4 Reasons Why You Should Consider Outsourcing Your BookkeepingPosted on February 26th, 2019
Outsourced Accounting Department, Inc.
How many of you small business owners out there had the childhood dream depicted in the above picture? Based on this January 2015 article from Entrepreneur Magazine: “What’s the One Task Most Small Business Owners Loathe?,” I suspect not very many of you. Yet, bookkeeping is an essential task, as is the need to do it accurately, as well as using an accounting method that gives you a true picture of your company’s profitability. So here are a few things to consider:
- Accounting Accuracy: What many small businesses do first is to purchase a small business accounting software such as QuickBooks and attempt to do their books themselves. But they quickly learn that QuickBooks is not as “easy to use” as their name and marketing implies. In fact, I often tell people, “QuickBooks has done a great job of marketing its software as being easy to use, but that’s also what makes it easy to abuse”(and most small business owners I’ve worked with do just that).
- Accounting Consistency: Many CPAs and tax preparers will simply take your QuickBooks file at the end of the year and transfer the data into their own tax software, then make their adjustments there, not in your books, and charge you for the extra time to prepare your tax return. However, your books are then not consistent with your tax return (book basis), so your internal financial statements are meaningless for monitoring the financial health of your business on a monthly basis. And even then, your tax return may not be completely accurate either if your books were in that bad of shape to begin with, which is ultimately your responsibility, not that of your CPA or tax preparer.
- Time Management: As a small business owner, what is the best use of your time, learning to do bookkeeping, or focusing on managing your own business?
- Foregone Profitability: Compare the cost of outsourcing your bookkeeping, to the dollar value of increasing sales and bottom-line profit (known in the financial world as your “opportunity cost”).
The timing of course, is a matter of profit and cash flow. But in my experience, most small business owners can sense when the time is right to outsource. At some point it becomes more advantageous to the small business owner to outsource this function to someone who better understands accounting, or at the very least, have someone oversee and adjust their work. But even then, as stated above, it doesn’t take much to completely screw up a set of books, so the sooner you can outsource it completely, the better. Otherwise, you’ll be constantly paying for someone to clean up your books anyway, which is a waste of money. Rather, as sated above, compare the cost of outsourcing your bookkeeping function on a part-time basis, to the value of your time, and to the cost of hiring a full-time bookkeeper at $25,000 to $35,000 a year.
For more information on our services and/or a fee quote, give us a call, or fill out the form on our contact page.
Duke Energy Telephone ScamPosted on February 20th, 2019
Outsourced Accounting Department, Inc.
Recently we have received several phone calls from someone pretending to be Duke Energy and threatening to shut off our power. The first call I received was last week and it was a computerized call from (844) 244-0960. I contacted the Sheriff’s office and they confirmed that there was a scam going on and took my information.
The second and subsequent call I received were the ones with a live person, showing “Duke Energy” in the Caller ID from (800) 634-4300. (If you Google the second number it’s tied to some companies in Ohio, one of which shows as Duke Energy in Orbana, Ohio, so they look legitimate there as well.) I went ahead and answered it thinking it might actually be Duke Energy to warn me about this scam or that my account had somehow been affected. But when the caller (in a foreign accent) informed me that they had received an order to shut off our power [over past due payments], I knew immediately that it was the same scam and I hung up on her.
Not to be outdone, they actually called me again the next day. This time, I told them that “the call had been traced and the police were on the way to their location.” The caller’s reaction was, “Excuse me?” and I told her I knew this was a scam and hung up on her. I later reported the call to Duke Energy and told the person what I said to them, and she laughed and thought that was great, and probably threw a scare into them. I don’t know about that, but they haven’t called back (so far).
At any rate, Duke Energy confirmed that this scam was going on and that they had law enforcement involved trying to find them. And it’s probably not limited to Duke Energy. The girl at Duke Energy told me that these scams come up all of the time, and as soon as they shut one down, another one pops up. So if you receive such a call, beware. Do not do what they ask, and then report them.
For additional information, below is a link to Duke Energy’s website about this issue. And there are other articles about this type of scam on Google.
Seven Common Small Business Tax MythsPosted on February 10th, 2019
Marianne Kern, CPA
Kern & Associates CPA, P.A.
The complexity of the tax code generates a lot of folklore and misinformation that could lead to costly mistakes such as penalties for failing to file on time or, on the flip side, not taking advantage of deductions you are legally entitled to take and giving the IRS more money than you need to. With this in mind, let’s take a look at seven common small business tax myths.
- Start-Up Costs are Deductible Immediately
Business start-up costs refer to expenses incurred before you actually begin operating your business. Business start-up costs include both start-up and organizational costs and vary depending on the type of business. Examples of these types of costs include advertising, travel, surveys, and training. These start-up and organizational costs are generally called capital expenditures.
Costs for a particular asset such as machinery or office equipment are recovered through depreciation or Section 179 expensing. When you start a business, you can elect to deduct or amortize certain business start-up costs.
Business start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs. The $5,000 deduction is reduced (but not below zero) by the amount your total start-up or organizational costs exceed $50,000. Remaining costs must be amortized.
- Overpaying the IRS makes you “Audit Proof”
It is never a good idea to knowingly or unknowingly overpay the IRS. You should only pay the amount of tax that you owe. The IRS doesn’t care if you pay the right amount of taxes or overpay your taxes; however, they do care if you pay less than you owe and you can’t substantiate your deductions with good recordkeeping. The best way to “Audit Proof” yourself is to properly document your expenses and make sure you are getting good advice from your tax accountant.
- You can take more Deductions if your Business is Incorporated.
The good news is that self-employed individuals (sole proprietors and S Corps) qualify for many of the same deductions that incorporated businesses do. As such, becoming incorporated is often an unnecessary expense and burden that many small business owners don’t need. For instance, start-ups can spend thousands of dollars in legal and accounting fees to set up a corporation, only to discover soon thereafter that they need to change their name or take the company in a different direction. Furthermore, plenty of small business owners who incorporate don’t make money for the first few years and find themselves saddled with minimum corporate tax payments and no income.
- The Home Office Deduction is a Red Flag for an Audit.
While the home office deduction used to be a red flag, this is no longer true. In fact, with so many people operating home-based businesses the IRS rolled out a new simplified home office deduction in 2013, which makes it even easier to claim the home office deduction (as long as it can be substantiated with excellent recordkeeping).
Furthermore, because of the proliferation of home offices, tax officials cannot possibly audit all tax returns of small business owners taking the home office deduction. In other words, there is no need to fear an audit just because you take the home office deduction; however, a high deduction-to-income ratio, however, may raise a red flag and lead to an audit.
- You can’t Deduct Business Expenses if you don’t take the Home Office Deduction.
You are still eligible to take deductions for business supplies, business-related phone bills, travel expenses, printing, wages paid to employees or contract workers, depreciation of equipment used for your business, and other expenses related to running a home-based business, whether or not you take the home office deduction.
- An Extension to File gives you an extra Six Months to Pay any Tax you Owe.
Extensions enable you to extend your filing date only. Penalties and interest begin accruing from the date your taxes are due.
- Part-time Business Owners Cannot Set up Self-employed Pension Plans.
If you start a company while you have a salaried position complete with a 401K plan, you can still set up a SEP-IRA for your business and take the deduction.
If you have any questions about these and other tax myths, don’t hesitate to call and speak to a tax professional.
Tax Filing Season BeginsPosted on February 5th, 2019
Marianne Kern, CPA
Kern & Associates CPA, P.A.
January 28, 2019, marked the start of this year’s tax filing season, and it’s the first time taxpayers will be filing under the new tax reform laws, most of which became effective in 2018. Complicating matters is a newly revised Form 1040, U.S. Individual Income Tax Return, as well as the partial shutdown of the federal government. With more than 150 million individual tax returns expected to be filed for the 2018 tax year, here’s what individual taxpayers can expect:
Government Shutdown; Filing as Usual, Tax Refunds on Schedule
Despite the government shutdown (referred to by the IRS as the lapse in appropriations) in December and January, all taxpayers should continue to meet their tax obligations as per the normal time frame. That is, individuals and businesses should continue to file tax returns and make payments and deposits with the IRS, as required by law. For taxpayers receiving tax refunds there are no anticipated delays due to the lapse in appropriations.
New Design for Form 1040
The new Form 1040 has been redesigned for 2018. It is now “postcard sized” and gathers information about the taxpayer(s) and dependents. It’s also the form you need to sign and date when filing your return. The new Form 1040 can also be filed by itself; however, more complex tax situations will generally require using one or more of the supplemental Schedules 1 through 6 (also new for 2018), which are briefly described below.
Note: Forms 1040A and 1040EZ no longer exist for tax year 2018. Instead, use the new Form 1040.
Schedules 1 through 6
As mentioned, these supplemental schedules are to be used as needed and are generally for those with more complex tax returns.
Schedule 1, Additional Income and Adjustments To Income – Report income or adjustments to income that can’t be entered directly on Form 1040.
Schedule 2, Tax – To be used if you have additional taxes that can’t be entered directly on Form 1040. These include alternative minimum tax and excess advance premium tax credit repayment.
Schedule 3, Nonrefundable Credits – Used to report nonrefundable credits other than the child tax credit or the credit for other dependents.
Schedule 4, Other Taxes – If you have other taxes that can’t be entered on Form 1040 such as additional tax on IRAs or other qualified retirement plans or household employment taxes.
Schedule 5, Other Payments and Refundable Credits – If you have other payments or refundable credits such as any estimated tax payments for 2018 or the amount paid when requesting an extension to file.
Schedule 6, Foreign Address and Third Party Designee – If you have a foreign address or want to allow another person (other than your paid tax preparer) to discuss this return with the IRS.
For most taxpayers the filing deadline to submit 2018 tax returns is Monday, April 15, 2019; however, due to the Patriots’ Day holiday on April 15 in Maine and Massachusetts, and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17, 2019 to file their returns.