] I haven’t. I can ask if that’s possible.
Linzy [00:32:49] I would ask about that, because there’s going to be a balance there. And this is accountant stuff. This is not my area of knowledge. But of like hitting that, you know, reasonable salary. But also it’s like there’s only so much money in the business. So if you’re going to be reimbursing yourself for that, like the business can’t necessarily give you both of those things at the same time. At this moment, how much money do you have to catch up on or how many months you have to catch up on this $1,200 a month rent.
Amanda [00:33:11] So you can actually rent 14 times in the year, which means that there’s two months that you can actually rent twice. So I paid myself for one. So that leaves 13. Okay.
Linzy [00:33:23] 13 times 1200 is 15,600 that you’d be kind of due to apply for all this time that you’ve used your office for these groups. And then the 321 that you need to pay yourself back. You’ve done one quarter so far.
Amanda [00:33:39] Yeah, I actually have those totals labeled out in my YNAB.
Linzy [00:33:42] Beautiful. Music to my ears.
Amanda [00:33:44] So for quarter two, it’s basically 1006. Quarter three is 965. And the fourth quarter I haven’t figured out at all that. I’ll probably wait on until after the summer. Okay.
Linzy [00:33:58] So there’s another thousand and six plus 965, which is 1971. So what I’m hearing here then is between that money and the money for the space rental, there’s $17,571 that your business owes you that is not taxable. That is actually operating expenses that are owed to your household. So I would definitely be asking your accountant, can you just take those reimbursements out of the business for the rest of the year? You might need to still run a couple more paychecks to cover where you need to be, but considering we’re very close to the end of the year, I suspect that those reimbursements could basically replace your paychecks for the rest of the year and then you’re not running paychecks and having payroll taxes set aside. That’s going to sit with the IRS until next May. Right. Because you know that you don’t owe more taxes while your business owes you all this money right now.
Amanda [00:34:50] Exactly.
Linzy [00:34:50] Does that make sense as a course of action to check with your accountant about that?
Amanda [00:34:53] It does. I didn’t even know that was a possibility of something like that to happen.
Linzy [00:34:56] Yeah, you pay yourself regularly and you can check with your accountant. And again, I’m going to say as folks are listening, this is a question for Amanda’s accountant. This is not me saying this is what you should do, but it’s like, is this possible? Right. And this is where with numbers, as you know, Amanda, that curiosity can be helpful. But like, I’m like, can we do this? And your accountant might be like, Sure, yeah, totally. Or like, Oh, yeah, I totally meant to tell you to do that, right? But just to see if you can work this way. And if it can’t, then she should have a different solution for how to get this money back into your pocket, because I don’t think you have like $60,000 at the moment to pay this back and also pay yourself all your own checks.
Amanda [00:35:29] Yes, exactly. And that’s what I partly what’s been so confusing.
Linzy [00:35:33] Yes. So this has been a journey through spreadsheet land and beyond. What are you noticing coming towards the end of our conversation today?
Amanda [00:35:39] I feel more clear. Like I just feel more organized about what the numbers actually are and what my course of action can be following our conversation. I’m also, as always, feeling a sense of gratitude for you and the way that you can actually take things that are a total mess, that are happening for someone else and somehow just be like, Oh yeah, this makes total sense. Let’s just do it this way. So thank you. You’re welcome. Yeah, I’m just. I’m just feeling a little less overwhelmed.
Linzy [00:36:08] Yes. Yes. Yeah. And I think, you know, now that we’ve worked the numbers, it’s like you can work them into the profit first. And the beautiful thing about profit first is, like, it can be a conversation, right? So if you go to run a couple of paychecks and then something’s changed about your numbers that you need a bit more, you can tweak your percentages, right? You can like take a little money from our backs and top it up. But I think that this will cover your basic needs and then you can always just tweak and adjust, but this brings that simplicity back into your system. Thank you so much, Amanda, for coming on the podcast and sharing this with everybody today. There were definitely points in this conversation with Amanda where my brain hurt. And I think that’s important to share because money – the work that I do with folks and what I teach is how to make it simple, but it doesn’t mean that there aren’t moments where you really have to think about how these things work, right? And I definitely had these moments in our conversation with Amanda where it was like, Wait, sorry, what was that? What’s this? How does this apply? Because it was in a very, like, complicated place. And so taking the time to understand how the numbers needed to fit together and how they needed to flow to the bank account and taking the time to make sure that we highlighted the important things, right. Like what we did in that conversation as we separated out a number for dividends that could be right in the top of Amanda’s profits calculator. So she knows for every dollar that comes in the door exactly what percentage can go towards her dividends. And then based on that dividend percentage, we send a tax percentage that we know is going to cover the taxes for those dividends. We took it so that the information that was most important was at that very top level. So she could see it really clearly. And it took a little bit of doing to get there, but we got there so that working through sometimes with money, when you’re in the process of creating clarity or looking at your numbers, it can feel heavy, murky, confusing. All of those things can happen. But it’s that like being with it and being curious and thinking about, okay, what do I actually need to see here? What is important? What am I trying to accomplish that can help you bring simplicity and clarity into something that otherwise can be very confusing and overwhelming.
If you want to hear more from me, you can follow me on Instagram @moneynutsandbolts. And if you are looking to sink your teeth into something a little more substantial, I have a free mini training called The Secret to Getting Unstuck in Your Finances. This mini training includes a series of videos that walk you in little bite sized steps through looking at your relationship with money. If you find that you have a lot of anxiety around money, so you just avoid it. If you always feel like you’re just kind of getting by with money, but that’s it. And you know you should be saving for the future, but you’re just not. Or if you always feel like you have just enough money, no matter how many clients you see, you still feel like you’re getting by. This mini training is for you. It’s going to guide you in really starting to understand what your emotional relationship is with money, what your stories are around money, and what I have learned from doing this work with therapists over the last five years is that that is the starting place, right? Once we can identify the stories and the feelings that come up and where they’re coming from. Then we can start to make space for the learning and do the kind of working through that Amanda and I just did together, Right. Which is like digging in and using our skills to create great clarity and create systems. But that mindset work is foundational, and working on your relationship with money is foundational. To be able to learn how to get money working for you because you’re thinking brain needs to be available. So if you are interested in that mini training, I’m going to put a link to it in the show notes. It is the secret to getting unstuck in your finances. Thanks for listening today.
What happens when your finances get more complex? How can you simplify your systems to make sure you understand what your money is doing? In this coaching session, Linzy talks with Amanda Starfield who has recently transitioned to S-corp status with her business, and Linzy and Amanda work together to make sense of the new numbers.
How do you handle emotions that come up around money? As guest David Frank and Linzy discuss, instead of avoiding or combatting the emotions that come up around money, working with our emotions can strengthen our financial success. David, a financial planner who works with therapists, shares that focusing on our emotional responses to money and using those emotions as a way to strengthen our financial plans can be beneficial.
Have you considered how to partner with organizations to serve populations you love while still supporting yourself financially? Linzy talks with Dr. Omolara Uwemedimo who specializes in helping therapists create profitable practice partnerships that better serve communities without sacrificing the therapist’s wellbeing.
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