The #1 Tax Mistake That Bankrupts Entrepreneurs—Claudia Moncarz Explains How to Avoid It
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
In this engaging conversation with tax attorney Claudia Monkarsh, host Paul Alex explores the critical importance of proper tax planning and IRS protection for entrepreneurs and small business owners. (01:27) Claudia, a powerhouse Latina attorney from Panama who built one of Florida's most respected tax law firms, shares her journey from traditional family expectations to becoming a business owner who helps thousands navigate complex tax situations.
- Main Theme: The episode focuses on empowering entrepreneurs with tax knowledge, breaking down limiting beliefs around money management, and providing actionable strategies to avoid costly IRS problems that plague millions of business owners annually.
Speakers
Claudia Monkarsh
Claudia is a seasoned tax attorney with 20 years of experience who has built one of the most respected tax law firms in Florida. Born in Panama and raised in the United States, she earned her law degree and a master's in tax law, specializing in helping small business owners navigate complex IRS situations. As a certified money coach and proud Latina, she has helped thousands of entrepreneurs gain clarity, confidence, and protection from tax-related issues.
Paul Alex
Paul Alex is the host of the Level Up podcast, a former law enforcement officer turned serial entrepreneur who has built multiple successful companies. With his podcast currently ranked #1 in business on Apple Podcasts and reaching over 100,000 daily downloads, Paul focuses on helping people overcome limiting beliefs and achieve financial success through practical business strategies.
Key Takeaways
Implement the 15% Tax Rule Immediately
The most actionable advice from this episode is Claudia's "hack" for tax planning. (30:23) Every time you receive payment as a self-employed individual or contractor, immediately send 15% to the IRS. This creates a forced savings system that protects you from owing large tax amounts later. As Claudia explains, this approach works better than trying to save money separately because it removes the temptation to spend tax money on business expenses. The IRS doesn't mind receiving money early, and this strategy builds a credit for future tax obligations.
Maintain Impeccable Financial Records
Poor record-keeping is the biggest tax mistake small business owners make. (27:07) Claudia emphasizes that business owners must know their numbers - what money comes in, what goes out, and where every expense is allocated. This isn't just about organization; it's about survival during an audit. With modern technology, there are apps for mileage tracking and receipt digitization that make this process easier. The key is implementing systems from the beginning rather than trying to reconstruct records later, which costs significantly more money.
Always Open IRS Letters and Never Ignore Them
The worst mistake is ignoring IRS correspondence, which can escalate to bank account freezes, passport revocation, and employer garnishments. (33:22) Claudia shares that the IRS follows a specific roadmap designed to get you to the negotiating table. They have extensive powers including freezing business accounts (affecting payroll and vendor payments) and even preventing passport renewals. However, taxpayers have a Bill of Rights that most people don't know about. The key is opening letters immediately and seeking professional help to understand your options before the situation escalates.
Hire Professionals Before You Need Them
Business structure and tax planning should happen at the beginning, not after problems arise. (27:01) Claudia explains that fixing tax problems costs significantly more than preventing them. While entrepreneurs often want to save money initially by handling everything themselves, the long-term costs of mistakes far exceed the upfront investment in proper legal and tax structure. Consider it foundational work - like building a house, you need the foundation before the walls.
Knowledge Equals Power in Tax Situations
Understanding that you have options when dealing with the IRS is crucial. (21:11) Claudia mentions there are at least 10 different approaches to resolving tax issues beyond the "pay in 30 days" demand typically seen in IRS letters. However, never negotiate with the IRS without a game plan. They are a collection agency, not your advocate. Having an attorney creates a buffer and ensures you're protected by attorney-client privilege, which CPAs cannot provide.
Statistics & Facts
- The IRS opened 14 million new collection accounts last year, up from the usual 11 million, meaning millions of people face tax collection issues annually. (17:31) This demonstrates how common tax problems are among business owners and self-employed individuals.
- Most Latino-owned businesses are classified as micro-businesses earning less than $100,000 annually. (44:04) Claudia attributes this limitation primarily to lack of knowledge rather than work ethic or capability.
- In Claudia's 20 years of practice, only one client got into tax trouble due to intentional wrongdoing - all others were honest mistakes. (17:31) This statistic highlights that most tax problems stem from lack of knowledge rather than criminal intent.
