Categories
Tax

Small Business CPA Warns of Taxation of abandonments, foreclosures and repossessions

Small Business CPA Warns of Taxation of abandonments, foreclosures and repossessions

Small Business CPA Office warn many taxpayers in the current economy have had trouble paying mortgages, car notes and other debts. Some are forced to abandon property, go through foreclosures or have property repossessed. While such measures may alleviate the financial burden on these taxpayers, Small Business CPA warn of the tax consequences often are overlooked.

Small Business CPA warn that when property that secures a debt is abandoned by voluntary or involuntary action, the tax consequence depends, among other things, on whether the taxpayer was personally liable for the debt and whether the abandoned property was personal use, according to VieraCPA a Small Business CPA.

PROPERTY SECURED BY RECOURSE DEBT

Small Business CPA remind you that if the debtor is personally liable for the loan on the property being abandoned, the loan is a recourse debt, and until foreclosure or repossession procedures are completed, there are no tax consequences, whether the property is personal use or business use. The foreclosure or repossession is treated as a sale, and the debtor may realize a gain or loss on the deemed sale, according to VieraCPA a Small Business CPA. The amount realized is the lower of the asset’s fair market value on the date of abandonment or the outstanding debt immediately before the transfer, reduced by any amount for which the taxpayer remains personally liable after the transfer. The amount realized also includes any proceeds the debtor received from the foreclosure sale. The amount realized is compared with the debtor’s basis in the property to determine gain or loss.

Small Business CPA warn that the gain from a foreclosure sale of abandoned property is includible in gross income whether or not the taxpayer used the property for business purposes. However, losses from personal-use property are nondeductible. If the property is a business-use asset, the gain or loss on disposition is either a capital or an ordinary gain or loss, depending on the character and nature of the asset. After the foreclosure has been completed, if the financial institution or creditor forgives the debtor any part of the debt, the forgiven portion is cancellation of debt (COD) income and may be includible in the debtor’s gross income. It is reported separately from any gain or loss realized from the sale, according to VieraCPA a Small Business CPA.

PROPERTY SECURED BY NONRECOURSE DEBT

If the debtor is not personally liable for the debt (nonrecourse debt) and abandons personal-use property, such as a home or an automobile, the abandonment is treated as a sale in the year of abandonment. The amount realized on the sale—the outstanding loan balance according to Small Business CPA —is compared with the taxpayer’s adjusted basis in the property to determine gain or loss. Any loss is a nondeductible personal expense. If the property abandoned is business or investment property, the amount of gain or loss is determined in the same way. However, a loss is deductible. The character of the loss depends on the character of the property.

Generally, no COD income arises from these types of transactions because the debtor is not personally liable for the debt. However, if the debtor retains the collateral and accepts a discount from the creditor for the early payment of the debt, or agrees to a loan modification that reduces its principal balance, the amount of the discount or principal reduction is considered COD income, even if the debtor is not personally liable for the debt.

CANCELLATION OF DEBT INCOME

Generally, if a creditor forgives or cancels a taxpayer’s recourse debt, the amount forgiven or canceled is ordinary income to the taxpayer, according to VieraCPA a Small Business CPA. The taxpayer may be able to exclude canceled debt from gross income if the debt cancellation was a gift, or in some cases if the canceled debt was a student loan, deductible debt or a price reduction after the original purchase of the property. Sec. 108 also may exclude canceled debt from gross income if the taxpayer was bankrupt or insolvent immediately before the debt cancellation or if the debt is qualified farm indebtedness, qualified real property business indebtedness or qualified principal residence indebtedness.

This is an overview of some of the principles that are likely to be involved for Small Business CPA clients in these situations. Facts and circumstances may indicate a variety of options and considerations regarding these issues. Small Business CPA can guide clients through such determinations and help them avoid undesirable tax consequences when they must relinquish property securing their debts.

Categories
Business Trends

Entrepreneur Wants a CPA In Miami

Entrepreneur Wants a CPA In Miami

CPA firms, Accountants in Miami | Accounting Services in Miami | Accountants Miami | Certified Public Accountant in Miami | CPA in Miami | CPA Miami | Miami Accountant | Miami Accounting Firms | Miami CPA Firm | Miami CPA | Miami Accounting | Accountant 33157 | Accountant 33176 | Accountant 33186 | Accountant 33183 | Accountant Miami

A great CPA In Miami will have a solid understanding concerning general accepted accounting practices (GAAP) and also the flow of transactions of your particular company. Additionally, a specific comprehension of what is one of the asset, liability, income & expense accounts is crucial.

  1. Your CPA In Miami has to be competent in making use of a computerized accounting software like Quickbooks, Quicken or even MS Excel to capture transactions and in generating month-to-month financial statements.

 

  1. An experienced CPA In Miami will usually consult with you for any deals or account that he or she just isn’t clear on. You don’t want a CPA to dump everything right into a Assorted account?
  2. A professional man or woman will invariably keep the documenting of financial transactions kept up to date. A CPA In Miami will request consistent input and very accurate information, to enable them to produce the essential financial reports by the due date.

A CPA In Miami with industry experience definately will make suggestions and easily keep all transactions in order without any problems. In setting up a company, one has to decide upon the financial record keeping belonging to the monetary aspect of the company. For those who are not proficient in accomplishing this task, you will need to retain the services of a bookkeeper, CPA In Miami who is competent considering the profession you intend to create. Maintaining your small business financial transactions could be the base for a great company to grow from.

Categories
Tax

Tax Services Miami Threatened over Tax Refund Delays

Tax Services Threatened over Tax Refund Delays

Anxious taxpayers awaiting their delayed tax refunds are in some isolated cases taking out their frustrations on their Tax Services.

“Severe taxpayer frustration is generated due to the impact of their 1040 tax preparation delayed refunds and a lack of information on status,” said Bernie McKay, chairman of the Council for Electronic Revenue Communication Enhancement, in testimony on February 28 at a hearing of the IRS Oversight Board. His organization, CERCA, serves as a liaison between the Internal Revenue Service and the electronic filing industry.

“Such intense early season taxpayer frustration at Tax Services is directly related to the fact that significant numbers of early season return filers have the most urgent financial need for receipt of their tax refund to meet pressing household, personal or family bills,” McKay added. “For many of these taxpayers, the receipt of their annual tax refund is a major financial event which they and their families depend upon. Tax Services knows when refunds are delayed and status information is not available or reliable, private sector Tax Services Miami staff suffer widespread verbal abuse from deeply frustrated taxpayers after 1040 tax preparation, while Tax Services have been physically threatened or even sustained personal property damage (e.g., rocks through car windshield).”

“We did not go into detail about specific incidents, but if you talk to any Tax Services Miami, they will say that there were challenges that they had during and after 1040 tax preparation,” said CERCA spokesman Mike Cavanagh.

The IRS informed Tax Services early this tax season that it was experiencing tax refund delays as a result of new anti-fraud filtering software it had put in place to protect taxpayers against identity theft. The “Where’s My Refund” tool Tax Services Miami refer taxpayers to on the IRS Web site was also producing error messages and telling taxpayers different dates for when they could expect their refunds.

In the most recent update on the status of the tax refund delays, the IRS indicated that it was catching up, although it was still about 2 million tax returns behind where it was last tax season.

“The Where’s My Refund online tool needs to be continuously functioning, timely and accurate,” said McKay. “A lack of information, or the repeated unavailability or non-functionality of the tool itself after 1040 tax preparation, adds to the growing frustration of the taxpayer and directly drives growing call volumes for both the public and private sectors alike.”

At one point, when the Where’s My Refund tool was malfunctioning, the IRS asked taxpayers not to keep calling and Tax Services got the calls.

But that put more pressure on Tax Services Miami to answer the question about taxpayer’s 1040 tax preparation for clients, CERCA noted. “The IRS posting of notices asking taxpayers to stop calling because it has no information does not help the problem, and does not produce the desired behavior within the impatient taxpayer population,” said McKay in his testimony. “If the taxpayer does indeed stop calling the IRS, they just start calling, emailing, texting, blogging or tweeting Tax Services. A lack of information or customer service does not result in the taxpayer patiently going away and waiting. It is not a behavior that a dissatisfied consumer of services is accustomed to in the modern 24×7 world of instantaneous communications and constant access to desired information and services. A fundamental customer service paradigm shift has taken place in the commercial world, and the government sector is not immune from its impact.”

Besides the anti-fraud identity theft filters, some of the problems may have also been due to the IRS’s new Modernized eFile system. The IRS told taxpayers that the refunds would be delivered within a 10-21-day window, but many tax refunds continue to be delayed, Tax Services Miami noted Friday.

CERCA had seen this coming. “Despite years of public predictions of significant acceleration in refund cycle times due to major public investments in IRS systems, this year the IRS official guidance, and actual experience, was of a significantly longer refund cycle time than in the past,” said McKay. “Going forward, strategy must either align performance and management objectives back to the long-time predictions and commitments made to the public, or begin a major public re-education program to change public expectations about the timeliness of 1040 tax preparation refund availability from the U.S. income tax system. The IRS Refund Cycle Chart has been out of synch this tax season with actual refund turnaround time, and out of synch as well with the IRS’s own projection posted in January that lengthened the predicted amount of time it might take refunds to be processed to be 10-21 days. The disconnects in these types of critical datapoints add to taxpayer confusion and anxiety, and an objective for future seasons must be a standard of simplicity and consistency and timeliness in information and messaging.”

Even after the system indicated that the refund had been issued, the money oftentimes has not been forthcoming. “Once the IRS does issue the refund, the agency can today provide no further support to the taxpayer when researching where the refund actually is, and what happened, for example, with regard to offsets,” said McKay. “Tax Preparation Miami and electronic service providers need access to [Financial Management Service] information to verify where disbursement is in the process, so that if there’s been a problem with the funds they can be traced. Lack of timely, accurate, accessible information drives negative taxpayer experiences, particularly with early return filers who have the most urgent need to receive their refunds.”

Tax Services Miami wants to work with the IRS to improve the situation for next tax season.

“What we simply wanted to do was suggest solutions,” said Cavanagh. “Next year let’s work harder. The issues this season have happened, but let’s work with the IRS to do better.” He acknowledged that the problems from earlier this tax season are now abating. An IRS spokesman confirmed that the problems are mostly resolved at this point.

Tax Services Miami want to make sure that the situation improves in future tax seasons or else it could upset the delicate balance involved with voluntary tax compliance.

“The role of tax refunds as an incentive for taxpayer voluntary compliance in the United States is foundational to the very high tax compliance rate the U.S. government has come to expect and enjoy over many decades,” said McKay in his testimony. “The role of tax credits as a lever of national economic policy has likewise become central to the role of the U.S. tax system in the American economy. If the timeliness of tax refunds is going to fundamentally change as the ‘new normal’ of American taxation, the taxpaying public must be informed and educated. Changing citizen expectations and behaviors took 10 years to produce a conversion from paper returns to electronic filing and achieving an 80 percent e-file rate. Changing citizen expectations about the timeliness of their access to their tax refund money would likely be a more difficult challenge that would encounter a more a challenging range of taxpayer behaviors and emotions, if this tax season is any indication.”

Categories
Business Trends

Outsource Your Bookkeeping and Focus on Selling

Outsource Your Bookkeeping and Focus on Selling

Our Miami Bookkeeping Services handle all your daily accounting needs: invoices and statements, accounts payable, cash receipts and disbursements, payroll, bank reconciliations and recurring reports. Your bookkeeper will be in contact with you daily by Instant Messenger, email or phone with any questions or concerns. All under the supervision of our accountants in our Miami CPA Firm.

Accounts Receivable

Get your invoices out promptly and send monthly statements on the date of your choice.

We offer two options:

  • We prepare your sales invoice from information you email to our bookkeeper. We email you the final invoice for approval.
  • You generate invoices and statements through time and billing software. Your bookkeeper posts or imports the invoices into your accounting software.

Whether we prepare your invoices for you or you generate them yourself, we can print and mail or email customer invoices and statements on your behalf.

Accounts Receivable reports for collection and cash flow management are prepared and delivered to you on a schedule of your choice. Finance changes are assessed on overdue invoices based on your company’s payment terms and conditions, and statements can be initiated and transmitted on a schedule of your choice.

Accounts Payable

Invoices you receive from vendors will need to be scanned and emailed to us. We provide a scanner with PaperPort scanning software at no cost.

This process is as simple as 1-2-3:

1. Insert the invoice into the scanner then press the Scan button.

2. Name the file that appears on your screen (give it a unique name)

3. Click the email icon to create an email, attach the file and send.

That’s it! You’re done! Your vendor invoices for the day are on the way to us for recording into your accounting file.

Alternately, you can have vendor invoices mailed or emailed directly to us for processing.

On a schedule determined by you, we will email you a report of all open vendor invoices. Just indicate which invoices you want paid, then email the report back. We will set up the requested bill payment checks in your accounting file.

Once the checks are ready to print, we offer two options for printing:

  • You or a designated staff member can log into your accounting software and print checks directly to your local printer.
  • We can print the checks and mail or deliver them to you.

The printed checks are signed and mailed from your office. You maintain full control over your funds.

Cash Receipts

Prior to taking deposits to the bank, you will scan the deposit slip and each of the items to be deposited. Then create an email and upload the file at your convenience. We will post the customer payments against the appropriate customer invoices and record the bank deposit.

Payroll Services

We either processes payroll or makes the necessary entries to record payroll processed by a third-party provider. In either case, payroll entries will include complete recording of gross wages, employer taxes and other payroll expenses, and payroll liabilities, and quarterly and annual reconciliation of general ledger balances to payroll returns. If needed, we can also initiate transfers from your operating bank account to your payroll bank account to cover payroll if these accounts are held by the same bank.

We do recommend direct deposit of employee paychecks whenever possible.

Banking Activities

We will have access to view and download transaction history and bank statements, and, if desired, to transfer funds between business accounts at your bank. We will not have the authority to sign checks or to initiate electronic payments that have not been pre-approved by you or a designated staff member.

Bank account activity is updated daily in your accounting file, so that you always know your available cash balance. Transactions that appear in your bank account that we have no knowledge of will be posted, but we will inform you of these transactions and request supporting information by email. Bank account balance notifications and cash receipts and disbursement reports can be emailed to you daily, weekly, or monthly as desired.

Banking, credit card, and loan accounts are reconciled to the corresponding statements each month, and the reconciliation reports are emailed to you promptly. When emailing the reconciliation report, we will call your attention to old outstanding items that require resolution and will also provide a list of any missing check numbers for security and control purposes.

Bank Reconciliation

Reconciling your business checking account each month allows us to keep your bank account, accounting, and taxes up-to-date.

Having us reconcile your account each month allows you to…

  • Identify lost checks, lost deposits and unauthorized wire transactions.
  • Detect and prevent excess/unjustified bank charges and ensures transactions are posted correctly by your bank.
  • Detect and prevent embezzlement of funds from within your company.
  • Know how your business is doing. You can’t really know unless all accounts are reconciled and properly accounted for on your financial statement.
  • Manage your cash more effectively. Proper management of funds not only saves money, it makes money for you.
  • Protect yourself. By timely reconciling and promptly objecting to your bank about any unauthorized, fraudulent or forged checks presented to your bank and paid by that bank, you can relieve your agency of responsibility for the shortfall and transfer the risk to the bank. This reason to reconcile alone should be enough. Crime exists.
  • Sleep Better. You will sleep more peacefully at night knowing your bank accounts are reconciled, in balance and that all escrow funds, accounts, checks and disbursed funds are properly accounted for.

Compiled Financial Statements

You’ll get a complete set Compiled Financial Statements of on either a monthly or quarterly basis (you’re preference). The financials will consist of a Balance Sheet and Income Statement also known as a Profit & Loss. We will set up a Web Conference to review your financial results each quarter. This gives you and us a forum for Q&A and advisory type services.

 

 

Categories
Tax

Small Business CPA Top Ten Tips on a Tax Credits

Small Business CPA Top Ten Tips on a Tax Credits

Small Business CPA Gustavo A Viera remind that If you paid someone to care for your child, spouse, or dependent last year, you may qualify to claim the Child and Dependent Care Credit when you file your federal income tax return, according to Small Business CPA across the country. Below are 10 things the Small Business CPA Viera wants you to know about claiming the credit for child and dependent care expenses.

Small Business CPA Licensed CPA Tips

1. The care must have been provided for one or more qualifying persons, according to Small Business CPA. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.

2. Small Business CPA everywhere remind you the care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.

3. You – and your spouse if you file jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment states Small Business CPA Gustavo Viera. One spouse may be considered as having earned income if they were a full-time student or were physically or mentally unable to care for themselves.

4. The payments for care cannot be paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return prepared by your local Small Business CPA.

5. Licensed Small Business CPA remind you that your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.

6. The qualifying person must have lived with you for more than half of 2011, according to Small Business CPA Gustavo Viera. There are exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents. See Publication 503, Child and Dependent Care Expenses.

7. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.

8. For 2011, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit, according to Small Business CPA. The qualifying expenses must be reduced by the amount of any dependent

9. Care benefits provided by your employer that you deduct or exclude from your income, such as a flexible spending account for daycare expenses.

10. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay Social Security and Medicare tax and pay federal unemployment tax. See Publication 926, Household Employer’s Tax Guide.

Small Business CPA owner and a Licensed CPA Gustavo Viera

Categories
Accounting

Accounting

I want to talk about how to keep track of the money in a company. That is called accounting and we’re going start with the basics of accounting.

Accounting is keeping track of the money in a company. It’s critical to keep good books and CPA for a business, no matter how small it is. I’m not going to lay out exactly how to do that, but I am going to discuss a few important principals.

The first important principal is every financial transaction of a company needs to be recorded. This process has been made much easier with the advent of accounting software. For most startups, Quickbooks will do in the beginning. As the company grows, the choice of accounting software will become more complicated, but by then you will have hired a financial team that can make those choices.

The recording of financial transactions is not an art. It is a science and a well understood science. It revolves around the twin concepts of a “chart of accounts” and “double entry accounting.” Let’s start with the chart of accounts.

The accounting books of a company start with a chart of accounts. There are two kinds of accounts; income/expense accounts and asset/liability accounts. The chart of accounts includes all of them. Income and expense accounts represent money coming into and out of a business. Asset and liability accounts represent money that is contained in the business or owed by the business.

Advertising revenue that you receive from Google Adsense would be an income account. The salary expense of a developer you hire would be an expense account. Your cash in your bank account would be an asset account. The money you owe on your company credit card would be called “accounts payable” and would be a liability.

When you initially set up your chart of accounts, the balance in each and every account is zero. As you start entering financial transactions in your accounting software, the balances of the accounts goes up or possibly down.

The concept of double entry accounting is important to understand. Each financial transaction has two sides to it and you need both of them to record the transaction. Let’s go back to that Adsense revenue example. You receive a check in the mail from Google. You deposit the check at the bank. The accounting double entry is you record an increase in the cash asset account on the balance sheet and a corresponding equal increase in the advertising revenue account. When you pay the credit card bill, you would record a decrease in the cash asset account on the balance sheet and a decrease in the “accounts payable” account on the balance sheet.

These accounting entries can get very complicated with many accounts involved in a single recorded transaction, but no matter how complicated the entries get the two sides of the financial transaction always have to add up to the same amount. The entry must balance out. That is the science of accounting.

Since the objective of this blog is not to turn you all into accountants, I’ll stop there, but I hope everyone understands what a chart of accounts and an accounting entry is now.

Once you have a chart of accounts and have recorded financial transactions in it, you can produce reports. These reports are simply the balances in various accounts or alternatively the changes in the balances over a period of time.

The next three posts are going to be about the three most common reports;

  • the profit and loss statement which is a report of the changes in the income and expense accounts over a certain period of time (month and year being the most common)
  • the balance sheet which is a report of the balances all all asset and liability accounts at a certain point in time
  • the cash flow statement which is report of the changes in all of the accounts (income/expense and asset/liability) in order to determine how much cash the business is producing or consuming over a certain period of time (month and year being the most common)

If you have a company, you must have financial records for it. And they must be accurate and up to date. I do not recommend doing this yourself. I recommend hiring a part-time bookkeeper to maintain your financial records at the start. A good one will save you all sorts of headaches. As your company grows, eventually you will need a full time accounting person, then several, and at some point your finance organization could be quite large.

There is always a temptation to skimp on this part of the business. It’s not a core part of most businesses and is often not valued by tech entrepreneurs. But please don’t skimp on this. Do it right and well. And hire good people to do the accounting work for your company. It will pay huge dividends in the long run.

The Profit And Loss Statement

Today we are going to talk about one of the most important things in business, the profit and loss statement (also known as the P&L).

Picking up from the accounting post last week, there are two kinds of accounting entries; those that describe money coming into and out of your business, and money that is contained in your business. The P&L deals with the first category.

A profit and loss statement is a report of the changes in the income and expense accounts over a set period of time. The most common periods of time are months, quarters, and years, although you can produce a P&L report for any period.

Here is a profit and loss statement for the past four years for Google. I got it from their annual report (10k). I know it is too small on this page to read, but if you click on the image, it will load much larger in a new tab.

Google p&l

The top line of profit and loss statements is revenue (that’s why you’ll often hear revenue referred to as “the top line”). Revenue is the total amount of money you’ve earned coming into your business over a set period of time. It is NOT the total amount of cash coming into your business. Cash can come into your business for a variety of reasons, like financings, advance payments for services to be rendered in the future, payments of invoices sent months ago.

There is a very important, but highly technical, concept called revenue recognition. Revenue recognition determines how much revenue you will put on your accounting statements in a specific time period. For a startup company, revenue recognition is not normally difficult. If you sell something, your revenue is the price at which you sold the item and it is recognized in the period in which the item was sold. If you sell advertising, revenue is the price at which you sold the advertising and it is recognized in the period in which the advertising actually ran on your media property. If you provide a subscription service, your revenue in any period will be the amount of the subscription that was provided in that period.

This leads to another important concept called “accrual accounting.” When many people start keeping books, they simply record cash received for services rendered as revenue. And they record the bills they pay as expenses. This is called “cash accounting” and is the way most of us keep our personal books and records. But a business is not supposed to keep books this way. It is supposed to use the concept of accrual accounting.

Let’s say you hire a contract developer to build your iPhone app. And your deal with him is you’ll pay him $30,000 to deliver it to you. And let’s say it takes him three months to build it. At the end of the three months you pay him the $30,000. In cash accounting, in month three you would record an expense of $30,000. But in accrual accounting, each month you’d record an expense of $10,000 and because you aren’t actually paying the developer the cash yet, you charge the $10,000 each month to a balance sheet account called Accrued Expenses. Then when you pay the bill, you don’t touch the P&L, its simply a balance sheet entry that reduces Cash and reduces Accrued Expenses by $30,000.

The point of accrual accounting is to perfectly match the revenues and expenses to the time period in which they actually happen, not when the payments are made or received.

With that in mind, let’s look at the second part of the P&L, the expense section. In the Google P&L above, expenses are broken out into several categories; cost of revenues, R&D, sales and marketing, and general and administration. You’ll note that in 2005, there was also a contribution to the Google Foundation, but that only happened once, in 2005.

The presentation Google uses is quite common. One difference you will often see is the cost of revenues applied directly against the revenues and a calculation of a net amount of revenues minus cost of revenues, which is called gross margin. I prefer that gross margin be broken out as it is a really important number. Some businesses have very high costs of revenue and very low gross margins. And example would be a retailer, particularly a low price retailer. The gross margins of a discount retailer could be as low as 25%.

Google’s gross margin in 2009 was roughly $14.9bn (revenue of $23.7bn minus cost of revenues of $8.8bn). The way gross margin is most often shown is as a percent of revenues so in 2009 Google’s gross margin was 63% (14.9bn divided by 23.7). I prefer to invest in high gross margin businesses because they have a lot of money left after making a sale to pay for the other costs of the business, thereby providing resources to grow the business without needing more financing. It is also much easier to get a high gross margin business profitable.

The other reason to break out “cost of revenues” is that it will most likely increase with revenues whereas the other expenses may not. The non cost of revenues expenses are sometimes referred to as “overhead”. They are the costs of operating the business even if you have no revenue. They are also sometimes referred to as the “fixed costs” of the business. But in a startup, they are hardly fixed. These expenses, in Google’s categorization scheme, are R&D, sales and marketing, and general/admin. In layman’s terms, they are the costs of making the product, the costs of selling the product, and the cost of running the business.

The most interesting line in the P&L to me is the next one, “Income From Operations” also known as “Operating Income.” Income From Operations is equal to revenue minus expenses. If “Income From Operations” is a positive number, then your base business is profitable. If it is a negative number, you are losing money. This is a critical number because if you are making money, you can grow your business without needing help from anyone else. Your business is sustainable. If you are not making money, you will need to finance your business in some way to keep it going. Your business is unsustainable on its own.

The line items after “Income From Operations” are the additional expenses that aren’t directly related to your core business. They include interest income (from your cash balances), interest expense (from any debt the business has), and taxes owed (federal, state, local, and possibly international). These expenses are important because they are real costs of the business. But I don’t pay as much attention to them because interest income and expense can be changed by making changes to the balance sheet and taxes are generally only paid when a business is profitable. When you deduct the interest and taxes from Income From Operations, you get to the final number on the P&L, called Net Income.

I started this post off by saying that the P&L is “one of the most important things in business.” I am serious about that. Every business needs to look at its P&L regularly and I am a big fan of sharing the P&L with the entire company. It is a simple snapshot of the health of a business.

I like to look at a “trended P&L” most of all. The Google P&L that I showed above is a “trended P&L” in that it shows the trends in revenues, expenses, and profits over five years. For startup companies, I prefer to look at a trended P&L of monthly statements, usually over a twelve month period. That presentation shows how revenues are increasing (hopefully) and how expenses are increasing (hopefully less than revenues). The trended monthly P&L is a great way to look at a business and see what is going on financially.

I’ll end this post with a nod to everyone who commented last week that numbers don’t tell you everything about a business. That is very true. A P&L can only tell you so much about a business. It won’t tell you if the product is good and getting better. It won’t tell you how the morale of the company is. It won’t tell you if the management team is executing well. And it won’t tell you if the company has the right long term strategy. Actually it will tell you all of that but after it is too late to do anything about it. So as important as the P&L is, it is only one data point you can use in analyzing a business. It’s a good place to start. But you have to get beyond the numbers if you really want to know what is going on.

The Balance Sheet

The Balance Sheet shows how much capital you have built up in your business.

If you go back to my post on Accounting, you will recall that there are two kinds of accounts in a company’s chart of accounts; revenue and expense accounts and asset and liability accounts.

Last week we talked about the Profit and Loss statement which is a report of the revenue and expense accounts.

The Balance Sheet is a report of the asset and liability accounts. Assets are things you own in your business, like cash, capital equipment, and money that is owed to you for products and services you have delivered to customers. Liabilities are obligations of the business, like bills you have yet to pay, money you have borrowed from a bank or investors.

Here is Google’s balance sheet as of 12/31/2009:

Google balance sheet

Let’s start from the top and work our way down.

The top line, cash, is the single most important item on the balance sheet. Cash is the fuel of a business. If you run out of cash, you are in big trouble unless there is a “filling station” nearby that is willing to fund your business. Alan Shugart, founder of Seagate and a few other disk drive companies, famously said “cash is more important than your mother.” That’s how important cash is and you never want to get into a situation where you run out of it.

The second line, short term investments, is basically additional cash. Most startups won’t have this line item on their balance sheet. But when you are Google and are sitting on $24bn of cash and short term investments, it makes sense to invest some of your cash in “short term instruments”. Hopefully for Google and its shareholders, these investments are safe, liquid, and are at very minimal risk of loss.

The next line is “accounts receivable”. Google calls it “net receivables’ because they are netting out money some of their partners owe them. I don’t really know why they are doing it that way. But for most companies, this line item is called Accounts Receivable and it is the total amount of money owed to the business for products and services that have been delivered but have not been collected. It’s the money your customers owe your business. If this number gets really big relative to revenues (for example if it  represents more than three months of revenues) then you know something is wrong with the business. We’ll talk more about that in an upcoming post about financial statement analysis.

I’m only going to cover the big line items in this balance sheet. So the next line item to look at is called Total Current Assets. That’s the amount of assets that you can turn into cash fairly quickly. It is often considered a measure of the “liquidity of the business.”

The next set of assets are “long term assets” that cannot be turned into cash easily. I’ll mention three of them.  Long Term Investments are probably Google’s minority investments in venture stage companies and other such things. The most important long term asset is “Property Plant and Equipment” which is the cost of your capital equipment. For the companies we typically invest in, this number is not large unless they rack their own servers. Google of course does just that and has spent $4.8bn to date (net of depreciation) on its “factory”. Depreciation is the annual cost of writing down the value of your property plant and equipment. It appears as a line in the profit and loss statement. The final long term asset I’ll mention is Goodwill. This is a hard one to explain. But I’ll try. When you purchase a business, like YouTube, for more than it’s “book value” you must record the difference as Goodwill.  Google has paid up for a bunch of businesses, like YouTube and Doubleclick, and it’s Goodwill is a large number, currently $4.9bn. If you think that the value of any of the businesses you have acquired has gone down, you can write off some or all of that Goodwill. That will create a large one time expense on your profit and loss statement.

After cash, I believe the liability section of the balance sheet is the most important section. It shows the businesses’ debts. And the other thing that can put you out of business aside from running out of cash is inability to pay your debts. That is called bankruptcy. Of course, running out of cash is one reason you may not be able to pay your debts. But many companies go bankrupt with huge amounts of cash on their books. So it is critical to understand a company’s debts.

The main current liabilities are accounts payable and accrued expenses. Since we don’t see any accrued expenses on Google’s balance sheet I assume they are lumping the two together under accounts payable. They are closely related. Both represent expenses of the business that have yet to be paid. The difference is that accounts payable are for bills the company receives from other businesses. And accrued expenses are accounting entries a company makes in anticipation of being billed. A good example of an accounts payable is a legal bill you have not paid. A good example of an accrued expense is employee benefits that you have not yet been billed for that you accrue for each month.

If you compare Current Liabilities to Current Assets, you’ll get a sense of how tight a company is operating. Google’s current assets are $29bn and its current liabilities are $2.7bn. It’s good to be Google, they are not sweating it. Many of our portfolio companies operate with these numbers close to equal. They are sweating it.

Non current liabilities are mostly long term debt of the business. The amount of debt is interesting for sure. If it is very large compared to the total assets of the business its a reason to be concerned. But its even more important to dig into the term of the long term debt and find out when it is coming due and other important factors. You won’t find that on the balance sheet. You’ll need to get the footnotes of the financial statements to do that. Again, we’ll talk more about that in a future post on financial statement analysis.

The next section of the balance sheet is called Stockholders Equity. This includes two categories of “equity”. The first is the amount that equity investors, from VCs to public shareholders, have invested in the business. The second is the amount of earnings that have been retained in the business over the years. I’m not entirely sure how Google breaks out the two on it’s balance sheet so we’ll just talk about the total for now. Google’s total stockholders equity is $36bn. That is also called the “book value” of the business.

The cool thing about a balance sheet is it has to balance out. Total Assets must equal Total Liabilities plus Stockholders Equity. In Google’s case, total assets are $40.5bn. Total Liabilities are $4.5bn. If you subtract the liabilities from the assets, you get $36bn, which is the amount of stockholders equity.

We’ll talk about cash flow statements next week and the fact that a balance sheet has to balance can be very helpful in analyzing and projecting out the cash flow of a business.

In summary, the Balance Sheet shows the value of all the capital that a business has built up over the years. The most important numbers in it are cash and liabilities. Always pay attention to those numbers. I almost never look at a profit and loss statement without also looking at a balance sheet. They really should be considered together as they are two sides of the same coin.

Cash Flow

The standard form of a cash flow statement is a bit hard to comprehend in my opinion and I don’t think it does a very good job of describing the various aspects of cash flow in a business.

That said, let’s start with the concept of cash flow and we’ll come back to the accounting treatment.

Cash flow is the amount of cash your business either produces or consumes in a given period, typically a month, quarter, or year. You might think that is the same as the profit of the business, but that is not correct for a bunch of reasons.

The profit of a business is the difference between revenues and expenses. If revenues are greater than expenses, your business is producing a profit. If expenses are greater than revenues, your business is producing a loss.

But there are many examples of profitable businesses that consume cash. And there are also examples of unprofitable businesses that produce cash, at least for a period of time.

Here’s why.

As I explained in the Income Statement post, revenues are recognized as they are earned, not necessarily when they are collected. And expenses are recognized as they are incurred, not necessarily when they are paid for. Also, some things you might think of as expenses of a business, like buying servers, are actually posted to the Balance Sheet as property of the business and then depreciated (ie expensed) over time.

So if you have a business with significant hardware requirements, like a hosting business for example, you might be generating a profit on paper but the cash outlays you are making to buy servers may mean your business is cash flow negative.

Another example in the opposite direction would be a software as a service business where your company gets paid a year in advance for your software subscription revenues. You collect the revenue upfront but recognize it over the course of the year. So in the month you collect the revenue from a big customer, you might be cash flow positive, but your Income Statement would show the business operating at a loss.

Cash flow is really easy to calculate. It’s the difference between your cash balance at the start of whatever period you are measuring and the end of that period. Let’s say you start the year with $1mm in cash and end the year with $2mm in cash. Your cash flow for the year is positive by $1mm. If you start the year with $1mm in cash and end the year with no cash, your cash flow for the year is negative by $1mm.

But as you might imagine the accounting version of the cash flow statement is not that simple. Instead of getting into the standard form, which as I said I don’t really like, let’s talk about a simpler form that gets you to mostly the same place.

Let’s say you want to do a cash flow statement for the past year. You start with your Net Income number from your Income Statement for the year. Let’s say that number is $1mm of positive net income.

Then you look at your Balance Sheet from the prior year and the current year. Look at the Current Assets (less cash) at the start of the year and the Current Assets (less cash) at the end of the year. If they have gone up, let’s say by $500,000, then you subtract that number from your Net Income. The reason you subtract the number is your business used some of your cash to increase its current assets. One typical reason for that is your Accounts Receivable went up because your customers are taking longer to pay you.

Then look at your Non-Current Assets at the start of the year and the end of the year. If they have gone up, let’s say by $500k, then you also subtract that number from your Net Income. The reason is your business used some of your cash to increase its Non-Current Assets, most likely Property, Plant, and Equipment (like servers).

At this point, halfway through this simplified cash flow statement, your business that had a Net Income of $1mm produced no cash because $500k of it went to current assets and $500k of it went to non-current assets.

Liabilities work the other way. If they go up, you add the number to Net Income. Let’s start with Current Liabilities such as Accounts Payable (money you owe your suppliers, etc). If that number goes up by $250k over the course of the year, you are effectively using your suppliers to finance your business. Another reason current liabilities could go up is Deferred Revenue went up. That would mean you are effectively using your customers to finance your business (like that software as a service example earlier on in this post).

Then look at Long Term Liabilities. Let’s say they went up by $500k because you borrowed $500k from the bank to purchase the servers that caused your Non-Current Assets to go up by $500k. So add that $500k to Net Income as well.

Now, the simplified cash flow statement is showing $750k of positive cash flow. But we have one more section of the Balance Sheet to deal with, Stockholders Equity. For Stockholders Equity, you need to back out the current year’s net income because we started with that. Once you do that, the main reason Stockholders Equity would go up would be an equity raise. Let’s say you raised $1mm of venture capital during the year and so Stockholder’s Equity went up by $1mm. You’d add that $1mm to Net Income as well.

So, that’s basically it. You start with $1mm of Net Income, subtract $500k of increased current assets, subtract $500k of increased non-current assets, add $250k of increased current liabilities, add $500k of increased long-term liabilities, and add $1mm of increased stockholders equity, and you get positive cash flow of $1.75mm.

Of course, you’ll want to check this against the cash balance at the start of the year and the end of the year to make sure that in fact cash did go up by $1.75mm. If it didn’t, then you have to go back and check your math.

So why would anyone want to do the cash flow statement the long way if you can simply compare cash at the start of the year and the end of the year? The answer is that doing a full-blown cash flow statement tells you a lot about where you are consuming or producing cash. And you can use that information to do something about it.

Let’s say that your cash flow is weak because your accounts receivable are way too high. You can hire a dedicated collections person. You can start cutting off customers who are paying you too late. Or you can do a combination of both. Bringing down accounts receivable is a great way to improve a business’ cash flow.

Let’s say you are spending a boatload on hardware to ramp up your web service’s capacity. And it is bringing your cash flow down. If you are profitable or have good financial backers, you can go to a bank and borrow against those servers. You can match non-current assets to long-term liabilities so that together they don’t impact the cash flow of your business.

Let’s say your current liabilities went down over the past year by $500k. That’s a $500k reduction in your cash flow. Maybe you are paying your bills much more quickly than you did when you started the business and had no cash. You might instruct your accounting team to slow down bill payment a bit and bring it back in line with prior practices. That could help produce better cash flow.

These are but a few examples of the kinds of things you can learn by doing a cash flow statement. It’s simply not enough to look at the Income Statement and the Balance Sheet. You need to understand the third piece of the puzzle to see the business in its entirety.

One last point and I am done with this week’s post. When you are doing projections for future years, I encourage management teams to project the income statement first, then the cash flow statement, and then end up with the balance sheet. You can make assumptions about how the line items in the Income Statement will cause the various Balance Sheet items to change (like Accounts Receivable should be equal to the past three months of revenue) and then lay all that out as a cash flow statement and then take the changes in the various items in the cash flow statement to build the Balance Sheet. I like to do that in monthly form. We’ll talk more about projections next week because I think this is a very important subject for startups and entrepreneurial management teams to wrap their heads around.

 

Categories
Tax

1040 Tax Preparation How To Calculate and Make Estimated Tax Payments

1040 Tax Preparation How To Calculate and Make Estimated Tax Payments

As a 1040 Tax Preparation Tax Return Preparation CPA Firms will tell new business owners, understanding your tax obligations is critical and one of the first requirements you’ll need to understand are estimated tax payments prior to your 1040 tax preparation.

1040 tax preparation

What are estimated taxes? Who must pay them and how? Below are some facts from Tax Services Miami Guide to help new small business owners understand their estimated tax obligations.

What Are Estimated Taxes?

1040 Tax Preparation CPA Firms remind you that the IRS and your state’s treasury department require that individuals and businesses pay taxes almost as quickly as they earn income. If taxes aren’t withheld from wages or other payments, then you will likely need to pay estimated tax payments each quarter prior to your 1040 tax preparation.

Tax Services Miami would like you to think of estimated taxes as a “pay-as-you-go” tax. Four times a year (quarterly), you are required to send Uncle Sam enough of your revenues to cover your income tax and your self-employment tax (Social Security and Medicare) obligations prior to Tax Return Preparation time.

If you don’t pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax when you get to your 1040 tax preparation. However, Tax Services Miami knows that calculating earnings isn’t easy, so it offers a safe harbor rule – if you pay at least as much as your previous year’s liability or pay within 90 percent of your actual liability, there’s no penalty for underpayment.

1040 Tax Preparation Tax Return Preparation Who Pays Estimated Taxes?

If you are self-employed and expect to owe $1,000 or more when you do your 1040 Tax Preparation, then you must pay estimated taxes on income.  If it’s not through withholding, then it has to be done by quarterly estimated taxes. If your business is structured as a corporation, you’ll need to pay estimated taxes if you expect to owe $500 when you file.

How Much Should You Pay in Estimated Taxes?

1040 tax preparation and calculating what you owe each quarter requires figuring out your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year. Each business situation is different, especially if you are a new business owner, so it’s worth spending some time with a Tax Services Miami tax advisor to understand the best calculation method for your situation.

You have a number of options when it comes to calculating what you owe each quarter:

•Use Form 1040-ES – You can calculate your quarterly estimated tax payment using Form 1040-ES (the same form used to pay estimated taxes), which includes a worksheet that helps you estimate how much you owe for the current year. Corporations should use Form 1120-W to calculate estimated taxes.

•Refer to Last Year’s Return – If you have been in business for a while, you can refer to your previous year’s federal tax return. Include all the income and deductions you expect to take on your current year’s tax return and refer to the total tax you paid so that your estimated tax payments are in the same range as last year’s taxes (100-110 percent is the range to shoot for to avoid underpayment problems).

•Make a Quarterly Calculation – If you are a freelancer or independent contractor and face fluctuating or cyclical income, you might prefer to calculate your estimated taxes on a quarterly basis.

Tax Return Preparation CPA Firms offers more advice in its Estimated Taxes Guide on how to calculate your payment and adjust estimates if you think you are paying too much – or too little – as the year progresses.

When Are Payments Due?

For estimated tax purposes, the year is divided into four payment periods. Payments for each year are due on the 15th day of April, June, September and the following January. You should try to pay at least the minimum owed by the due date (with the remainder paid on April 15), or risk incurring penalties from the IRS or your state.

How To Pay Estimated Taxes

Paying your estimated taxes is an easy process. If you are filing as a self-employed individual, use Form 1040-ES, which includes quarterly payment vouchers to submit with your payment. Corporations can deposit the payments by using the Electronic Federal Tax Payment System for deposit coupons (Forms 8109). Once you are in the system, the IRS will send you payment vouchers at the end of each tax year so you won’t have to worry about downloading the latest forms.

Paying Estimate Taxes to Your State?

You need to pay your estimated state income taxes at the same time you pay your federal taxes. Find links to your state’s tax office for the appropriate forms here.

Talk to a 1040 Tax Preparation Specialist

Spend an hour with a Tax Return Preparation CPA Firms to help you understand what the best calculation methods are, how to appropriately track and deduct expenses, and how to maintain good records. Many will provide this initial consultation for free simply because they hope you will return and use them come filing season.

 

Categories
Business Trends

Ways to find a Good Tax Accountant

Ways to find a Good Tax Accountant

Letting an tax accountant take over your finances makes sense as their experience and knowledge can make your money go further. However, finding a good tax accountant can be tough as you are putting your finances and personal information into their hands, and trusting they will take care of you now, and in the future.

Tax Accountants can work for large businesses or for themselves, get yourself a good one and you should find they save you a lot of money in tax payments, as long as they know what they’re doing. They’ll also be able to assist with various other issues that are important and can’t really be ignored, such as tax, financial planning, business consulting, and more.

When searching for good tax accountants there are various ways you can narrow the field down.

First ask your friends and business associates if they have anyone they can recommend, if they have had the same person for years and are happy with their service then they might also work for you. Also look through the www.google.com  for businesses near you, or for convenience and speed, check online as most companies these days have a web presence and should list their areas of skills, expertise and professional services on their website.

Once you have a list of possibilities, contact them for further information and arrange an interview. Queries should be answered quickly and professionally, if they can’t do this then forget about them and move on. If the company is quite large then find out who will be assigned to you, it’s essential you get on well with your tax accountant as you need to tell them everything regarding your financial issues.

They also have to be aware of your life goals, this involves everything, from your business needs now and in the future to your personal goals and future plans. If your dream is to retire abroad then you need to let them know, being aware of your plans and hopes will mean they have a better understanding of you and can find ways to save you money and give advice based on this information. Someone who takes the time to get to know you will be more proficient at delivering a totally focused and customised service.

Always check out the tax accountant qualifications, they should have a recognised professional qualification, such as the American Institute of  Certified Public Accountants.

It’s advised you choose a firm that have been established for some years. If a company is new it can be more difficult to find out if they are reliable or ask for references. An advantage to choosing a bigger company is that you aren’t reliant on just 1 person, if there is a problem or that person has to be away for an extended period then your finances will still be dealt with.

You tax accountant should have some experience and knowledge in your area of work or interest. There are so many aspects, from self managed funds, investment advice, retirement planning, business management, strategic planning and so on, that it’s nearly impossible to find someone who is knowledgeable about everything. Everyone has different needs and it’s important you find someone who can assist you with yours.

For example, if you need a tax accountant to process your individual tax returns they should be able to ensure you get maximum tax benefits and explore other ways to save money. They are there to help you minimize your tax payments and advice you on other financial matters that will benefit you.

If the tax accountant you have chosen meets all your criteria, is agreeable, gives you advice and information in easy to understand terms, and is ready to answer all your questions, then you should consider signing up for their services.

Look for firms online that are committed to clients and can assist with business, tax and financial planning solutions. Whether you are an individual, a family business, or a small enterprise a good tax accountant can ensure you legally pay the lowest tax possible.

 

Categories
Tax

Miami CPA’S Point Out Small Employers Can Benefit from Health Care Tax Credit

Miami CPA’S Point Out Small Employers Can Benefit from Health Care Tax Credit

With tax-filing deadlines fast approaching for many small businesses, the Miami CPA’S VieraCPA today encouraged small employers that provide health insurance coverage to their employees to check out the small business health care tax credit and then claim it if they qualify. (You can also check out our Miami CPA’S website for an overview of the tax credit at.

The new Small Business Health Care Tax Credit page on the Miami CPA’S VieraCPA website has information and resources to help small employers see if they qualify for the credit and then calculate it correctly (recommended consulting a Miami CPA’S. The website includes a step-by-step guide for determining eligibility, examples of typical tax savings under various scenarios, answers to frequently-asked questions.

The small business health care tax credit was included in the Affordable Care Act enacted two years ago. Miami CPA’S VieraCPA advise Small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for this credit. The credit is specifically targeted to help small businesses and tax-exempt organizations provide health insurance for their employees, stated Miami CPA’S VieraCPA.

Depending upon how they are structured, eligible small employers are likely subject to one of the following three tax-filing deadlines, which fall in coming weeks according to Miami CPA’S VieraCPA :

  • March 15: Corporations that file on a calendar year basis can have their Miami CPAS figure the credit on Form 8941 and claim it as part of the general business credit on Form 3800, both of which are attached to their corporate income tax return.
  • April 17: Individuals have until April 17 to complete and file their returns on Form 1040. This includes Sole proprietors, as well as people who have business income reported to them on Schedules K-1—partners in partnerships, S corporation shareholders and beneficiaries of estates and trusts  according to Miami CPA’S VieraCPA  . They also attach Forms 8941 and 3800 to their return. The resulting credit is entered on Form 1040 Line 53.
  • May 15: Tax-exempt organizations that file on a calendar year basis can use Form 8941 and then claim the credit on Form 990-T, Line 44f.

Taxpayers and CPA Firms needing more time to determine eligibility should consider obtaining an automatic tax-filing extension, usually for six months. See Form 4868 for individuals, Form 7004 and its instructions for businesses and Form 8868 for tax-exempt organizations.

Miami CPA’S that have already filed and later find that they qualified in 2010 or 2011 can still claim the credit by filing an amended return for one or both years. Corporations use Form 1120X, individual’s use Form 1040X and tax-exempt organizations use Form 990-T.

Some businesses and tax-exempt organizations that already locked into health insurance plan structures and contributions may not have had the opportunity to make any needed adjustments to qualify for the credit for 2010 or 2011. These employers can still make the necessary changes to their health insurance plans so they qualify to claim the credit on 2012 returns or in years beyond. Eligible small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014.

Additional information about eligibility requirements and figuring the credit can be found at Miami CPA’S.

Categories
Business Trends

Warning Signs it’s Time to Change Your Accountant

CPA firms, Accountants in Miami | Accounting Services in Miami | Accountants Miami | Certified Public Accountant in Miami | CPA in Miami | CPA Miami | Miami Accountant | Miami Accounting Firms | Miami CPA Firm | Miami CPA | Miami Accounting | Accountant 33157 | Accountant 33176 | Accountant 33186 | Accountant 33183 | Accountant Miami
CPA

Warning Signs it’s Time to Change Your Accountant

Are you considering firing your current Accountant in favor of a new one? If so, you’re probably not sure if you’re overreacting or if you have just cause. The following warning signs will help you decide if it is time for you to change accountants: Your accountant does not return your phone calls in a timely manner, if at all.The bottom line here is you have hired your accountant to work for you. If he/she is not returning your telephone calls, or waits until you’ve left several messages before calling you back, take this seriously. A few incidents here and there are not something to worry about, as your accountant likely has many other clients and may not be in the office for days at a time. However, if not returning phone calls are the normal state of affairs, you will want to set up an appointment to discuss your concerns.

Your accountant is never in the office.

This could mean he or she is very busy and out with other clients the majority of the time. It could also mean they do not take their business, or your business, very seriously. Regardless, if you have a difficult time connecting with your accountant, it may be time to look for someone who has more time in their schedule to see to your needs.

Your accountant never delivers your financial statements or income taxes or other forms to you on time.

This is not a good scenario! You have hired your accountant to be on top of the financial aspects of your business. If they are not able to get your forms to you on time, you need to first ask yourself if it is your fault. If you are late getting them the material they need, then it probably has little to do with them, but if they have everything they require from you with ample time – and are still consistently late, you will probably want to consider changing accountants.

Your accountant does not take the time to discuss your financial reports with you.

This is your business. You have the right to understand your financial reports, and if your accountant is unwilling to schedule the time to go over them with you, this is a warning sign you shouldn’t ignore. Think of it this way if you don’t understand your reports, then you can’t feel confident that the IRS is getting correct information. It is essential to your peace of mind, and to your business, that you understand all of your financial reports.

The staff member accountant assigned to your account does not seem competent.

If staff is unable to answer your questions, or if you seem to know more about the accounting aspects of your business than they do, you should request a different person to handle your accounts. If this is unable to be done, you may want to consider switching accountants.

You begin to receive a lot of IRS notices in the mail.

This is a serious warning sign. If the IRS is sending you repeated notices, then your business’s financial affairs are not being taken care of correctly. Too many of these notices, and your business will be red-flagged by the IRS, which could lead to years of issues every time a form is filed. Speak with your accountant and demand to know what the problem is. If you are unsatisfied with the answers, it is time to search for a new accountant.

Trust your instincts.

Often overlooked, but it shouldn’t be. If your instincts are telling you something isn’t right, pay attention.

With any of the above warning signs, it is always best to speak with your accountant about the issues at hand first. Sometimes, you may gain a clearer understanding and then feel more comfortable, but if you don’t, you need to move on. Changing accountants isn’t easy, but if it is the right decision, then it is absolutely what you must do.