The team from Andrews Accounting: Top (L-R): Les Campbell, Jeri Andrews, Debra Schindler, seated (L-R): Taryn Loveland, Emily, Janna Southworth
The business version of the proverbial oil-and-water idiom is personal checks-and-business accounts.
Here’s a small sample of why: Let’s say you take a potential business client to lunch, or treat one to a happy-hour outing, and you pay with the charge or debit card from your personal bank account. You then can’t claim it as a business expense when filing your taxes.
Who knew? Many don’t, according to one expert in the field, tax and accounting advisor Jeri Andrews. It ranks as her No. 1 tip for small-business owners—avoid co-mingling business and personal funds. “Never pay personal bills from your business account, or vice versa,” she said. “That’s called ‘breaking the corporate veil,’ and you’ll have no protection at all if you do it.”
Andrews, the owner since 2006 of Andrews Tax Accounting & Bookkeeping on the Bellingham waterfront, has specialized in small-business clients for almost two decades since earning a master’s in Accounting and Finance.
The Andrews team of five manages taxes and bookkeeping for more than 200 small companies and about 400 individuals, many of them sole proprietors or who contract their services. The staff advises and helps manage all facets of recommended small-business needs, ranging from financial statements, projections, payroll, and tax filings to whatever degree a client designates, either partially or entirely.
During a wide-ranging interview in her office at Squalicum Harbor, she addressed another commonplace pitfall she’s encountered in almost two decades of her work since obtaining her master’s degree in accounting: “I’ve had so many clients come in with no idea about how their business should be structured,” she said. “I usually have them form an LLC (limited liability company) for several reasons, mostly taxation.”
She said what’s usually unknown is that the LLC is a state designation for doing business, not for the IRS. “For federal tax purposes, it’s called a ‘disregarded entity’ —it doesn’t exist,” Jeri said, explaining, “With two really short pieces of paper, you simply file with the state of Washington for a business license number (UBI, or unified business identifier).”
The other important benefit of an LLC is what the LL stands for—limited liability; it can protect your personal assets, separate from business debts and liabilities.
Jeri offered numerous other points of consideration for surviving the curves and speed bumps of tax burdens and accounting in order to stay in business and make a profit.
One is forming an S or a C Corporation, at an appropriate time, depending on circumstances of the business’s growth. “You can do that without changing anything in your estate,” she said. “Otherwise, you could wind up having to close down and start all over again.”
Andrews Tax Accounting recommends to the majority of its clients forming an S Corporation, a “flow-through” entity in which revenues flow through the business to the owner, and taxes are filed on personal returns. An S-Corp provides room for business growth, such as adding payroll or forming a partnership, without having a total do-over.
Another option is a C Corporation, where the business pays its taxes. “We advise most small businesses to avoid a C Corp,” Jeri said. “It’s often foreign owners, who are not eligible for an S-Corp. Or, if a company is large enough for shareholders and dividends, it can help.”
Another major point for business survival is to manage quarterly payments, based on taxable income estimates. “Make sure you’re on track, so you don’t end up being hit on April 15 with a $20,000 tax burden you weren’t prepared for. Plus, you could incur penalties for not filing the quarterly estimates.”
In business accounting today, one question pops up frequently: How are the new tax laws going to affect us? Jeri’s answer: “It’s so individual, it’s hard to make general conclusions. But I can say confidently that small businesses, for the most part, will do better on their taxes under the new laws this year. I’d say anything under a $250,000 net is going to see a very good decrease in their tax burden.”
Some other strong suggestions that Jeri offered for a Small-Business Survival Guide:
“Before you begin doing business, consider where you are at the moment and where you want to get to. (examples: Expansion? Franchise? Partnership? Scale and sell the company?)
“If more than one person will be involved, make sure your agreement is ironclad, not informal. Go to an attorney and write a very clear partnership and shareholder agreement that’s in everybody’s best interests. That’s money well spent.”
“Find an accountant you trust and make a plan. Find someone who will answer all your questions, inform you, set up your bookkeeping, and who doesn’t make you feel stupid or guilty for not knowing everything.”
She said she’s contemplating having a sign made to hang on her office wall about “the thing I hear the most” after client consultations. It would read:
“I feel so relieved.”