Owners of new businesses call my tax and accounting office in Atlanta looking for “CPA tax tips.” In this article I will share some of the CPA tax tips that tend to be the most meaningful, practical and useful for creating and running a new business.
Stay in Touch with your CPA
Expect your CPA to be an informal partner with you in the growth of your business. This tip only works if you are in touch with each other throughout the year. Don’t work with anyone who cannot agree to that. Don’t work with a CPA who takes off six months of the year or has another business to run when it is not tax season. Your CPA should be able to focus on you and your business all year long, even when it is not tax season.
Use your CPA for tax planning, tax return preparation and resolving IRS and state tax matters. In addition, ask your CPA for insights into your financial statements. The purpose of these insights is not only to see how your business is doing, but also (and more importantly) to help you make decisions about where to spend money on your business in the future.
It is not enough to talk with your CPA in March of the next year. That is simply to too late for tax planning. The only way to meaningfully minimize taxes is to do planning before (not after) year-end. While I like quarterly planning meetings, at a minimum be sure to communicate with your CPA in November or December to identify and implement tax and business planning ideas.
DIY Tax Returns
I am OK with folks preparing their own tax returns, provided they are W-2 employees. However, I strongly believe that most owners should not prepare the tax returns for their businesses. Business returns are just too complicated and the relevant tax law is too complex. The average business owner will have a hard time with depreciation, IRS elections, the balance sheet, unique tax accounting methods, tax basis when selling business assets, and state apportionment. Partnerships are especially complicated. Frankly, your time if better spent growing your business than trying to get a business tax return to work right and pass muster at the IRS.
It comes as a surprise to many of the folks I speak with in Atlanta that business owners are required to pay taxes quarterly. These are called “estimated tax payments.” Business owners are penalized by the IRS if they don’t make quarterly tax payments. And perhaps more importantly, business owners will experience the pain of a gigantic tax bill at year-end if they have not spread their tax payments out during the year.
Owners of S corporations have the option to use payroll taxes as an efficient way of spreading the tax burden throughout the year.
DIY Accounting (the CPA Tip with the Most Pushback)
Inexpensive software is available to keep the books of business. At Massey and Company CPA, we use QuickBooks Online for this purpose. However, accounting software packages are notoriously difficult to use. And the average business owner does not have the necessary training or experience to keep their own books. Based on many years of experience working with small businesses and entrepreneurs, I strongly believe that business owners should let a CPA or bookkeeping firm manage the books, giving the owner the time and strength to focus on what only they do best: growing their business.
Whoever does your bookkeeping and accounting, don’t wait until the end of the year to clean up your books. Bookkeeping procrastination nearly always results in a mess that is time consuming and expensive to unravel. Who can remember what you bought for your business 10 months after the fact? At a minimum, keep your books up to date and reconciled to the bank every month.
My CPA tip on bookkeeping and accounting probably gets the most pushback from new business owners. But I will stick to my guns that this is truly a necessary “best practice” for all small businesses.
Clean books (I like to call them “kosher”) will allow you to make decisions and plan for taxes, without relying on guesswork. Like a tidy kitchen, clean books offer peace of mind. And a clean set of books is your best defense in the event of an IRS audit.
LLC or S Corporation?
The LLC limits legal liability. It does not to save taxes. The S corporation limits legal liability and saves taxes at the same time.
My suggestion is to start a business as an LLC and then convert to an S corporation when net income from the business reaches about $50,000 per year. I have found this to be the break even point when the tax savings exceed the cost of the S corporation.
This is a popular structure for businesses in Atlanta and throughout Georgia.
If you or someone you know has a tax issue relating to a business, please contact us at (678) 235-5460, or by email at Gary.Massey@masseyandcompanyCPA.com. We also represent taxpayers to the IRS and the Georgia Department of Revenue. We make the tax nightmare go away.
Massey and Company CPA is a boutique tax and accounting firm serving individuals and small businesses in Atlanta, Chicago and throughout the country. Our services include tax return preparation, tax planning for businesses and individuals, IRS tax problem resolution, IRS audits, sales tax, and small business accounting and bookkeeping.