Episode Transcript
[00:00:29] Speaker A: Welcome to another episode of Balancing Acts, your guide to grow profit and scale. I'm Linda Hamilton, a cpa, a certified exit planning advisor, and a systemologist.
Today we're going to talk about financial clarity. For the past 30 years, I've been looking under the hoods of businesses to uncover what truly drives success. The numbers do matter, but the story behind your numbers uncovers hidden threats and hidden opportunities.
One thing I've seen over and over again is that success isn't just about working harder. It's about striking the right balance. It's about having the right strategies in place. It's about taking action.
And today we're going to talk about this with my guest, Felipe Wittix Sanchez. But before I introduce Felipe and financial Clarity, let let me introduce the concept of drift.
Imagine two futures for your business. One is a green line trending upwards, and the other is a red line that curves downward. The green line is a function of taking action, of making decisions, of keeping yourself on the path to success. The red line is a function of drift. We run our businesses, we're excited about it. Everything's going well. We're selling. And we find over time that we drift. Maybe profits aren't as good as they should be. Little cash flow chaos, your customers aren't paying you fast enough, you can't pay your vendors fast enough. Hiring, all these things that can impact your profitability. And we drift towards that partly out of complacency, partly because we don't keep our eye on things and sometimes through no fault of our own, economic downturns. So I'm really pleased to introduce Felipe Whitake Sanchez. Felipe came to the United States when he was nine years old from Chile. He's done bookkeeping and accounting for nonprofits and small businesses. And he founded Wealthspring Financial Services 10 years ago. They provide small business financial services, accounting, bookkeeping, payroll advisory, business formation. And his goal is to help Hispanics in the US Grow their businesses by empowering them through financial knowledge to build a profitable, resilient business and also generational wealth. Welcome, Felipe. It's so good to have you.
[00:02:57] Speaker B: Thank you very much. It's a real pleasure to be with you. Thanks for having me.
[00:03:03] Speaker A: So let's talk first about demystifying tax complexity. I know we're both in, you know, we're both in the tax business. And business owners, they're terrified of the irs. They're very confused with tax laws. And it really can get in the way of. Of them having what I call drifting towards this red line and Financial confusion. Tell us about you, how you help business owners move towards clarity.
[00:03:32] Speaker B: So a lot of times it starts with forming an entity and what are they trying to accomplish and where are they in the process of creating a business and what is their long term strategy. A lot of businesses start off with they want to be an S Corp or a corporation. And that's not practical necessarily because there's a lot of administrative responsibilities, a need for payroll if you're a corporation, a need for minutes when you get together, a need for quarterly taxes, etc. And it might make sense to initially be an LLC depending on. And so those are some of the things that initially you have to have a conversation with the client. Well, what are they trying to accomplish? What is the whole scope of work required for form an entity and then yearly trying to sustain that entity. So that's very important.
A lot of times that businesses don't know, you know, what is a reasonable deduction, what is it? And the IRS that says it's ordinary and necessary. Is it ordinary and necessary for a painter to deduct his haircut? It isn't. It isn't ordinary and necessary, but it is for an actor, for example, very, you know, active actor. So those are some of the things that we talk about with our clients.
Especially we deal with clients that are in the construction industry, in the hospitality industry, in the cleaning services industry. Those are by and large our type of clients. And then we have professional services and they all have what are reasonable and necessary and ordinary necessary deductions, but specific to their type of business.
[00:05:55] Speaker A: That's great. I'm glad you raised that.
And so what happens if you deduct an expense that isn't ordinary and necessary? What happens in that case?
[00:06:05] Speaker B: Well, it can get flagged by the irs. I remember when I first started out, there was a, a person that did a lot of shows and, and photo shoots and, and was a graphic designer really and, and did a lot of photo opportunities and he deducted a considerable amount of entertainment expenses.
And he was passing really through his own entertainment expenses. He showed us all the receipts, but that got flagged by the irs.
Was it reasonable and ordinary and necessary? And it wasn't. And so it got denied. Iron a percentage of them got denied.
And it talks about the need. You know, a lot of people think oh, I have a credit card statement or I have a bank statement. But really if you have to substantiate whenever, especially at the state level, we find that at the state level they want to know, well, prove to us that you have a building and that you're depreciating that building or that business or you have equipment and you're depreciating it, for example, or all of your, the losses are because you've expensed all these items and are claiming the losses for two or three years. So in addition to having correct bookkeeping, you need to substantiate with receipts.
And a lot of times clients don't know that. You know, you have to back up what you are presenting.
[00:07:51] Speaker A: Exactly. And so in some cases it's the receipts. In the first example you talked about the guy had receipts, but they were unreasonable. Right. Unreasonably large. And so what happens then? The profit. Suddenly you have a bigger profit and you owe taxes which can set you back. That's one of those things about drifting towards that red line because suddenly you got this giant tax bill maybe that you weren't expecting expecting.
You said something else about which I thought was really important about what kind of entity. It's really important to talk to your accountant about that. So why is it easier for some owners to operate as an LLC instead of a corporation or S Corporation?
[00:08:35] Speaker B: Well, an LLC is a pass through entity meaning that you maintain your records. Especially if you're a single member llc, you're the sole owner. You're, you're creating a schedule CNN and it's created in your own tax return. And so the maintenance of it, the, the, the upkeep of all the expenses and the income, you need to have a separate bank account and a separate credit card account. But entering and capturing all that information is so much easier than an S corp or a C corp or. And so and it's also easier to form them in terms of the compliance required to form them.
Now at some point though, when you are having gross or net profit, I'm sorry net profit of 50, $60,000 and you're paying self employment taxes on that, it makes sense to probably consider creating an S corp and reduce the self employment taxes that you're paying. Now there's also a little more maintenance on that because now you're a corporation, but there's also a lot of benefits associated with an S corp.
Yeah.
[00:10:02] Speaker A: And so I'm glad you distinguished the two because I often say you can't do everything because of taxes. Right. You have to look at your own resources.
You know, are you capable of doing the administration? Do you have professional help? So it's important to have that conversation. What's best for my business at this stage of where the business is and its growth and trajectory and its profitability.
And with S corporations, there are more formalities to it. Right. And with LLCs, it's less, especially if you're a single owner, it's less, it's less strict, so to speak. You still have to worry about ordinary and necessary business expenses no matter what how what form of business you're doing in. So what would you say is your tip to business owners in helping them decide do they have the right entity right now or can they change it? What would be your tip to that, to those listening?
[00:11:04] Speaker B: Well, absolutely. Ask your accountant to evaluate the entity type that you have and where, where do you envision it going and why? You know, I have a lot of people that have created C Corps and, and I asked myself, well, why did are you going to have, you know, are you going to be selling shares at some point or are you or doing raising money?
And, and if you're not going to be doing that, then that's a lot more complicated than an S corp or, and then, you know, they want to pay themselves and they're paying themselves. These are people that don't really know and they're paying themselves like with a draw. Well, a corporation doesn't allow for that. You can get a dividend and they don't even understand the differences.
You could, you could get a draw and, and take money out of the system or out of the business as an llc, but not in those other entities and how it's taxed.
[00:12:15] Speaker A: So, so that's a really an important distinction. And we're going to take a commercial break. I want you to tell people how they can find you. But stay with us because we're going to come back and talk with Felipe more about different things you can do with your taxes and with your finances. Felipe, what is your website? If people want to learn more about.
[00:12:36] Speaker B: Your Wellspring Financial Services www. Wellspring Financial Services in New York, stay.
[00:12:44] Speaker A: With us and we're going to come back and hopefully provide more things for you to get through this tax season and many more.
Welcome back to BALANCING acts. We're talking with Felipe Wittix Sanchez about avoiding financial confusion and having financial clarity. And one thing we want to talk about now is the hidden cost of poor record keeping that can lead to tax surprises, owing a lot of taxes, maybe getting in trouble even where you with your cash flow, you, you think you're making more money and suddenly the end of the year comes either you don't have a profit or you had a profit and you have no Idea because all your cash is gone.
So what would you say is the importance of keeping clear financial records?
[00:14:01] Speaker B: It's absolutely essential. It is the bedrock of all financial, of financial clarity and making decisions. I'll give you an example. I had a. We have a client who, who owned a small construction company and also did painting.
And what happened initially is that they had two companies, I mean two ein numbers, two separate. But one of them, all of the personal information was tied to one of the companies. And, and they were passing money back and forth because they needed to find finance cash flow for one of the. Or the other.
So somebody did an estimate of their taxes and in 2023 or 2022 and some other accountant based on the information that were provided. And we went in and said, well, is this correct? And they said, we don't know, we've been growing so fast. We just gave them some information and he filed for us. Well, we went and reconciled every month correctly and put it in the right categories and saw what was personal and what was business.
And at the end of the day we got them and we got them like they had paid $50,000 in taxes, for example. And we, we amended their tax return based on the correct information of their bookkeeping and got it down and, and, and got a refund of $35,000. You know what? They paid us something like seven or eight for doing all that work. But they got all this money back. And they're so happy, they're so grateful. They're, they're like all of a sudden they can sleep at night saying we haven't spent additional funds and money.
We have, we have done it correctly. We're abiding by the law.
And, and it's all because of financial records and keeping excellent, excellent bookkeeping. And excellent bookkeeping means you have separate bank accounts for business.
It means that you reconcile at the end of every month against your bank account what is in your, in, in your. We use QuickBooks, but it could be a bunch of them. There's, there is a wave. There is FreshBooks, there's Xero, there's a whole bunch of accounting packages out there. We're experts in QuickBooks and we utilize WAVE also. I mean, I'm sorry Xero and, but that is the foundation for all the work we do with that you are able to use that documentation. And I have another client who is wanting to. They were a bakery for the first few years, they were just doing tax returns based on their bank statements. They had no bookkeeping in place. We're Talking a million and a quarter bakery.
[00:17:19] Speaker A: Wow.
[00:17:20] Speaker B: And they said, we want to grow. We want to buy our own building and grow.
I said, well, the only way you're going to grow is if you have bookkeeping records and show your growth and, and, and substantiate your bank, your tax filings with the bookkeeping because the banks require that they want your personal returns. You want a, a financial statement for your person, a financial statement for your business. And they want to see bookkeeping that ties out to the bank statements and that ties out to the tax returns, the business and personal tax returns. They want to see this so that they, and so, you know, we set them up in place two years ago and as we're moving along now, they're ready to buy a million and a half dollar building and have all their ducks in a row and all the T's crossed and I's dotted so that they can get this loan and grow, which, you know, makes us extremely happy. We've done this across the board for. I have another client that owns, that started out with two nursery schools, now they're acquiring their fourth nursery school. These are people that want to grow, people that are keeping everything correct. And yes, they're paying more taxes as they're growing, but that is an indicator that they're growing by paying their taxes correctly, by, and, and, and having excellent, excellent books.
[00:19:06] Speaker A: I once heard someone say the best tax strategy is to make a lot of money. So you're paying, you're paying a lot of tax, but you're just making a ton of money. So that's.
[00:19:16] Speaker B: Right. That is a key performance indicator. Make more money, pay more taxes.
[00:19:20] Speaker A: Right.
[00:19:20] Speaker B: But the thing is that you have to also have excellent tax strategies to mitigate how much you're paying your business. I mean, depending on the business entity, but it should pay for, you know, your health insurance, for example. You should maximize on your retirement accounts.
You should, you know, leverage section 179 for deductions. Yeah, absolutely. For, you know, strategic deductions.
[00:19:51] Speaker A: And you know, and I think that, you know, as you talked about that, you weren't just talking about taxes because everything we do isn't just about taxes. You were talking about your books have to agree with your financial statements, your financial statements have to agree with your tax return. And when you want money, when you want to borrow money or bring in an investor, they look at all those things because they're going to look at the financial statement and then they're going to go down into your books. So even just isn't more important really I think than just the tax return is the financial insight you get from having clean records, from having records that can help you make better financial decisions. Now I know you also teach some courses in bookkeeping, understanding how to do bookkeeping, understanding their own bookkeeping and how to read their financial statements. Can you talk to us a little bit about that, your financial literacy trainings?
[00:20:45] Speaker B: Sure. So I live in New York City here and we teach for new. We teach New York City entrepreneurs how to keep their books. What is like an overview of what the end result is.
Clarity in your profit and loss statement and clarity in your balance sheet and how to set up transactions where at the end of the day you're able to reconcile. And, and we do it for free by the way. You just have to go to Eventbrite and I mean the classes are for free. All these financial literacy classes, QuickBooks trainings and how to read a financial statement and what's what, what is how to work with a balance sheet, how to be profitable. Yeah, you go to a vet. Bright Events, Bright Backslash, sbs, Small Business Services.
And you'll see all the courses that are offered out of New York City. Small Business Services, website and portal.
And yeah, they're both in Spanish and English.
I do, I used to do both but now my team does this. The Spanish ones and. Yeah.
[00:22:07] Speaker A: And are these only for New York businesses? Can anybody, any businesses from around the country sign up for the.
[00:22:15] Speaker B: I am episodically shocked that there are people coming in from Florida and Texas.
[00:22:24] Speaker A: Especially, even though they're non tax states. Right. Because they, let's face it, we pay a lot more taxes in New York City.
[00:22:30] Speaker B: That's right. But, but they are doing, they're learning QuickBooks. They want to learn QuickBooks and they found out that we're teaching these three hour classes for free.
[00:22:40] Speaker A: Fantastic.
[00:22:42] Speaker B: And then yeah, or the one hour class or the two hour classes depending. And yeah, New York City is providing that service.
[00:22:52] Speaker A: I think it's phenomenal of you and your team because you're doing this pro bono. Right. That teaching these classes and it's a much needed service because there's, you know, business failure rates are very high and one of the things I talked about earlier about drift, that's what happens. They don't understand their numbers, they don't understand their books and they start drifting towards the red line. Could be no profit, it could be, you know, poor cash flow that really tremendous amounts of financial stress. So it's incredibly important what you're doing there. And would you say you know what would you recommend? Maybe someone hasn't taken the course yet. What's one thing they can do to improve their record keeping now if they're not sure what condition they're in?
[00:23:42] Speaker B: Well at a minimum have two separate bank accounts, have separate business and personally Wave is a, is a free product that H R Block bought. They have a paid subscription one and and and and and and download all your electronic transactions and start categorizing them.
QuickBooks has also a inexpensive products. They have, they don't they have six different products. They have simple start ledger essentials plus advanced etc and so there, there are products out there that for the starter entrepreneur to categorize all of their income and expenses.
[00:24:36] Speaker A: That's really great.
We're going to take a commercial break. Felipe, how can people find more about your website and also repeat that training site?
[00:24:47] Speaker B: So the website is WWW Wealth Spring Financial Services in New York City and the Eventbrite the free courses are Eventbrite Backslash SB like Boy S Small Business Services and then you'll see all the trainings that go on there.
[00:25:11] Speaker A: Thank you. That's phenomenal. Stay with us. We'll be right back and we will talk some more about getting financial clarity.
[00:25:34] Speaker B: Foreign.
[00:25:45] Speaker A: Welcome back to Balancing Acts. I'm your host Linda Hamilton, a CPA and certified exit planning advisor and we're talking with Felipe Widex Sanchez, CEO and founder of Wellspring Financial Services. Felipe, let's talk about year round tax planning. Most people think about, they only think about taxes like you know, near April, oh I have to do my taxes. The year's over and it's kind of a grind getting things together. But by waiting until the last minute after the year is over, there's not much we can do to change what's already happened in the past. And oftentimes there's some big tax surprises that they face when they go to file. So what would you suggest on being proactive? Where do we start with that?
[00:26:34] Speaker B: Well you have to we talk to our clients in September and October and saying this is the trajectory of your business and we do some projections and estimates and we also make sure that they're playing, they're paying their, their estimated taxes. It's very important, you know, so that they don't get caught off guard in paying come, come March or April a huge tax bill because they haven't been paying their estimated taxes based on the profitability and, and, and their personal taxes. So that's number one. Number two, you know, if you're going to Be very profitable. You should consider, businesses should consider both paying themselves more a bonus or paying and taking more money out of the system. But also maxing off on IRAs and 401ks or a set plan and maximizing on the retirement. It really, really helps businesses. So lastly, having strategic deductions like buying equipment or buying new computers or leveraging section 179 so that their tax burden isn't as high. And all of that conversation needs to occur in September, October, really, because after the fact, nothing could be done.
You could, you could do retirement, but, but not really. I mean, because you haven't put money away. And so.
[00:28:23] Speaker A: Yeah, so. So I, you know, I, I think what I hear you saying is, and something I've seen in my own tax practice is you want to think about it before the year. Being proactive means, you know, putting a plan in place. Right. To lower taxes. You mentioned one, section 179, that's a deduction. Those of us business say 179. But that means if you buy a computer or you buy equipment instead of spreading it out over five years, you can deduct all of it in the current year. And that lowers your profit on your tax return. So you pay less tax. But another thing that comes to that is over time, if you're meeting with your accountant in September and December and doing these projections over time you will learn to be more proactive. You will think about questions you should ask your accountant throughout the year rather than waiting until the last minute.
You mentioned retirement, so I just want to touch on that a bit. There are different types of retirement plans. There is one plan that you can set up, at least one I think that you can set up after the year is already over.
Do you want to talk about that? The SEP ira? Because it is not too late to put some money away in a sep. It might have been better if you'd done it a year ago, but you can still do it.
[00:29:45] Speaker B: That's right.
That's exactly right. A SEP ira. And you know what? I'm not an expert in all of these retirement facilities. I got a financial planner to come in the conversation.
But we do know that about in just generalities about maximizing. We had to do that personally last year where we, my, my wife and I, my business did well and we set up a SEP IRA and funded it so that we could reduce our tax liability, our tax burden. Yeah.
[00:30:23] Speaker A: And you know, so, so I've been telling my clients to do retirement a long time. And one thing I always put is when you wait until the taxes are due, sometimes there's a pain there because you have to lay out money to pay your taxes.
[00:30:38] Speaker B: That's right.
[00:30:39] Speaker A: And you don't have the cash to maybe fund retirement. But the beauty of a SEP is that you actually can take an extension on your tax return and put off maybe funding that, putting the money into the retirement account until the duke in your extension, which might be September or October.
And the other thing about that is you haven't given away your money. It didn't go to the government. You're keeping the money. Right. It's going in your retirement account when you're ready. So I often say start small, you know, it might be, which is another reason to start in January, start with small amounts, get used to saving money over time so it's not hitting you. So I'm so glad you bring up.
[00:31:19] Speaker B: A good point, Linda. Like a lot of people, myself included, I, as a business owner, I was struggling to survive and didn't have the money for, didn't think long term. And so what ended up happening was that now it automatically comes out of my account. And so that I live with that money being less, I don't even miss it anymore. Initially I was missing the money and, and worrying about cash flow, etc. But now it comes out, it doesn't even register. And I know that it's being funded. So.
[00:32:00] Speaker A: Yeah, and it's lowering your tax bill too. It's more like the concept of profit first Michael McCallart's books where you're, you're saying to yourself, you know, I want this much profit and I'm not going to spend money on X until I have, you know, I'm going to put it off. So that's, I think, something both do. But you also, you know, point out you and I are accountants, right. We do tax services, but we're also business owners. We're wearing as many hats as the people in our audience are wearing, right? It's the marketing, it's the sales, it's admin, it's paying, paying bills. So it's important to know that you bring your expertise to what you sell for your clients, but running your business. None of us are experts in all of these things and that's why we bring in other experts to help us make decisions. And your accountant, I'm glad you said you do partner with retirement specialists and financial planners because that's how you know, when you go to an accountant, they're raising the issues and helping you understand that financial clarity when it's much more intimidating to the business owner.
[00:33:09] Speaker B: Yeah, and you bring up a good point. You know, I see a lot of business owners, there's four. Four legs or a stool has four legs. You know, you have your sales and marketing, you have your operations, you have your administrative, and then you have your accounting, bookkeeping, financials. And, and most business owners neglect that one leg, okay? Neglect it at their expense. And so, you know, initially. And then they get into trouble with, with, in, in New York state with multiple agencies. There is, there's the, the labor board, there's a sales tax board. There is the. And then there's a individual or business tax board per se. And then at this, at the federal level, there's the irs, and also there's employment and taxes, business and personal. Anyways, you.
They neglect themselves and then they get penalties and interest on top of.
Of. Of. Of of not addressing these things when they, when they neglect following up and being compliant. So, so you got to get help. I mean, I used to think, oh, I'm going to do everything, but now it's impossible.
I don't do my website, somebody else does my website. I don't do my newsletter. It's just farm it out. Just, you know, especially if you want to scale. If you want to scale, you got to delegate. You got to give it away.
[00:34:46] Speaker A: You cannot do everything yourself.
It's the absolute path to drift towards financial confusion, red tape, and a lot more Drift, drift, drift. So get out of the weeds and get help. Yes, exactly right.
What would you say as we wrap up this segment on, as I said, keeping more of what you earn and, and, you know, tax planning or being proactive to know how you're spending your money. What's one tip we can leave our audience with to keep more of what they earn?
[00:35:20] Speaker B: Pay yourself first.
Pay yourself first.
Take the money out of the system.
I see a lot of business, so, so the business itself will live unless if you pay yourself out first and you'll get to learn to survive. You need to. Business owners need to put themselves first. They think, oh, my business is first. My employees, my, my vendors, they're all important, but most important person is yourself and your family.
[00:35:55] Speaker A: And on that note, I will say the only thing I'll add to that is if you can't pay yourself first because you're worried about all these things, you might need to raise your prices. You know, there's always ways to cut expenses, but sometimes you can't cut any further. So, Felipe, you're so right. Pay yourself first, please. Let our audience know where they can find help from you or your website.
[00:36:21] Speaker B: Yeah, I can be reached. My phone number is 917-862-3085 and the wealth Spring Financial Services is my website.
[00:36:35] Speaker A: Thank you so much for being with us this episode. Stay with us. We have one more segment with Felipe and we will promise to have share more insights on financial clarity.
[00:37:09] Speaker B: Foreign.
[00:37:14] Speaker A: Welcome back to Balancing Acts, your guide to grow profit and scale. I'm your host, Linda Hamilton, a CPA certified exit planning advisor and systemologist. And our guest today is Felipe Widex Sanchez, the CEO and founder of Wellspring Financial Services. Felipe, we've had a great talk today. We've covered everything from tax deductions to understanding your financial statements and being proactive. Now, I want to talk a little bit about resolving tax issues.
You know, I've, I've been practicing more than 30 years and oftentimes taxpayers get in trouble. They get a tax notice. It might be an income tax notice from the irs, it might be a notice about sales taxes or possibly about payroll taxes. But they get very stressed out by these. And so the two things I want to talk about is one is resolving those problems so they don't get worse with penalties and interest, and the other is how to avoid them in the first place. So let's start with how Wellspring provides representation and what that means.
[00:38:25] Speaker B: So, you know, people, clients are overwhelmed sometimes with the amount of paperwork that they have to deal with.
And again and again, I've seen small businesses get into trouble by not responding to a notice.
They tell them the tax agency, whether it's at the state for sales tax or the federal government for some other tax or payroll tax or whatever it is, right? They're saying, by the way, you haven't been compliant and this is outstanding. And we haven't received your 941 or your, in this case of New York, the state, the NYS 45, which, for filing payroll taxes and stuff like that. And so they neglect answering this. And what happens is that these notices start accumulating because the deadline has passed or fast approaching.
They start accumulating penalties and interest if you, if you exceed the timeline of responding to them. And so a year goes by and all of a sudden I have a client like right now we have a bunch of clients that we're representing to the state and the federal government, mostly to the state, saying, you know, we, your, your revenue has increased and we want you to file on a monthly basis for sales tax.
And they never notified us that we were filing quarterly. And so because we don't get the notices, the, the accounting firm, we. So anyways, we have to now, we have to now change the way we're doing business and file on a monthly basis, but we have to fight on behalf of the client, say, yes, we'll pay whatever we, we owe, but we don't want to pay the penalties. How can we? And so then we have to write a letter explaining how not to pay the penalty because interest is, is the law. And so we're going to pay the interest, but we're in the middle process of that. And, and hopefully at the end of the day, you know, on a $12,000 fine, the business will have to pay 4 or 5, I mean, 3 or $4,000 just on interest and not the late filing fees, for example. So, and then the same thing happens with, with filing federal payroll or, or, or tax. You know, we have another client that he gave us the paperwork, but the paperwork didn't have the correct ein number. So we've been filing his taxes with the erroneous ein number. And, and then the government is coming back to us, the irs, the federal government is coming back to us saying you haven't filed your tax, you're delinquent on filing tax returns, you're delinquent on paying payroll taxes. All of this.
And so we've had to figure out, okay, what is the correct number? We have paid it. There's a lot of back and forth and, and, and, you know, initially they want you to pay up front, but no, we're saying we're not going to pay up front. It's just, you guys have to do now the correct merging of, of what we've paid for sale, you know, payroll taxes, and, and, and, and, and file the correct 941s, et cetera, et cetera. The other problems exist when, you know, businesses get behind. They say, I don't have money for the sales tax. Well, then you should get a service like Davo that takes money out from your business on a daily basis and pays those sales taxes. Because if you, because the state agency or the government agency wants their money and it's their money, and if you're not paying them on a, whether it's a monthly, quarterly, or yearly basis, their due, their share that you've collected on their behalf, they're going to penalize you considerably.
[00:42:51] Speaker A: Exactly.
[00:42:52] Speaker B: Same thing goes for, for, you know, for people that do their own payroll, for some reason they're not submitting the tax associated with what they've deducted from their employees.
[00:43:03] Speaker A: Exactly.
[00:43:04] Speaker B: And it's crazy. It's crazy to think that you're going to get away with. And I know we're coming up to an end of time, but it's crazy to think that the government at some point is not going to catch up.
[00:43:15] Speaker A: And so I want to summarize, I want to step back for a moment. We covered a lot there. And so for our audience, the first thing you have to do is if you get a notice in the mail, you open it right away. You don't stick it in the drawer, and you immediately call your accountant. If you don't have an accountant, you call, you get a reference, and you call a different accountant. If your accountant you think is partly responsible, maybe you don't want to call them again, still get help from someone. The worst thing you can do is put it in the drawer and not deal with it because it will cost you. It could cost you five times more. And the other thing, Felipe, you were just talking about is we're talking a little bit about sales tax and payroll tax.
What I want the audience to think about is this sales tax is not our expense. Right. You sell something, you put sales tax on it. You're kind of like an agent for the government. You're collecting this money. Oh, it's $50 in sales tax, and you have to give it to the government. And what you just described is so common across the United States. The 30 years I've been doing business, I've seen it where customers come to me, they were doing their own thing. They had a different accountant, and they didn't pay, and suddenly they owe thousands and thousands of dollars. It's not your money. That's what's called a trust fund tax. And if you don't collect it, or you collect it, which is even worse, and don't pay it, the government can come after you forever on that because they can come after you personally. You're not protected by your corporation or anything. So really want to get that financial clarity on understanding sales tax, understanding your responsibilities, and understanding payroll taxes. So now with the thought of payroll taxes, let's talk about independent contractors a little bit. There are no payroll taxes. Go ahead. Do you. You have something else?
[00:45:09] Speaker B: I want to say that the governments make mistake.
[00:45:12] Speaker A: Yes, they do.
[00:45:13] Speaker B: At the federal level, they make mistakes. We found that out. And you don't find out until you start unpacking. What are they saying? What do we have?
And then you come to some agreement when you have to show up in front of them to represent a client and say by the way, you're wrong, this is why you're wrong. And, and you know, let's negotiate here.
[00:45:37] Speaker A: Yeah. Anyways, subcontractors, we're right on that. You might have to prove it and you do need an accountant to help you with that almost all the time.
[00:45:46] Speaker B: Yeah, yeah. And, and the end, at the end of the day, the agencies don't want to see you go out of business. They don't want small businesses to go out of business. They, but they want their money. And so they're able to give you terms.
[00:46:03] Speaker A: But they are collection agents. But by nature collection agents want to collect money. So you will have a fight on your hands. We talk about independent contractors. While you don't withhold anything. There's, you know, there's a lot of debate around the subject of they're great for helping you grow. Right. You can grow and that's a way to keep your business going without. And you can scale up or down. But that also brings some education you need around what the, what's the right classification?
[00:46:36] Speaker B: Right. So I see a lot of small businesses push the envelope with subcontractors.
If you're going to do that, make sure you have a signed W9 form which says that they have their name, their social or ITIN number, their address.
Make sure that you have an agreement with them that it's called contract labor agreement. I mean there's a.
And that they've signed it because you know, a lot of people are pushing the envelopes for whether it's an employee or a contractor. An employee means that you're giving them the work, you're telling them when to do the work, how to do the work, where to do the work. A contractor comes in and just you don't have all those terms with the contractor. But small businesses need contractors because they're not paying them as much, they're not paying their payroll taxes, the employer taxes, etc. So I see a lot of that. But small business owners need to protect themselves with the documentation that says I've done my due diligence. And then those contractors, you know, if you're paying them as contractors, my employers want to help them and my employers want them to be able to deduct some of the expenses associated with being a contractor such as cell phone and, and the transportation etc, and so that they are doing themselves.
You know, they're filing a schedule C for themselves because they're not paying, they're not paying self employment tax on that money on 50 60, $70,000 and they don't know contractors.
[00:48:30] Speaker A: Essentially they're self employed. They're technically business owners. Right? Just like you are paying them and you're a business owner and they're also a business owner. So what is really important is educating yourself about the classification. Because if let's say you paid someone $30,000 a year and they're misclassified, that could cost you at least $6,000 in penalties, back taxes, et cetera. And if you think if you have 10 of those contractors, you could be talking about a lot of money. So educate yourself, Felipe. How can people learn more about you? You shared so much great insights and expertise with our audience and I know we're all grateful for that.
[00:49:12] Speaker B: Yeah. Well, one thing is you can sign up for our our monthly newsletter. We put out a newsletter every month at our website. You could just submit your name and ask for the the newsletter. You could reach me at Wealth Spring Financial Services, all1word.com and my phone number, my office number is 917-862-3085.
On my website you could ask for a 10 minute free consultation. We give those consultations and we are bilingual. I wanted to say that we're all bilingual at my firm.
[00:49:57] Speaker A: Thank you. Thank you so much. It was great having you. I hope you learned a lot from today's episode to help you reach get away from financial confusion and towards financial clarity both in your taxes and in your books. And come back next week for another episode.
[00:50:14] Speaker B: Thank you, Linda.
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