Displaying items by tag: accounting

Most businesses with twenty or fewer employees choose to hire an external accountant to perform limited functions for the business.  Below is a list of services that you should look for before deciding on a local accounting firm.

Accounting and financial statements

• Statement of Operations / P&L
• Balance sheet
• Industry comparison (benchmark) report
• Cash Disbursement Journal
• Transaction Journal / General Ledger
• Payroll Journal
• Bank Reconciliation

Form filing to taxing authorities

• Sales Tax - Monthly or Quarterly
• Payroll Tax Deposits - Monthly or Quarterly
• Quarterly Payroll Taxes prepared - Form 941 and State
• Federal and State Unemployment prepared - Form 940 and UITR
• Withholding Statement for Employees
• W-2 Forms or 1099s
• Business Personal Property Tax

Unlimited consultation

Tax planning

• Advise the subscriber of the new tax laws that affect their business
• Quarterly Estimated Income Tax

Income tax preparation

• Personal Income Tax Returns
• Corporate and Partnership Income Returns

Other considerations

• Do they provide pickup and delivery?
• Do they provide an industry comparison (benchmark) report?
• Do they provide software solutions as part of the service at no additional fee?

• Do they meet clients and prospects face to face at their place of business?

• What kind of support and expertise does the company have?
• Do they provide the service consistently, timely and accurately each and every month?
• How long do they take to return phone calls?
• How soon after receiving the documentation and data does the accounting firm take to return sales tax returns, payroll tax returns and financial statements?
• How long has the company been in business?
• Ask for a list of references and call some of the references.

There are a few choices in terms of bookkeeping software available to a small business owner.  The two dominant software packages in the small business market are QuickBooks and Peachtree.  A small business owner must consider ease of use, price and support as a software package is chosen assuming that the software will support the business model.  The important thing for a small business owner to keep in mind is that although they can input data into a software system it does not mean that financial statements will be usable in terms of accuracy, timeliness and completeness.  If you are not an accountant, please keep in mind that a software package will simply be a nice way to be organized and nothing more.  A professional will still be needed to prepare complete and accurate financial statements.  Timeliness of the financial statements often depends on you and how quickly the documentation and data needed to prepare financial statements are made ready to the accountant by you.

As the end of the year approaches, now is a good time for you to start planning for taxes by taking various actions that may save taxes for this year, next year, or both years. Act quickly to reap the most benefits—these strategies will be of no use after December 31.

Year-end planning always involves some educated guesswork, but this year poses a bigger challenge than most. With Republicans winning control of the U.S. House of Represen-tatives and picking up seats in the Senate, it is difficult to know exactly how tax changes will affect you.

Congress must decide whether to retroac-tively extend a number of tax provisions that expired at the end of 2009. In addition, without approval to extend the Bush tax cuts, individuals will face higher tax rates on their income, including capital gains. Unless Congress changes the rules, the estate tax, which isn't in effect this year, will return next year with a 55% top rate.

We have compiled a checklist of actions that can help you save tax dollars if you act before year end. These moves may benefit you regardless of what the lame duck Congress does on the major tax questions of the day. Not all actions will apply in your particular situation, so please review the following list and contact us so that we can advise you on which tax saving moves to make.

Year-End Moves for Individuals

• Postpone income until 2011 and accelerate deductions into 2010 to lower your 2010 taxes. Doing so may allow for larger deductions and credits that normally are subject to income phase outs, especially if you expect to be in a lower tax bracket next year. (Then again, doing the opposite may be more beneficial, depending on the circumstances)
• It may be advantageous to defer your year-end bonus until next year.
• Bunching your itemized deduction, such as real estate taxes and medical expenses, may save you taxes this year.
• Bunching your itemized deduction, such as real estate taxes and medical expenses, may save you taxes this year.
• Increase the amount you set aside for next year in your employer's health flexible spending account. Don't forget over-the-counter drugs, such as aspirin and antacids, do not qualify.
• Realize losses on stock while substantially maintaining your investment position. For example, you can sell the original holding, then buy back the same securities at least 31 days later. We advise meeting with us to discuss year-end trades.
• Increase your withholdings if you are facing a penalty for underpayment of federal estimated tax. Doing so may reduce or eliminate the penalty.
• Consider taking an eligible rollover distribution from a qualified retirement plan before year-end if you are facing a penalty for underpayment of estimated tax. Income tax will be withheld and applied pro rata over 2010. You can then timely roll over the gross amount of the distribution to a traditional IRA. No part of the distribu-tion will be includible in income for 2010.
• Make energy saving home improvements to your home, such as insulation and energy efficient windows, and qualify for a 30% tax credit, up to an aggregate of $1,500 for 2009 and 2010. If Congress does not act, this tax break will not be around after this year. Additionally, you can earn substantial tax credits for installing energy generating equipment (such as solar electric panels or solar hot water heaters) to your home.
• Convert your traditional IRA into a Roth IRA if doing so is expected to produce better long-term tax results. Distributions from a Roth IRA can be tax free but the conversion will be taxable. You can choose to pay the tax on the conversion with the 2010 return, or half with the 2011 return and half on the 2012 return.
• Take required minimum distributions (RMD) from your employer sponsored retirement plan if you have reached age 70 ½. Failure to do so can result in a penalty. A temporary tax law change waived the RMD requirement for 2009 only, but the usual withdrawal rules apply full force for 2010.
• Make annual exclusion gifts before yearend to save gift tax (and estate tax if it is reinstated). You can give $13,000, tax free, in 2010 to an unlimited number of people.

Year-End Moves for Business Owners

• If you hire a worker who has been unemployed for at least 60 days, your business will be exempt from their 6.2%
  share of the Social Security payroll tax on the new-hire for the remainder of 2010. Plus, if you keep that new-hire on the payroll for a continuous 52 weeks, your business could be eligible for a nonrefundable tax credit of up-to $1,000 for 2011.
• To qualify for the 50% bonus first-year depreciation allowance, put new business equipment and machinery in service before year-end. If Congress does not take action, this bonus won't be available for property placed in service after 2010.
• The maximum amount you can expense for a tax year beginning in 2010 is $500,000 of the cost of qualifying property placed in service for that tax year. Also, within the overall $500,000 expensing limit, you can expense up to $250,000 of qualified real property. Note that at tax return time, you can choose not to use expensing (or bonus depreciation) for 2010 assets.
• Set up a self-employed retirement plan if you are self employed and haven't done so yet.
• Consider establishing a retirement plan for your business. Employer contributions to qualified plans are deductible.
• Increase your basis in a partnership or S corporation if doing so will enable you to deduct a loss from it for this year.
• Consider whether to defer cancellation of debt income from the reacquisition of an applicable debt instrument in 2010. The business can elect to recognize the income ratably over five tax years beginning with the fourth tax year following the tax year in which the repurchase occurs (i.e., beginning with 2014).
• Consider using a credit card to prepay expenses that can generate deductions for this year.
• Accrual method businesses should consider accruing year-end bonuses to employees who are not controlling shareholders. They are deductible in the current year even though paid in the following year, and the bonus won’t be taxable to the employee until next year.

Accounting is a lot more that bookkeeping. Bookkeepers simply record information, while accounting provides and interprets financial statements and balance sheets. Accounting is designed so that every monetary transaction is recorded. An example is the purchase of  a chair for your office. The accounting system will transfer dollars from your bank account to your furniture account. This recording process is designed to assure that the transactions are accurate and authorized. This aspect of accounting is called “internal control”. This system of recording assists owners in controlling their business.

One product of accounting is a financial statement. These are developed to help owners run their business. It shows the results of all decisions made in the past, so that educated decisions can be made about the future. Some major benefits include:

• allowing you to file an income tax return
• seeking additional funding with a lender
• allowing you to become a better business

• Income or Profit and loss statement (P&L)
• Balance sheet
• Cash flow

Together these statements can pin-point the health of your company. Interpreting accounting statements can be confusing, so be sure and rely at least partially on outside experts. But, also be aware that relying upon others to understand your financial position can be dangerous for your major investment. Hopefully in this article you are understanding the importance of accounting and utilizing it properly for your business.