We’re 10 days from the 2018 tax filing deadline, do you know what your results will be? Did you file a tax extension because your financials were messier than you realized? You’re not alone. If you run a business and arrived to tax season unprepared, it’s most likely because you neglected to keep up on your financial record keeping. If you haven’t already done so, you’ll soon be faced with spending countless hours organizing your information. The worst part of that is if you’re not versed in accounting, you might not get the right answer!
It’s that time of year, no, not tax season, it’s time for the government to shutdown! We won’t get into why they government shuts down but seriously, it’s becoming an annual event. In recent news there have been stories floating around that a government shutdown meant that tax refunds would not be issued, but that tax liabilities would still be collected. Of course, that sounds exactly like the IRS, pay them regardless but they won’t pay you until absolutely necessary. Luckily, the news stories about the refund hostage crisis are not true.
In a technology driven universe, almost everything can be done online. Are you aware that this also applies to financial and accounting services? Bet you didn’t know that your CPA does not need to live near you! It mostly depends on your personal comfort when dealing with your financial situation. Hiring an accountant will take stress off of you in terms of your personal and small business financial information and having someone on board that you know you can trust, are comfortable working with, and who clearly knows their stuff can make all the difference. So, why should you consider and feel comfortable with an out of state accountant? Read on.
Business owners are cut from a different cloth. They learn certain skills and amass expertise in their fields and then take that aptitude to the market for sale. To be successful you must be proficient, driven, and knowledgeable at the expense of investing endless amounts of time and money. Once you cross the entrepreneurial threshold you are now ready to add value only you can personally provide in your industry. All this being said, don’t you think you should get paid what you’re worth? Seems like a lot of effort and risk to have others tell you what you should be paid.
When you run a business, you have a lot to manage. Sometimes things get overlooked in the beginning, like setting up a bank account dedicated solely to the business. Why would that be important? Well, for starters, it helps keep your business and personal transactions separated, which is a best practice. There are also the legal issues which can result if you do not take the time to separate the two types of transactions. Nowadays many banks offer free business checking accounts so there shouldn't be much holding you back.
the survival of your business depends on having a solid financial plan, which means streamlined record-keeping, consistent financial analysis and, perhaps most importantly, cash flow management. The problem I typically see in small businesses is lack of knowledge about the most efficient and effective way to handle the accounting side of things
Since starting my firm almost a year ago I have had the opportunity to meet and work with so many amazing small business owners. Helping people achieve their goals and live out their dreams is one of the best parts about what I do. To help me help others I have created a routine series of questions I ask new small business clients when interviewing them. Among my questionnaire I specifically ask what they like and dislike about their current accountant (if they have one) or what they hope to achieve by hiring an accountant to help them on a monthly basis. For the purposes of this article, I’m going to use the term accountant in reference to a bookkeeper, degreed accountant, tax preparer, or CPA. Although the term is used interchangeably among most people in business, it’s important to note that each title brings a different level of experience and caliber of service to the table. In my opinion, all accountants should be versed in everything from taxes to bookkeeping, and be able to provide general advice on these subjects or point people in the right direction. Unfortunately, that’s not always the case. Below are the top 6 things your accountant should be doing to help you to grow your small business.
#1 Connecting Throughout the Year
This is the top complaint I hear from new clients. “My accountant never calls me” or “I only hear from my accountant once per year”. For all my peers in the industry, this just simply won’t do anymore. Clients deserve and expect to hear from their accountant more than one time per year. If you have retained an individual or firm to work with you throughout the year, they should be reaching out to you regularly to check in and see how business is going and offering to help however they can. They should also encourage an “open door” policy where you can reach out with “quick questions” without fear of being billed for a 10 minute conversation or simple e-mail reply. Be mindful not to overstep your contractual terms with whoever you work with and expect to be billed for additional services that may fall outside of what you are paying for. If you are unsure if what you need will be additional then try reading through your contract or asking your accountant if what you need is already billed in your current service plan.
#2 Asking Questions
It may seem silly but your accountant should be asking questions of you each time you interact. The questions should be probing for information so that your accountant may advise you to better operate your business. If all they are doing is putting your books together each month and collecting a fee then you need to seriously consider if you are working with the best person for the job. A strong partner will comment on results and ask clients their motivations behind decisions as well as challenge them to set goals to hold them accountable for results. Even having the ability to reach out to your accountant from time to time (see #1 above) is helpful to keep you on track and your accountant in the know for big decisions.
#3 Proper Accounting
Small business owners typically hire an accountant because they don’t trust themselves to keep up with their books or don’t want to do the books themselves anymore. Most business owners interview a few candidates and assume that because they have a degree or license they know exactly what they are doing. Based on some of the work I have seen from other “professionals”, I can personally attest that not everyone may know what they are doing. Despite hiring someone to do the books, business owners need to remain actively engaged in reviewing their financial information each month and asking for clarification when and where necessary. Some key indicators that business owners should review in their accounting software include:
- Excessive non-accrual adjusting entries – this can be an indicator of poor training or misunderstanding of accounting principles or accounting software platforms
- Unreconciled accounts – this can lead to incorrect information in the general ledger causing inaccurate accounting information and ultimately inaccurate tax reporting
- Negative general ledger account balances – this is usually indicative of an inaccurate account balance and can be caused by a poor understanding of accounting principles, and again, result in inaccurate tax and accounting reporting
If you find that even one of these key indicators are triggered consistently without a reasonable explanation from your accountant then you should be concerned. I would recommend you have your accountant review your books and make necessary corrections or start searching for a replacement ASAP!
#4 Educating You (the Client)
Educating clients is by far the one thing I enjoy most about what I do. It allows me to strengthen the trust clients have in me while also helping them understand the “why” behind the decisions they are encouraged to make. There is nothing more rewarding than when a client has that light bulb moment of clarity and it all just clicks for them. Many accountants are trained with a “one size fits all” mentality but just because something works for the majority of clients that doesn’t mean it is the best decision for you. Your accountant should be taking time to walk you through the “why” behind their recommendations. If yours is not willing to give you that courtesy then you should evaluate how solid your relationship is and consider moving on to someone who is more patient, able, and willing to help you.
#5 Understanding of Tax
Did you know that not all accountants prepare tax returns? In fact, many prefer not to. That doesn’t absolve them from understanding the tax implications of making certain decisions. If you have a bookkeeper who does your books and a CPA that prepares your taxes then your bookkeeper should be able to follow your CPA’s recommendations. Both parties should work directly with one another to ensure the books are prepared correctly. If your bookkeeper falls short of understanding even the most basic tax elections and strategies (including certain safe-harbor elections) then you may want to ask them if they plan to learn tax rules or simply find a more informed bookkeeper. You might find that you can get your books and tax work done for the same the same or less fees if you’re diligent in recruiting the right firm.
#6 Keeping up with Current Trends & Technologies
Technology is revolutionizing the accounting industry from top to bottom. Your accountant should be keeping up with current trends and new technologies that they can learn and recommend to make your life easier and ultimately more profitable. If your accountant is constantly focused on “paper-based” strategies or defaults to the SALY “same-as-last-year” mentality then it may be worth interviewing someone new. Progressive accountants are willing to coach clients into adopting new technologies and turn them on to leading trends relevant to their industry. Automation and mechanization will become paramount to success in the future and you want to be on the front of the wave rather than playing catch-up after they become necessary tools in business ownership.
In a world of options you no longer need to settle for the same rinse and repeat mentality that so many accountants love. You’re likely paying a considerable fee to have your accounting work done and nothing drives me crazier than when a new client comes along and I have to fix years of poor work for high fees. If, however, you find that you love your accountant and you have an amazing relationship with them, then there is no need to change that. Ideally you will develop a longer lasting relationship rather than changing firms every so often just to freshen things up.
Feel free to comment below or reach out directly to me via e-mail at firstname.lastname@example.org. You can also follow the firm on social media for future posts like this one!
Over the summer I have had several consultations with small business clients and a constant theme that I have come across is that these small business owners have been “reinvesting” their profits into their businesses. I thought it was time to dispel the “reinvestment” mantra. Whatever your passion or business pursuit, you’re likely going to want to grow your business as big as possible, but part of being a small business owners is knowing when you're investing and when you're spending. This week I’m going to attempt to break down the difference between an investment in a business and a straight-up expense. Note for the purposes of this blog, I am specifically excluding the rules related to C corporations, and will focus only on pass-through entities.
What is an Investment?
First, let’s talk about making the initial investment. To do this we’ll use an example. I’m going to assume that my fictitious entity is a newly minted consulting firm known as ConsultCo, LLC “CC”. It doesn’t really matter what kind of consulting services CC provides, just that it is taxed like every other disregarded LLC. The owner decides on day one that she wants to invest $10,000 into CC. So let’s break that $10k investment down a little further. If all she did was deposit the funds into the business’s checking account, then she would have done nothing more than make an investment in her business. Just because she opened a business and transferred her personal funds into a business bank account doesn’t mean that she gets to deduct that amount on her tax return. In fact, in this very simple example, there is no taxable event.
What is an Expense?
Every business has typical operating costs. Expenses for everything from postage & shipping, to business meals, are deductible. The list of deductible items is extensive so I won’t go into much detail but qualified expenses are truly tax-deductible items. Businesses usually also have start-up costs associated with forming the entity, which can be deducted in full (up to $5,000); after that the excess is capitalized over 15 years. But what about when the company starts gaining traction and the owner decides to “reinvest” the profits, how does that work
To understand how reinvestment works we have to understand a little more about how the math works. It's also important to understand that cash usually must change hands for a taxable event to occur. This is key. Even if a business owner has future plans for that cash, there typically has to be some movement of money to receive any tax benefit.
So let's work with another example. If the entity above, CC, provides services and earns $1,000 in consulting fees, and immediately uses those funds to purchase a new computer, then the profits have truly been reinvested. In this example, CC exchanged cash for an asset, and with the proper guidance on how to navigate her tax return efficiently, the owner can make that asset purchases fully deductible at the time of purchase. But if CC instead takes that money and decides to put it in the business bank account for future use, well then she has taxable income. You see, the profits were not actually used for anything else, but were instead set aside for future-use. In this case, the business owner would actually have to pay income taxes on the amount put in reserve. Even if the business owner used profits to purchase assets and not elect to fully deduct them at the time of purchase, that event would also likely create taxable income.
When it comes to taxes, it’s usually all about the cash…
Investment vs. Expense
Some owners find themselves continually feeding funds into their business accounts to keep their business afloat. In theory, as they do this, they should be incurring expenses, or at the very least purchasing business assets, both of which are deductible. But what about when the business becomes profitable, and the owner decides to withdraw cash? This is where it becomes important to track equity contributions and withdrawals, as well as revenues and expenses. It is only with this information that an accountant or CPA would be able to successfully determine to what extent there is truly net income vs. withdrawals and how much of each is taxable. In the majority of pass-through entities this irrelevant because all profits are taxable whether or not they remain in the business. But when it comes to tracking cash-flow (the only thing that really matters), a business owner will want to know how much out-of-pocket cash has gone into their operations and how much is coming out (before and after tax).
I hope you found this brief overview insightful. It’s great to reinvest your profits into your business but keep in mind that your net income is still taxable and setting enough cash aside to cover your year-end tax liability is critical. Just because you are leaving some money in the business does not mean you won’t have to pay taxes on the business net income so be mindful when planning your quarterly tax bills.
Have a question or comment? Feel free to post it below, I’d love to hear from you!
This is a question I have been asked almost daily lately. Whether it’s a new business owner approaching me, or owners of existing businesses, I am regularly asked the simple, but sometimes complicated question, “should my business be collecting sales tax”? It may seem simple to answer, but in reality, there is no hard and fast answer anymore. Many factors dictate whether a business is required to collect. In this week’s post I’ll do my best to walk business owners through their responsibility and requirements when it comes to sales tax.
But first, a note to readers. Every state and local jurisdiction has different rules regarding sales tax. Rules can differ from amount to collect to how often a business owner must remit payment. I can’t stress enough the importance of consulting with a local expert or the taxing authorities directly for more information on requirements specific to where your business operates.
What is Sales Tax and Who Sets the Rates?
If you have ever bought anything you know the advertised price and the price you pay are never the same. The difference is most likely due to sales tax. Sales tax is considered a consumption based tax and is only imposed when goods are purchased by the end user. Taxing authorities often impose sales tax as a way to finance various projects such as public use facilities (think of public hospitals) or to cover operating costs of state and local governments as well as public services such as emergency services. In some cases, these taxes may also be used to expand roadways and public use streets. These are just a few examples of where sales tax revenues may be used. The tax rate itself is typically a combination of a state base rate plus a county rate, which may vary from county to county. The rates are consistent with the budgets established to meet the needs of the public
Who Must Pay Sales Tax?
Who pays sales tax depends primarily on the purchaser’s intent of the goods being purchased. In most cases, the end user is responsible for paying sales tax. Business-to-business (B2B) transactions are more commonly sales tax exempt because businesses may or may not be the end user of a good. A business that is not the end user and is not responsible for paying sales tax may present a sales tax exemption certificate, a state provided certificate basically stating to the seller that they will not being using the goods, but instead selling them back to someone else who may be the end user.
Who Must Collect Sales Tax?
For every payer of sales tax there is a collector and the collection responsibility falls on business owners. If end users are required to pay sales tax, then business that sell to consumers (B2C) must collect sales tax. This seems pretty straight forward when you think about it but when we start to dissect what products and transactions are subject to sales tax it can become complicated. For example, in North Carolina, sales tax is not only collected on the sales of most goods, but is also collected on some labor performed. This recently enacted legislation has been a struggle for business owners to grasp given the unique nature of imposing sales tax on a service. Again, every state is different but it remains the responsibility of every business owner to determine which items and transactions are taxable and which are not. Business owners should also keep clear documentation for tax collected and not collected in case of an audit.
How Does Sales Tax Collection Work?
Once a business has successfully established itself as a legal operating entity and has determined it is indeed required to collect and remit sales tax it must first register with the appropriate state(s) for a sales tax withholding ID number. A withholding ID number is typically required in every state that a business has a liability in, although some states participate in the Streamlined Sales and Use Tax Agreement. As for collecting, that's quite simple; as sales are made, the final sales price is marked-up by the combined sales tax rates, which is collected and held by the business owner until they are required to make a payment to the taxing authorities. It’s important to track sales by state, county, and local levels (where applicable) to ensure appropriate allocation when remitting sales tax. Everyone is going to want their fair share.
Something to note here is that sales tax is a liability to every business and should not be deducted as an expense. I see this very often and have spent countless hours educating my clients about the difference between including it on the P&L versus the Balance Sheet. Regardless of where it is reported on the financial statements, the cash received for every sale related to sales tax should not be used by the business for operating purposes. Businesses that use cash from sales taxes they collect tend to find themselves in hot water pretty quickly because they are often short when it comes time to pay the taxing authorities or they become too cash-strapped to run their business. The proper accounting system established from the onset of business will dramatically reduce the likelihood of this from happening.
How Often Must a Business Make Sales Tax Payments?
How often a business is required to pay the taxing authorities is dependent on the rules set by each respective state. In most cases, states set the collection rules so rarely will you find an instance where a county requires monthly payments and the state requires quarterly payments or vice versa. The payment frequency is also usually provided by the state when a business applies for a sales tax withholding ID number. It’s best to follow the instructions provided by the taxing authorities for tax payments, especially if they change. Payments are also usually made to just one party for the full amount via a sales tax return, which breaks-out payments by county and local levels so the taxing authorities know how to allocate the funds.
What Happens If a Business Fails to Collect or Pay?
If a business is required to collect and remit sales tax and fails to do either or both, the business could be in a world of trouble. Messing with state and county sales tax can get a business shut down. State revenue officials can easily come to your place of business and pull your license to operate. No matter who approaches me about this or their opinion on the matter, I always explain that it can single-handedly be what shuts a business down or temporarily halts operations. There is harsher enforcement that may be taken by but this is in the realm of worst case scenarios.
I covered a lot of technical material this week and it's only the tip of the iceberg. Given that this topic that has been red hot in my firm over the past couple of months I felt it was time to spread awareness. Contact me for a consult or follow-up with your state’s revenue department if you’re unsure of whether your business should be collecting and remitting sales tax. Whatever you do, don’t ignore the issue. It’s better to come clean and catch-up than to continue to disregard your responsibility as a business owner.
Have tips on how to ease the burden of collecting or paying sales tax, or maybe a story to share? Leave it in the comments below.
In today’s connected world it’s easier than ever to learn how to do almost anything or “do-it-yourself” (DIY). Sometimes it can be fun and exciting to challenge yourself to do something you couldn't previously do and it is oftentimes quite rewarding when you are successful. But there are things that, despite having a basic or conceptual understanding of, should be left to the professionals. This week I’m writing about why sometimes it makes sense to not DIY. To keep it relevant for readers, I’ll tie my advice back into accounting related areas.
Opportunity cost is best defined by Investopedia as a benefit that a person could have received, but gave up, to take another course of action. For example, if you chose to spend your time doing bookkeeping for your small business then you might find you’re giving up the opportunity to pursue new sales prospects or allow yourself some much needed downtime to recharge. Yes, anyone can teach themselves how to do almost anything, but is your time really worth spent doing everything yourself? Not to mention that we as human beings cannot really master everything and will inevitably encounter something we can’t handle, or will unknowingly do something wrong. In short, is your time really worth doing things you can hire others to do the right way the first time? Sometimes hiring a professional first may be a better use of time in the long-run.
How Much Could It Possibly Save?
Above I mentioned you’ll spend your time in lieu of paying someone to do something for you. But consider this, how much could you possibly save for a certain task? Think of your taxes, if you do them yourself you still have to buy software and then you have to enter the info and follow directions. The Q&A style software packages that are available are not designed to “think” but instead guide you to a reasonable answer. It might tell you that rental property is depreciable and guide you to receive the appropriate deductions, but does it also tell you that by itemizing each rental property asset you can receive a greater tax deduction? Do you see the difference here? In addition, you are the one preparing your taxes which likely takes even the most prepared person a couple of hours. So now not only have you paid for a program to guide you (at best), but you also just spent a couple of hours of your life all to save yourself a couple hundred bucks from a tax preparer. I can promise you this, the best professionals, no matter what you need done, will save you time and money, and will deliver a quality product that a non-professional can't even get close to.
Jack of all Trades, Master of None
You simply cannot be a master of everything in life. Our brains are not wired to retain that much information and I have to imagine someone who is a “know-it-all” probably does not lead a very exciting life and is probably not fun to be around. I have always followed the guidance to do what you love. Pick a few things that really interest you and hone those skills. Get well-trained in them, I mean ridiculously trained, and then help others using those skills. If you have a genuine interest in something, you’re far more likely to excel at it than if you’re learning something out of necessity. For things that you find less interesting, find someone who performs amazingly well at them and bring them on your team to help out. You’ll be happier if you only ever have to do the things you love rather than the things you need to do.
Knowledge, Training, and Experience
Finally, we arrive at the defining trait; experience. Anyone can gain the knowledge of how to do something. Most can even receive some sort of training (formal or informal). But nothing will ever substitute experience. I don’t care if you know exactly how to do your books down to the penny and you’ve seen a hundred Balance Sheets & P&Ls in your time, if you’ve never prepared one or handled a general ledger system, you will mess it up. Even if you ran one successful business 10 years ago your thinking may be so outdated and irrelevant at this point that it doesn’t matter. If you truly want to DIY, consider shadowing a true professional in what it is you want to learn. Offer your time for free for a while in exchange to learn a skill. Most professionals would likely welcome the free labor and be happy to teach someone with a genuine interest to learn what they know. By learning from a master, you will not only save yourself endless hours of learning things the hard way, but you will have less errors in your work, dramatically improving the quality.
I hear it over and over again from my clients that they’ll take care of certain things themselves only to get the unfortunate news from me that things have been prepared or performed incorrectly, or worse, that they’re out of compliance on items. It’s usually only after it’s too late that my clients approach me to clean things up and do the work going forward. My challenge to anyone reading this is to consider that path from day one rather than as a backup plan. Don't leave it to chance that things will be okay. Instead, ensure that you’re receiving the best service and quality of product you can instead of burning yourself out trying to learn something simply to save a few bucks. In the world of business, it only takes one error to set you back all the money you "saved".
I’ll leave you with one final example. This is a real life example of a conversation I had with a client. My client approached me for a tax consult early one year after he received his 1099-MISC from one of his largest clients and explained that he had an LLC setup to be taxed as an S Corporation but the 1099-MISC was written to him personally (it had his name and SSN on it). I explained that since he had personally received payment all year, and the 1099-MISC was addressed to him, that it would unfortunately have to be reported on his personal tax return. I further explained that if he had been set up with his client for them to write checks and issue tax documents to his LLC, that he could have potentially saved thousands of dollars under certain allowable corporate tax deductions. Although we agreed that it would be time-consuming and costly to try to amend and correct everything that had happened, he was able to apply this newly found knowledge to future years. My point here is that if had obtained a tax consult from the beginning, he could have saved himself thousands of dollars from day one.
Any interesting DIY stories or mishaps in your past? Any questions? Comment below and let us know!
Are you on the fence about hiring an accountant? Do you think accountants are only necessary during tax season? Well I’m writing this week to let you know that accountants can do more than you think. Below are seven myths that I’m debunking regarding accounting and accountants to help you make the best decision for your business and personal need.
#1 My accountant needs to be in the same state as me
Although some people may prefer face to face interaction, your accountant does not need to be located in the same state as you! With the increased use of secure technology to get work done, there are now endless ways for accountants to collaborate with their clients regardless of geography. Documents and information can easily be shared using cloud computing and financial accounting standards follow a uniform code recognized all over the US making the perfect storm for clients and accountants to work together all over the country. Even tax preparation and strategy has relatively few barriers since federal tax forms are the same for all US taxpayers and a strong accountant will be able to learn and help you navigate state specific tax rules to reap the best benefit. Your goal when searching for an accountant is to find someone who you are comfortable with and who you can trust with your financial information. Perform due diligence checks on professionals by ensuring the business is appropriately registered and licensed in the state they hail from. Licensed CPAs should be able to provide their license # upon request.
#2 Accountants only prepare taxes
Do you really think we only work one season per year? I wish! Outside of tax season accountants are heavily involved with their clients’ individual and business needs. This can include routine operational accounting functions such as bookkeeping and payroll services to higher caliber services like CFO or advisory services. Outside of routine accounting, financial auditors make up the vast majority of those employed in the public accounting field. Retaining an accountant year-round can help you save money by making recommendations on ways to decrease costs and increase income. Financial management and advice to individuals and corporations is a huge part of an accountant's job and is most effective when performed throughout the year.
#3 Accounting isn't important or necessary
Hiring an accountant can save you stress and money over time. Many people view accountants as a cost, but really, we’re an investment. An accountant will help you organize your finances and with the right fine tuning will be empowered to help you thrive financially. That means you will have more time to spend doing what you want to do. The best trained accountants will bring signs of trouble to your attention far before things go downhill. We also follow your finances over the course of the year and come tax time assembling your return(s) is much less painful.
In addition to tax preparation, your accountant can also give your business monthly financial reports to help you stay on track or improve in various areas. They can tell you if your prices are where they need to be in comparison to the market and your expenses. Just because your business is busy doesn't mean that you're doing well. Hiring a trained professional to analyze the numbers can have a significant pay-off down the road.
#4 All accountants are boring
Remember Milton from Office Space? Wait, you’ve never seen Office Space?!?!?! Okay, finish reading this blog and then seriously go watch that movie. For those of you that have, all accountants don’t present like Milton. Many people view the job of an accountant as boring. Why? Because there may be boring aspects to our work? Name one job that doesn't include some less than exciting parts of doing it. You can't, can you? The fact that a job has some boring parts to it isn’t a strong argument to say that a group of people is boring.
Here are some examples of a few famous, not-so-boring, individuals. Mixed martial artist Chuck Liddell received a BA in Business and Accounting during his college years and a few other notable celebrities who studied accounting or were accountants include musicians Kenny G and Mick Jagger. I won’t even delve into the shenanigans that go on at the annual conferences of the globally recognized public accounting firms. Me personally, I enjoy competing in triathlons and am an avid homebrewer. I have more fun than that but those are a couple of my stress relievers that help me refresh. Yes, accountants of the past may have been boring but the rising talent of the field is much more than just a number cruncher.
#5 I can't afford an accountant
Yes, there are accountants that will cost you an arm and a leg, but that is true for any professional service. Have you had your hair done by a decent stylist lately? Last I checked they weren’t cheap. But you like to look good and you find value in the service so you’re willing to pay top dollar for the best pro in town. The key is to find the right firm or individual for you, who will provide the services you need within the budget that you can afford. We’re not magicians but any good accountant will work hard to at least find cost-savings equal to (more often greater than) their professional fee. It might not happen on day one but it usually happens in time. Working with a diligent accountant that will help you avoid making just one mistake can be worth thousands of dollars.
#6 Accounting is easy, I can do this myself, I have QuickBooks
So many people think that QuickBooks is a replacement for hiring an accountant. Although some people have the knowledge and expertise to use and understand the program, it doesn’t replace the fact that you need to understand accounting. You can’t expect a software package to condense four/five years of study into a tight little package. Sorry folks but we just we aren’t there yet. More often than not, individuals open it up and become overwhelmed and confused fast. Hiring an accountant can be beneficial in that they can help you setup the software and educate you on how you can and should use it. They can check-in and make sure that everything is in order and fix problem areas that arise. QuickBooks may be able to help you keep information organized and make business decisions, but if the information is wrong what good is it? Familiar with the term “garbage-in, garbage, out”? Respect your own limitations and avoid doing it yourself when you know you should hire a professional. The benefits of having it done right the first time (even it does cost you) will far outweigh the cost of having someone fix mistakes down the road.
#7 All accountants work for the IRS
You’d be surprised how many people think that all accountants work for the IRS. While this isn’t exactly a myth, because there are accountants employed by the IRS, your tax preparer is not one of them. Accountants that are hired to prepare tax returns are usually well-versed in the tax code and can act as a liaison between a taxpayer and the IRS, but in no way, shape, or form do they work for the IRS. The accountants that work for the IRS are completely separate from the equation. So when I have to deliver the unfortunate news that a client owes on their taxes, that client is not paying me the tax due. We are simply the messengers. The best accountants deliver news and offer recommendations on how handle the situation rather than turn the client loose to pick up the pieces on their own. Even better, if you have someone working with you all along you can avoid getting into most messes with a simple conversation from time-to-time.
I hope that you learned something reading about these common myths. The accounting profession receives a lot of heat and criticism but at the end of the day our services are valuable and necessary. There is so much more bad press out there that I could have covered but I wanted to stick with the most common myths that I come across. Think you know of a myth related to accounting? Feel free to comment below.
Thanks for reading!