Tax Wisdom: Strategies for Business Growth with Erica Whatley

Claudia Pilgrim:

I know in the beginning we were talking about startups and looking at LLC or S Corp. Is it too early for a startup to actually look at becoming an S Corp in the very beginning? Or is S Corp something that should be considered later down the revenue?

Erica Whatley:

So it’s later down the revenue line, but I believe in planning. To me that’s a part of the foundation. So if you know that you’re starting this business and your goal is to really make money in this business, you should start your business thinking about at what point do I pivot?

At what point or at what income level do I change my strategy? So if you go from $5,000 a month to $50,000 a month, you waited too late if you did that jump. But you know once I started seeing a trend of $5,000 a month to $10,000 to $15,000, now I need to change my strategy.

Claudia Pilgrim:

Well, let’s look at the pandemic, Frances. We know that shook everybody’s business to some degree. Some tried to completely skyrocket it up.

Others did not. Do you find that when you’re looking at the tax strategy or just revenue coming in as a company, volatility in what that looks like quarter to quarter, year to year, month to month, and then how do you address the changes or fluctuations? So if you were at one point on scale, so you were $800K plus, and then now you’ve kind of gone back to the shift and you’re under that $800K, what does that look like?

Is that frowned upon? What does that look like with your lens? What does that look like as a business?

Erica Whatley:

So it’s not frowned upon. I believe in forecasting for your business. Forecasting just based on revenue, based on benchmarks, based on your goals. And of course, you have to adjust accordingly. Right. Being that the pandemic was literally a unicorn year, I feel like it should have opened everyone’s eyes to you should always be prepared for anything in business. Because you can go from zero to a million or you can go from a million to zero. But what does that look like? So I say forecast.

Claudia Pilgrim:

Do you forecast both sides, the trending down and trending up?

Erica Whatley:

Yes, okay. Because when it comes down to it, you have to look at, can I keep my team? What services would need to be cut first?

How do I sustain where I am? Or is it sustainable? Because there are a lot of companies that will think that their numbers are still sustainable, but it’s not reality. You went from making $100,000 a month with $80,000 worth of expenses, making $80,000 a month with $80,000 worth of expenses is not going to sustain you. So I like to look at it both ways.

Claudia Pilgrim:

Is there like a sweet spot where when you’re considering the shift or scale?

And I know startup, don’t worry, startups, we got you. But when you’re considering the shift or the scale, is there a sweet spot where obviously you meet you would meet regularly with your tax person or your preparer. But is there a sweet spot where you would be able to, because of course, crossing that bridge, crossing the span from shift to scale, sometimes, like you said, could be a drastic, it could be an incremental move.

Is there like a set dollar amount to say, hey, at this X amount of thousands or millions a year, you should do this? Or is it, I know it’s case by case. 

Erica Whatley:

Not necessarily. Because with tax planning, it goes so much deeper because you may have a million dollar company with two employees, I may have a million dollar company with nine employees. So we have to take that into consideration. But also to I may be married with nine kids, you may be married with one. So those scales, like you have to look at the company holistically. But then you also have to look at the person that’s running the company. And then two is based on goals.

Claudia Pilgrim:

Of the company?

Erica Whatley:

Of the company.

Your goal may be to have as much profit for you to reinvest back into the company. Whereas my goal is to have the company make as little as possible, show as little as possible on paper. It’s so much deeper than just the industry.

But what that person goals are, how do you see your business and what do you want to go to next? 

Claudia Pilgrim:

Okay, here’s a question. I’m a service based company. But for our product based friends, an inventory and the things that they would need to keep in their back pocket, if you will, or keep their business running, do the same rules or parameters apply when you’re, you know, scaling going from startup to shift to scale? Or is there other differentiators that companies who are service versus product base should be looking at or considering when they’re either looking for a tax strategist or talking with their tax strategist? Are there parameters that they should be considering based on the type of work that they do, whether it’s service or product?

Erica Whatley:

Product, their main focus is going to be increase of cost of goods. So you want to make sure that you’re accounting for inflation, you want to make sure that you’re talking to someone that understands the shift in products versus services. Let’s just take the pandemic.

Claudia Pilgrim:

Yeah. 

Erica Whatley:

Before 2020, people could get product shipped freight for maybe three or $4,000. I had clients that 3,000 went to 9,000 over the course of two or three weeks, because of the cost.

Whereas with service, you have a zapier connection and you went from paying $80 to $95. So you have to look at the difference of, again, your deductions versus the cost of goods, your software and subscriptions versus someone who is product based their cost of goods. 

Claudia Pilgrim:

And this is still in the realm of just understanding not only that foundation, but those next levels that you’re looking to attain.

I’m gonna come back to S-Corp, but I know there are other corps that hopefully you can chime in on. But for S-Corp, I know for me, we’ve made my company, we file as an S-Corp. We’re still an LLC, but we file as an S-Corp.

Can you talk about, you can go as deep or shallow as you choose, but can you talk a little bit about what the advantages are, S-Corp, LLC, C-Corp, what that may look like? 

We can make up a company if you want, but what that may look like on paper, but then to you as you’re looking over a company and making those kinds of recommendations. 

Erica Whatley:

So starting up, you definitely want to do your LLC, Limited Liability Company.

That is literally just for that liability. So if something happens to you, you’re separated from your company. You’ll still follow Schedule C, which is a part of your personal tax return, but you have a actual LLC, a business.

LLC elected to be taxed as an S-Corp. So S-Corp, subcorp allows your company to file a separate tax return for you. 

Claudia Pilgrim:

Yeah, that’s what we do.

Erica Whatley:

Exactly. So Claudia’s company is separate from Claudia. However, a part of S-Corp is you have to be on payroll.

So you’ll put yourself on W-2. It eliminates the self-employment tax from you having to file an LLC on S-Corp, which will save you tens of thousands of dollars, depending on how much money you made. But also too, your profit or your loss from your business flows into your personal return.

And there are a lot of other advantages as well. And those advantages are different for some people, but that’s the biggest, one of the biggest advantages is the savings of self-employment taxes. When we think C-Corp, let’s think Coca-Cola, Pepsi, larger corporations, that entity is 100% on its own.

So when Amazon filed taxes, Amazon is only filing taxes. And Jeff Bezos taxes are totally separate from that. And C-Corp, there aren’t many small businesses that are C-Corp. There are a few. It’s not a good option for a lot of people. 

Claudia Pilgrim:

Because they’re not at that scale.

Erica Whatley:

They’re not at that scale. C-Corp is flat rate tax, right? But if you make $100,000 and you pay 30% flat tax on C-Corp, whereas you make $100,000 and you pay 20% on S-Corp, those are the type of numbers you do have to look for. These are not actual numbers. This is just an example. But you have to look at that difference when it comes down to selections. And of course you have partnerships. Partnerships is just me and you saying, hey, we’re going to agree to have a business. 

Claudia Pilgrim:

Yes! Bourbon. All the way. All the way.

Erica Whatley:

So partnerships is just me and you agreeing to have a business. And you can file a partnership tax return, which is a 1065. But also as a partnership, you can elect to be an S-Corp.

Claudia Pilgrim:

If you’re a partnership and you elect to be an S-Corp, does that mean that the partners would have their own personal tax? 

Erica Whatley:

So the company, let’s just say our bourbon company, would have a S-Corp return. And then we would get scheduled K-1s, which tells us how much we split as a partner. If it’s 50-50, we made $100,000. Claudia gets $50,000 on her personal. Erica gets $50,000 on her personal. So those are just a few of them, a few of the options. 

Claudia Pilgrim:

We’re going to pause for a second because I know you accumulated this knowledge over the years. And I’d like you to share a little bit about how you define success and what success looks like for you today.

Erica Whatley:

So my definition of success changes every single day.

Claudia Pilgrim:

That’s fair. 

Erica Whatley:

It changes every single day.

Today’s success was I got through Atlanta traffic. I successfully made it somewhere on time. So success really depends.

But no, honestly, today’s success to me looked like time freedom, time to actually say, okay, I’m going to clear my schedule and I’m going to come sit with Claudia. Or I’m going to clear my schedule and I’m just going to read. I’m just going to have time to myself or make time for my family.

So that’s what success looks like to me. 

 

Claudia Pilgrim:

You gave both personal and professional. Do you keep them the same or do you, like, meaning that is the version of success that I’m defining for myself now, or do you have separate?

And I’ll weigh in on that for me in a second, but I’m actually, I’m actually curious. Like, do you keep the definition of success, which is what you gave, you blended both. Do you always keep them blended or do you sometimes separate them based on?

Erica Whatley:

I sometimes separate them.

Claudia Pilgrim:

Yeah.

Erica Whatley:

I have to. Yeah. Because like I said, sometimes, like yesterday, success was just me being able to get out of the bed.

So I, it just depends on the day.

Claudia Pilgrim:

For me with success. It really is. I have like family goals and aspirations and desires.

Of course, I’m a mommy of two teens. So, you know, we have those two teen girls. We have those challenges, but there’s that and wanting what’s best for them and, you know, all that fun stuff and making sure that they’re good.

And to me, the success is being able to be, be there for the activities, you know what I mean? Or seeing them win a game or win a cheer comp. In some cases that part is good because I’m present.

I guess that’s what I’m trying to say. That element for me right now is presence as a family. Right.

But then in business, it’s like, dude, we’re making, we’re racking in, we’re making, you know, sign these contracts, making the money. I say that a little bit tongue in cheek. Of course you want the revenue goals and things like that to come in. But I feel like success, if we’re successful and profitable, then that means the team, my team will also be profitable and successful. Because I’m, I believe it’s very key to not uplift.

Yes, of course uplift, but like I want to empower my team for whatever their level of greatness is or whatever their level of success is. And so if we as a company are brought there and we’re successful, then they can then have their version of success as well. So I think it’s apropos, I think that’s the right way to use the word, but I think it’s apropos that both family and business, yes, they are going to come together because it’s you as a person, but to have those separate and sometimes together is a good thing.

It’s definitely a good thing.

Erica Whatley:

I think too, for me, I had to separate mine. 

Claudia Pilgrim:

Why?

Erica Whatley:

Because it just becomes a ball of frustration. It becomes a lot. So like you have 10 girls, I’m outside of that phase.

My daughter’s 26, it’s me and him. So it’s like, okay, what does success look like now? Because for so long, my success was wrapped up in her success. Once she was gone and she’s doing her thing, the only other success I knew was my business. And that ended up pushing a lot of personal stuff away from me. So I was like, okay, you have to separate it to make sure you’re same pretty much.

Claudia Pilgrim:

I like that you have the keenness to know that this is the self-awareness that’s what I’m looking for. The self-awareness to know that they had to be separate, but then that you also knew that your daughter’s a full-on grown-up now. And you’re able to, I guess, now reclaim time. Reclaim, not reclaim, that’s not nice, but no, that’s it. 

Erica Whatley:

That’s it. 

Claudia Pilgrim:

Spend the time as you so choose.

Erica Whatley:

Yes.

Claudia Pilgrim:

So we paused on the success part. Let’s push play again because I want to get back into the LLCs because I know there’s some legal shifts and changes. I kind of played before we started filming and said the LLC, but can we talk about what the LLC BOI is and what this means for companies?

Erica Whatley:

All right. So effective January 1st, 2024, FinCEN, which is the Financial Crimes Enforcement Unit, rolled out BOI, which is Beneficial Ownership Information. So pretty much what’s happening is any US LLC has to register on the FinCEN website.

I think it’s FinCEN.gov. And on that registration, you’re just pretty much telling who owns your company. So let’s just say for Claudia, you log on and we go through it. It’s going to ask you your tax ID number.

It’s going to ask you who is the owner? Do you have any partnerships? Do your kids have ownerships in the business?

Things of that nature. And you just register. It literally takes less than five minutes.

Claudia Pilgrim:

And this is something that I could do myself if I

Erica Whatley:

1,000%. It’s your information. You know who owns the business.

You know your address. You know all that information. But of course, if you get stuck on something, you always call your accountant or tax writers or whoever to help you through it. And once you file, you just save your paperwork at the end.

And you do it for every LLC. So if you have multiple LLCs and you’re just renewing, you don’t do anything with them, you still do it. If you made $1 or a million, you still file it.

And it has to be done before December 31st, 2024, or else you’re going to get fined. This is for LLCs that was set up prior to December 31st, 2023. If you set up an LLC in the year 2024 moving forward, you have to do the VLI within 30 days.

Claudia Pilgrim:

Do they send you something to tell you you have to do or are you just supposed to know you have to do it?

Erica Whatley:

I don’t know if they send you anything. Honestly, I don’t know.

Claudia Pilgrim:

We’ll get the website for the agency. Do you know what the ramifications are if they miss it or don’t know about it?

Erica Whatley:

It’s $500 a day.

Claudia Pilgrim:

Oh, okay. 

Erica Whatley:

I think the max is like up to $10,000. It’s like the max or something like that.

And there’s some other ramifications behind it, but yeah, you definitely want to get it done. 

Claudia Pilgrim:

All right, y’all. If you’re an LLC, get your boy, your VOI done.

Erica Whatley:

As soon as possible.

Claudia Pilgrim:

Yeah. Oh, wow. That’s okay.

I didn’t know that. I know you sent out communications because that’s what you do. You do it efficiently and effectively, but I did not know that. Oh my gosh. Do you know the reason why? Why is this a thing now?

Erica Whatley:

It has a lot to do with just money laundering to kind of stop that. People set up those shell kind of companies. 

Claudia Pilgrim:

Right.

Erica Whatley:

So just do illegal activities so as to prevent that. Look at somebody on their Ps and Qs. Okay.

Claudia Pilgrim:

I forgot to say this at the top of it, but one I want to say is Erica is one third of my, what I call money team. Erica comes in with tax strategy. We have quarterly calls where we talk about everything from business profitability, new ventures, family, like you name it.

We have discussed it.

 

Erica Whatley:

It’s in the conversation. Jet.

All of it. Yeah. 

Claudia Pilgrim:

Strongly encouraged.

No matter if you are in the very beginnings of your business or you’re on scale to set up a money. Well, you don’t have to call. I call it money.

I call them my money team. They know they’re my money team, but set up an advisory board or a money team that can help, help you just where you’re weak. This is not my lane.

Yes. Data is part of what I do, but tax strategy is not it. And I’m okay with that.

And I will admit that. But Erica’s as part of the money team has brought, I like, I like my money team.

Like y’all love y’all because you guys actually have conversations amongst yourselves when we’re and sometimes I’d be like, can you translate that? Cause I don’t know what that means. 

When we have our money team calls, like what do you find is most advantageous from your perspective

Erica Whatley:

For us, all of us being on the call and just really going through, okay, this is the plan I have for Claudia versus this is the plan I have for Claudia. And I was like, nope, I don’t want Claudia doing that. Claudia needs to do this.And it’s how we work together to get you to that, the point where you want to be, right. You know, we don’t have to agree, but we always know, we know our position and I think we play it very well. 

 

Claudia Pilgrim:

I 100% agree.

Erica Whatley:

And just getting you to where you want to go with some people, even if their money team is just them and their accountant, treat your business, how you want to see it. So if you know you’re going, you want to be in a position where you’re making two, $3 million a year, you start training your business like that. Now start understanding where you are and what you want.

Claudia Pilgrim:

While we’re talking about that team building, especially in that advisory capacity, do you have any suggestions or things that companies and businesses should look out for when they’re seeking a tax strategist or an accountant or insert money team folks? 

Erica Whatley:

So I always tell people when it comes down to someone working with your money, at this point we’re married, be prepared and be with someone that you’re comfortable talking to, being open and transparent with. What was the old saying?

You don’t lie to your attorney, your doctor and your accountant. 

Claudia Pilgrim:

Girl, I can’t quote unquote save my life. So that sounds good to me.

Erica Whatley:

So you have to treat that person or your team as the people that you’re married to. You have to be able to get along. You have to understand you’re not going to agree, but we know that we’re doing this together for a greater good.

That would be the first thing. And just someone that you feel comfortable being able to say no to, or I want to change positions. I want to pivot with you. So those would be the main things that I’m looking for.

Claudia Pilgrim:

What about opposition and a good opposition? So like I come to you all and you all know my endeavors.

And if there’s something in that endeavor where you’re like, eh, Claudia pumped the brakes on this. Like, do you think that, how do you uncover it? Like I’m comfortable with y’all.

So, you know, I’m fine. Y’all be telling me pump brakes or slow your roll or something like that. Then we have to slow down a bit, but finding that opposition or that, which is needed, that challenge, if you will, how would you say someone is a good way someone can go to uncover that, to find a person like yourself who will be able to be like, yeah, no, you might want to consider something else.

Like what are good, good markers, I think is what I’m asking.

Erica Whatley:

Have they worked in your industry before or with your industry? Do they understand the risk that come with some, some of these investments?

Like when we just discussed the jet, we had to go down that list of, hey, this is the risk. It sounds beautiful, but this is the risk. Asking questions. They have to be comfortable asking questions and asking uncomfortable questions and really understanding, okay, you say this is a goal, but is this really something that you want to do? Is it just how you feel right now? Like really asking the hard questions is going to be the main thing.

Claudia Pilgrim:

And I’m going to put myself on the chopping block again, because why not? So for the nonprofit, for Black Girls Fly, which we are officially a 501c3. You heard it here.

Yes. Very excited. I know when we originally, you know, had the meetup and the conversations, it was around the LLC, the capital consulting group. But do you think that since I now have a nonprofit, that it would make sense to, of course, still talk about it in the money team? Or should we be looking to get the nonprofit its own quote unquote money team? 

Erica Whatley:

No, we’ll still talk about it until we get to that point. Because what you’re doing and the purpose behind the nonprofit and where we see it going, you want to set the foundation right. Once we set that foundation right, then we’re going to expand into, hey, I can’t be a part of it, but let’s interview the person that can. Because once you get to a certain point with that, we may not be who you need to take it further, so it’s just based on that. 

Claudia Pilgrim:

Fair enough. Fair enough. I’m excited because interestingly enough, we talk about startup shift and scale. We are in startup with Black Girls Fly. And I think the same, I know we didn’t talk about nonprofits in terms of, you know, we did LLC, but I think there are still some, like you said, very similar attributes that nonprofits could then translate into what that would look like for them.

So you still need that foundation. 

Erica Whatley:

You do. And with nonprofits, you legally need that foundation.

Claudia Pilgrim:

So yeah, that’s new waters. But here we go. 

Erica Whatley:

We’re gonna jump in together.

Claudia Pilgrim:

Right, exactly. So what do you think is on the horizon for in the tax industry? I know, obviously, we don’t like to date things, but we’re in an impending election and things of that funness.

So what do you think is kind of on the horizon for tax law? 

Erica Whatley:

Lots of changes. Yeah, lots of changes.

Like right now, they’re trying to determine if they’re going to raise the CTC, which is the Child Tax Credit, increase it. January 29th is the start of tax season. But we have to wait to see if it’s going to be increased before we actually file people’s taxes.

So I think we’re going to see a lot of changes that way. I think we’re going to see increase in taxes and tax rates, just like we see an increase in inflation. I think it’s definitely going to be a lot of changes there.

As far as… She’s like… The election.

Claudia Pilgrim:

I mean, you can say Switzerland. It’s all good. 

Erica Whatley:

Yeah, I’m trying.

There is no politically correct way to say it. I just say be prepared for anything and everything. 

Just be prepared for it. I think a lot is going to shift and it’s not going to shift in a beneficial way to us. So you just have to be prepared for it.

Claudia Pilgrim:

Well, now accepting applications. You heard her first in the airplane. I think that…

I’m with you. As long as we’ve been working together, I’ve seen the, not hit pivots, but the adjustments that we’ve had to do with the company just in growth and in strategy to make sure that we’re in the best position. I think that at this point, we’re going to actually look at just, you know, what this new year has to offer.

Erica Whatley:

Exactly.

Claudia Pilgrim:

In the realms of just being prepared for, like you said, plan now. So being prepared for what’s to come. Any parting words before we wrap?

Erica Whatley:

People do research.

Claudia Pilgrim:

Yeah. 

Erica Whatley:

So many people are damaging themselves, listening to social media gurus.

And don’t get me wrong. There are some amazing CPAs and amazing tax strategies and CFOs on social media. But a lot of people are only giving you the bones and not the meat.

They’re giving you piece by piece and people are running with this information and it’s wrong. So do your research. If it sounds just way too good, it’s probably not right.

You’re probably missing a lot of the information. So that is something I would tell everyone to do. 

Claudia Pilgrim:

No, that’s very key. And in case anyone’s curious, Erica and I met through second third of the money team, our CFO, Kendra, who you all have the lovely pleasure of meeting here in the future. But yeah, so yeah, I’m with you on the research and I hate to say no within your network, but really and truly a lot of the relationships that have been cultivated with yourself, with us, those that you can’t see off camera, but the video team and operations team and such has really been through relationships. So I’m with you.

Do that research. Use your network. Build those relationships and rapport.

Get that money. 

Erica Whatley:

Pay people for their information. If you get a referral to a great accountant and someone has helped them, pay these people.

You want the information, they’re going to walk you through it, set you up right, pay them. That’s the big thing for me. 

Claudia Pilgrim:

Yeah, yeah. No, that’s a good point. That is a good point. Everything what everybody wants is $399.

Like no ma’am, no sir.

Erica, thank you for joining me on She Built Success. I wish you much success for 24 and beyond.

Erica Whatley:

Thank you very much. Thank you very much.

Claudia Pilgrim:

And definitely tune in. I’m Claudia and this is She Built Success.