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EPISODE 22: 2020 Taxes Decoded (w/ airCFO founder & CEO Justin McLoughlin)

The Startup Stack
EPISODE 22: 2020 Taxes Decoded (w/ airCFO founder & CEO Justin McLoughlin)

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This year, the business heroes are…accountants! Move over Superwoman and Batman for the CPAs sweeping in to make sense of deadlines, acronyms, and forms to save companies from imperial doom (i.e. the IRS). Businesses need these accounting heros more than ever to help navigate one of the most confusing tax years on record.

On this week’s special episode of The Startup Stack, founder and CEO Justin McLoughlin of airCFO decodes what you need to know about filing 2020 taxes. Also making his debut this week is Rocketplace co-founder Ben Hutchenson (full time COO and unofficial bookkeeper).

All of the tax questions submitted by you, our readers and listeners are answered so get your calculators and spreadsheets ready!

“If you have an engineer making $100k a year and they spend 100% of their time on R&D, just for that one person you can get a $10,000 credit back on your tax return.”

Justin McLoughlin

🎙 Highlights include: 

  • Deadlines, deadlines, deadlines — what are the important filing dates?
  • PPP versus EIDL loans? Who qualifies and who doesn’t?
  • What are the commonly overlooked deductions and new tax rules that early stage companies should be taking advantage of?
  • How to claim R&D tax credits.
  • The best software solutions for startups.
  • Can companies file extensions after closing their 2020 books? Hint: the answer is yes, but there’s a caveat.

This Week’s Guest

Justin McLoughlin

Founder & CEO @ airCFO

airCFO is a cloud based accounting, tax and finance firm that serves as a fractional and remote team for startups. Justin is a midwesterner who fell in love with the tech startup scene and turned entrepreneur when he realized nobody wants to do payroll.

The Startup Stack’s Host
This image has an empty alt attribute; its file name is louis-1024x1002.png

Louis Beryl

CEO, Co-Founder of Rocketplace

Rocketplace is a curated marketplace of high quality professional service providers. A 3x founder, investor, and board member, Louis began his tech career as a partner at Andreessen Horowitz. When he’s not working or podcasting, Louis enjoys cooking for his family. His pizza, he’d like you to know, is incredible. 

Full Episode Transcript

[00:00:00] Louis Beryl: [00:00:00] What did the overworked asset say to the other asset? I feel so under appreciated. Thank you. Thank you. We’ll be here all week folks. I’m Louis Beryl, host of your new favorite podcast, The Startup Stack. Yes. The one you’re listening to right now. This week is a very special episode for that very special time of year. No, it’s not Christmas. It’s tax season. I’m joined this week by Justin McLoughlin, CEO and founder of airCFO answering all the 2020 tax questions submitted by you — our listeners. From PPP loan reimbursement to overlooked deductions that you don’t want to miss out on. Plus my co-founder Ben Hutchenson to co-host. Ben thankfully takes care of the books at Rocketplace. Cause as he tells me, I have a hard enough time just opening up Excel. Get out your calculators spreadsheets folks, you’re in for a great show.

[00:00:57] Okay, Justin. So it’s tax season [00:01:00] and your company airCFO does accounting does tax. This year, there are all kinds of confusing tax exemptions. We’ve had a million different laws passed. So actually, first question for you is how are you doing you getting any sleep at all? 

[00:01:17] Justin McLoughlin: [00:01:17] Um, it’s tough. I mean, it really is. It’s a very different tax season this year. We’re getting a lot more nuanced questions that we don’t typically get. Things to do with the PPP loans, uh, employer retention credits other stimulus incentives coming out of some of the legislation that was passed. So it’s a very unique year, but we’re ready. And, uh, we’re getting after it and we’re already starting to churn out some of the tax returns that are due here in a little over a month. 

[00:01:48] Louis Beryl: [00:01:48] Yeah. I mean, it’s probably good for you. It keeps you in business, all this confusion and stuff, right?

[00:01:52] Justin McLoughlin: [00:01:52] Yeah.

[00:01:52] Louis Beryl: [00:01:52] So, okay. So we brought you on the pod today. We want to talk taxes. Um, we’re going to do that, but before we do that, I actually [00:02:00] want you to give us some background on airCFO. Um, so you know, the stuff that we all know you were founded in 2013, you do accounting, bookkeeping, finance, tax services, um, part-time CFO work, you work with some big clients. Some of the names people might know or Coffee Meets Bagel, Apartment List. But you know, maybe you could just give us a couple of minutes. Tell us how did you start the company and what is your average client typical engagement look like? 

[00:02:27] Justin McLoughlin: [00:02:27] I was, you know, I grew up and was raised here in the Midwest and went to school here, got my first, first job out of college in a, in a big giant accounting office in the Midwest. And I did that for about five years and had a really interesting opportunity to completely change pace and go to San Francisco and join a, you know, a traditional venture backed high growth tech startup. So I did that. And when I got out there, um, just kind of fell in love with the, you know, tech startups scene. This was back in [00:03:00] 2010, 2011. So I did that for a couple years and I decided to leave and come back to the Midwest and the company I was working for which was actually Apartment List you mentioned, um, we were about 40 or 50 people at that point and as I was kind of walking out the door, they’re like, hey, you know, nobody wants to do the payroll or the bookkeeping, or, you know, some of this modeling work. Can we just pay you fractionally, go back home, figure out what you’re going to do next. We’ll pay you…

[00:03:31] Louis Beryl: [00:03:31] We’ll be your first client.

[00:03:32] Justin McLoughlin: [00:03:32] Yeah, essentially as a contractor and so I did that and I did not intend to start, you know, airCFO. The company when I was kind of getting on the plane going back home, uh, as luck would have it the founders over there part of a couple of really good networks and before I knew it, they were kind of sending me their founder friends that were in a similar position which is early stage venture backed company. Uh, you know, five [00:04:00] employees, 10 employees, 20 employees, and you just don’t need a full-time CFO a lot of that time. You don’t need a full-time bookkeeper. You don’t need a full-time accounting controller. So over the years, I’ve essentially pieced together these different functions within a finance department or in the back office and helped to deploy, kind of a fractional team to service as this solution, this back office solution to these early stage companies. And, you know, we exist now to kind of bridge the gap between we call it bridge the gap between Startup. 

[00:04:38] Louis Beryl: [00:04:38] You’ve done a lot more than just piece it together. I mean, you have 25 employees now. Right. How many, how many clients do you have? 

[00:04:44] Justin McLoughlin: [00:04:44] Uh, we have about 140 clients on a regular monthly basis.

[00:04:49] Louis Beryl: [00:04:49] I mean that’s huge, right? That’s that that’s not piecing it together. So tell me, what does a typical client look like? 

[00:04:55] Justin McLoughlin: [00:04:55] Yeah, so we’ve stated pretty true to our niche of going [00:05:00] for companies that are, uh, you might call them in a very quick a generic voice tech startups. So most of our clients are early stage pre-revenue or even just barely out of revenue companies that are oftentimes venture backed companies or angel backed companies where they’re really swinging for the fences.

[00:05:25] What does that mean? Well, it means we don’t typically do this for more of the traditional main street USA companies out there. And it’s not that there’s anything wrong with that of course. It’s just that’s not our niche. It’s, in my opinion, one of the things that’s helped us grow is that we’ve stayed pretty focused on this niche and just try to really get it right. So, you know, for that reason you might venture guess, you know, something like 70% of our clients are Bay, you know, San Francisco Bay Area. Um, it’s become a little bit decentralized over the last few years, certainly since the pandemic, but a lot of our clients are on the coasts. A lot of them are venture [00:06:00] backed early stage. B2B SaaS is our sweet spot, for example, but we help other companies, but that’s the core typical client. And in terms of funding, if you’re familiar, you know, we start usually at the pre-seed or seed stage, and then we help clients up through a series B, series C at that time. Usually it’s a good time for that company to start investing in their full-time internal staff or, you know, fortunately a few have, you know, been acquired or gone public through acquisition. So that’s the time that usually the more formal kind of a cubicle type firms will take over, 

[00:06:37] Ben Hutchinson: [00:06:37] Ah, Louis mentioned that the kind of range of services that airCFO offer, but I had a quick question. So your firm offers tax help. But some don’t and even do offer it, uh, kind of peer firms of yours are often pretty reticent to do only tax work for their clients. They’ve kind of tax seems to be a kind of necessary addition for a complete service rather than a entry point. Kind of why is that the [00:07:00] case and kind of, how does our CFO think about this? 

[00:07:02] Justin McLoughlin: [00:07:02] One of the things and kind of our history, our journey to tax was, you know, for the first time five or six years we didn’t do tax. Uh, and I only started in roughly 2013. So we really didn’t launch tax until the end of 2019. And it was, uh, you know, a situation for us where we just felt like we weren’t creating the right partnerships with these like tax CPA, only firms.

[00:07:27] So we just essentially got a little bit annoyed and decided to build it in-house. But to your question, I knew that tax, for example, that’s not my background. So I knew I wasn’t going to bootstrap it as much as I bootstrapped some of the other stuff where we kind of, you know, “learned on the job” and it wasn’t until we get hit about a hundred clients back at the end of 2019 that we decided to invest in a legitimate tax, uh, CPA. And you know, this was somebody that had gone through the big four. [00:08:00] This was somebody that had spent years doing, you know, hundreds, if not thousands of tax returns, because it’s just one of those things where there’s so many options, so much opportunity for risk and exposure if you don’t know, really know what you’re doing and that’s why we decided to wait until we got large enough to offer it.

[00:08:18] And yeah, I would agree that I couldn’t imagine only doing taxes because it’s one of those things that only comes up a couple of times a year. It is kind of a necessary evil. To be honest, but that said, as we even though we’re less than two years into it now there is a lot of opportunity for advisory and stuff you can do in the off season that I couldn’t imagine building the whole practice around that, but the fact that we are doing it now this year, we’ll do about 75 of our client’s tax work. More and more opportunity is. Opening to provide some more advisory work. 

[00:08:56] MUSIC INTERLUDE [00:08:56] Louis Beryl: [00:08:56] Hey, do you like our show? I do too. If you want to support The [00:09:00] Startup Stack, the best way to do that is by subscribing and rating us on Apple Podcasts or wherever you listen to us. Also send Dad jokes, or if you have them actual good jokes to Feel free to send us feedback there too.

[00:09:15] Taxes really only come up a couple times a year, but that time is right now. So I’d love to dive a little bit into taxes. Um, you know, for our listeners out there I wanna give a, the big caveat, uh, which is, talk to your own tax advisors for specific tax advice [laughing]. So all this advice we’re going to give you today is, you know, just general tax. Um, we’re talking about the broader topics and Justin’s been so gracious to talk to us about it. He also wanted me to mention that. No, he’s not even the tax specialist at his firm, as far as I’m concerned. He’s the smartest person I know on taxes. And, you know, I don’t know if Ben might take offense to that. Um, Ben does all our taxes at Rocketplace and, uh, manages all our books.

[00:10:00] [00:10:00] Okay. So just to get started. Um, as we dive into this section, what’s like common tax lingo that every first time startup, founder needs to know, you know, you said a lot of your companies are pre-revenue right backed by angels. 

[00:10:15] Justin McLoughlin: [00:10:15] Yeah well, uh, I think when it comes to taxes at a very high level there’s really three types of taxes that almost all of our clients run into. Uh, you have income tax which that’s what everybody’s talking about when they’re talking about April 15th and tax season, and then you have two below that, which are payroll tax and sales tax. We can definitely talk mostly about income tax, but just really quickly.

[00:10:40] Payroll tax is one of those things where you, you have to have it sorted out on day one. If you’re going to open a company, you’re going to even go into business for yourself. If you’re going to run payroll, you got to have your payroll tax sorted out. We, you know, just very quickly, you should definitely in 2021, be using software for that very inexpensive [00:11:00] solutions. They’re incredible startup solutions like Gusto or Justworks or Rippling which will handle all that for you. You should never lose sleep over payroll tax.

[00:11:10] The next one quickly sales tax. This is something that’s very interesting. You could certainly do probably a whole talk just on sales tax, but the states run sales tax not the federal government. And it’s very difficult to answer it very quickly, but basically your, you know, your mileage may vary depending on the state you’re in, but whether or not what you’re selling is taxable or when to charge tax. And there’s specific software out there that will help you like Avalara and Taxjar. Those are a couple of the products we we use with our clients but tax sales tax is in and of itself kind of a beast. And you should definitely spend a little bit of time kind of educating yourself on that.

[00:11:54] And then certainly there’s income tax and more, I would call them like more general business taxes. [00:12:00] So for example, if you were running a business last year in 2020, um, there’s already been a couple of tax deadlines that you should have been aware of. Right? So. At the end of January, that’s when you have to file your 1099s for any contractors you hired or… 

[00:12:15] Louis Beryl: [00:12:15] And 1099s are what? 

[00:12:18] Justin McLoughlin: [00:12:18] 1099s they’re similar, uh, to another thing called W2’s except 1099s go for contractors and W-2’s are for your employees. And those are basically they’re called informational tax returns that go to the IRS to let them know, hey, we paid $10,000 last year for law, for legal fees. And therefore the IRS can kind of use that to match up on their side when that person files their, uh, their law firm tax return.

[00:12:47] Louis Beryl: [00:12:47] Now at the beginning of March in a dream world, all of your startups who you’re working with have, should have already done their 1099s and W-2s. That’s kind of like the first thing to do in the year. 

[00:12:59] Justin McLoughlin: [00:12:59] Definitely.

[00:12:59] Ben Hutchinson: [00:12:59] And, [00:13:00] Justin, you haven’t yet mentioned the, kind of the thorn in every, uh, startup founders, uh, side. And this might be recency bias on my part, but the Delaware franchise tax. 

[00:13:10] Justin McLoughlin: [00:13:10] Yeah, that’s another one we kind of have..

[00:13:12] Louis Beryl: [00:13:12] What’s that, what’s that?

[00:13:13] Justin McLoughlin: [00:13:13] Yeah. As soon as we’re done with a 10 99s and W-2s we move on to Delaware franchise. Delaware franchise is, uh, you know, it only takes an hour or two, but it’s a tax return. Essentially that almost acts like a registration fee for the state of Delaware. So, you know, very quickly, most investors it doesn’t matter what state you’re operating in most investors are investing in Delaware C-corp.

[00:13:39] Louis Beryl: [00:13:39] Yup.

[00:13:40] Justin McLoughlin: [00:13:40] And it is truly kind of a necessary evil. If you want to stay in the good graces of Delaware to maintain your status, you have to file this, uh, just pretty short, informational return. That basically is a, they call it a franchise tax. And I almost think of it like an annual registration fee, which is based on the amount [00:14:00] of assets that you have. So it’s not a, it’s not an income tax return based on revenue or based on profit. It’s actually based on the value of your assets and also the, how many shares you have authorized and outstanding. It’s pretty pretty nuanced.

[00:14:14] Ben Hutchinson: [00:14:14] Yeah. I mean, I like to, I like to think I’m a reasonably smart person, but the calculation required to figure out how much you owe for the franchise is incredibly frustratingly, both complicated. And it, you just don’t know whether you’ve got it wrong because you don’t know whether you. Oh, am I in any space to pay like $250 or $3,000? Because there are two different calculations and you’ve got to figure out which ones you should be applying. And this is something I always every year, try and get free advice on from, uh, people like Justin. The one of the one things that I someone just to sense check my answer on.

[00:14:48] Louis Beryl: [00:14:48] [Laughing] It’s the secret reason why we’re doing this podcast. 

[00:14:52] Ben Hutchinson: [00:14:52] We’ve missed the deadline was last week.

[00:14:55] Louis Beryl: [00:14:55] Oh man. Damn we should have scheduled this earlier. 

[00:14:59] Justin McLoughlin: [00:14:59] It was last week and [00:15:00] you’re absolutely right. It’s beyond me why they do this but they there’s two different ways to calculate it and they allow you to pay the lower of the two amounts. However, they always scare you by first showing you a very high potential tax. And especially if you miss the deadline, they will just send you the bill and automatically calculate it for you based on the much higher amounts. So we’ll have clients pre profit pre-revenue clients getting bills for $10,000. We’ve seen them as high as a $100,00, I think, which is just ridiculous, but yeah, you have to go in and do it. And then when you, uh, when you recalculate almost every time I’ve seen, you’re able to pay that amount. That’s usually in the low hundreds, if not a low thousands. 

[00:15:48] Ben Hutchinson: [00:15:48] So Justin, well, while we’re getting free advice, what kind of commonly overlooked deductions that, uh, early stage companies should be taking advantage of?

[00:15:56] Justin McLoughlin: [00:15:56] I think the biggest one that has the most impact [00:16:00] especially for companies that might not yet be profitable is the R&D tax, research and development tax. There are entire companies out there that focus just on this tax. The idea here is that The iRS and the tax code, you know, gives you the opportunity to basically get a larger tax credit back for money that you put into research and development. And I think a lot of people when they hear that, they think, Oh, I’m not a, I’m not a biotech, or I’m not a huge company investing. And, you know, manufacturing warehouses or some, you know, some inventing some new process, but it’s not that it really pertains to, I’ll just say the majority of our clients and it has a lot to do with understanding the IRS is definition of research and [00:17:00] development and how it involves experimentation and going through and making hypotheses and testing those out.

[00:17:05] Louis Beryl: [00:17:05] Are there any rules of thumb here on R&D like, a typical startup. What we see is 20% of employee salary or I don’t know, I’m just making something up. Like, what are the rules of thumb on R&D that a startup founders should think about?

[00:17:21] Justin McLoughlin: [00:17:21] Basic rule of thumb I would say was when we go into it is if you have an engineering team and you have a product management team, those are going to be  the people that we’re going after trying to understand what it is exactly they do. And if their work can qualify as R&D then we are able to essentially take that credit. And I think the other really important thing to mention is… 

[00:17:47] Louis Beryl: [00:17:47] Is that like a hundred percent of their salary?

[00:17:49] Justin McLoughlin: [00:17:49] No, it’s definitely not that high. It is, it can get up to, I believe it can get up to $200,000. And what’s called a refundable [00:18:00] credit that you can use. I’ll have to check that number, but that you can use against payroll tax. So this kind of brings in the other type of tax that we talked about in the beginning, which is payroll tax. So, you know, essentially if you have a team of engineers and you know, let’s just say the majority of them are working on R&D you can claim their salaries for what they’re working on during that R&D process. And then you can get approximately 10% of their salary back in the form of a credit on your payroll tax. It’s a little bit, it sounds a little complicated, but long story short, if you have an engineer making a $100,00 a year and they spend a hundred percent of their time on R&D, just for that one person, you can get a $10,000 credit back on your tax return.

[00:18:50] Louis Beryl: [00:18:50] I’m taking notes. I’m like Ben  apply for & D credits.

[00:18:54] Ben Hutchinson: [00:18:54] We have, uh, but both in the US and in Canada. Uh, [00:19:00] as you know, we have part of the team, uh, here in the US part of the team up in Canada. Um, so we opened it up to our community to send in their tax questions. So let’s kind of run through some of the questions we got there. Are there any specific industries where startup founders have new tax rules or kind of potential changes that they need to worry about, take advantage of for 2021?

[00:19:22] Justin McLoughlin: [00:19:22] Yeah, well, definitely the R&D tax credit that I mentioned a little bit earlier. That’s one that, um, is I would still consider that newer, um, relative to many of the other standing tax, you know, deductions that have been in place for decades. So that’s definitely one that’s well worth looking into. And then I think the other thing that we run into when we’re talking to some of our companies is there’s actually a lot, there’s quite a bit of city level and state level tax credits that are available, especially to startups early stage companies that are creating jobs. [00:20:00] Companies that might be run or started by a minority. Um, you know, New York, for example, these apply in California and more specifically San Francisco, they have some of these city level tax credits. Um, there’s some other things called opportunity zone credits that a lot of people, just one of those things you hear about, but you know, if you’re working with, for example, a CPA, a tax CPA, that’s not in your state or in your city even, they might not be aware of these, um, as they pertain to your local space.

[00:20:30] So I would definitely encourage people to spend a little bit of time just on Google with their city or state and understanding, you know, credits or tax deductions for startups, especially if you pertain to kind of a specific type of person, you know, minority owned or even your industry. I mean, San Francisco, I don’t know if they still do this, but San Francisco used to do biotechnology. They would have special credits for biotech companies for one example. Okay. 

[00:20:56] Ben Hutchinson: [00:20:56] Thank you. Uh, here’s another one. I’m the founder of a five [00:21:00] person startup without a CFO. What tax software should we be running year round? 

[00:21:05] Justin McLoughlin: [00:21:05] I don’t know if I’d even recommend a tax software in particular, um, that you would run. So going back to the beginning, when we talked about it certainly there’s the payroll tax side of things, which if you’re running payroll any legitimate payroll companies should be, you know, taking care of your payroll taxes for you. As part of their service, uh, similar to sales tax, a sales tax is one of those necessary evils where you might have to run it. So for example, if you’re a small e-commerce company, uh, running on Shopify, for example, you might be able to plug in a Taxjar or Avalara on your sales tax to make sure you stay compliant, but as it pertains to income tax and the kind of end of your, you know, April 15th tax filing most companies, most startups, certainly small ones, uh, unless you’re trying to go the do it yourself route where you want to have something like [00:22:00] TurboTax, uh, most companies will not have a, ah tax office.

[00:22:03] Louis Beryl: [00:22:03] What about other software? I mean, we’ve mentioned payroll, but what about, um, what are your thoughts on accounting software platforms?

[00:22:10] Justin McLoughlin: [00:22:10] I got a lot of thoughts there. That’s kind of where we, uh, hang our hat in the space is kind of knowing all the latest and greatest and still the incumbents. Should I use QuickBooks or should I use Zero? Should I use, you know, Devi or Brex or there’s a new one, a couple of new ones out there. So, um, I think there’s been in this last 10 years, there’s just been this amazing explosion of all these specialty FinTech applications that handle, you know, specific tasks that just are all helping to, you know, reduce paper, increase automation and whatnot. So just, you know, some of the typical tech stack in the back office for a company that we work with QuickBooks online is usually the center of it all. An easy alternative that you might get behind is Zero. [00:23:00] They’ve been around now for quite some time, and they’re not going anywhere.

[00:23:03] On the payroll side I’ve already mentioned this, but Gusto, you know, they’ve been around now for over 10 years. They are, they just revolutionized payroll. Um, there’s a lot of the incumbents ADP, Paychecks. And I think when Gusto came along they really put a ton of effort and time into the, to the UI and the UX of their programs. So we’ve been recommending them. For almost a decade ever since I started more, more recently, a couple of alternatives in the space that are up and comers are rippling and just works. Couple of other great companies. 

[00:23:39] Ben Hutchinson: [00:23:39] What should I be looking for as I interview companies to become my startup finance partner. Uh, any red flags?

[00:23:46] Justin McLoughlin: [00:23:46] I would definitely say that one of the first things I would look at is does this person have a track record in my space? My industry. So, you know, for  example, [00:24:00] we are experts when it comes to software as a service and, you know, we’re experts when it comes to startups. We’re not a solution when it comes to, you know, a main street USA company, like just for example, a small real estate office or real estate investment firm or just investment firms in general. Uh, we’re much more kind of at that, you know, startup level. So.

[00:24:23] Louis Beryl: [00:24:23] What would be the difference? Why let’s say you’re real estate, small real estate shop. What would be the difference for them? 

[00:24:29] Justin McLoughlin: [00:24:29] Great question. I think it has a lot to do with just understanding some of the technology that’s in the space. Some of the, uh, you know, a great example would be in our space in SaaS. There’s certain revenue cycle applications that are very common for subscription-based companies. Like Recurly ,SaaSoptics, uh, you know, that we know that software inside and out. And you know, another thing that you hear about in software as a service, for example, that, this is a good example of kind of, when you can tell [00:25:00] it’s not the right person for you, you know, if they don’t know how to deal with deferred revenue and recognizing revenue over a subscription period. I mean, those are things that are specific to SaaS that doesn’t happen in a, I don’t think it’s a very typical thing that would happen in a real estate firm.

[00:25:14] For example, I think a lot of it has to do with not just knowing the debits and credits and QuickBooks, but because we’re in this space, we have a lot of our banking relationships with Silicon Valley bank. Uh, we have relationships with venture capital and angel investors that, I mean, listen, we don’t put ourselves out there as a company.That’s going to connect you with your next fundraise round, but we know we know them. We might be able to make an intro. We might be able to make a recommendation for what’s the next. Hey, I don’t want to raise around, but can you help me look into debt or equity in my space? Um, so we might turn them onto somebody like Later Capital or some of these other funding sources, like alternative funding sources that don’t dilute the founder’s equity. So it’s [00:26:00] just a, it’s a little bit about networking a little bit about knowing the technology specific to the space and that’s made a big difference for us. 

[00:26:08] MUSIC INTERLUDE [00:26:08] Louis Beryl: [00:26:08] Now we’re going to play a game. Okay. This is the ten second tax tips game. And I’ve got, you’ve got 10 seconds to answer every question. We’ll do five questions. So, Ben…

[00:26:20] Ben Hutchinson: [00:26:20] Yep.

[00:26:21] Louis Beryl: [00:26:21] I’m going to need you to I’m ready on time.

[00:26:22] Ben Hutchinson: [00:26:22] On the stopwatch yep.

[00:26:24] Louis Beryl: [00:26:24] Okay. Justin, are you ready? 

[00:26:27] Justin McLoughlin: [00:26:27] Ready as I’ll ever be. 

[00:26:29] Louis Beryl: [00:26:29] Okay. Here we go. First question. Is the cost of digital marketing deduct deductible? 

[00:26:37] Justin McLoughlin: [00:26:37] Yes. As long as it’s for business purposes? Yes. 

[00:26:40] Louis Beryl: [00:26:40] Okay. Is money received from an economic injury, disaster loan taxable?

[00:26:46] Justin McLoughlin: [00:26:46] No. The legislation cleared that up towards the end of 2020 that it’s not taxable. 

[00:26:51] Louis Beryl: [00:26:51] Okay. Well, most startups pay less or more taxes this year, 2020.

[00:27:01] [00:27:00] Justin McLoughlin: [00:27:01] Most…. I would say most people less.

[00:27:07] Ben Hutchinson: [00:27:07] Beep [Signaling end of time].

[00:27:08] Louis Beryl: [00:27:08] [Laughing] I want to hear the answer to this one. We’re going to pay higher taxes? 

[00:27:14] Justin McLoughlin: [00:27:14] I don’t think so. No, I think in the future, we’ll pay our taxes when we have to catch up on all this money that’s been flowing out in PPP and EDL and whatnot, but no, not for tax year 2020. I think people generally pay less taxes.

[00:27:27] Louis Beryl: [00:27:27] Okay. Um, are you having fun on our podcast?

[00:27:31] Justin McLoughlin: [00:27:31] I’m loving it. 

[00:27:34] Louis Beryl: [00:27:34] Is the money received in my businesses PPP loans taxable? 

[00:27:38] Justin McLoughlin: [00:27:38] Uh, no similar question as before, which was, they were thinking about taxing this and it changed their minds at the end of 2018.

[00:27:47] Ben Hutchinson: [00:27:47] Beep [Signaling end of time].

[00:27:48] Louis Beryl: [00:27:48] [Laughing]

[00:27:48] Justin McLoughlin: [00:27:48] [Laughing]

[00:27:48] Ben Hutchinson: [00:27:48] I mean, rules are rules right. Rules are rules.

[00:27:50] Louis Beryl: [00:27:50] [Laughing] Rules are rules. Yeah. Exactly. 

[00:27:53] Justin McLoughlin: [00:27:53] True. True. That’s fair, Ben. 

[00:27:54] Louis Beryl: [00:27:54] Good job. That was great work. Um, I actually have a question. What is an economic injury disaster loan? 

[00:28:00] [00:28:00] Justin McLoughlin: [00:28:00] Those were loans that came out about the same time that the PPP loan came out. And, you know, the long story short there was. You could almost always get more from the PPP. So I think that got all the attention that got all the headlines. It was a give you a great example. We had about, you know, we have about 140 clients. And I don’t think a single one of our clients took the EIDL over the PPP. It was kind of one or the other, I believe. And the PPP just had a much higher, uh, amount that companies could get. And it was pretty clear from the beginning that PPP was going to be forgiven. So apologize. I’m not the expert on EIDL, but it wasn’t something very common for startups. 

[00:28:51] Louis Beryl: [00:28:51] What percent of your clients at just a, you know, as a gut. Uh, out of your gut, do you think took PPP lots? 

[00:28:59] Justin McLoughlin: [00:28:59] Yeah, it was [00:29:00] about 25%, 25%. You know, we had companies that pretty quickly after everything happened, had to shut down. Uh, we had companies in the live events space that were selling, you know, helping artists, uh, music artists sell tickets to events. We had companies that had business models on top of Airbnb, they just got decimated unfortunately. Some they’ve bounced, a couple of them have bounced back. I would say roughly 25% took a PPP. And then we had some of those companies that kind of, I don’t know how you want to say it, but almost took the high road and said, you know what? We don’t need the money. Um, we don’t want, as you probably remember, there was some definitely some negative publicity that came out.

[00:29:46] Uh, around a lot of people that took it and, you know, at least in the media, they kind of got, kinda went after him for saying they probably didn’t need it. So we had a lot of companies, uh, paths that were in their position pretty good as far as profits are [00:30:00] pretty good as far as runway from the VCs. So, and then there was that whole issue, I don’t know if you remember there was questions about whether or not a VC backed company was going to be able to get it. There was some, there was some something in the legislation that said something like, if you’re majority owned by a VC that doesn’t qualify. You can’t get it either. So, um, there was a little bit of confusion there, but yeah, probably about 25%. And it, I mean, it was the life raft that quite a few of our companies needed that’s for sure. 

[00:30:28] Louis Beryl: [00:30:28] I’m wondering if you have any, if you have any final recommendations for people thinking through doing, doing their taxes or doing their accounting, actually that we can broaden this out. Yeah. Any final recommendations for startups out there?

[00:30:43] Justin McLoughlin: [00:30:43] Yeah, sure. So one, one thing that a lot of companies don’t know is if you weren’t profitable at the end of the day, when you close out your books for 2020, and you weren’t profitable, you can file for an extension a six month extension on your taxes. I’m generally talking here about [00:31:00] corporations and that just gives you six more months to buy yourself time. If you’re just not going to be able to hit the April 15th deadline. And that’s something quick and easy. Uh, just to be super clear. If you were profitable, you can still get the extension, but you still need to make an estimated payment, uh, that is due April 15th.

[00:31:20] So you get an extension on the filing, not on the actual tax due. So, um, that’s a couple things I think another thing too, is a lot of people don’t realize if you’re at an LLC partnership or an S corporation you’re filing due dates actually in five days on March 15th. So, uh, as opposed to April 15th, which is mostly for C corporations and individuals. So just to keep those two deadlines, uh, in mind fast. Yeah. And at this point, if you haven’t started, your best bet is to spend 10.

[00:31:55] Louis Beryl: [00:31:55] You’re toast.

[00:31:56] Justin McLoughlin: [00:31:56] Yeah. Or spend 10 minutes on Google and figure out how to file for an [00:32:00] extension. It takes five, five or 10 minutes, but the good thing is the good thing is if you don’t owe taxes, generally speaking, Yeah, you’re not going to get nailed with penalties because the penalty is based on the amount of tax you owed. So very often we’ll get companies that come to us and haven’t filed tax returns for the past year or two. So if you’re kind of worried that you missed the last year or, you know, if you Startup and in 2019, he didn’t file anything or 2018. It’s, uh, it’s not as hard as you probably think to get caught up and it probably won’t cost you nearly the amount that you’re worried about.

[00:32:38] Louis Beryl: [00:32:38] Final question for you, you know, as an entrepreneur yourself, if you could, you know, you’ve now been running airCFO for let’s call it eight years. If you could go back and give yourself some advice, what would be the advice you’d give yourself? 

[00:32:54] Justin McLoughlin: [00:32:54] For me, I tended to hold on to things a little bit longer than I should have. [00:33:00] And the sooner I’ve surrounded myself with just an incredible team and incredible people, I should have been quicker to let go of things and, uh, not try to control everything. It’s a common issue that happens if you’re kind of the main operator in your business when you get started, which is probably true of a lot of small accounting firms.

[00:33:23] And, uh, the sooner I was able to kind of trust and rely on the rest of the people on my team for could be marketing, could be legal, could be tech, could be advertising the sooner I’ve been able to do that. The more I realized, wow, hey, I wasn’t the right guy to be doing that in the first place. And be like, it’s just a huge, huge weight lifted off my shoulders to have just other incredible people on the team that were doing probably a better job than I did and totally true. 

[00:33:50] Louis Beryl: [00:33:50] My team’s constantly telling me to not do stuff so. 

[00:33:53] Justin McLoughlin: [00:33:53] [Laughing] yeah, it’s still, it’s just one of those things, right. It’s, I still have to give it up. I [00:34:00] mean, there’s still stuff. I don’t want to admit that I do that. I probably should have given up long time ago, but yeah, sooner,the better.

[00:34:07] Louis Beryl: [00:34:07] Well, Justin this was awesome. Thank you for joining us today. 

[00:34:11] Justin McLoughlin: [00:34:11] Yeah, it was great. Thank you.

[00:34:13] Louis Beryl: [00:34:13] Ben. Thank you.

[00:34:14] Ben Hutchinson: [00:34:14] Yeah. Great work, Louis hosting.

[00:34:15] Louis Beryl: [00:34:15] For more on our conversation today, visit We upload a new episode every week. So if you haven’t yet made sure to subscribe to The Startup Stack in Apple Podcasts, Spotify, or wherever you listen to them. Thanks again for joining us. See you next week. [00:34:34] Announcer: [00:34:34] The Startup Stack written and edited by Hannah Levy, produced by Leah Jackson.