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5 questions to ask a small business accountant

Sun, 10 Feb 2013 14:43:25 -0500

Successful entrepreneurs and business owners know their numbers and rely on their accountant to provide specialist help and leadership in this area. Let’s face it, chances of success are far greater if you have a good grip on profitability, cashflow, financing and tax. Involving your accountant in the business and even making them your virtual CFO will empower you.

The following are the five most important questions to ask your accountant:

1. Can I have management reports, please?
I can’t stress how important it is to have regular financial reports for your business. An additional extra is a simple cashflow forecast that can be updated at each meeting.

Aside from sales every month, you should also ask to see a profit and loss, balance sheet, cashflow summary and a revised cashflow forecast for the next six months. You need these reports by the 10th day of every month. Don’t settle for anything less.

2. How can I improve my cashflow?
Cashflow is the life blood of your business, dictating the speed at which your business operates, its growth potential and how competitive it is. If your cashflow is healthy, you have room to sharpen the pencil on price when needed.

You need to know what affects your cashflow and what you can do to improve it. Sometimes it’s really simple things. Ask your accountant where they think the problem areas are and what they recommend you focus on to improve cashflow.

3. What am I worth?
If you’re running a business, you should be acting in a way that creates value. So when making decisions, you should consider how these will make your business more valuable.

Your accountant knows how business valuations work, so will be able to help with improvements you can make. This could be anything from hiring a great salesperson, winning a contract, or investing in your value chain to own another piece of the puzzle. Aside from day-to-day activity, you need to know how to build the value in your business. One day you might just want to sell it.

4. Can I lower my tax in a sensible and legal way?
A lot of this is about using smart structures and ensuring you are claiming all the tax deductible expenses you can. If you’re not being proactive with your taxes you can find yourself paying hidden tax costs such as penalties and interest.

Ask for a tax forecast annually before the end of the financial year and make lower tax an annual review point for your meetings. Tax should always be updated in your cashflow forecast model on a regular basis—you need to know what tax is coming up and make sure you have the cash to pay it.

5. Can I move to a monthly fee?
A monthly fee means your business is frequently top-of-mind for your accountant rather than once a year or every six months. It also helps you to budget and avoid those big surprise bills.

A monthly fee should cover the following things:

Quarterly management reports
Simple cashflow forecast, updated with management reports
Annual tax review and forecast, before the financial year end
Regular meetings to look at the numbers, at least quarterly
Annual report and tax returns

Accountants can really make a difference so make sure you involve yours as much as possible to help your business run successfully.

Six Year-End Tips to Reduce 2011 Taxes

Sun, 10 Feb 2013 14:42:56 -0500

Here’s what the IRS recommends to save on income taxes:

Special Edition Tax Tip 2011-09, December 21, 2011

The IRS wants to remind all taxpayers that with the New Year fast approaching, there is still time for you to take steps that can lower your 2011 taxes. However, you usually need to take action no later than Dec. 31 in order to claim certain tax benefits.

Here are six tax-saving tips for you to consider before the calendar turns to 2012:

Make Charitable Contributions – If you itemize deductions, your donations must be made to qualified charities no later than Dec. 31 to be deductible for 2011. You must have a canceled check, a bank statement, credit card statement or a written statement from the charity, showing the name of the charity and the date and amount of the contribution for all cash donations. Donations charged to a credit card by Dec. 31 are deductible for 2011, even if the bill isn’t paid until 2012. If you donate clothing or household items, they must be in good used condition or better to be deductible.

Install Energy-Efficient Home Improvements – You still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits. Installing energy efficient improvements such as insulation, new windows and water heaters to your main home can provide up to $500 in tax savings. Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment. The credit equals 30 percent of the cost of qualifying solar, wind, geothermal, or heat pump property. For details see Special Edition Tax Tip 2011-08, Home Energy Credits Still Available for 2011 on the IRS.gov website.

Consider a Portfolio Adjustment – Check your investments for gains and losses and consider sales by Dec. 31. You may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income. If your net capital losses are more than $3,000, the excess can be carried forward and deducted in future years.

Contribute the Maximum to Retirement Accounts – Elective deferrals you make to employer-sponsored 401(k) plans or similar workplace retirement programs for 2011 must be made by Dec. 31. However, you have until April 17, 2012, to set up a new IRA or add money to an existing IRA and still have it count for 2011. You normally can contribute up to $5,000 to a traditional or Roth IRA, and up to $6,000 if age 50 or over. The Saver’s Credit, also known as the Retirement Savings Contribution Credit, is also available to low- and moderate-income workers who voluntarily contribute to an IRA or workplace retirement plan. The maximum Saver’s Credit is $1,000, and $2,000 for married couples, but the amount allowed could be reduced or eliminated for some taxpayers in part because of the impact of other deductions and credits.

Make a Qualified Charitable Distribution – If you are age 70½ or over, the qualified charitable distribution (QCD) allows you to make a distribution paid directly from your individual retirement account to a qualified charity, and exclude the amount from gross income. The maximum annual exclusion for QCDs is $100,000. The excluded amount can be used to satisfy any required minimum distributions that the individual must otherwise receive from their IRAs in 2011. This benefit is available even if you do not itemize deductions.

Don’t Overlook the Small Business Health Care Tax Credit – If you are a small employer who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35 percent of the premiums paid. An employer with fewer than 25 full-time employees who pays an average wage of less than $50,000 a year may qualify. For more information see the Small Business Health Care Tax Credit page on IRS.gov.
And here is one final tip to remember: you should always save receipts and records related to your taxes. Good recordkeeping is a must because you need records to prepare your tax return, and it will help you to file quickly and accurately next year.

Small Business Write-Off Ideas

Sun, 10 Feb 2013 14:42:28 -0500

As an owner of a small business, staying aware of the day-to-day operations of the business is a priority. At this time of the year, an owner must constantly stay aware of tax strategies for the business. Here are some write-off ideas:

Car Expenses

Using a vehicle for business is quite common; one decision to make is whether to use the Actual Expense Method or the Standard Mileage Deduction.

The Actual Expense Method allows the taxpayer to write off actual out-of-pocket costs plus depreciation if he or she owns the car. Examples of expenses include Depreciation, Licenses, Tires, Loan Interest, Tolls, Gas, Oil, Towing, Insurance, Parking Fees, Registration Fees, Lease Fees, Repairs and Garage Rent. Keep in mind that parking and traffic tickets are not deductible. Also, if the car is used for personal and business, then a percentage of use needs to be determined and the business percentage is what the owner uses for the business write-off.

If you opt for the Standard Mileage Deduction, then track the business mileage and multiply that the IRS rate (i.e., $ .555/mile – July 1-Dec. 31, 2011); the total is the deduction.

To track you might use a mileage log or a smartphone app. An example of a business mileage log includes: Date, Destination, Business Purpose, Odometer Start/Stop and # of Miles. Auto expenses are also tracked with the type and amount spent (i.e., toll).

Travel Expenses

Airfare is, of course, deductible, but if the taxpayer uses frequent flyer miles to purchase a particular ticket, the cost of the airfare cannot be deducted. The taxi from the airport to the hotel, as well as transportation costs to go to a customer, including bus and limo costs, lodging, and meals (food, drinks, tax and tip) qualify. Other deductible items include the reasonable cost of cleaning/laundry, tips to the taxi driver, meals, bellhop, telephone costs to your office, receiving a fax, and computer/cell phone rental. These are based on actual costs and not per diem travel rates.

Business Gifts

With the holidays upon us, business owners need to understand how much of these costs are deductible. You can deduct up to $25 per person per year, so keep in mind that if the business owner purchases a $30 bottle of wine for a client, only $25 is deductible. Some people also get confused with “gifts” vs. entertainment. If you give someone a ticket that costs $20 to a ballgame as a gift, then you can deduct this. If, however, you code it as entertainment, it may be subject to the 50% rule, making it a $10 deduction.

Make sure receipts are kept for any of the gifts, expenses with notes, showing the date, the person the purchased meal/gift is for, purpose of meeting/gift, and any other pertinent information. Suggestion: scan their receipts, since most receipts are on thermal paper that fades.

Repairs

The cost to repair business equipment or property is deductible, but be sure you make the distinction between “repair” and capital items. For example, if you replace an air compressor in the business air conditioner, that is considered a repair vs. adding a new air conditioning unit, which is a capital item.

Rent

Rent expenses are deductible, along with other terms of a lease (i.e., property taxes.). Many make January rent payments in December. If the business is using cash basis, then it will be deducted with the current year. If the business uses accrual accounting, then it must be capitalized.

Advertising

Deductible advertising expenses include business cards, print/radio/TV ads, yellow page advertising, package design costs as part of advertising campaign, billboard rental fees and signs on the side of cars/trucks, and PR expenses, including fees, event fees and costs of press kits.

Other Expenses

Dues and Subscriptions: Dues for professional, business or civic organizations are deductible (i.e., American Bar Association, American Marketing Association), Chamber of Commerce and Rotary. However, athletic, sporting, airline or hotel membership costs are not, even though they are business oriented. Business and professional publication subscriptions are deductible.

Legal and Professional Fees: These fees, which include legal, accounting and tax prep, and appraisal fees, are deductible.

Bank and Merchant Fees: Bank-related fees, such as monthly, ATM and online banking costs, as well as merchant service fees, including Pay Pal related costs, are deductible.

General Office Expenses: Office supplies, postage, books, cleaning/janitorial services, flowers and plants, snacks and beverages, are all deductible.

For specific information on of your industry visit the IRS.gov Small Business website, where you’ll find information that IRS agents use for examining returns. Another resource is the IRS’ Self Employed Individuals Tax Center.