EP180: Why you need an accounting specialist: Practical advice from Erin Andrews

So I do, I do. I mean, who doesn't love talking about accounting? My juice is flowing. So yeah, yeah. No, it's good.

All right. So I'm actually, I guess, a third generation bookkeeper. It's kind of a joke. My grandmother was, but my parents own an accounting firm. And then I started working with them, you know, as a kid, but. 17 years ago started, it was straight line. We re-branded last year to level accounting. We've always focused on small businesses, like working with them monthly, like proactive basis. But, and we've always had a very, very strong. contractor base. And really over the past few years, we just really, really down into contractors, but we work with them, like I said, on a monthly basis. So bookkeeping, payroll, tax, tax planning, advisory, that kind of stuff, helping them set up entities, things like that. What was really cool, my parents set up really good foundations for us. So a traditional accounting firm doesn't typically work with like small businesses on a monthly basis. They were always centered around that. And my father, he still actually practices. He just did his 40th tax season. And he still has his business clients from years ago. Like they remember me when I was a baby kind of thing. So it's just cool because they set up those foundations to really care about our clients and their businesses. My mom used to tell me when she was working, you can't care about the client's business more than they do. But that's kind of, and we love helping. Small businesses, business owners, it's very personal to us. And especially in the trades, I'm not, obviously I'm not in the trades, but we work with them. And I just feel like they're just a lot, just a lot more true. And just like, I don't know what it is, but we just really like working with the trades. So kind of my story.

Yes, I told

parents I would never be an accountant.

Yes. And ironically, my sister said she would never be an accountant, and she's not, but she is in. She never works with me in person, but she's actually in the next office and she works with all accountants. That's all who she works with now. So it's just really funny.

One of the main things I see, well, there's a few things. So I guess starting foundationally is really their entity and how they set things up like from the beginning. So a lot of people. like think they could just go to legal zoom or maybe sometimes even talk to just an attorney about how to set up their business or don't talk to anybody at all. They talk to their friends. That's one of the biggest mistakes I see. They put a question on Facebook or something. And so how do I set up my business? Um, you really should talk to an accountant about how to set up your business, how to structure it properly. Um, not doing that from the start can cost you a lot of money, headaches, things like that. Um, also just. Just it's the entity selection election and then also all the stuff that goes behind it. So that's one of the biggest things I see. And surprisingly, a lot of accountants don't even look at entity when they do things, which is kind of crazy to me to help save money tax wise. So that's that's one of the main reasons we see clients come to us at entity. The other thing is, is thinking that because QuickBooks sells it as a DIY program that. They can figure it out and do it themselves. And it's not QuickBooks is a program for accountants. You have to have accounting training. If you don't know how to do journal entries and debits and credits and things like that, you really shouldn't be doing it. So we just see the books just a nightmare or they integrate a CRM because the CRM just says they can do it and their revenues triple. There's just a whole multitude. But I think that also goes into foundations as well. the setup, basically, you want to be set up, right. And then also, there's a whole more and more issues, I guess, hiring your sister to do the books, because she's available or your wife or something with no formal accounting training. And then also, just getting an accountant to do your stuff, your taxes during tax season. That's not really the best. That's just tax preparation. What I tell our clients is the tax return is the end product that we do for all the work throughout the year, the prior year. So that's really just a product. It really is the meat and potatoes of the work that we do is throughout the year before the year ends. So people always say, oh, I love when I see, and I'm sure you see this too in other areas, is I want, does anybody know an accountant that won't cost me an arm and a leg or a reasonable accountant, a tax person to do my tax return? And I'm always like, oh my, I just... With anything though, I guess. I don't like when I see it in any way. Like, oh, my car needs to be fixed. Does anybody know someone that won't, like is cheap? Do you want someone cheap working in your car? I don't know. But it's that kind of thing. So tax planning is huge. You really should address that. Even if you're not making, quote unquote, a ton of money or your books are simple. So

The majority of things I see people set up as is an LLC. So like a single member LLC. So you own a business by yourself. You don't have partners and you set up an LLC. That is a good way. I like to set up a business, I think right away, especially from scratch. There's lots of benefits that you can use down the road. But what can happen is as you... grow, yes, changing, it's being higher, you're taxed as an S corp. There's also C corp, but most people are not C corp. That's a different thing. But as you grow, you need to have a certain net income, taxable net income and things like that for it to be beneficial, but it can make a huge difference. It can save people tens of thousands of dollars in a certain kind of tax. And yes, yes, it can really help, but you want to hit a certain net income threshold.

It depends.

So actually, actually the, the higher your income goes, the, it all depends on your net income, your taxable net income. So you could be grossing $2 million and losing money and being an escort might not help you. There's a threshold. It's on self-employment tax. And there's a threshold for that for like $165,000, $168,000. So it really depends on like, so that $500,000 a year company could be netting $100,000 and then, or the $100,000 a year company could be netting. 50,000. It really, it just depends. So there is a tax savings. It just depends on what their net income is. The a hundred thousand to 500,000, there isn't a giant result unless that $500,000 business is very profitable.

You can do that too.

No, I, I, like I started out as just a, an S court right away too. So I, I think that's actually good, especially if you know how to run a business and you know, you're going to, you plan on being profitable and like, and you have good. good system set up to make yourself profitable, starting out from an LLC elected S Corp or just an S Corp. That's totally fine. I think it's a good idea. It kind of takes away that middle, that middle part of electing that part. But I just want to give an example. We had a sales guy, he sells for roofers and he's on his own 1099. He actually has his own thing. He was only grossing about $180,000. So that's not that much, but his, he has. barely any expenses. So he was a single member LLC. But when we elected S Corp, that saved him $18,000 in tax. And he doesn't, quote unquote, make that much, but he does. Do you know what I mean? So every situation is a little different.

it's a curse of knowledge, right? I, that's, that's, I think that's like one of the things that tattoo my own horn. I think I, I think I am able to explain that pretty, like on a very base level to people. So they understand it. I think I can do that pretty well, but, um, Yes, I think people overcomplicate it and it's just, it can be explained pretty easily. But one of the downsides, I guess, of electing S-Corp, like if you're going to be an S-Corp from the start is there are some, you want to make sure the benefits that way the costs too. So like you have to be on payroll as an owner, you have to file a separate tax, like a corporate tax return. Some people don't want to spend that kind of money right away too. So that's why they maybe they wait a year or two to elect the S-Corp to save that money on the additional like tax compliance side.

That's okay. That's always, it's. Literally the number one question I get all the time.

So you should have an operating agreement as a business owner and operating agreement. is done by an attorney. True. So they can, they can like file you with the secretary of state if you want, but like the operating agreement is really important. I don't actually know many business owners that have an operating agreement. If we get a partnership that comes in, I'm not a huge fan of people being partners. That's one where I'm like, you have to get a partnership agreement. We can't do anything for you if you don't have a partnership agreement. But if it's just an LLC, most people don't have that. But that's what an attorney would be for. Sometimes attorneys will do things like S-corp elections or things like that or set up an LLC. But the tax side, that's really when you want to go to an accountant because they don't, not all attorneys understand how the tax work. I don't, we don't really have any clients that. had an attorney set up their escort for them.

Our firm started out as a generalist. So I always think when people say, if they niche down, it's boring. I think it's funny. People say that because I don't think any business is boring, but we started out as a generalist account, meaning we worked with all different kinds of businesses. We still have non-contractor clients, but we realized over the years as we focused on contractors in particular, there's a lot of benefits that go into it. I'm sure you know this through niching, like internal operations, employee training, just systems and general marketing, all sorts of things. But we can really... speak the language to for contractors and so when they have a specific issue that's unique to them as opposed to like a dentist for example we can actually help them so like profit margin you know gross profit things like that that are or markups cost plus that kind of stuff. We can speak that versus a generalist account. There's nothing really wrong with a generalist account. And I have a lot of colleagues there that they just focus on all sorts of businesses. So if they, if a contractor or a specific business owner goes to them with a very specific industry specific question, it's very hard for them to answer that question or help them with it. We also have like industry benchmarks that we can work off of because of other clients that we have. So we know what's going on really well. We also know we keep up with what's going on in the industry, are aware, you know, like that whole 1089 subcontractor thing that happened March 11th versus we're focusing on that a lot. So that really helps. Generalist, those are people that, like I said, focus on. all sorts of industries. There's nothing really wrong with them, but the people we've come that have issues with them, with generalist accountants are the ones that they really didn't get their industry. So they didn't appreciate the vehicles right. They didn't do certain things right. And then if you want to talk about people that you just mentioned, like your wife or your mother doing this stuff, that's kind of a different thing. That's just people, I think, trying to solve a problem by quote unquote saving money where they don't know what accounting is. They don't know how what they're doing is affecting the tax return, tax planning. They don't like maybe they're they're just. They don't know how to, the entity thing. One of the things I see all the time is they just went to an accountant for their tax return. They had their wife do the books and nobody talked about tax planning and talked about the entity and they're paying a ton in tax and the accountant never addressed it.

Yeah, all the time. We get it all the time.

It is going to be cheaper. Yeah. The hourly pay. And then you have to go when you go get your return. So one of the things we also see is like, we, we get those books and they're a disaster. They don't make sense. You don't have the proper chart of accounts, the cost of goods, that kind of stuff. So saving money short-term doesn't necessarily end up saving you money long-term. Another example, like I just, we just. picked up a client. They have a $4 million company and the contractors generalist accountant, and they didn't appreciate vehicles. They didn't put any vehicles on there. They've wrapped vehicles and it put on the tax returns. And we're like, I don't know why they didn't do that. I don't understand, but it's just these things that we see all it's all the time. So I don't know. Try to save money. Bye. Okay.

Here's my pet peeve.

There is a different way to do different ways to skin a cat kind of thing. We talk about this a lot. I mean, you could have the same tax return, have it done four different ways by four different accountants. It just kind of, that's just kind of how it is in a way. I don't necessarily agree with it. People can also have different tax strategies for tax returns, but the books generally should be pretty. like standard across the board, like contractors should have a pretty standard chart of accounts, industry specific, like cost of goods. I've seen lots of times where materials are put under just regular expenses or like

And I don't know that that means they don't know what contractors should have for cost of goods. So just like if we're doing like like e-commerce, which is different, which we don't touch. That's like you have cost of sales, which is different than cost. It's just all different things. So it just it's also experience, too. So if they're not, if they're not like, sometimes people will just pick up a random contractor. That's their only contractor that they have. And they have no experience with them. Oh, they're just accounting. It's accounting. They just treat it like another client, which isn't right either. So, and with small businesses, sometimes it doesn't really quote unquote matter, but, and you'd be shocked. I'm actually, you probably know this. Most small business owners don't even look at their financials. So when the accountant does it, the business don't even know because they don't look at anything.

Every single time we look at someone's books. And I mean, it's

Yeah. But I also think it's it is hard to find a specialist accountant that does monthly accounting. bookkeeping, payroll, you know, like all the stuff, it is hard to find. I honestly think the past three, four years has really opened up just based on social media and just people working remotely too. I think people were really in the mindset of, I have to have someone that I can go to their office and see them. Yeah. That's, I mean, I was remote for four years. We just went back in person for our team and I love it, but you don't have to have that. So it's much easier to find an accountant now that specializes in what you do that does all the services, you know? So. It's, um, we see it all the time. I do think it's worth trying to find somebody that specializes in your industry that you can work with so that it avoids all those problems. Yeah.

Yeah. First, I want to say like about hiring an accountant. One of the things I think the misconceptions have been, you know, for our time basically is that. Hiring an accountant is not sexy for your business. It's just, it's something that you just, it's a compliance. It's like, you just kind of have to do. So people just honestly kind of go into kicking and screaming because it's like, well, it's not marketing. It's not going to help my business. It's not a coach who's going to help me grow my business. So we're kind of just seeing, just I've literally been told we just do the clicks. So that's fun. I love it. That, I think the mentality around that has to change. I do think that. Having a solid accountant by your side is actually one of the biggest assets you can have. And then you couple that with like a coach and then, you know, the other things, the attorney and things like that, it really, really can help your business. And it's a partner. Like my, my dad, fortunately has clients that call him about anything so that they trust him. But the other side, so if you do get audited, the IRS is drunk. just to let everybody know, they have been drunk for years. They are wild right now and just issuing notices like crazy. But the states actually, what's happening right now is the states are issuing sales use and use and sales tax audits for contractors. And we've seen a lot of them over like two or $3 million gross revenue. They're hitting people lower than that. But a lot of them, if you gross two or $3 million or more, they're really coming after that. We have dealt with many of them, Massachusetts, Texas, a couple other states. We've done a lot with them. So we just had another one come in and we know exactly how to deal with it. It's a pain in the butt. But I have one contractor on Facebook be like, I don't have an account and I don't know what to do. I have a sales and use tax audit. And I was like, I don't have your history. I can't really help you if it's just, you know, that's, they go back six, seven years. So you're right. Having that history and that relationship with someone is invaluable when it comes to that situation. Because there's nothing worse than I'm assuming getting a letter from the IRS or state saying you're being audited. I'm sure it's a horrible feeling.

No, and it's crazy. I don't really understand what, I mean, I know what the states are doing. They're just trying to fish for money, especially since COVID hit. Oh yeah. That's what they're doing. I call it marketing or whatever, but no, they don't know what it is. But be aware of it. It's if you don't pay tax on purchases, you pay tax on purchases. Yeah.

Or the flip side is they think they have to be. Like, oh, my supplier said I have to have the tax exempt certificate. And I'm like, no, that's going to complicate your billing. Then you're going to have to charge sales tax. Like that. Please don't do that. Just because your supplier said it doesn't mean it's true. So yeah.

Yeah, no, I know it absolutely can. It's crazy. So, and like, like that use tax audit thing as an example, just in case anybody's listening and they're, they want every single receipt, usually six, seven years of receipts. Can you imagine trying to pull that? It's not funny. We're trying to come up with a plan right now, like to, to avoid this in the future, but I don't know how it's going to work.

You know, they don't

No, I've had to walk another accountant through how to do a use tax audit because they just had one contractor and they just going through it. So. Yeah.

Like I said a little earlier, filing a tax return is really a product that accountants produce during tax season or, you know, on extension or whatever, where we just, we report your business information for the prior year. When you do that, there's not much you can do to save money on taxes for the prior year because the year's over. I mean, there's some retirement stuff, but tax planning is really the stuff that we do throughout the year to mitigate and reduce taxes and just to plan ahead too. So I think we actually have a mutual client that came to us and he had to pay 40, his accountant called him on April 12th, did not do any tax planning. And said he owed $48,000 and he had to pay it by Monday. Can you imagine getting that phone call and you have no clue that you owe this? You have no idea. So there's nothing he can do. Obviously having somebody else review the books, make sure they're done properly for the prior year, things like that. But let's say he owed that tax. There's nothing he can do to reduce that tax liability. anymore. It's done. So what could have, he could have done throughout the year is he could have talked to, you know, done some, his account. I think he actually did try to, he did, he did try to do tax planning with his accountant, his accountant blew him off, I think, but tax planning will help you, uh, get rid of that, that horrible phone call. Nobody as an accountant wants to make that phone call either to a client. But, um, so throughout the year, you should, someone that's doing your books, that's why it's great to have an all in one thing too. So like, The accounting firm is also doing bookkeeping and your payroll and things like that, because then we can see the full picture of what's going on. So including the personal tax return too, because that's where you did the, you know, the tax planning side. So we're watching the books. Okay. It's June, July. Well, it's actually August now, isn't it? June, July, we did mid-year tax planning. We see where everybody stood. Are they still on track? Things like that. Do they need to adjust certain things like their payroll withholdings? And then October through December is where we do the year-end tax planning. So whenever you hear someone, should I buy a truck? That's like the big question. Should I buy a truck? Don't just buy a truck to buy a truck. But anyways, I think I've actually seen you post about that. That's where you can actually save the money.

No, you don't. What's your cash flow? Yeah. Yeah. So you have no idea. You have no idea. I don't

I just want to buy this big, I love it. Oh, should I buy this Escalade or something? And I'm like, really, if you have the money, I don't know. But anyways, so it's really to mitigate that I owe this giant tax balance or to pay it throughout the year. So you're not killing yourself, you know, trying to come up with all this cash come tax season, because, and this is like, when you go on extension in April, that is not extension to pay the tax. It is an extension to file the return. So the tax is still due. on april 15th so people think oh i want extension to pay no no no no that's why he got that phone call he his return was not filed he just had to pay it in with the extension and

your penalty penalties yes yes penalties interest and like the state is different than the feds too so like in massachusetts as an example the um the state penalties are very very high so we always say pay the state first And then pay the feds what you can. It depends on what state you're in, obviously.

Technically, you don't have to be licensed at all to do taxes, bookkeeping, or payroll. You do have to be licensed to represent people in front of the IRS. So to answer notices, talk to the IRS. So the three people that can represent you in front of the IRS is an enrolled agent. a CPA or an attorney. I mean, we have unlicensed staff. Some of them are getting degreed right now, but yeah. So the licenses for CPA are different throughout the states. Enrolled agent is a federal, not state issued. So, but every state has its complexities for sure. So like Ohio is much different than Florida. Florida has no state income tax. Florida is very simple. Ohio actually. punishes you for being an S corp. Um, so you need to learn the state laws. So there are some states we won't work in because there, we know we're not going to be experts in them. So we don't, we don't, we won't touch them. So just for that,

We don't touch them. We can get into why, but I don't think that's appropriate.

to-Immediately call your accountant.

One of the things that most, so this is what happens. People get the letter and they ignore it. because it's scary and people don't like to deal with things. That's usually the number one thing that happens. And then like three days before the response is due or the day of, we get a call and the client says, I got this letter and they start spouting out what it is. I'm like, okay, you have to send it to us. They send the first page. So the first thing what you should do is immediately contact her. accountant. So not all letters are bad letters. So there's just some informational stuff. There's just sometimes like the state just wants to get like, especially in the personal return, they like to just get additional information. Some of it is like, Oh, for payroll, it's just like letting you know what your filing requirements are. So the best thing you can do is call your accountant and say, I got this notice. I'm sending the full notice over to you, not partial, send the entire thing. Cause there's always different information. And then See, and then wait till your accountant can review it. And then the accountant should respond to it. I don't really ever recommend a client responds to a notice. We've had people do it where they just get scared and pay what's on there. Usually that the amount that's on there is never right. I mean, there's some exceptions, obviously. But also sometimes if you don't address that notice or you just go, let's say you just go pay it. the state's going to, or the feds or whoever is going to say, oh, oh, they paid it. That means we must be right. And they're going to go back to prior years and they're going to start assessing you tax for prior years. So sometimes like if you don't fight it, it actually ends up a lot worse. Well, most of the time it ends up a lot worse. So don't ignore it. Immediately call your accountant and send the entire notice over to them and hopefully they can handle it for you. But don't freak out. Not all notices are bad.

Sometimes. It depends. That's like in circumstances like that, that's like when someone signed in taxes and they owe a really large balance. And so they need to get like an offer in compromise or something like that. That's like when you want a tax attorney. We refer out for those. We don't like to deal with those. But most notices that we see for small businesses are payroll. payroll related. So like 941 notices, S corp election notices, the IRS has not been accepting S corp the past four years. I have a new corp and we're still every year we, we get a notice from the IRS as we're not an S corp. That's any of you getting that that's very normal. Um, and then like things like if your tax ID was wrong for a 1089 vendor or something like that. Uh, but, and then personal side is just, you didn't pay a balance due or you didn't file your return or sometimes you filed it and they just, didn't process it

i mean it's just like yeah yeah because we also have like pretty much standard answers and responses to how to deal with them too. There's also certain like, you have to make sure you send it to the right place, the right address. Like sometimes it's Utah, sometimes it's Connecticut. It just depends. You want to just, it's definitely worth to reach out to your accountant. Also, don't always assume the notice is your accountant's fault. Honestly, when I say the IRS is drunk, the IRS is literally just issuing notices. like crazy for no saying people didn't. They're just fishing. Oh, it is. It's 100%. It is. So they're just saying people didn't pay tax, you know, in April, which they did like they, they have the cat clear check. So, um, just be kind to your accountant. Yeah.

Yeah. And there's, there's like different types of taxes. I don't want to say that are more important, but are more important. So like employer taxes, employment taxes, when you, you know, when you withhold taxes from an employee. on W-2, you know, their federal withholding, that's considered like a fiduciary or a trust tax. So you're taking that tax in on their behalf and paying it on their behalf. If you don't pay it, when people say, I don't want to go to jail for not paying tax, that's the kind of tax that can put you in jail because it's a trust tax, not your tax, not your money. It's the employee's money. Like sales tax, same thing. I've had a client in Massachusetts where the state showed up and literally padlocked their doors because they didn't pay sales tax because that's not their money. So there's different levels of tax. So like, I guess if I had a client that owed payroll tax or personal tax, I would say pay the payroll tax. And then, but all you don't want to, you don't want to F with the IRS. They're just paying them. Yeah, no, they can do bad things. They can love your bank accounts, take your driver's license, you know, all sorts of nasty things.

They can contact your employer around your, like they will, and they wage levy and your employer has no choice. They can let, they have to levy your wages.

I guess it depends. There's certain duties, I think, that you can keep internally versus outsourcing it. Like billing your customers. Obviously, that's something you should keep, I think. Paying your own bills. You don't need to do that. Your bookkeeping, it depends how simple you are. If you are not good with keeping track of your income and expenses, because there is nothing wrong as a startup to do an Excel spreadsheet and just do your deposits and then break it down by expenses. You can easily Google expenses, like type of, you know, how to categorize things and do it on a monthly basis. You can do that when you're small. I don't see anything wrong with that. I like it. Like you said, Kiss, I always say that with prospects too. I like to keep it simple. So when you want to start outsourcing tax return always. I don't think anybody should do their own taxes. There's 77,000 page of tax code. I don't know why people do their own taxes, to be honest. It doesn't, I don't know. I don't think it saves money, but that's my opinion. And then payroll. If you're going to do payroll, no, I don't think anybody should do payroll on their own. They should always outsource it to not in QuickBooks. I'm not a QuickBooks. fan at all. They, I have, we have never once seen a QuickBooks payroll done properly, but like something like Gusto, um, ADP paychecks, a local payroll provider. Um, like I just said about payroll taxes, that's one thing that can really screw you over. And also like, if you mess up one deposit wrong, you will get notices for years basically. So, um, if you're going to get payroll, definitely outsource it. Don't try to use QuickBooks. I really, it's not worth it. But then for the bookkeeping, honestly, it's, pretty quickly within the first, if you, as long as you can afford it, I suppose, obviously, but, um, within a year or two at the latest, um, like you need to be able to review your numbers. If you can't look at your reports to see where you stand, how you're doing, um, see your expenses and things like that. How do you know how you're, how do you know how your business is doing? Uh, how do you, you can't get a loan, even like a mortgage, um, things like that. So, I mean, there's different levels to yours. You don't have to pay a thousand dollars a month. for this too. You can pay a couple hundred dollars a month. I think of it as an investment in your company. I also believe that outsourcing this kind of work is, it shows that it's a true business. It's not just like a side hustle or I don't, I don't really know. But pretty quickly, to be honest, I think as quickly

Yeah. Like, and there's some people that will do like, okay, let's say you have the Excel spreadsheet, see if an accountant can review it quarterly for you or send it to them. In June, July, can you look at my numbers and see what kind of tax planning I need? If you have an accountant that does not get back to you and you're asking them to do tax planning, find another accountant. Because I cannot tell you how many clients get to come to us because they didn't communicate. The client will, the accountant will communicate with them. And I understand why accountants don't. That's a whole different topic. to a degree, but you need to do tax planning. It's your, like you just said, it's your responsibility as a business owner to know what's going on in your business. And so if that accountant's not getting back to you, don't just wait, go to another person and say, I need help. can you help me with tax planning?

A lot. I get it. I do understand too why, like you said, we don't want to go to a rabbit hole. It's very expensive to have employees. You have workers comp liability. You have employer taxes, unemployment tax. So we have a lot of roofing clients. A lot of them have 1089 sales guys. Most salespeople are not 1089. They are employees. They probably drive your truck, wear your shirt, use your program to issue proposals, things like that. A lot of them sub out to crews, their work out to crews. That's kind of a hairy situation. You want to make sure, well, they're an LLC. Okay, well, are they exclusively working for you? Are they showing up? So that's like this is where it also gets on with the attorney thing too. But we see it a lot.

Yeah. It's so funny. I was having a conversation with an attorney about this at the gym the other day, but let's say you hire a sales guy or a project manager, hire them as a 29 and then you let them go. They go to, maybe there's no hard feelings. Maybe there is. I don't really know. They go to unemployment because they don't really understand how they're paid either. They go to unemployment and they want to get unemployment. Unemployment says, hmm, you're not on payroll. Why are you not on payroll? Did you work for them? Were you full-time? Blah, blah, blah, blah, blah. Yes, yes, yes. All right, we're going to open an investigation to this company. All right, then the Department of Labor gets involved. You have unemployment, then they bring the Department of Labor. If they determine that you misclassified employees as 1099 subcontractors, they can give what's called treble damages. So you can have to pay up to three times the amount plus punitive damages and attorney's fees. for what you actually paid that person. Also, there's issues like with workers comp. So if that person doesn't have comp, you know, that's another thing too. That's a whole other thing. If someone falls off a ladder that's at your job site, that goes on you as a sub as well as the GC. So like that attorney I was talking to, one of his clients that happened, he didn't even realize the sub had someone that wasn't on comp or something. He just had to pay out $450,000 because he got hurt or something like that. But or they messed up something. But there's lots of things that can happen if you don't classify people as employees. I personally think almost I think that's just the future of business. I think they're just going to make you classify almost like unless it's a specific business that you are hiring as a sub that it has to be classified as. Yeah, I mean,

he doesn't they don't have any expenses right yeah

yeah it's cheaper it's easier Uh, it's not fair to be honest. And it's, I think contractors are the biggest industry this happens in. Obviously, um, it happens in other places, but it's, it's where you see it the most. I couldn't imagine getting a 1099 at the end of the year for $50,000 and not because people don't know, they don't know that they don't, they don't have taxes withheld. They don't know what a 1099 is, you know, that is on the employer to pay them properly.

You'll lose your business over it. Yeah. There's so many agents. They all talk. They all talk. They all the agencies talk and they'll, they'll come after you.

They can. So like, like I said, unemployment will contact department of labor workers comp can get involved because the comp is a state thing too. So, um, then federal, so they don't like always talk, but they can, they will, if it's big enough or, and then the attorney, then, then the employee can come back at you legally with an attorney. And I said punitive and attorney fees, you know, punitive damages and attorneys. So, um, I mean, it's not really worth it, to be honest.

One of the biggest questions we get is when should I start paying myself as a business owner? This is like just a common question. I'll just go over it quickly. It depends. That's always so, but, uh, in the end, yes. So that is a great question. I always see this on like social media is I want to pay myself, but I don't know how to. And that actually someone actually commented, oh, well I don't pay any tax because I cut myself a paycheck and I take distributions and I don't pay any tax. It's basically a white bomb. My income that way. I was like, um, You want to make sure you're paying yourself correctly as a business owner. It depends on the entity that you are, like S-Corp versus single member LLC, things like that. But as a business owner, you can take a paycheck as long as you're an S-Corp or C-Corp. You can take distributions, but there's all sorts of ways. That's another thing you definitely want to make sure is set up right. Like if you're a single member LLC, not taxed as an S-Corp, and you start taking paychecks as a business owner, like W-2 withholdings, that is not in compliance with IRS. It's not, you can't do that. You can't, it's just not good. So you want to definitely talk to an account about that. It's also a great way to do tax and tax strategy too, is how the business owner gets paid as well. So there's a lot that goes into it. It is, it's not like a simple straight up, you have to be reasonable compensation based on the IRS rules, things like that. So it's not as straightforward as I just want to take a paycheck or get paid.

So our website is good. It's level accounting firm. com. I also have a pretty big social media presence on my personal, which is Aaron Andrews. Um, I am Aaron Andrews, but not the sports announcer, Aaron Andrews. So, uh, um, and you know, LinkedIn and all that, but yeah, our website, level accounting firm. com or my personal Facebook, you'll see Aaron Andrews. Um, but yeah, we just. Love helping contractors. And if anybody needs help with anything, just wants to set up a consult call, we can take a look at your QuickBooks, see how it's looking, look at your tax returns. Happy to help. I really appreciate being on here. Glad I finally booked. I do love talking. I had to get back in my podcast mode. There