SmallBizResource Blog -- Women in Business

Wednesday's Woman: Tax Expert Barbara Weltman

Posted by Gayle Kesten Wednesday, Mar 18, 2009, 12:21 PM ET

I have as hard a time understanding the myriad tax, legal, and financial issues impacting small businesses as the next guy and gal. The difference is I've spoken to the quintessential authority about those topics, and you're about learn from her, too.

Barbara Weltman is truly a one-stop-shop for small-business advice. "My mission statement for my business is to make entrepreneurs smarter," said Weltman, a tax and business attorney who began her own practice in the early '80s. To date she has written more than a dozen books, hosts the Build Your Business radio show, writes the monthly Big Ideas for Small Business newsletter, and is called on as an expert source by The New York Times, The Wall Street Journal, TV networks, MarketWatch.com, and Bank of America's Small Business Online Community. And all of those credentials are just the tip of the iceberg. "Every day I hear stories from people coming up with new, creative, exciting ways to start businesses, to stay in business, and it's just very inspiring for me," Weltman said.

During our conversation, Weltman shared how a company buyout proved to be the catalyst to start her own business, why you can't merely hire an accountant and call it a day, how you can benefit from President Obama's stimulus package, and her opinion about the country's financial mess.

SBR: We have less than a month to go before taxes are due. Is our conversation too late?
BW: No, because not all small business owners file on time. Many file for an extension.

SBR: Is there a recurring question you're asked by small businesses?
BW: I get all kinds of questions -- primarily tax questions because that's my area of expertise. I also get questions about financing issues, HR, legal questions, firing people, hiring people. I also get some of the softer questions. For example, what do I do about my kids and starting a business at the same time?

SBR: I've spoken to so many women who have done exactly that and am always amazed.
BW: Well, I did, so I know!

SBR: Tell me about that.
BW: It was very interesting. I was finished with law school, I was out and about, and I was pregnant. I applied for a job, but you have to realize this was 32 years ago. Usually when you're pregnant you're fired. It was completely different than it is today. I saw a job advertised at the JK Lasser Institute, which is now part of Wiley Publishing. I called up, and I knew I was perfect for job, but said, "I'm pregnant." And they hired me anyway. I stayed there through two pregnancies.

SBR: You eventually struck out on your own. How come?
BW: JK Lasser was based in Westchester, [N.Y]. It was bought out by Simon and Schuster. This was on a Thursday, and they said, "If you want to continue working, you'll have to show up in New York City on Monday." I didn't want to be so far from my kids. So I started my own practice, which I ran from my home. I built an extension onto my home to have a professional office, and I was here for my kids while they were growing up.

SBR: What kind of challenges crop up for you as a business owner?
BW: My whole business is based on the computer, so when I experience a hiccup there that's a major deal. I have a regular tech service that I use that monitors my computer regularly, and if need be I can get on-site help. I pay for this on a regular basis. I think it's essential for people who depend on their computer.

SBR: How do you manage your own finances?
BW: I use QuickBooks. It's essential for everyone to use some kind of accounting software or online solution. I also have a person come in quarterly to balance my checkbook and check that everything is correct in QuickBooks.

SBR: What do you see as the biggest misconception about taxes among small businesses?
BW: One of the problems I see is business owners think because they have an accountant -- as most small-business owners do -- then they don't have to think about taxes. It's a topic that's too complicated and challenging, and besides which they have an accountant. What I advise business owners is the opposite. Having the accountant is great and it's important, but because you have to make day-to-day decisions in your business, you have to know what's going on. Should you buy or own equipment? Buy or lease the car? Who should have title to the car? Should you hire an employee or use an independent contractor? All of these day-to-day decisions have tax implications, and especially in a tough economy when pennies count, there's no point incurring additional taxes that you wouldn't need to pay if you had make smart decisions in first place. Most small business owners don't call their accountants to ask these questions.

SBR: Shouldn't their accountants be calling them?
BW: Accountants could provide so much valuable help and advice to business owners -- for example, just informing them of new laws. We just had almost $300 billion in tax breaks enacted in February. I would question how many small businesses owners received any communication from their accountants about what the breaks were and whether they're entitled to them.

SBR: Do those new tax breaks apply for the 2008 year?
BW: It's very complicated. Some are for 2008 only, some are for 2009, and some for 2009 and 2010. So you have to look at each particular break. There's no generalization. So, for example, businesses that suffered a net operating loss in 2008 have an opportunity to carry back those losses to prior years, use those losses to offset income in the prior year, and get the tax refund now. The usual carry-back period is two years, but the new law gives you the option to opt for a three-, four-, or five-year carry-back. So if you have a big loss you'll be able to use it up in these prior years. And that only applies to net operating losses arising in 2008.

Then for 2009 breaks, there is an extension of the first year expensing limit to write off equipment purchases. The limit is $250,000, which is what it was for 2008. The same with bonus depreciation. You can depreciate 50% of the cost of equipment in the first year, and again that's a one-year extension.

SBR: What do we need to know in terms of deductions?
BW: There are some new numbers. For example, people who use their personal car for business get to write off more of the cost in 2008 than they did in 2007. The IRS standard mileage rate is 50.5 cents per mile for the first half of 2008, and 58.5 cents per mile for the second half of 2008. Both are bigger numbers than 2007. There are higher limits for putting money into SEPs [Simplified Employee Pension plan] and profit-sharing plans compared to the prior year, and higher limits on contributing to health savings accounts. This is an important thing for many small business owners today who are looking for an affordable way to offer health coverage by combining a high-deductible plan with an IRA-like savings account called a health savings account. The beauty is the account grows tax-deferred, and anything you take out to pay for medical costs comes out tax free. There's no use it or lose it.

SBR: There's so much to stay on top of.
BW: That's my job -- it's what I do. I try to make this information understandable. My mission statement for my business is to make entrepreneurs smarter. Through my newsletter, through my Idea of the Day, I put that information out there.

SBR: What do read to stay on top of everything?
BW: I read a number of tax services that I get every day. I'm on all the government email, newsletters, and releases -- the Department of Labor, Commerce, the IRS, Energy Star.gov, SBA, Social Security Administration, you name it. It's my job to go through it all and find ideas and information so I can put it out there. I figure business owners don't have the time to do it. I'm doing it for everyone else.

SBR: Do you follow any blogs?
BW: I read a lot of them, but don't necessarily follow one in particular. Well, I do follow The Franchise King. He has been a guest on my show, and I find his information credible and helpful in that particular area.

SBR: Do you tweet?
BW: Not yet, but I guess I don't have a choice. Everyone is moving in that direction, so I guess I have to do it. To be honest with you, I don't know how I'm going to find the time to do that. My virtual assistant might help.

SBR: What kind of advice do you give new businesses?
BW: One of the first things I tell people is you have to have a good idea. You have to test the market and know the idea is viable. People don't think they need a business plan, but I think the process of writing one is enormously helpful because you have to think through various challenges you'll be facing. The thought process is so valuable. Then the next thing you have to do, and it's so important, especially for microbusinesses, is you have to set up a separate business bank account and have a separate credit card... They think they're going to remember that when they went to Staples, last week it was to buy their kids' school supplies, and the next week it was buy office supplies. You need to get books set up right, and get started on the right foot.

SBR: Any other mistakes you see new businesses making?
BW: Business owners think they come up with a great idea, and they just plow ahead without gets all of their ducks in a row before they open their doors. For example, they might want to think about whether to incorporate their business or form an LLC. It's such an important legal step to consider for personal liability protection, especially if there's any possibility of injury at all. You also need to get insurance coverage, a business owner's policy to cover you. People think they're working from home and are protected by their homeowner's policy, but, no, it doesn't protect you if you're running your business from home. Let's say you have inventory, gift baskets, and a flood wipes them out. That's not covered. You need to find out what is and isn't covered and get the right kind of insurance so you don't have these problems later on.

SBR: What are your thoughts about the economic crisis, the Wall Street bailouts, and the impact on small businesses?
BW: In the government packages and programs, there's very little direct help for small businesses. There's a little bit of funding for some of the SBA loan programs, but not significant. The way small businesses may be able to benefit is only trickle-down. For example, I had an email from a contractor asking what's in the package for him. I told him, you have to contact your local government and find out what construction projects are coming into your area, and then there will be opportunities to bid on those projects or to subcontract on them. That's how small business is going to benefit. You're going to have to be creative, out there thinking, "What industries are getting funding? How can I benefit?" For example, a lot of money is going toward green industries and alternative energy. Ask yourself, "How can I as a small business owner service those industries?"

SBR: Do you think small businesses are getting the short end of the stick?
BW: Yes, I do. But one of the problems is, who's speaking for us? We do have a few advocacy groups in Washington for small business, but those lobbyists aren't taking the people in Congress on junkets and private airplanes. I think we just don't get enough attention.

SBR: What's going to change that?
BW: I don't know. But what's going to happen is small business is going to survive and thrive in spite of everybody else. Small businesses will find ways to make it. It's the businesses that weren't hugely dependent on credit, that maybe had their own resources they could turn to carry them through, that weren't bloated, that are surviving.

SBR: Do you think people are going to truly learn a lesson from this recession?
BW: It's exactly like childbirth. You go through the pain and you think, how are you going to have another child? Then you forget and have another. It's nature's way. I think in business that's what is going to happen. People will cut their expenses and run very lean now, and then when good times returns as they certainly will at some point, they'll start spending more money, and they'll forget this. I'm not saying everyone -- it's hard to generalize. Some people are going to learn the lesson and be more disciplined in their businesses, but I don't think that's for everybody.

SBR: What tax laws would you like to see changed?
BW: I think it’s outrageous that self-employed people and more than 2% of shareholders in S corporations can't deduct the premiums for their health coverage as a business expense on Schedule C. They have to deduct it as a personal expense on the Form 1040. What this means is because it's not a business expense, I'm essentially paying self-employment tax on this amount. It's a big deal. Just that one law change would save so much. The other thing that the IRS has been talking about as a project for at least three years is creating a standard deduction for home offices instead of having to list all the related expenses -- your gas, oil, electricity, water. Whatever number they come up with, think about the time it would save you not to figure out the homeowner's deduction.

SBR: Any parting advice?
BW: Taxes for small-business owners is a year-round thing. If you have any employees, even if it's just yourself, you're going to have payroll responsibilities. You need to think about all the obligations -- federal, state, and local. Any kind of tool you can use as a business owner like this to save yourself time and worry is so invaluable. The smaller you are, the more tools you have to use because you can't manage everything without help.

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Recent Wednesday's Woman articles:

• IAC Professional's Heather Villa Makes Bookkeeping 'EZ'
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• The Delicate Art Of Giving Constructive Criticism
• Dawn Rivers Baker, Editor & Publisher of The MicroEnterprise Journal
• Contest For Moms In Business
• Archives

The Wednesday's Woman series is written for today's community of hard-working, small-business women, featuring profiles, industry trends, research, work/life balance issues and other topics of interest.

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