The Importance Of Having An Accountant

When offered our services, many small business owners don’t realize the importance of hiring an accounting firm, and especially in today’s economy they take the “do it yourself” approach. In most cases, this is a costly mistake resulting in businesses spending more on taxes, lost time for business owners performing clerical duties, lost documents, poor cash flow due to uncollected receivables among others. Here is an article from the Los Angeles Times addressing this issue.

From the Los Angeles Times

For small business, tax season requires complete ledgers and attention to changing rules
Blurry ledgers make filing returns harder. Laws are changing on federal, state levels.

Associated Press

February 2, 2009

Income tax filing season can be a trying time for small-business owners, even more so in a recession.

One of the biggest pitfalls owners are likely to encounter is a perennial one: poor record keeping that makes it hard for them not only to complete their returns but also to know where they stand financially. Another common problem is keeping up with changes in the tax laws, especially for state and local governments that are looking for ways to increase revenue.

Ask tax professionals what their clients struggle with, and haphazard books and ledgers is often the first answer. Many business owners don’t know how much money they have on hand, how much they owe and what their clients owe them.

“You really need to control your books and understand what you’re making,” said Jeffrey Chazen, a certified public accountant with the Eisner accounting firm in New York.

Some business owners use their checkbooks and credit card bills as their records. But it’s a problem when “they can’t locate all their check registers or all of their bank statements,” said Gregg Wind, a CPA with Wind Bremer Hockenberg in Los Angeles.

Others are even more disorganized, with boxes or piles of invoices, receipts and canceled checks that need to be sorted. CPAs ruefully refer to these people as “shoe box clients.” These business owners risk missing important deductions and can end up overpaying the government. Or if the government questions a deduction, you could lose it if you don’t have documentation.

The answer is to use a computer application to keep your books, one that interfaces with tax preparation software. But many owners don’t use such programs because they don’t have the time to input the information. Well, they can spend the time throughout the year keeping their books or spend even more time trying to figure things out before April 15.

The solution for many owners in this plight should be to get help, whether it’s a bookkeeper to take care of ledgers and a tax professional to handle returns, or both. It may be too late for 2008, but it’s still early in the new year and a good time to get organized.

Badly kept records are a particular problem for owners with home offices or who use cellphones and vehicles for both personal and business purposes. They need to keep good personal as well as business records.

The IRS allows owners of home businesses to deduct a portion of expenses, including mortgage interest, repairs, utilities and insurance, and unless taxpayers have invoices and receipts, they can’t compute the deductions accurately. Similarly, you can deduct a portion of what you pay out on cars, cellphones and other items with dual purposes, but you need to keep track of when a car, for example, is driven on personal errands or to meetings with clients. At this point, after the year has ended, it’s hard to reconstruct that information.

Another problem for many owners is keeping up with all the changes in the tax laws — and not just at the federal level. Many states have laws that differ from the Internal Revenue Code, and owners need to be aware of them.

Leon Dutkiewicz, a CPA with Margolis & Co. in Bala Cynwyd, Pa., noted that some states treat depreciation of assets differently from the federal government. That means two separate calculations for each item being depreciated. Another complication is for companies that do business in different states — for example, a small retail chain. Chances are they have different tax laws, which again means separate calculations.

“Trying to keep current on federal tax law changes and state tax law changes where you do business and every locality, it becomes extremely difficult,” Dutkiewicz said. “It’s forever in flux at all levels.”

The easiest way to keep up with those changes is to have a good tax professional who follows the tax laws. There are federal changes for 2008 that owners need to be aware of. Wind noted, for example, that if partnerships choose to get filing extensions past the April 15 deadline, they have to file their returns by Sept. 15, not Oct. 15 as in the past.

Many more changes are likely for the 2009 tax year with the government expected to have an economic stimulus plan in place, and many states are also likely to revise their own tax codes.

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