The Calculated Solution

If getting your information ready to prepare taxes is a nightmare of looking for missing files, receipts, etc. It would be a really wise decision to start to set up this year’s records in a program like QuickBooks so this scenario doesn’t have to be repeated again next year.

Once set up, (properly) keeping your records straight becomes easier as you go. And at year end, all your information is available and ready for tax preparation.

If Bookkeeping is not something you like and/or understand, find a professional to setup  everything properly and either train you (or a staff member) or keep your records updated periodically.


The relief of having all your records in order is worth the initial effort.

As we head into the last quarter of the year, it’s a good time to take a calculating look at your business. If possible, have a Profit and Loss Statement prepared for last year to this point and compare it to a P&L report of this year. Are you doing better, worse or the same?

If the result is: BETTER, hooray for you – but – this may require tax planning (before year end) to prevent overpaying your tax bill.

If the result is WORSE, is it due to the economy, or something you are doing wrong or not doing. What steps can you take to improve your results?

If it looks the SAME, just as in the previous instance, you should be looking for ways to improve. Even in this economy, there are Businesses doing well – so it is possible.

I guess only a Tax Professional would describe attending tax seminars as “fun.” But the instructors did a great job of covering the material while adding some humor and audience participation. So I enjoyed the two days.

The topics were quite varied:
Non Profits – I currently don’t have any clients in that category. The instructor was extremely knowledgeable and covered everything from setting it up properly through keeping it in compliance with proper reporting and things to do when ending one.

IRS Appeals Process and Fast Track Mediation – This seminar was given by a representative from the IRS and she gave a heap of valuable information to help any clients that are being audited by the IRS. Often people panic because they don’t understand their rights and what the proper procedures are to follow.

Although I consider myself ethical -the session on ETHICS is mandatory to remain in good standing with the IRS, and there were a few surprising points that were quite helpful.

Schedule A Deductions. The form to deduct medical expenses, real estate tax and interest, charitable contributions, employee expenses, etc.

Schedule E – for reporting Rental income and expenses, Partnership and S Corp income or loss, Royalties, and Estate & Trust income or loss.

Texas Wills and Estates was presented by a lawyer. I found this topic interesting since I had recently moved to Texas. One of the points made had to do with Texas being a Community Property State.

The Tax forms for a person who had died = the Final 1040 and Estate Tax 1041 were covered briefly. Since I have to prepare both of these, I found the information especially helpful.

The Texas Margin Tax was covered thoroughly. Since the first threshold is $300,000 before tax is due, I don’t currently have clients that are subject to the tax. The information needed to complete the forms was quite extensive and complicated – so had I needed to prepare this report the information would have been vital.

In addition to the valuable information, I made a few contacts, one woman who lives not very far from me. I’m glad I went.

Since part of my business is tax preparation, and since tax laws change every year, it is necessary to stay informed.

One of the ways I find that works the best for me is going to Tax Seminars. The speakers are knowledgeable and you can interact, asking questions and hearing the questions of others answered. This works better for me than reading through tax laws.

It is also a good networking opportunity. Comparing “notes” with other tax preparers, commiserating about the problem clients, software difficulties, and stupid tax laws…

So, I’m headed up to Arlington, Texas for a two day seminar. Some of the topics that will be covered are: Schedule A deductions, Rental Property Reporting, Non-Profits, Wills & Estates, Making Appeals to the IRS (when taxpayers are being pursued for back taxes, interest and penalties), and Ethics(who would think you needed ethics when dealing with taxes??) 

And since this is in Texas, it also covers the Texas Margin Tax.

I have not been to Arlington, Texas before. I’m not sure how much I will get to see, since I am flying there and being shuttled to the hotel. And the days will be taken up at the seminars. I hope to make a few contacts and learn as much as possible.

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I was on a business forum a few days ago and someone posted a question about “S Corp’s.”  The person stated that he’d researched and found that “S Corp’s were exempt from tax since the stockholders paid the tax.” He had other questions about the tax forms.

It was obvious from the questions asked, that this person was just starting out. I’m not sure how much research he did or where he got his information, but deciding on what type of entity to use for your business is a serious decision. It could actually make or break it.

Setting up a Sole Proprietorship, (although the easiest) exposes the owner’s personal property to losses. Partnerships, if set up without all the legal technicalities covered exposes each partner to the losses of the other partners. Corporations, while providing personal protection, require strict adhering to government regulations about management procedures and document filings. Fines can be hefty for non-compliance.

A good place to start research is the Internal Revenue Service website: www.irs.gov. There is a tab for “Business.” On that page there is a list of the different types of entities. Clicking on those links will take you to the page explaining briefly what each type is and the tax forms relating to that entity.

Further down the page is a link “Starting Your Business.” By clicking on that link you will be taken to The Small Business Association (www.SBA.gov). This site has a wealth of information. It could lead you through all the steps of starting and running a business.

However, if reading through all that starts to get you confused, there is a link to find a local office. They have offices throughout the country where you can meet with a person and get help.

The first thing they will advise you to do is = “Make up a Business Plan.” A business plan is, of course, hypothetical. You are surmising what and how your business will be set up and grow. How and how much money will you earn? What expenses will there be? How will you get customers? Will you have employees?

It takes time and effort to construct – but once completed, you have a guide to get you up and going.

The research and soul searching it takes to put together a clear, complete plan will pay off in many ways:

It will help you to make wiser decisions.

It will also boost your chances of getting business loans

It may even show you that the business you thought of starting won’t work and you’ll have saved a lot of money and aggravation .

October 15th is the Final -Final filing date. If you have filed for an extension to postpone filing your 2007 taxes….Times Up. The GOOD NEWS – you can still get your stimulus check!

For the rest of us, it’s time to size up the year 2008 and make any necessary changes before year end. It’s a good practice to find out what new laws were put into effect during the year that will impact your tax situation.

[The IRS has made several adjustments to aid the Texas and Louisiana disaster victims.]

Many tax breaks, writeoffs, etc require an action to be completed before the end of the calendar year to qualify for a deduction. Often taxpayers find out at tax time that they would have been eligible but now it’s too late….

The “Chart of Accounts” is the backbone of any record keeping system. Unless you understand the parts and when to use them, your records and reports could wind up to be worse than useless.

The main categories of a “Chart of Accounts”:

• ASSETS 
• LIABILITIES
• EQUITY
• INCOME
• EXPENSES

 Rather than taking them in order, I’ll use a scenario to explain them.

Your business sells a product or service and gets = INCOME

In the process of doing that it spends money for Advertising, Office Supplies, Telephone and Utilities = EXPENSES

At the end of a period of time (a week, month, year) you total those two categories. When the total of INCOME is more you have = NET PROFIT

If the total of EXPENSES is more you have = NET LOSS.

++++++++++++

At the end of a year, the NET PROFIT $ or NET LOSS ($) is the amount that goes into the EQUITY account.

This account shows the VALUE of your business.

NOTE: you can increase the Equity Account by making an INVESTMENT of Capital.

++++++++++++++++

ASSETS are the “items” that exist for more than a year and add VALUE to the business (a bank account, an Automobile, Office Furniture, Inventory)

LIABILITIES are debts the business has to pay at some future time. (Short term could be a Vendor’s bill that will be paid in 15 days, A Credit Card bill that will be paid off in three months)

(Long term would be those lasting more than a year -an Automobile Loan, a Mortgage for the building)

[ASSETS are added to EQUITY. LIABILITIES are subtracted from EQUITY]

^^^^^^^^^^^^^^^

NOTE: Each time money comes into or goes out of the Business, you must choose which account is affected. Standard Bookkeeping is based on a “Double Entry” system which means that two accounts are affected.

Examples: Purchase of desk

Office Furniture (Asset account) is increased

Visa CC(Liability Account) is  increased

++++++++++++++

Paid Telephone bill:

Cash/Bank Account (Asset Account) is decreased

Telephone Expense (Expense Account) is increased

++++++++++++++++++

Paid for Consulting Work:

Consulting Income (Income Account) is increased

Cash/Bank Account (Asset Account) is increased

OK, that’s enough for this Lesson.

STOP struggling with your Business Finances. QuickBooks is the easy to use solution to your business accounting problems. They have a Forum to find answers to your questions and they have a pool of QuickBooks Advisors. You can search for someone in your local area that can help get your records set up and organized.

As many people go into hibernation after the hectic Holiday Season. Retail Stores are frantically trying to entice shoppers back to the stores with a multitude of Sales.

The back office is busily totaling and analyzing how the year stacked up. Payroll services are working to get out the year end reports and send out the W-s to employees.

And Tax Offices are gearing up to handle all the people that start coming in to have their taxes prepared.

Each year the legislators provide us with new Tax Laws or changes to old Laws in an attempt to make our jobs more interesting and challenging. (That must be their motivation, based on the convoluted jargon they come up with)

Some changes require jumping through so many hoops, you may run out of energy and time before you get any benefit.

A few of the useful deductions are:

“Mortgage Insurance Premiums” Deduction. This insurance is often required by the mortgage company when purchasing a home.

The “Educator Expense Deduction” which had ended was extended for two years.

Also extended:  the Deductions for “Tuition And Fees” and “State and Local Sales Tax”

Health Savings Accounts (HSAs) can be set up if you had a “High Deductible” Medical Insurance Policy. The money can be growing interest tax deferred – if not needed for Medical Expenses. The amount that can be contributed is no longer limited to the amount of the Deductible or to Earned Income. If this is something that interests you, ask for more information. It is a good way to have a reserve for unexpected Medical Bills and if not needed, can grow and grow.

With all the Baby Boomers nearing retirement age, it is interesting to note that once you reach the “Full Retirement Age” (which has been extended for those born after 1938) you can collect Social Security (if there’s any left) AND continue to work without any reduction in benefits. And given the statistics of how little the Baby Boomers have saved for retirement, this will probably be a necessity.

If a Husband and Wife operate a Business together, they no longer have to file a “Partnership” return. They can use schedule “C”, “E”, or “F” (whichever is appropriate for their type of business)

On the other side of the coin, Charitable Contributions of “Cash” will be disallowed without records to back them up. (Records such as canceled checks, bank copies of checks, bank statements containing the name of the charity, the date and the amount or a written communication from the charity.)

There are new rules for Beneficiaries of IRA’s. If that affects you, be sure to look into the changes, it could make a significant difference in the amount of tax paid.

Employers can be eligible for a Tax Credit (up to $6,000 per employee) for hiring a member of a targeted group.

“Targeted group” includes:

A qualified IV-A recipient

A qualified veteran

A qualified ex-felon

A high risk youth

A vocational rehabilitation referral

A qualified summer youth employee

A qualified food stamp recipient

A qualified S.S.I. recipient

A long-term family assistance recipient

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Well, that should be enough to think about for now…