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What’s The Right Time to Hire An Accountant for Your Business?

When You Should Stop Doing Your Own Accounting

Running your own business is a complicated affair with a wide range of different “moving parts” to concern yourself with, but many people don’t realize how many of them ultimately lead back to your finances until it’s far too late.

A large part of your ability to be successful in the long-term will ultimately come down to the rate at which you expand. Grow your business too quickly and you might spread yourself too thin.  Grow too slowly and you’ll be passing up opportunities that are rightfully yours, leaving a lot of money on the table at the same time. Your control over your finances will dictate whether you’re able to strike that perfect balance the way you need to.

Marketing, paying vendors, paying employees, managing client relationships – all of it depends on the quality of your bookkeeping (or lack thereof).  To that end, a large part of your success will ultimately come down to your ability to identify when the time is right to stop doing things yourself and bring a professional accounting provider into the fold. To do this, you’ll need to keep a few key things in mind.

The Warning Signs You Need to Know

As it does every year, Intuit recently released a survey outlining the state of small business accounting in the United States.  The results are very telling in terms of when people should bring a financial professional into the fold – and what the consequences are of inaction.

Asset tracking, for example, is something that you may not immediately think impacts your bookkeeping, but it does in a fairly significant way.  Ghost assets are fixed assets that have either been rendered unusable or are physically missing. However, “out of sight, out of mind” does not apply in this case – they still count toward a business’s tax and insurance liability, thus making it difficult to properly reconcile their books every year.

Of the people who responded to Intuit’s survey, 74% indicated that they didn’t understand this, and 49% said that they didn’t even know what ghost assets were in the first place. If you are among those numbers, congratulations on arriving at one of the biggest indicators that you need to bring a financial professional into your business (and also that you’ll likely want to conduct inventory on a regular schedule moving forward).

Other signs that the time is right to bring a accounting professional into the fold ultimately come down to the most pressing financial issues that most businesses face.  51% of people who responded to Intuit’s survey said that accounts receivable and collections were their most significant business challenge.  44% said that cash flow was always something they were concerned about, and getting a better handle on “money in vs. money out” was always a top priority.

Cash flow troubles, it is important to note, is the number one reason why most small businesses fail within the first four years of existence.

Other pressing issues included properly managing paperwork on a regular basis, accurately closing the books each month, and managing payroll. The major thing to understand is that a financial professional will be able to help with ALL of these things, taking the stress off your plate so that you can focus simply on running your business like you should be. If ANY of these things are ones that keep you awake every night, or you feel these issues are significantly affecting your ability to grow and evolve, guess what? It’s time to contact a professional to do as much of the heavy lifting as possible.

Never Underestimate the Power of Trust

Consider it from another perspective. Recently, small business owners responded to a survey outlining all of their most pressing accounting issues.  The survey, conducted by Wasp Barcode Technologies, spoke to 393 small business leaders of nearly every organization size and industry that you can think of.

When asked to rank the professionals that they worked with on a regular basis in the order of importance, these business leaders overwhelmingly agreed that accounting experts were one of the single most valuable assets they had. They outranked attorneys, insurance agents, technology firms and even staffing services.

This is how important tax professionals are: Business leaders know that much of what they’re trying to do each day, along with what they hope to be able to accomplish in the future, would be impossible without the stable foundation that only an accounting professional can provide.

When It Comes to Accounting, Knowledge Is Power

At the end of the day, it’s important to remember what may be the single most important piece of advice for small business owners when it comes to accounting: It is far, far cheaper to hire an accounting professional today before things get out of hand tomorrow.

Think about it this way: A large part of the reason why you got where you are today is because you took the initiative and started to do things for yourself.  You have a “can do” attitude that just won’t quit, and you’ve built something incredibly successful from the ground up as a result.  But there are certain situations where you cannot let pride get in the way of making the right decision, and accounting is absolutely one of them.

You already have a full-time job: running your business. You don’t have the time to take on another one, let alone the expertise to guarantee that you’re making the best decisions at all times.  Yet this is exactly what business accounting is – a heavily specialized, full-time job that requires a careful hand and attention to detail that is second to none.

Bringing in a professional sooner rather than later will not only help make sure that you have cleaner books and other records, it will also significantly reduce the chance that you’ll get hit with penalties for things like late taxes and allow you to be much, much more successful in the long term.  These types of benefits, to say nothing of the peace of mind that only comes with knowing your accounting is taken care of, are things that you literally cannot put a price on.

Are You Having to Repay Part of Your Obamacare Subsidy and Don’t Know Why?

Premium Tax Credit Explained

Almost everyone is required to be insured or pay a penalty as part of Obamacare.  Unfortunately, this created a substantial financial burden for lower-income families.  So, in order to alleviate this situation, Obamacare included a subsidy, referred to as the premium tax credit (PTC), to help them pay the cost of the insurance which is based on family size, household income in relationship to the federal poverty

Basis for The Tax Credit & Advance Premium Tax Credit

The primary variable in determining the actual credit is the family’s household income, so the exact amount of the PTC cannot be determined until after the close of the tax year.  Providing the credit after the fact on the tax return for the year does not help families to pay their premiums during the year, so to alleviate that problem, Obamacare allows families to estimate their family income when they apply for their insurance and the government insurance marketplaces will estimate the PTC and allow it as a subsidy in advance.  That subsidy is called the advance premium tax credit (APTC) and reduces the amount of the insurance premiums that the family must pay during the year.

Payment Requirements

The actual household income is known when the tax return for the year is prepared and the actual PTC to which the family is entitled is determined.  If the PTC is greater than the APTC, then the difference is credited on the tax return. However, if the APTC – the subsidy paid in advance – is greater than the actual PTC the family is entitled to, then the difference must be repaid.

Therefore, if you had to repay some amount of the credit, it was generally due to your household income being underestimated when you signed up for the insurance, thus causing the APTC to be larger than the PTC.  This is one of the hazards of estimating your household income in advance because you may receive unexpected income during the year, such as a raise, a bonus, a spouse starting to work, selling some stocks for a gain…the list goes on.

Additionally, there are other reasons for a mismatch between the APTC and PTC.  For example –

  • If your employer offered you affordable, compliant insurance for any month during the year, then you were not eligible for the PTC that month. (The IRS knows when this occurred based on a report that employers have to file.)
  • Other things that can change the PTC include changes in family size created by marriage, divorce, children getting married, deaths, etc.
  • Another reason is when a married couple is receiving APTC from the marketplace and files married filing separate (MFS) returns instead of filing jointly. The MFS filing status does not allow them to claim the PTC.

If you keep the insurance marketplace updated on your estimated family income and family size and allowing it to make appropriate adjustments to the APTC you can avoid the repayments.

If you have questions related to the premium tax credit or the repayments, please give this office a call.

Is Solar Energy Right for You?

TV ads focusing on home solar touting free electricity as these savings and tax credits may not be all that they are advertised to be as it all depends upon your financial and tax circumstances.  Keep in mind that home solar is not necessarily the best option for everyone.  So, before you make a decision, we’d like for you to educate yourself and consider the tax and financial aspects of solar electric systems as they apply to your circumstances.

How An Accounting Pro Can Help Your Small Business Boom

Find the Right Accounting Firm to Help Support Your Small Business

One of the most positive qualities that many small business owners share is a burning desire – an insatiable willingness – to “do it all.”  It’s what separates entrepreneurs from employees in the first place.  An employee is more than willing to set out on the path that someone else has carved for them.  An entrepreneur has a need to carve a path for themselves.

How to Reduce Required Minimum Distributions (RMD) and Extend Your Retirement Benefits

Use a Qualified Longevity Annuity Contract

Are you one of the boomer generation and find that your required minimum distributions (RMDs) from qualified plans and IRAs are providing unneeded income (along with a high tax bill)?   Are you also afraid that the government’s RMD requirements will leave too little in your retirement plan for your later years?   You can use a qualified longevity annuity contract (QLAC) to reduce your RMDs and extend the life of your retirement distributions. 

How to Keep Your QuickBooks Data Safe

Great QuickBook Internal Safeguards & Tips

Keeping QuickBooks data is accurate takes time – let’s be sure it’s safe!

Your QuickBooks company file contains some of the most sensitive information on your computer such as customers’ credit card numbers and employees’ Social Security numbers.  An intruder who captured all that data could create tremendous problems for you and a lot of other people.

Who Controls the Funds in a Section 529 Plan?

Information Regarding Saving for a Child’s Future Education

This question frequently arises: Who controls the funds held in a Section 529 qualified tuition account? These accounts can become quite large, as they are limited only by the projected cost of a college education, and those costs will vary between state plans.  Some states base their maximums on the cost of an in-state, four-year education, but others use the cost of the most expensive schools in the U.S.—including graduate studies. Most have limits in excess of $200,000, and some can reach $475,000 or more.  Thus, it is only natural that those who fund an account would be concerned about who controls the account’s distributions.  This is especially true when grandparents or others are making contributions to an account that is limited only by gift-tax considerations.

An Overview of Trump’s Tax Proposals

What The Tax Proposals Mean to You and Your Business

On April 26, 2017, the Trump administration provided information on proposed tax law changes, many of which mirror his previous tax policy statements.  Although lacking in significant detail, here is what the president proposes and how it might impact your tax liability:

Business Tax Rates – Trump’s proposal would cut the top rate on corporate taxable income from 35% to 15%. Presumably, the 15% rate would apply to all business income, including small family-owned businesses.

Individual Tax Rates – Under Trump’s proposal, there would only be three tax brackets, 10, 25, and 35%, down from the current seven tax brackets: 10, 15, 25, 28, 33, 35 and 39.6%. The brackets are applied in steps, so as a taxpayer’s income increases the increase is taxed at increasingly higher rates. The table below illustrates the current 2017 tax brackets.

The current proposal generally mirrors the rates Trump proposed while on the campaign trail. Under the previous proposal, for married taxpayers filing jointly, the lowest rate would apply to income less than $75,000; the 25% rate would apply to income more than $75,000 but less than $225,000; and the 33% rate would apply to income of more than $225,000.  Brackets for single filers were 1/2 of joint filer amounts.

However, the income brackets where the rates apply have not been specified in the current proposal and are subject to negotiations with Congress. Regardless, the reduction of the top tax rate from 39.6 to 35% will provide a huge tax saving for wealthy taxpayers.

Standard Deduction – Trump originally suggested a standard deduction of $25,000 for singles and $50,000 for married couples.  He has since toned that down and is now proposing to double the standard deduction, which is currently (2016) $12,600 for a married couple filing jointly and $6,300 for single taxpayers. Under Trump’s proposal the standard deductions would increase to approximately $24,000 for married couples and $12,000 for single taxpayers.  According to an estimate by the nonpartisan Tax Policy Center (TPC), 27 million (60%) of the 45 million filers who would otherwise itemize in 2017 would opt for the standard deduction. This change would generally provide a small tax benefit to lower-income taxpayers.

Itemized Deductions – During the campaign, Trump proposed limiting itemized deductions to $100,000 for single filers and $200,000 for joint filers, which would cause an increase in taxes for the wealthiest taxpayers and not impact middle-income taxpayers.  However, the current proposal would do away with all itemized deductions except those that incentivize home ownership and charitable deductions. The theory is that the other deductions primarily benefit the wealthiest taxpayers.  However, this would also have a significant impact on other taxpayers as well.  Here are a few examples of its effects:

  • Medical deduction – Medical deductions would be eliminated, impacting seniors with significant medical costs during the year.
  • State & Local Tax – Taxpayers living in states with income tax would no longer be able to deduct the state and local income taxes they pay.
  • Employee Business Expenses – It would also eliminate the deduction for employee business expenses.
  • Recreational Gambling – Those who are recreational gamblers would have to pay taxes on all their winnings and would not be able to deduct losses.

Other Deductions – Under the Trump proposal, virtually all deductions other than retirement savings would be eliminated.  If that is the plan, then presumably it would include moving deductions, educators’ expenses, self-employed health insurance, student loan interest, and alimony paid.  None of these changes would provide any significant benefit to the wealthy but would impact lower-income taxpayers.

Alternative Minimum Tax (AMT) – Trump would eliminate the AMT, which primarily impacts wealthier taxpayers.

Estate Tax – The estate tax would be eliminated, which applies to wealthy taxpayers with taxable estates in excess of $5,450,000 (2016).  The number of taxable estates in the U.S. per year is just over 10,000.

This proposal was presented as a one-page outline without any fundamental details.  Assuming the proposal is not dead on arrival, expect significant changes to be made by Congress. For instance, the senators and representatives from states with income tax will certainly want to retain state income tax as an itemized deduction for their constituents, including both Democrats and Republicans. And of course, there needs to be replacement revenue for the cuts to avoid a national debt increase.

As the tax reform debate winds through Washington, rest assured we will stay on top of the latest proposals and final legislation.  We will continue to keep you informed during this wild ride.

Trumps Rate Schedule