Cathy Strobeck, CPA, is the owner of Atlanta area based Add-Vantage Accounting Services, Inc. and the author of Solving the Puzzle: How Small Business Owners Can Grow Their Business and Avoid Tax Trouble.

For over 20 years, Cathy has helped business owners effectively manage their finances and establish a strong foundation for stability and growth, while avoiding the tax issues that so often crop up along the way.
We sat down to talk to her about her background and her tax advice for small business clients.

Tell me a little about your background. What prompted you to start your own accounting firm? 

I am a CPA and have been a CPA since college. After graduating, I went into public accounting with some of the regional firms in Atlanta, but I went into business for myself soon after that. I set a path when I started college and followed it straight through.

It was important for me to run my own business, because it allows me to have control over my own time and the people I work with.

Being in control of my own time has always been important to me. At one of the companies I worked for right before I went out on my own, the partner basically said to me that I was required to come in on Saturdays during tax season.

At the same time I was at manager level, and I didn’t understand why it couldn’t be more flexible. Suppose I want to go to my kid’s soccer game on Saturday — can I come in on Sunday instead? The answer was no — so I walked out.

Now I’m in control of my own calendar, so I can do what I need to do. Don’t get me wrong — I work weekends and evenings when I need to, but I can also choose to arrange my work around a personal commitment if I want.

Owning my own business has been especially important to me in terms of my family as well. I was newly married when I started out on my own, and we knew we were going to have children, so I wanted a flexible career.

So far, it’s worked great. The kids know that if I’m in my home office, they can’t have my attention right away unless it’s an emergency — and usually if they give me ten minutes I can come talk to them.

What do you love most about being an accountant? What’s one fascinating aspect of your job that most people don’t know?

I like puzzles, and accounting is a huge puzzle to me. There are a lot of laws and rules involved. Some people find this boring, but I get a lot of satisfaction out of making it all fit together neatly, like solving a puzzle.

I think something that most people wouldn’t realize about my job — but that I think about a lot — is how much of a privilege it is to get to work for others in this capacity.

How many people do you talk about money with? Probably not many. To me, it’s a privilege to help people in such an intimate way. I have 20-year relationships with some clients who I’ve never met in person, yet they trust me with some of the most private details of their financial lives.

I really feel like it is an honor and a privilege to have each client’s trust. I take it very seriously and I am very protective of my clients’ information.

What kind of clients do you normally work with?

I like attorneys, of course, that is a niche area of mine. I also work with a lot of people in real estate — I started out in the real estate niche, and I was also an investor.

But overall I definitely focus on small businesses – usually those with revenues of less than $10 million.

What’s one of the most common tax mistakes you see small business owners making when they start out?

Probably not getting an incorporated entity set up to mitigate tax issues.

This happens so frequently — someone is really good at a certain thing, like furniture making or car repair, and they just fall into owning their own business without setting it up properly.

Then three or four years later they come to me, and it turns out that if they had talked to me years ago, they could have saved thousands in tax dollars.

I touched on this many times with lots of different people in my book — don’t think of it as an expense to talk to a CPA or an attorney in your industry who can help you. Think of it as an investment in your business. The money you can save in that scenario often more than pays for their professional fees.

If someone is considering starting a business, what would you suggest they do right away to make their taxes easier and less costly?

Open a new bank account and separate your personal and business expenses.

What the IRS really wants people to do is separate business and personal spending. But in practice that’s very hard to do.

Even the IRS understands that. They know that sometimes mistakes happen and occasionally you might put a personal expense on your business card or vice versa.

But I’m always thinking about what I would need to support a claim of business documentation for an expense if I had to go to audit with a certain client.

Keeping careful documentation and separating expenditures is huge, because one of the things the IRS looks for in an audit is whether your books are neat. If you show them you’re organized and do your best to separate your business and personal expenditures, they will be much less likely to do a deep dive into your accounts.

What’s one of the biggest shifts in tax mindset when someone switches from a salaried position to owning their own business?

Paying quarterly taxes in a timely way. It’s very easy to be a W-2 employee and never think of your taxes, because they’re taken out by your employer before you ever see the money.

When a new business owner is just starting out, it’s always a big surprise when they don’t make any tax payments throughout the year — and all of a sudden they owe regular federal and state taxes, plus self-employment taxes they didn’t even know about.

Once I had a W-2 client who started her own business. I helped her estimate her quarterly tax payments, and she said “I have never paid this much in taxes in my entire life.” The thing is, she had — but she’d never actually seen it because her employer took it out of her paycheck for her.

What about people who’ve owned their own business for a long time? What’s one of the most common tax mistakes you see them making?

Dealing with employees is always hard. There are complex rules about how you pay someone who works for you. You can pay them as a full-time W-2 employee and withhold taxes for them, or you can pay them as a 1099 contractor with no withholding.

There are a lot of instances where business owners pick the designation that benefits them the best — which they’re not supposed to do. The IRS has rules about which employees you can consider full-time or contract.

The biggest factor is how much control you have over that person and how they do their job.

What are some of the biggest tax jams you’ve gotten clients out of over the years?

Probably one of the biggest successes I had was reducing a client’s $60,000 penalty to $0.

That was around the time the Affordable Care Act was first put into place. When the act went into effect, employers were required to offer health insurance to employees, but if you had less than 50 employees, you weren’t required to.

One of my clients owned two small businesses, each of which had fewer than 50 employees. But the IRS had lumped them together without her realizing, and when added together, she actually did employ more than 50 people.

So unbeknownst to her, she was required to offer health insurance to her employees, and she hadn’t been. She was hit with a penalty of $60,000. I worked with her and the IRS to eliminate that penalty.

When someone gets an IRS notice in the mail, it can be terrifying. What advice would you have for someone who gets that letter for the first time?

Don’t take any action without first talking to your accountant!

Sometimes the mail you get from the IRS can seem like good news. For instance, a client of mine once received a check from the IRS for $20,000. She was thrilled — she thought it was a tax refund. But she had no reason to expect a tax refund that big.

Luckily, she called me before she cashed it. It turns out the IRS had applied a previous payment she made to the wrong quarter, so they were showing an overpayment where next quarter would show an underpayment.

If the client had cashed the check, she would have the money this month—but later on, she would get hit with fines and fees for underpaying. She hadn’t underpaid; the IRS had simply applied her payment to the wrong quarter.

The IRS makes mistakes all the time. But even if it’s not a mistake, contact your CPA before taking any action. And don’t panic — as long as you don’t ignore the IRS entirely, you’ll have recourse.

Got Small Business Tax Questions? Ask the Experts

Cathy Strobeck’s book, Solving the Puzzle: How Small Business Owners Can Grow Their Business and Avoid Tax Trouble, offers a wealth of information for small business owners.  If you need help with your small business finances and taxes, Cathy can be reached through her website.

And if you’ve received an audit letter from the IRS, don’t panic. Contact Alyssa at 404-551-5838 today to schedule a free, confidential consultation.