Two things in life are inevitable: death and taxes. To learn more about how to make at least the latter a little easier for small businesses and entrepreneurs, we spoke with Ebong Eka, entrepreneur and tax expert as well as president of Ericorp Consulting.
ABERMAN: You’ve been on the show before, we’ve talked about entrepreneurship innovation. But how did you come to make your day job dealing with people’s tax obligations?
EKA: I get that question all the time. I’ll admit, when somebody meets me, and I’m very gregarious and outgoing, they say, how can you be a CPA? Well that’s the quick question. I’m a CPA by trade. At the end of the day, whether you’re starting a business or not, you have to pay taxes. Death comes as well as taxes, you’ve got to pay the tax man. The mistake we make, or too many people make, is that they start a business and are not exactly sure what to do.
And then a year or two, three years later, when the IRS or the state sends them letters, that’s when they start freaking out. So you know, I saw an opportunity there to help people throughout the country. Because, no matter color, creed, race, height, size, you have to deal with taxation. So that’s something that a lot of people have misconceptions about, aren’t really sure about, and that’s where I come to help.
ABERMAN: And every entrepreneur has to deal with this, every small business owner, everybody has to deal with this. And yet, the rules are mind numbingly complicated. So I guess a lot of people, when faced with complexity, do what we all did when we were in school, which is, you punt.
EKA: Right. You’d be surprised. Every prospective client that calls me, we have a conversation. One of the things with my ads, that actually has been helping, is the fact that I allude to them hiding the IRS letters. I literally had a call with somebody today. He was telling me, he took the letter he got it from the IRS, and put it under his mattress, or put it in a drawer somewhere for the last several weeks. And that happens to so many people. If you don’t know the answer, it gets kind of scary. And the tax guy can be scary. You see people going to jail, and so you start freaking out and thinking that could be you.
ABERMAN: My sense from watching late night TV, maybe giving too much away there, is that there are a fair number of businesses that seemed to offer this service that feels a little bit sketchy to me. What does the legitimate approach to solve this problem look like?
EKA: The difference with us and some of the others are out there, one of the biggest things is that I try to help you. If I can help you, then I’ll let you know what you need to do so you can do it by yourself. Versus some of the others, who are just trying to get you on a retainer of some sort. Again, that’s their business model, that’s fine. But in many cases, information can be the solution, and the key to getting things solved. And in many cases, it’s paying the bill or figuring out a way to make payments that could be the solution to anything. But you won’t figure that out until we have a conversation. But that’s the difference between us, and what other people do.
ABERMAN: So give me an example. I’m a small business owner and I don’t withhold the taxes I should have, or I don’t take the right treatment of depreciation I should have, and suddenly I get an unexpected tax bill. How do you help me?
EKA: I’d go a little bit deeper than that, but generally speaking, using that as an example, we would find out what the IRS knows by pulling the transcripts, because I have a CPM license to do that. Others who don’t have that designation cannot. So, I will pull a transcript to see what the IRS has on a particular individual, in your case. And I’ll also see your past tax returns, and what’s in reference to it. Did you miss something? Can we amend the return? Can we fix a return?
And then, roll forward any gains that you may have had, or any tax credit you may have had forward. Then we’ll also figure out why the IRS is coming after you. Could be maybe an audit trigger on the type of business you run. Maybe you missed something, you didn’t report income accurately enough, because the IRS has a copy of that in many cases. And from there, it’s not a one size fits all, but it all depends on what’s happening in your life, and your business life.
ABERMAN: So I know I asked you earlier: why does an outgoing guy like you become a CPA, but you know, I’m listening to you talk. This seems very consistent with your entrepreneurial mission.
EKA: Yeah. At the end of the day, entrepreneurship is helping people, and then getting paid in exchange. So if you have an idea, and you and you can actually identify how that actually helps someone’s life, then you can be handsomely rewarded. And you know, make no mistake, I’m here to help people, but in the same token, I have bills to pay as well, as everybody else.
ABERMAN: So, I’ve heard a lot of different opinions on this: did the most recent run of tax changes make things easier or harder for individuals and small businesses?
EKA: That’s a very good question. I’ve been fielding calls from people who are freaking out about the 2018 tax law change, and here’s why. A very common question would be: oh, I got my refund back, and it’s way less than in prior years, this is ridiculous, it’s tax cuts for the rich, and then they proceed with more curse words. And then I say, well, if you think about it, because you’re paying more now, means that your income didn’t necessarily change, or maybe it went up. It means that you actually kept more of your money. Just look at it the way the service of the IRS looks at, it versus your refund. It’s not necessarily an indication that you’re paying less in taxes. What’s an indication is, how much you literally paid in taxes the prior year, and then after the change. That’s what people should look at.
ABERMAN: Well, I know you like to help people, so before I let you go, Ebong, give me three big things you wish everybody knew.
EKA: The first thing is, you’re not going to jail, unless you willfully try to withhold, or do something crazy, and create this new thing. You see these celebrities go to jail, that’s one of the reasons, or they had this ridiculous defense, like it’s not in the Constitution, I hear that a lot, which is ridiculous. Let me know where I should send you the cake, and then file in it, when you go to prison, so we can all enjoy that. But the other thing I’d also say is, don’t panic. Collect all the items you receive from the IRS, and there’s an actual way that we could go through this together, you can just literally give me a call. Go to the site and schedule a time to speak with me: ekanomicstaxrelief.com.
And the third thing I would say is: if you’re in business, or maybe you’re a sole proprietor, or Schedule C, or you’re an independent contractor, or you have like a side hustle, keep track of all your receipts. You don’t want to give yourself an opportunity to miss out on a deduction, and in the event the IRS comes after you via audit, which happens a lot with small businesses like that, or multi-level marketing. Make sure you have everything that you paid for, and you’ll be able to substantiate and justify what you’re taking as a deduction on your return.
ABERMAN: You’re telling me I should keep my documents. Does that mean I need 27 years of documents in my house? What’s a good rule of thumb?
EKA: I would say about two to three years, give or take. And then also what you can do is very simple: Dropbox. It’s free, go download your bank statements from your business account, and put them in there. And if anything, if you do it every year, it’ll become a habit, and that habit will actually will expedite any IRS problem. Fifteen years ago, I had a clothing business, and the IRS wanted to audit me. It took me 10 minutes to respond to the audit, and three weeks later, they sent me a letter saying, our bad, no problem.
ABERMAN: Conclusive proof that to be armed is to be forewarned. More importantly, we’ve just unpacked some great things. Ebong Eka from Ekanomics Tax Relief. Thanks for joining us today.