Adult Site Broker Talk Episode 263 with Nate Mallory of Only Tax Deductions

This is Bruce Friedman of Adult Site Broker and welcome to Adult Site Broker Talk where each week we interview one of the movers and shakers of the adult industry and we give you a tip on buying and selling websites. This week we’ll be speaking with Nate Mallory of Only Tax Deductions. I’d like to invite you to check out one of our projects that we’re very proud of, the waronporn.com. You’ll find articles on age verification laws and more on the industry’s plight in the war on porn and the numerous attacks on us. Go to thewaronporn.com and check it out. Adult Site Broker has launched a new website at adultsidebroker.com. The attractive new site is easier to navigate and now includes this podcast and site of it. Check it out at adultsidebroker.com. Finally just a reminder, we’re always looking for buyers and sellers of adult sites. Perhaps you’ve been thinking about either selling your site or buying one. Always feel free to contact me at adultsidebroker.com with any questions you may have. Now time for our property of the week that’s for sale at Adult Site Broker. We’re proud to offer a white label cam site that’s rapidly growing month over month. In fact it’s more than doubled its business from 2023 to 2024. As of this we’ve had no other alternative but to raise the price. This is an excellent opportunity if you’re already in the live cam business or want to enter it. All traffic is either direct or organic. This is excellent for a company with cam traffic or one willing to purchase more traffic for the site. Best of all, the site is easy to maintain. Someone could easily add additional sites through the admin system without doing any more work. This gives you truly passive income with zero hours required to maintain it. Only $504,000. Now time for this week’s interview. My guest today on Adult Site Broker Talk is Nate Mallory of Only Taxed Inductions. Nate thanks for being with us on Adult Site Broker Talk. Thanks for having me, Bruce. It’s a pleasure. Nate is a tax attorney and wealth manager and owns Only Taxed Inductions law firm. Nate completed his Juris Doctorate in only two and a half years with concentrations in tax and business law. He completed his Masters of Law in Wealth Management in only nine months, becoming the first at Texas A&M University School of Law to graduate with two law degrees. Nate went on to complete a second Masters of Law in taxation in only six months while also obtaining certifications as an accredited financial counselor, certified financial therapist, and a credentialed mediator. You must really like school. All I did was get my bachelor’s degree and I was glad to be done. Nate’s been featured in various legal articles and is also a published author on the Augusta Rule tax strategy. Only Taxed Inductions law firm is the adult industry’s only tax law firm representing businesses in the industry and content creators. Only Taxed Inductions is a one-stop shop for all business financial and tax needs. Whether tax strategy and planning, business formation, contract drafting and legal representation, filing tax returns, bookkeeping services, payroll or retirement planning, Only Taxed Inductions provides the highest caliber of service for the adult industry and their professionals and companies. So Nate, besides what I just mentioned, what are your qualifications as a tax and legal expert? Well, that definitely covered most of it, Bruce. All those degrees and certifications, put together and tell you one thing and that is that I’m a bit of a giant nerd. I like taxes. I like solving puzzles and I really like finding the best and most efficient way to do things and that’s what I like to bring to my clients whenever I can. Sure. So, how did you get started as a tax attorney representing the adult industry? Yeah, so, you know, it was never like a long set plan or vision of mine. I actually ended up going to law school after doing a couple of different career paths and I thought it sounded like fun. I’d always been a passion of mine to help people with retirement planning and finances. I used to help friends and family balance their assets or, you know, figure out how to do their 401(k). And while I was in law school, I started thinking about different industries that were up and coming and, you know, I went to law school, you know, around COVID and saw how much of an impact only fans had in the industry and just how much of an unforeseen, you know, economic bubble there was that came from that. And so, I kind of came up with this theory that, you know, I didn’t think there was a lot of professional services, little own financial and legal services in the adult space. So, during law school, I started going to some of the exotic events and some of the industry events and started to, you know, see what vendors there were and saw that there was definitely this missing piece of not just financial services, but also just education on taxes and, you know, owning a business, you know, things that might be more available in other industries, but in this industry, so maybe they were just kind of left completely on their own to figure it out. Yeah. And not only are they not professionals specializing in the business, but your mainstream professionals tend to discriminate. Isn’t that right? Yeah. So, there’s definitely a bias and stigma involved. And, you know, when I started kind of coming up with the idea of this company, you know, I started talking to people in the industry and asked them, you know, what do you do for your taxes? And the answer would be ranging from either, oh, God, I haven’t had taxes in years to hiring a tax professional, but not being honest about what they do for a living, whether it’s out of fear of, you know, sharn activities, not being deemed legal, or not wanting to have to explain intimate parts of your life, or, you know, it might just be of, you know, embarrassment or privacy concerns. And so, you know, the problem is, is almost everyone that’s in the adult industry that does sex work is going to be self-employed. They’re going to qualify for all these deductions, but if even if you hire a tax professional, if you can’t be honest with them about what you do for a living and what expenses you have, you’re missing out on all these deductions. So what we bring is not just an open-mindedness to different work professions in the sex industry specifically, but also being a law firm, our clients get attorney-client privilege. They get the opportunity to be completely honest with someone and be able to, you know, ask questions, you know, even embarrassing questions about their business and what sorts of things they can expense and what they can’t. Sure. So, you said you thought it might be fun. Has it been fun? You know, I actually did have fun going to law school and, you know, I think the first master’s degree afterwards, I had a good time and by the second one, I was pretty tall in doing school, but I love the business I’ve built. I love the clients that I represent and the team that I have working for me. You know, it really has been a rewarding industry to be working in. And, you know, there’s a lot of things that would be expected, you know, from just a lot of, you know, young professionals that have an opportunity to make really good money to things that you want to expect to, you know, seeing people that are quite business savvy with what they do with content creation and seeing, you know, just vast array of business issues and financial problems. Sure. So, you talked about tax deductions for the industry. What tax deductions are available for industry workers? Yeah. So, any tax deduction that is available to a traditional business is going to be available to a content creator that’s operating as self-employed. That’s going to range from office supplies to subscription fees, banking fees, use of a home office, certain travel expenses that are associated with work. And then, of course, there’s always, you know, kind of the unique aspects of the industry that come into play with taxes, you know, things such as clothing. You know, it’s always an assumption with, you know, family, clients of mine that being an attorney, when I buy a suit, it’s a tax write-off. I need a suit to wear in court. And so therefore, it’s a business use. And the IRS is pretty particular with a write-off having to be for exclusive and regular business use. And when it comes to clothing, that’s a pretty high bar that’s set. That’s why, you know, uniforms are able to be ran off, you know, if they’re stitching or a patch out of a company name. You’re not going to use it again at other events. But with the suits, if I can wear it to a birthday party or a gala or charity event, it’s not exclusive for business use. Well, it gets interesting in the adult industry because a lot of the clothing that is used whether for content creation or even going to certain industry events really don’t fit the normal description of some of these outfits. You know, sure, you could wear a cat suit to church on Sunday morning. That’s not exactly the appropriateness that was in mind. The tax code was written. Really now? Yeah. I think, I don’t know about frowned upon, but I think it definitely would surprise people. But it’s kind of this unique space that’s one of many things that make the adult industry kind of special from a business standpoint is it has a lot of these expenses or regular business uses that aren’t really seen across traditional industries. And so, you know, for kind of creators that aren’t aware of this or are keeping good record keeping of their expenses, they’re missing out on these kinds of deductions. Brian, what other unique deductions can content creators use? So one that definitely comes into play a lot with our clients is travel. It’s definitely unique to, you know, maybe not unique to content creation, but definitely not uncommon for travel to be significant part, whether it’s going to collaborations, to industry events or awards. We have some clients that travel 150, 200 days out of the year. And so being organized with bookkeeping is so important when there’s that much travel involved because just the number of transactions and, you know, anything that can be justified for even a percentage of a business you should be considered. So, you know, flights, hotels, rental car, Uber, you know, certain meals can qualify on the road or for entertaining clients. There’s all sorts of things when traveling’s happened that frequently that need to be kept track of to be able to itemize the deductions for that. Well, I mean, what kind of documentation say you’re going to a trade show or you’re going to a shoot? I mean, what kind of documentation do they have to be willing to show the IRS? Yeah. So the only documentation that you’re, you’re going to show on the IRS outside the tax return for the most part is going to be in the time that you’re audited and have to defend those expenses. But obviously you want to have these on hand. So the rule of thumb is you’re always going to want receipts, you know, invoices aren’t even enough and big statements are going to be enough for the expense. You want receipts of what was purchased and what’s coming down to travel and trying to show how much the travels for business, be able to show, you know, a receipt for, for instance, we were just at Chicago last weekend for the Exaca convention. So showing our receipt for not just the booth and the tickets for the convention, but that goes in hand with the receipts for the flights and the hotel. And then why I was recommended clients is, you know, there’s software and apps out there. You can use their grades, but you can also just use your phone. What’s great with taking a picture of receipt is you’re going to get a timestamp of when you took it and you’re also going to get a geolocation. So if you’re trying to go back and remember the receipts for your trip to New York, you either go back and look by the dates or, you know, just do a geosearch of when you’re in your class. Google Drive also works great for that. You could just have a folder for each tax year and then God forbid you do go through and audit. You already have all the documentation there. And then you just let your tax professional or tax attorney, you know, deal the audit defense or, you know, suffer a percent. And I should give the standard disclaimer. We’re doing this in April and this interview in April and it will run sometime in July. Now what is your take? And this is just something that came to mind and they don’t want to get political, although I do sometimes. What is your take as a tax attorney on what’s happening with the dismantling of the internal revenue service? How has that impacted you so far or how do you see that impacting you and your clients? Yeah. So as far as the immediate impact so far, you know, arguably IRS response times have been slower. Now, you know, it’s kind of like calling the molasses even more frozen. They’re not exactly done for moving quickly. But there has been delay in wait times. There’s also been a big delay in people filing, whether it’s uncertainty of, you know, any changes to the tax code or maybe misled hope that, you know, the IRS will be dissolved or at least broken down enough to where I don’t have to file a tax return by the time it happens. I can’t say that I foresee that happening. You know, the IRS had a massive budget increase a couple of years ago that’s gone back and forth, you know, through the different funding cabinets. And, you know, that’s been a big piece that the new administration’s come in and cuts. And it’s tough because on one end of it, I see it as I love nothing more than for my hard money, hard earned money, my client’s hard-earned money to be used responsibly in the taxes that we do pay. And then on the other hand, you know, I’d love to see more efficiency, the IRS, you know, faster turnaround times on refunds, much better, you know, customer service platform would be great to see. But I’ve already seen the IRS with bigger and bigger budget and haven’t seen that, you know, quality control exactly go up with it. So I guess I put myself in kind of a cautiously hopeful scenario. I think it’s likely the tax code will have changes to it, you know, in these next, you know, three and a half years. Historically, that’s always been kind of the norm. I would tell people probably not to hold their breath about anything being completely dismantled, but definitely changes. And you know, there’s always going to be, you know, problems with it. And, you know, for instance, that that big budget that got cut, a large portion of it was going towards auditing really the middle class instead of the high net worth earners. And so I remember going to a tax conference when they were first passing it. And it’s a little upsetting to see, you know, how that money was spread out. We talk about, you know, this unfairness and wealth, but the people that are being targeted with the largest part of the budget are in the 80,000 to half a million year range, not the multi-multi-millionaires. They don’t pay taxes to largely. And that’s, yeah, right. And that’s that’s part of the concern too, is, you know, do you spend budget going after the people that are avoiding it the best? Or do you spend the budget going after the most fish you can catch? That’s what I thought they do. Yeah. At the end of the day, you know, the IRS has one, you know, main objective. That’s collect as much tax revenue as possible. You know, so far as, you know, to, you know, they don’t report, you know, illegal activities or immigration, illegal immigration use from tax returns because it’s against that main objective. They’ve actually, you know, IRS has actually put out policies the last, I think two out of the last three years on your supposed to pay taxes on all income, including illegal income, whether it’s illegal gambling, illegal sex work, illegal drugs. So you know, the IRS is very much good luck. You know, so yeah, right. So they’re very much, you know, so, you know, solely driven on one objective, you know, obviously I’m, you know, as a tax attorney, I’m pretty opposed to people paying more than the amount of taxes that they should have to. And that’s everyone getting to use the same book of rules and the same loopholes that everyone else is entitled to. And that’s, that’s what we try to bring to it. I’d be fine with just getting rid of the IRS and going to a flat tax, which they should have done a very long time ago. Of course, that wouldn’t be great for your business, but it would be the most fair. Yeah, it’s, you know, people have joked on me that all the time, you know, do I got a huge, do I need to start only fans and counts if the tax, the taxes go away and that, the potential I guess is always there. But you know, the nice thing with, with what I do is any change in the tax code, even removing it if that actually did happen, there’s still going to be years of work for me of just helping people navigate that. Because I mean, since when has the government made, government made a huge change and it’s very simple and clear to understand the first drive? Never. Right. And they never will. And they never, and they never will. So should content creators form an LLC for themselves and why? Yeah. So this is pretty common when we get, and we do a lot of business and any formations for for chronic creators. So my usual, you know, pitch on this is there’s two big benefits from having a business and the, whether it’s LLC or partnership or corporation, one of those benefits is your liability protection. So when you, when you form a business entity, it’s like creating a unique individual separate from yourself and certain aspects of the law or in taxes, the government actually treats that business like it’s its own individual person separate from you. By having a business entity to run your operations through, you’re able to have some liability protection for your own personal assets. So think things like your car and your house and having those protected from God forbid, you get a lawsuit one day. And granted, you know, lawsuits in this industry towards chronic creators is a very, what I consider a high risk, you know, compared to if you’re a home builder, you know, they get sued all the time for, you know, foundation problems and splinting woods. So but the nice thing with LLC as well as it’s a pretty cheap thing to set up. It depends on the state you’re in. Some states is as inexpensive as $100 for the year. California is $800 a year every year. Yes, we know. Yeah. So it’s just something that gets you on that one. Been there. Yeah. I grew up outside Los Angeles. So I have a couple of friends. I helped them out their startups and it hurts to see that even when they lose money in a year, they say, I pay that $800 to the franchise tax board. You know, I’m based in Dallas currently and, you know, out here, it’s $300 and, you know, it’s good for like 10 years or something like that. So there is a great drastic difference among states. But yeah, with that, with how affordable it is, you get the liability protection. And the other big benefit I tell clients is you build legitimacy for the company. And whether that’s legitimacy towards clients and vendors and having invoices paid or the legitimacy that we care about more is with the IRS. As your business starts growing and you make more money and we start adding more and more tax strategies to bring down your tax liability, we have to show the IRS that you’re in a legitimate business that’s profit seeking. You know, if the IRS ever questions you on deductions and tries to say that you’re not running a legitimate business, use what’s called the hobby loss rule. It’s a multi-factor test, meaning that you don’t have to meet every requirement of the test to qualify as a business. But the more that you have towards it, it weighs towards a better outcome for you. And so things on there like having separate bank accounts, you know, separate bookkeeping, these are the things that are going to be considered in a hobby loss rule analysis. So having that LLC gives you that, the liability protection, the legitimacy of the IRS. And for a pretty low cost, it’s usually, it’s recommended for really most chronic creators. You know, anyone that is making enough money to where they can afford that comfortably, it’s not a bad idea to have. Something you brought up about you being in Texas and previously in California, do you recommend many of your clients set up their corporation in other places? I don’t recommend it too often. There’s definitely circumstances where it makes a lot of sense. You’ll often hear of corporations being formed in Delaware, especially large, yeah, Nevada’s another common one, especially if there’s foreign owners. And some of that is based off the state laws on the corporations or LLCs being beneficial towards the businesses. In the sense of Delaware, there’s a unique business court there that’s historically been very friendly towards corporations, although that’s been changing a little bit the last couple of years. But there’s a downside to that when you’re talking about a small business where, you know, even a couple hundred dollars or a couple thousand dollars in fees is significant. And what that is is you’re still going to be deemed as operating your business in a resident state. And there’s a test that can be done in a legal analysis of where a corporation is located. But general rule of thumb is where you’re living and where the company is working is where the business is located. So if I’m in Dallas, but I form a corporation in Wyoming, if I’m still in Dallas doing all the work here, and it doesn’t matter if I travel all the time and I’m working on a plane and working on a boat sometimes, if my residence stays Texas, my business headquarters is there, I might end up having to have an LLC in Texas and then have it registered as a foreign LLC for the other state. So you’re going to end up having twice as much in compliance paperwork and fees, but you do have some benefit of some additional business protections and liability benefits. So for the typical client, don’t recommend it because it’s not worth the extra costs and maintenance. But for certain conditions, large company that wants to eventually go public or someone seeking angel investments, things like that, then might recommend an out of state one. Or looking to save on state income taxes, which some states don’t have. Yeah, but you’re going to have the same problem is you’re going to have to prove to the state that you’re in with income tax that the operations actually didn’t take place in that state. If it worked that easily, every company in California would just form in Texas or Florida where they say California is top tier income tax and things like 13.3%. So yeah, fortunately, these state and federal tax collection agencies are not completely stupid. They’re able to figure out when you’re trying to hide the taxes. There you go. What does it mean for an industry worker to be an independent contract or self-employed? Is that better for taxes than being an employee? Yeah, so independent contractors, self-employed, sole proprietor, for the most part is pre-arriang changeable. When you start a business, whether it’s only fans as a content creator, start Etsy shop to sell dick-dacks or open a lemonade stand out front, your default business status is your sole proprietor. And what that means is you own a business, you’re the sole owner, and you don’t have a business any form such as an LLC, partnership corporation. That’s the default of it. And the way that works from a tax standpoint is whatever your business makes, that’s how much you use an individual made as far as your taxes are concerned. So if you’re a content creator and whether you’re a sole proprietor or if you form an LLC, actually the LLC initially does not change how your taxes work. So if you are a sole proprietor or LLC, you make $100,000 in a year, whether you pay yourself a full $100,000 or keep some in the business checking account, on your taxes, it’s going to be treated as if you as an individual made the $100,000. Yeah, it’s called flow, it’s called flow through. Yeah, or pass through entity or... Pass through. Yeah. That’s what I meant to say, yeah. Yeah. And so now there’s still a big difference between that $100,000 on your tax return as a sole proprietor versus a W2. When you’re W2, you know, you get paycheck from Target or wherever you work, your tax deductions are pretty limited. There’s a few you qualify for, but for most people, the standard deduction is greater and that’s pretty much where it stops. With the sole proprietor, you now get to add your Schedule C form if you’re a sole proprietor LLC, and that’s where you’re going to start listing deductions by categories, advertising, travel, vehicle use, home office, and that’s where it can start to be a benefit to be self-employed versus a W2. And where that benefit happens is, you know, when you’re able to make significant deductions on those taxes. Sure. About what income level should people start considering to be a corporation? Well for a corporation, the income level doesn’t really make a difference. You know, corporation is not something that’s usually, that I usually recommend for individuals or chronic learners. Well, I mean, I mean like an LLC. Oh, got it. Sure. So for the LLC, it’s really wants the budget to form it, you know, to be on the state, you’re in and who you hire to do it for you, or you could also do it yourself. I mean, most of the stuff, you know, bookkeeping, filing tax returns, form LLC, you know, a current creator could do it themselves. I definitely recommend being confident if that’s what you’re doing and ask for help once you’re not. But as far as the income for the LLC, once that cost is not significant, so maybe, you know, even as low as $30,000 a year, if you do the LLC for $500 to $800, where I usually tell people to consider an income threshold is one of the big benefits you can do with an LLC is the same benefit you give the NEST Corporation, which is you can limit some of your self-employment tax. So when you have a passenger entity, LLC sole proprietor, the $100,000 the business makes, you’re paying both halves of the employment tax. When you’re employed, when you’re having the FICA benefit here taken out, you’re actually usually having half of that tax being taken out of your paycheck. The other half the employer’s paying. Well one of the downsides to chasing the American dream and being an entrepreneur is you get to pay double the self-employment tax. Oh boy. Yeah, right? Have fun. Congratulations. On top of not knowing if you’re going to make any profit this month, you now pay extra taxes. Wonderful. Yeah, the world of a business owner. So one of the things that can be done is if you form an S Corporation or if you’re an LLC, you can actually elect to be taxed as if you’re an S Corporation with the IRS is you get to pay yourself in between salary and dividends. You pay yourself a regular salary. It has to be deemed as reasonable to the IRS. General rule of thumb for that is what would it cost you to replace yourself for your company? On that, you’re going to pay the self-employment tax, both halves. Everything that’s left over when you pay yourself, it’s called dividends. And on those dividends, you’re saving on the self-employment tax. So you’re going to be saving about around 15% in taxes on the dividends. The reason why I tell clients for some of these tax deductions that there’s an income minimum, it’s not because there’s a rule for it. It’s actually a personal reason. I like to go to bed at night knowing that I don’t rip people off. So I don’t charge for services that don’t save more than the service costs when it comes to deductions. So when you do the LLC as an S Corporation, it’s adding two more forms to your tax return. You’re going to have to do an 11/20 S and a K/1. So there’s extra costs for that. And then, you know, whatever the cost is, we charge a couple hundred dollars to file the forms. So when I do it, I look at it and say, "Okay, it’s going to cost you $1,000 for me to do this, but you’re only going to save $800 in taxes. Let’s wait until you’re at break even." Versus, "If you save $2,000 and I cost $1,000, well, it’s no brainer. You’re already ahead by going this way." Sure. Makes sense. Do industry workers have to disclose their profession on their tax returns? No, not directly. You can be pretty vague with what you select for occupation. I have some clients that put models, some put entertainment. There’s a code for business owner, business manager, something like that. So you can be pretty vague with it. There’s absolutely no reason to have to put content creator, only fans model, chatter bait model, anything specific at all. But one question about that, if they do get audited and people look at all these expensive expenses and go, "Well, you’ve got all this travel and you’ve got costumes and you’ve got condoms," things like that, couldn’t that cause a problem? No, because first and foremost, if the business is legitimate and illegal, which the vast majority of people working this industry, it is, then all those deductions are completely allowed. And even if there is certain sex work that’s being done that’s maybe not legal or not legal in the place it’s done, the IRS still only cares about collecting on taxes. So long as you’re reporting the income, whether it’s illegal or whether it’s just completely legal sex work that just maybe some people have personal or ethical qualms against, no, there’s absolutely no problem with that. In the audit, if anything, you probably just might see the IRS be a little bit embarrassed. I’ve been asked, "What certain expenses are?" I’d love to see the look on IRS agents face when it’s explained what bad dragon is and what products they sell. Exactly. Oh, that would be great to have a camera there. Yeah, that would be a lot of fun. And look, if in-person sex workers are paying their taxes, I’m sure they’re thrilled. Right, yeah. And at the end of the day, as long as you’re not underreporting income, you’re not being over the top of your deductions and claiming things that aren’t justified that you’re not actually entitled to. At the end of the day, IRS is just trying to collect their taxes on the income reported. And if you report it to the correct amounts, it doesn’t matter where the sources are from. IRS just wants their taxes. How do they know if it’s the correct amount? What does the IRS do to find that out? They have their own internal system. If you go through an audit, especially for tax returns that you actually never filed, they’re going to produce their number with it. But it’s always going to come down to a negotiation. You know, the IRS’s number, for the most part, is going to be less in your favor than your number. Pretty rare if IRS come back and say, "Actually, you messed up and we owe you more money." Oh, sure. And a lot of times, and I went through one audit, and it seemed like that they pulled the number out of their ass. Yeah, it definitely feels like that sometimes. I beat them, by the way. I actually could have claimed more of a return, but anyway, never got audited again. How about that? Well, glad to hear it. Yeah, you know, their internal system is going to give you your worst case scenarios, a taxpayer. It’s going to, you know, not have any of the deductions. And what’s going to come down to at the end of the day, especially with, you know, chronic creators and all that stuff employed, is it’s mostly going to be an argument over here’s deductions that you claimed, and they’re saying you don’t qualify. Whether they’re saying you don’t need receipts or you don’t qualify for a certain rule or it’s not a legitimate business expense, whether it is the audit defense part is going to be significantly around negotiating those deductions. And the current strategies that could be done, you know, especially if it goes all the way to tax court with a tax attorney, where you can justify even certain expenses that you have, you know, no receipts for. It’s not a black and white outcome with the IRS where they say you owe $20,000 and that’s going to be what is at the end of the process. It’s very much a negotiation because IRS doesn’t like litigation as much as they, they might be jerks, it feels like sometimes. They actually don’t like being in court anymore than, than you do. And part of it is just the sheer volume they have to deal with. They just don’t have the manpower to take every single case to tax court. It’s even worse now, they’re shedding people, so it’s even going to be more so, I’m sure. When should a creator use a tax preparation company instead of TurboTax or other cheap or free tax software? Yeah, so I’d say one, whenever they get to the point where they feel like they just don’t understand their taxes anymore. Once you feel lost at that point, I mean, even the cost is, is less of a concern when you feel like you need help, you know, go find help. The second caveat to that is kind of what I said before is, you know, I don’t like to charge people for more than what I’d benefit them on. So actually I turn away, well, I turn away, you know, friends even about, you know, people in the industry, when they come to me and their, their incomes pretty low, they’re pretty new in the industry. Maybe they only did, you know, $10,000 last year. I take a look at their stuff. I do free consultations for content creators. So I’ll take a look at their taxes and tell them, you know what, I think you can totally handle this on TurboTax. I’m too expensive for you. Save the, you know, however hundreds of dollars. And if you get lost, like, let me know and I’ll point you in the right direction. And there’s free platforms too that, that the IRS even send you to. Yeah. Yeah. So if you go on the IRS’s website, they have a list of free or discounted tax filing services. A couple of them have income limits, but some of them are pretty high actually. But then, you know, after that point, you know, the, I guess the third time to reach out for tax professionals is when you have a significant income or a strong growing business and you need help on actual tax planning, tax planning, being more of the significant long-term, you know, not just deductions, but think about wealth management and retirements and just trying to optimize everything in your life as far as money when it comes to taxes. That would definitely be when having a tax professional pays for themselves, you know, hopefully several times over. There you go. What sort of record should adult industry workers be keeping? So proper bookkeeping is definitely something I push a lot with clients. And it’s a service that we offer because it’s so lacking for clients we’re getting. And after a while, no one wants to deal with their own books. The best record keeping is, you know, whether you use the software like QuickBooks or I know there’s some free variants out there or even just an Excel spreadsheet. But the things you want to track are two things. One is your income. That’s from all sources, you know, only fans, chatter baits, rental property. If you own an Airbnb, you know, dividends from investments. And then the second one and what’s always going to be the most important to business owners is your expenses. Those are going to be your deductions. And what’s important on those is to categorize it. And what I mean by that is, you know, the flight you bought on May 2nd, that gets categorized with travel and, you know, subscription you got for QuickBooks, that gets categorized as office subscriptions. And those categories are going to be used for your tax return. So you know, and doing that on a regular basis, even if it’s once a month, pulling up your bank records and just keeping track, it’s not only going to save you stress and time on the back end when you get ready for taxes. But if you end up hiring a firm like us to do the bookkeeping for you anyway, it’s going to save you money too by having done the late work ahead of time instead of us playing catch-up. Okay. I know this, but I’ll ask you, since I’m a website broker, what is a P&L report and why is it important for an adult industry worker’s taxes? Yeah. So a P&L report stands for profit and loss. It’s also sometimes called a profit and loss statement. It’s kind of the gold standard of like the most important financial document for most businesses and business owners. And what it is is it’s just a report of that bookkeeping I just talked about where it’s going to have income that came in and then it’s going to have expenses that went out and broken down in those categories. There’s usually a P&L report is done on a year basis or a year to date basis. There’s a really good way of tracking how well is your business doing from day one of this year to today and how much money are you spending and where’s it going? P&L is kind of like a really good summary of the business’s health and it’s what’s going to be used on your tax return. It’s going to be one of the main documents used for it. Okay. When do taxes need to be filed? I mean, everyone knows about April 15th, but when do they need to be filed and can adult industry workers request an extension? Yeah. So April 15th is the main deadline. That’s also the deadline to file a timely extension. You can still file it later on, but yes, kind of creators absolutely qualified to file an extension. I filed a whole bunch of them after the Exotica convention. We’re doing them for free for people. So God, God, those God was up till midnight doing those before the deadline and that gives you until October 15th. Now it doesn’t stop any interest on tax that you owe, but it does stop any late filing penalties. So if you’re not ready in time or if you’re even think you’re not going to be ready by April 15th, it’s really easy either by yourself or with a tax professional file for an extension. We do it for clients totally for free and that just gives you some breathing room while you gather the rest of your documents. Now do some content creators do quarterlys? As far as like paying estimated taxes? Yeah. So it’s definitely something I try to get my clients to do, especially once they’re seasoned and start hitting the mandatory requirements for quarterly estimated taxes. A lot of times you don’t have to do it in your first year. There’s actually a threshold with the IRS. Basic rule of thumb is if you owe taxes last year, then you’re supposed to pay quarterly estimated taxes this year. And there’s a bit of a range with that, but general rule. Yeah. So it’s a good idea for two reasons. One is it’s quite possible that it’s mandatory, which means there’s going to be penalties if you don’t do it. And two is it allows you to have a better control of your finances throughout the year. Keeps it balanced. Yeah. If you’re going to owe $20,000 in taxes this year, if you wait until next April 15th a file, now a sudden you’re sweating because you don’t have $20,000 on hand. Versus if you paid $5,000 every three months in each quarter, yeah, you had to prepare for that, but it’s a lot easier sometimes to pay down that big number, you know, and for smaller payments and also keep yourself honest as far as we all say we’re going to set money aside for taxes or Christmas presents. But how often does Christmas morning come and our budgets a bit shy from where we want it to be? Yeah. No kidding. What should someone do if they haven’t filed their taxes in several years? So they should still file. I definitely recommend, you know, if it’s been a couple of years without found taxes to go talk to a tax professional, it’s always possible to do it yourself and file your own taxes. Depending on how far back you’re going, you might not be able to e-file anymore. You might actually have to mail in a paper tax return. But I definitely recommend still filing. It’s one of those things, even with the IRS being understaffed, you know, they might not want to go to court, but they got no problem doing audits and sending nasty letters saying you owe money. But filing your taxes does not make the problem go away. It’s just going to make it keep growing bigger and bigger. Yeah. Yeah, I know. I know people who have had that issue for sure. So Nate, tell me about some ways to reduce how much in taxes are owed when a creator is making a high income. Yeah. So there’s a couple of different tax strategies that are pretty common with some of our clients. Once there are incomes, thresholds reached. Some of those are home office deduction, use of a vehicle for business, both whether it’s actual use for miles as well as depreciation. A lot of clients end up doing a lot of traveling with the work that they do in the industry. So making sure to write off, you know, everything to do with travel that can qualify as a deduction flights, air BBs, hotels, rental car, Uber rides, things of that nature. Once the income gets to a pretty high amount, that’s when the actual tax plan is going to be a lot more beneficial. And what I mean by that is instead of just looking at, you know, basic deduction, the business or self-employment might be able to do is actually looking at long-term strategies of using a state planning to create a trust to offset generational wealth tax or a state gift tax. There’s a lot more pieces to that pie. Right now, the state gift tax exemption amounts like close to $13 million. So you’re kind of like, you know, at several million dollars, most of us don’t have to worry about paying estate taxes when we move on. I wish I had to worry. You know, I’m sure you’ve run into the situation with some of these only fans creators where they’ve just soared. And I’m sure that’s created some issues at times. Yeah. But, you know, there’s a couple of things that come from kind of that, I won’t say instant success to make it sound like there wasn’t work involved. But, you know, there are some kind of creators that, you know, have gone from maybe even no job or a low paying job to making five, six, sometimes even seven figures, you know, monthly. I mean, some of these top only fans, kind of creators are making, you know, several million dollars a year. You know, one of the issues that seems to come into play is probably just the age and experience. You know, a lot of people that are making really good money in content creation, haven’t had a business background and maybe not even much of a career background before. And so that brings up issues like not knowing about having to set aside money for taxes, you know, not knowing about self-employment tax and how that’s not being what’s held from your paycheck like a W2 job might be. And then another common one is just building a bad team around you. And whether that’s friends and family, they’re giving poor financial advice or maybe even try to take advantage of your new pound of wealth or hiring professional services that don’t have your best interests in mind. Those are all unfortunately common things that I think just kind of come with that age and inexperience that people are seeing dollar signs when they see, you know, how much money you’re making for your content creation. And unfortunately, there’s plenty of people out there that will take advantage of that both professionally and, you know, from a personal side of life too. Very similar to some professional athletes. Yeah, you know, we actually use professional athlete as a timeline example a lot when talking about the industry. When we talk about traditional financial planning and retirement planning, we’re looking at models and by that, I mean, retirement simulations where people are working till, you know, 65 is the traditional retirement age. Some people go beyond, some people retire early. But really when it comes to content creation, you have to look at what’s the industry standard for how many years to work in the business. Hey, I know some girls working in their fifties now. Really? Yeah, and there definitely are. And, you know, as much as I love to see, you know, some older people in the industry still, you know, succeeding and doing really well financially, you know, some things to keep in mind is one, have they been in the industry since they were 18, 20, 25, or did they actually come in later, which then means that they also have not had a ton of years to, you know, build their wealth. And the other thing too is, you know, okay, there’s there’s always the outliers, right? There’s always going to be the Tom Brady’s that can play forever and, you know, the adult industry is no different. There’s the big names that have been in the industry for decades. But how many people that they started out with are no longer in the industry or no longer that recognizable or making that kind of income. And so it’s it’s having to be realistic with the the competition of the industry and how long of a career you can have, but also being smart with where you’re investing your money and, you know, what are you bringing in multiple sources of income for when all of a sudden you’re not bringing in as much on on your subscriptions, but maybe you have, you know, rental properties or other things to offset it later in life. And there’s plenty of credit creators that do that, you know, they’re aware that, you know, maybe they’re 20s and they’re 30s, they’ll make a lot of income from credit creation, but in their 40s and 50s, they might not. They might not even want to be in the industry. So having, you know, having other sources of income, you know, businesses, rental properties, you know, stocks and investments that you’re getting dividends from, those are all really important to, you know, plan for the future. Right. What solid tax advice could anyone in the adult industry use? Keep good records. That’s always a good starting point, whether it’s as simple as just keeping copies of receipts or taking a picture of them when you purchase something to keeping actual bookkeeping records and having a profit and a loss statement for your business. Everything from being able to reduce what you pay in taxes to planning for your retirement to making an investment strategy that works for you in your life, all of that can only be done if you have good data to start with. If you have no idea how much money you’re making and even worse, no idea how much money you’re spending, it makes it really hard to plan for, you know, not just your current situation, but, you know, where you want to be in a year, five years, 10 years. So just being honest with yourself and having that very realistic, you know, useful data to start with is going to make a world of difference. All right. Hey, Nate, I’d like to thank you for being our guest today on Adult Site Broker Talk and I hope we’ll get a chance to do this again soon. Thanks so much, Bruce. It was a pleasure being on the show. I appreciate you having me. My broker tip today is part three of how to buy a site. Last week we talked about finding the right site to buy. Once you find it, what do you do? Once you’ve either reached the broker of the site or the seller, review the information about it. The broker should provide you with the following. A profit and loss statement of at least three years that’s up to date. If it’s June and they give you financials only through the end of the previous year, you need to see what the site is doing now, not last year. If it’s a pay site, get a username and password for the site so that you can review the content. Ask how often the site is updated. Get some history on the site. How long has it been in business, the story behind the site, and why the seller wants to sell. Get an inventory of the content and how much of it has current technologies. Find out if all the content is exclusive to that site. Ask the seller if the content has ever been on VOD or DVD. See if there are any clip stores the content is on. Find out how much the content costs to produce and what the current cost to production is. Very importantly, see if this operation can run without the owner. Do they do the shooting themselves or do they hire someone to do it? And if there’s an outside producer, will that person continue to provide content for the site? Find out how many new joins and rebuilds there are a day. Ask them what’s the retention rate on the site. Find out if they do advertising on the site and where they get their traffic. Ask for Google Analytics access so you can see where the traffic comes from. This information will give you the opportunity to truly evaluate what it is you’re buying. Then if everything looks good to you and you want the site, it’s time to make an offer. Only you can decide what the site is worth to you. If you’re working with a broker, say, oh, I don’t know, adult site broker, of course your broker can help you determine the value of the site. We’ll talk about this subject more next week. And next week we’ll be speaking with performer Coralyn Jewel. And that’s it for this week’s Adult Site Broker Talk. And once again, I’d like to thank my guest, Nate Mallory, of Only Tax Productions. Talk to you again next week on Adult Site Broker Talk. I’m Bruce Friedman. [MUSIC PLAYING] [MUSIC ENDS] [BLANK_AUDIO]