Elron Naranja, Author at Cook CPA Group

Not What You Wanted?

4 Question You Must Ask Yourself Before Doing Own Business Accounting

woman thinking about doing her own business accounting

Ensuring your business operations run smoothly is an overwhelming responsibility as a business owner. While some processes can come more easily to you than others, accounting practices are often weak points in many businesses.

You may think doing your own business accounting will save you much-needed cash flow, but if you don’t have a clear understanding of accounting practices, you could waste precious time and energy doing your own accounting.

Business accounting is one of the most important aspects of running a successful business. Before deciding to do your own business accounting, you should ask yourself the following four questions. These questions may help shape your perspective on some more technical aspects of business accounting.

In the end, you may find hiring an expert CPA saves you time, money, and energy.

How many monthly transactions do you expect?

An essential question to ask yourself before doing your own business accounting is how many transactions you expect to make each month. Keeping track of monthly transactions may be easy if you’re in the early stages of establishing your business. However, as your business grows, it becomes more important to ensure you track every transaction accurately.

There are many options to consider in the world of accounting software, with QuickBooks being a common choice among small business owners. Before you begin researching all your accounting software options, keep the following considerations in mind:

Accounting software typically comes with a monthly or annual cost. Run the numbers to determine whether it may be more cost-effective to work with a CPA instead.
Setting up your accounting software profile takes time. Consider the amount of free time you have to set up your account and learn the ins and outs of an accounting software program.
Accounting software can have many features that go unused by your business. While offering shiny bells and whistles is a great way to attract new buyers, the truth is you may be paying for features you don’t need.

Can someone else validate your calculations?

Ensuring your financials are accurate is vital to the health of your business. Before deciding to do your own business accounting, ask yourself whether you feel confident making all the calculations yourself.

While accounting software can help you, it’s critical to manually review your calculations before filing your taxes. Many Cook CPA Group clients use their own accounting software but send us their account reports to ensure everything is up to snuff before filing their taxes.

Everyone makes mistakes, and it’s essential to recognize that business accounting is complex. Having a second pair of eyes to validate your calculations and confirm your accounts are in order is a huge step in ensuring you file your taxes accurately and timely. Doing your own business accounting may not be a wise decision for you if you don’t have someone you trust to double-check your financials.

Do you have separate business and personal accounts?

Maintaining separate business and personal accounts can go a long way in ensuring your accounting process is seamless. And, if your goal is to make paying taxes as easy as possible, separating your business accounting function from your personal accounts is critical.

Before deciding to do your own business accounting, review your current process. If you currently mix your business accounting with your personal accounting, it may be wise to separate them. While an experienced CPA has the know-how to wade through mountains of transactions, the process may prove too time-consuming for you.

Opening a separate business account is the best piece of advice I can give any business owner interested in doing their own business accounting. Doing so can save you unnecessary headaches during tax season.

Are you familiar with business-related tax deductions?

One of the main arguments against doing your own business accounting is missing out on business-related tax deductions. With the potential to save hundreds if not thousands of dollars on your tax bill with business-related deductions, you must know the opportunities you can take to pay less in taxes.

Business deductions are an important component of any tax filing, and accurate accounting plays a major role in claiming the appropriate tax savings. No matter the size or years in business, every business can and should leverage deductions. But researching eligibility requirements and ensuring you can legally claim the deduction can become a complex process.

Many people who opt to do their own business accounting also prefer to file their own taxes. While this can streamline the tax filing process, you could potentially be leaving money on the table. We strongly recommend you consult with a trusted CPA for guidance.

Cook CPA Group has decades of business accounting experience. We encourage you to schedule a free consultation with us if you’re debating whether to do your own business accounting. We can guide you through the important steps you should consider and serve as a resource for any business accounting questions you may have.

5 Child and Dependent Expenses You Can Deduct From Your Taxes This Year

couple with their children consulting lawyer about tax deduction

The rising cost of living is a significant burden for many U.S. families. While you can’t deduct grocery bills or utilities from your tax bill, other family-related expenses can reduce your overall tax bill this year. From child care and adoption fees to education-related expenses, there are several tax credits you should leverage.

This post outlines the five child and dependent expenses that may just earn you a deduction this tax season, including:

The Child Tax Credit
The Child and Dependent Care Tax Credit
The Adoption Tax Credit
The American Opportunity Tax Credit
The Lifetime Learning Tax Credit

Keep reading to see if you qualify for any or all of the five tax credits.

Child Tax Credit

You may have heard the buzz around the Child Tax Credit (CTC) in recent years. First introduced in 1997 by President Clinton, the Child Tax Credit is a fully refundable tax credit for children under 17. In 2021, the Biden-Harris Administration expanded the Child Tax Credit to $3,600 per child under the age of 6 and $3,000 for other qualifying children under 18.

However, that expansion ended in 2022, and the credit will return to the original $2,000 per qualifying child under the age of 18.

How to Qualify for the Child Tax Credit

There are two factors to qualify for the Child Tax Credit: qualifications for you as the filer and qualifications for the child or dependant.

To qualify for the full CTC for each child, you must ensure you have a qualifying child and that the child has a valid Social Security number. Additionally, your annual income cannot be more than:

$150,000 for married filing jointly, or if you are filing as a qualifying widower
$112,500 for head of household filers
$75,000 for single filers or married filing separately

Your child or dependent must meet the following criteria to be eligible to file for the CTC on your tax filing:

Be under 18 at the end of the year
Be your child, stepchild, eligible foster child, sibling, stepsibling, half-sibling, or descendant (e.g., grandchild, niece, or nephew)
Provide no more than 50% of their own financial support during the tax year
Live with you for more than half the year
Be claimed as a dependant on your return
Not file a joint return with a spouse
Be a U.S. citizen, national, or resident alien

If you and your child or dependent meet the eligibility criteria, you can claim the Child Tax Credit on your tax return by filling out Form 1040 and submitting your Individual Income Tax Return with Schedule 8812 attached.

Child and Dependent Care Tax Credit

Another potential money saver for your family is the Child and Dependent Care Tax Credit. This credit provides cost savings for families who paid for care for their child or dependent. Child care can include care provided at a center, daycare facility, camps, or relative. At this time, state-based care does not qualify for the credit.

How to Qualify for the Child and Dependent Care Tax Credit

To qualify for this cost-saving credit, you:

Paid for care for a qualifying child or dependent under the age of 13
Paid for care for a qualifying child or dependent to look for employment
Paid less for care than your total yearly income

If you meet the eligibility criteria, you can claim the Child and Dependent Care Tax Credit on your tax return by filling out Form 2441 with your Individual Income Tax Return.

Adoption Tax Credit

If you adopted a child or are in the process of adopting a child, you may qualify for the Adoption Tax Credit. It’s well-known the adoption process is lengthy and expensive. Luckily, the Adoption Tax Credit can help you save up to $14,440 per eligible child. Though there are some income limits and other eligibility factors, it may be worth your time and effort to consider filing for this tax credit.

How to Qualify for the Adoption Tax Credit

To qualify for the Adoption Tax Credit, the child you are adopting must be under the age of 18 or, if over the age of 18, must be unable to care for themselves. Additionally, the adoption credit is based on your modified adjusted gross income (MAGI), and you should check the IRS website or reach out to us to confirm the MAGI amount for 2022.

Qualified expenses include adoption fees, legal fees, adoption-related travel expenses, and other directly related expenses. To research other related expenses such as home study or same-sex parent adoption credits, read this article published by the IRS.

If you meet the eligibility criteria, you can claim the Adoption Tax Credit on your tax return by filling out Form 8839 with your Individual Income Tax Return.

American Opportunity Credit

If your child or dependent is a student at an eligible higher education institution, you may be eligible for an annual credit of $2,500 per student through the American Opportunity Tax Credit (AOTC).

AOTC provides tax credits for qualified education expenses paid for during the first four years of higher education, including tuition, fees, books, supplies, equipment, and other related student expenses.

How to Qualify for the American Opportunity Tax Credit

Similar to the Child Tax Credit, there are two categories of eligibility: one to determine student eligibility and the other to determine if you can claim the credit on your tax return.

To be eligible for AOTC, a student must:

Earning a degree or education credential
Be enrolled at least part-time for at least one academic period beginning in the current tax year
Not have claimed the credit for more than four tax years
Not have a felony drug conviction

To claim AOTC on your return, you must have a MAGI of $80,000 or less or $160,000 for married couples filing jointly. You may be eligible for partial credit if your MAGI is over $80,000 but less than $90,000 or over $160,000 but under $180,000 for married filing jointly.

If you meet the eligibility criteria, you can claim the American Opportunity Tax Credit on your tax return by filling out Form 8863 with your Individual Income Tax Return.

Lifetime Learning Tax Credit

In addition to the ATOC education tax credit, you may be eligible to save up to $2,000 on your tax bill by claiming the Lifetime Learning Credit (LLC). The LLC covers qualified tuition and related expenses. Unlike the AOTC, the LLC helps students pay for undergraduate, graduate, and professional degree courses and other related expenses.

Although the AOTC provides a slightly higher return, there is no limit on the number of years you can claim the tax return. To claim the LLC on your tax return this year you, your dependent, or a third party must have paid for qualified education expenses for higher education and paid the education expenses for an eligible student enrolled at an eligible education institution. Additionally, the eligible student must be yourself, your spouse, or the dependent listed on your tax return.

How to Qualify for the Lifetime Learning Tax Credit

To be considered an eligible student and claim the LLC, the student must be enrolled or taking courses for at least one academic period at an eligible education institution to get a degree or credential or improve job skills.

If you meet the eligibility criteria, you can claim the Lifetime Learning Tax Credit on your tax return by filling out Form 8863 with your Individual Income Tax Return.

There are many ways to save money on your tax return, especially if you have a child or dependent. While these five tax credits are a good place to start, the best way to get the lowest tax bill is by reaching out to a professional accountant to walk you through tailored solutions.

Schedule a free consultation with Cook CPA Group today to leverage these tax credits on this year’s tax return. Our team of expert and approachable accountants make sure you don’t pay more than you have to.

Tricks Your CFO Should Be Using To Be More Effective

senior cfo having a meeting with other employee

Hiring a CFO is an essential step in ensuring your company’s financial health. However, many CFOs get so bogged down with competing priorities that they struggle with the time management skills necessary to complete the job effectively.

While we are champions of the outsourced CFO model (check out our outsourced CFO service here), we also recognize the CFO on your team is always looking for effective tricks that can make their job easier. Plus, having a successful CFO means your business can run on autopilot.

Share the following six effective tricks with your CFO to improve their effectiveness and streamline your business processes.

Optimize Cross-Team Documents

CFOs have a lot on their plate. Working from a cross-functional perspective, CFOs often have a hand in many of your business operations. While this is an excellent perspective when defining your business strategy, dealing with multiple sources of information can slow down even the savviest financial pros.

Implementing a business-wide policy of data version control is a time-saving trick your business CFO should understand and leverage. Instead of wasting time sorting through different versions of data, encourage your teams to work from one source of truth – a single financial spreadsheet. Creating a model document you can use to collect data across your organization saves your CFO time and costly mistakes.

Leverage Business-Grade Financial Software

Investing in your team is one of the most important things you can do to maintain a healthy business. According to Continuum Cloud’s 2019 State of Workforce Management Report, 73% of CFOs report a significant return on investment in implementing digital tools.

Leveraging business-grade software enhances the efficiency and efficacy of your business while making it easy for your team to do their job. Financial software helps CFOs save time on routine tasks that are traditionally unconsolidated. Aggregating data from multiple sources and automating several financial functions helps your financial team work more effectively with other business operation teams.

If you want your CFO to give you more effective strategic advice, take advantage of the wide-ranging software options available.

Automate Financial Processes

In a similar vein to leveraging business-grade financial software, implementing automation in your business process can help your CFO save time. Keeping up with growing business demands is a primary struggle for most CFOs.

Automating data collection and reporting functions can go a long way in helping alleviate the overwhelm. You can help your CFO automate by offering to implement strict internal controls and cross-functional dashboards. Many financial software programs integrate seamlessly with your existing financial processes and offer these automation features.

Support your CFO and financial team by investing in automation software that fits their unique needs.

Focus On Strategic Reporting

An important function of any CFO role is reporting. But financial reporting can quickly become a time-wasting activity. Taking time to collect, analyze, and create a report on financial information provides valuable insight, but the key is to spend that time on strategic reporting.

If your company invests in business-grade financial automation software, much of the weekly or monthly reporting functions your CFO typically reports on can be automatically created. Distributing these reports through mid-level staff allows your time-strapped CFO the opportunity to think strategically.

Encouraging your CFO to move away from day-to-day reporting and take a higher-level approach to the business strategy can be the catalyst for the growth your business needs. While your CFO is well-versed in daily operations, it may be necessary to outline operational expectations beyond monthly models.

Give your CFO the tools and guidelines to spend more of their time on strategic reporting for the foreseeable future so they can hand the reigns of daily operation to their executive team.

Create Internal Risk Management Protocols

The responsibility for risk management often falls to the CFO in small to mid-sized companies. Collaborating with an in-house or outsourced legal team on risk management issues can be a time and energy drain.

A time-saving trick for your CFO is to implement a strategic company-wide risk assessment. With the help of a legal team, your CFO’s team can quickly develop a risk management process that protects your business in the event company standards are compromised.

While this takes upfront work, having risk protocols in place ensures a huge return on time in the future.

Build Proactive Strategies

It’s no secret that CFOs wear many hats. From financial analysis to risk management and goal setting, CFOs have plenty of work to keep them busy the whole day. However, getting trapped in endless work cycles without taking the time to anticipate problems can be a risk for your business.

An effective CFO can save time and energy by delegating daily operations to their staff. In turn, they can spend the freed-up time anticipating potential problems in the business and developing proactive strategies to mitigate them.

Your CFO is an integral part of the decision-making process of your business. You must encourage them to make space in their day to look out for solutions for any potential problems that may arise.

It may be wise to outsource your CFO functions if you believe your CFO is struggling to be as effective as they could be. At Cook CPA Group, we’ve worked with hundreds of business clients and seen how the best businesses have scaled their operations. Schedule a free consultation today to find out how we can help your CFO and your business achieve financial goals.

Your Checklist for Paying Taxes Your First Year In Business

business partners working on documents for their business tax

Reaching the end of your first year in business is a significant milestone. Bringing your idea to life and achieving your business goals is no small feat. As tax season approaches, it’s just as essential to research and understand the tax-paying process for your small business as it is to hit your next big goal.

From organizing your business financial statements to understanding required tax forms, paying taxes during your first year in business takes careful planning. Luckily, Cook CPA Group is always in your corner, anticipating your accounting needs.

Use the information outlined below to create a checklist that will make paying taxes during your first year in business a complete breeze.

Business Taxes You Are Required To Pay Your First Year In Business

The first essential step in planning your tax filing for your first year in business is familiarizing yourself with the different business taxes you’re expected to pay. As a small business owner, there are several business taxes you are required to pay to the IRS that you may not be familiar with. Here are the five types of business taxes you should prepare to file in your first year in business:

Income Tax

Paying income taxes during your first year in business will be no different than paying individual income taxes. In most cases, you will pay both federal and state income taxes, depending on your business entity type.

Sole proprietorships and S corporations report business income on individual tax returns. Your tax bracket will determine the flat tax rate you will pay.

Conversely, C corporations pay taxes based on the business’s net income. At the federal level, the tax rate for C corporations is 21%. Currently, forty-four states impose a corporate income tax ranging from 2.5% to 11.5%. Visit the Tax Foundation’s website to find your state’s corporate income tax rate.

Self-Employment Tax

It’s common for business owners to consider themselves an employee of their company for accounting purposes. You are required to pay self-employment taxes if you earned $400 or more from business activities. That money will be taxed at a flat rate of 15.3% and is used to fund Social Security and Medicare benefits.

Employment Tax

You will be responsible for paying employment taxes if your business employs other individuals. Employment taxes include Social Security and Medicare, federal and state income tax withholding, and federal unemployment tax.

Estimated Tax

Businesses must pay estimated taxes four times per year if they expect to owe more than $500 in taxes as a C corporation or more than $1,000 as another business entity. Estimated taxes are due January 15, April 15, June 15, and September 15.

Excise Tax

Not every business is subject to excise taxes, but it’s critical to understand the goods and services that may apply. You should expect to pay the excise tax if your business sells certain products such as gasoline, cigarettes, or alcohol. Reach out to us for a comprehensive list of what goods and services fall under the excise tax rules.

Know Your Business Tax Forms & Tax Deadlines

As you gear up to pay taxes for your first year in business, it’s critical to understand the business tax forms you’re required to file and when they’re due.

Schedule C or Schedule K-1

If you run your business as a sole proprietor, you should file a Schedule C with your Form 1040 by April 15 to report your income. If you own an S corporation or a multi-owner LLC, you will file a Schedule K-1 by March 15 to report income to the IRS.

Form 1120 or 1120-S

If you own a C corporation, you will file a Form 1120 by April 15 to report income. An S corporation should use the similar Form 1120-S to file income separately from their personal income tax return by March 15.

1099-MISC

Form 1099-MISC is filed to report the self-employment income you’ve earned as a business owner or if you’ve hired independent contractors to perform business-related activities. The deadline to submit copies of this form to the IRS is January 31.

Form 1065

If you own a partnership, you will use Form 1065 to report information, including income, gains, losses, and deductions.

Form 720

If you determine your business is subject to excise taxes, you will use Form 720 to report it.

Sort Your Business-Related Paperwork

Paying taxes for your first year in business requires careful planning. But organizing all your paperwork and determining the documentation needed to support your tax filing can be overwhelming. That’s why we suggest you focus on three main areas: financial documentation, business-related expenses, and payroll and employee documentation.

Financial Documentation

Balance sheet
Income statement
Bank account statements
Credit card statements
Invoices received from outside vendors
Invoices paid for services

Business-Related Expenses

Auto expenses (including mileage and maintenance)
Office Supplies
Operational costs (including rent, utilities, and maintenance costs)
Marketing and advertising costs
Expenses for professional services (including accountants, attorneys, bookkeepers, and consultants)
Insurance fees (including property insurance, vehicle insurance, business insurance, etc.)
Documentation for all equipment and assets purchased (including the depreciation schedule for each item)

Employment Expenses

Employee forms, including:
- W-9 and I-9 verification forms for each employee
- W-2 Forms
- 1099 Forms for contractors
- 1099-MISC for fees for nonemployee payments
Payroll forms
Witheld deductions from payroll and other employee wages

Now that you know the necessary forms, due dates, and documentation needed to pay taxes for your first year in business, you’re ready to meet this tax season head-on. If you feel overwhelmed with the process, schedule a free consultation with us. We’ll help you navigate the tax filing process for your first year in business and beyond.

4 Ways to Simplify Your Business Finance Process

Today’s businesses require financial management processes and systems that are agile, efficient, and digital. As both small business and accounting professionals, we have the privilege of working with clients from a broad range of industries.

Over the past few years, we’ve observed that many small businesses struggle with their day-to-day accounting and finance tasks – even when they have fantastic people working for them. Small business owners tend to be doers rather than number crunches. They love what they do and pour all their time, energy, and passion into their company. But as a result, many of them don’t pay enough attention to how they can streamline their business processes and save time on routine tasks.

In this post, we’re sharing the four ways to simplify your business finance process. By following these tips, you can reduce the time and effort you spend managing your business’s finances.

Keep Accounts Separate

The first step in simplifying your business finance process is keeping your business and personal accounts separate. By keeping track of your business finances in a different account, you will be able to more efficiently manage your cash flow and stay on top of your business-related expenses.

By keeping your business account separate from personal accounts, filing your taxes and dealing with any IRS inquiries is a much smoother process. Maintaining a separate business account means you never have to worry about keeping track of business deductions you want to leverage to reduce your tax bill.

Additionally, separating your business finances will help you build the business credit history needed to qualify for financing. Building your business’s credit history is important for future lending opportunities as banks and lenders ensure your business is in good standing with creditors. To learn more about establishing business credit and maintaining good credit history, check out the U.S. Small Business Administration’s website here.

Integrate Software From the Beginning

Accounting software can be a helpful tool when it comes to simplifying your small business finance process. By using software that integrates with your existing accounting system, you can automate many of the tasks that would otherwise be time-consuming and complicated. This can help you save time and money, and help you stay organized and in control of your finances.

Additionally, accounting software can help you keep track of your cash flow to avoid costly mistakes. By following these tips, you can improve your small business’s financial stability and reduce the time and effort needed to manage your finances.

Many small businesses turn to Quickbooks to help them manage their finances. Quickbooks is cloud-based accounting software that can be used by anyone. The software is very user-friendly and allows you to keep track of your business finances in an easy-to-use interface.

If you already use Quickbooks in your small business accounting process, make sure you leverage the Accountant’s Copy function. This feature allows you to send your business accounting records to your accountant in just a few clicks, making it easier to file your taxes.

Update Your Business Recordkeeping Process

Keeping updated records is essential to simplifying your business finance process. You can make more informed financial decisions by keeping accurate records of your transactions and balances. Understanding your business’s financial outlook is a critical component of your business plan and ongoing growth strategy.

LLCs and Corporations are legally required to keep business and personal accounts separate, which makes the recordkeeping process even easier to maintain. But choosing the recordkeeping system that is best suited to your business can sometimes be a struggle.

Keeping accurate records of any business-related purchases, sales, and payroll is essential in keeping your business financial processes streamlined and effective. By maintaining updated records in these areas, you will also be able to avoid costly mistakes and stay on top of your finances.

Maintaining updated records can be time-consuming, but you can make the process easier. To learn more about proper business recordkeeping, check out the IRS guide on the topic.

Hire an Outsourced CFO Accounting Firm

Outsourcing your accounting and finance needs can save you time and money. An experienced and qualified accountant can help you manage your finances, prepare financial statements, and make sound financial decisions.

Additionally, an outsourced CFO can provide valuable insight into your business finances and help you identify areas where you can save money. By outsourcing your CFO responsibilities to a qualified accountant, you can simplify your business finance process and improve your financial stability.

Cook CPA Group offers expert outsourced CFO services for businesses wanting to streamline their financial processes while saving time and money. If you’re interested in what outsourcing your CFO services can mean for your business bottom line, schedule a call with Evelyn today.

In conclusion, there are a number of ways to simplify your business finance process. Following these tips can save you time and money and improve your overall financial stability. Keeping business and personal accounts separate, using accounting software, maintaining updated records, and working with an expert outsourced CFO accounting firm, can simplify your business finance process.

5 Ways Outsourced CFO Services Can Help Your Sacramento Business

A chief financial officer (CFO) is crucial to the success of your business, but hiring someone to take on the job can feel daunting. You know having a professional CFO by your side can help manage your business cash flow and financial records, and maintain accurate company budgets and records.

As a Sacramento small business, you know the costs of hiring someone full-time to manage your business finances. Often, small companies simply do not have the resources to hire and train a full-time employee to perform the job.

Luckily, outsourcing your CFO responsibilities is easier than ever with Cook CPA Group. We’re a great outsourced CFO option for Sacramento business owners who know they need financial help. Keep reading if you are interested in how outsourced CFO services can help your Sacramento business!

Save Money With a Sacramento Outsourced CFO

One of the main benefits of outsourcing the CFO responsibilities of your business is cost savings. Hiring an in-house chief financial officer can be costly when you consider how much your business will spend on the hiring and onboarding process, ongoing professional training, employment benefits, and other employee-based costs, including:

Marketing the open position on job sites
Training and onboarding a new employee
Payroll
Bonuses
Health insurance
Life insurance
Disability leave
Other payroll-related taxes

Outsourcing CFO services for your small business is a great option if you want to pay for excellent professional services without the hassle and costs of hiring a full-time chief financial officer. Additionally, hiring an outsourced CFO to handle your Sacramento business means you don’t have to worry about employees leaving your company for other employment opportunities.

An outsourced CFO handles your business financials on a contract basis and is obligated to serve you with your business’s best interest in mind.

Keep Your Business Flexible With an Outsourced CFO

With an outsourced CFO on your side, your business benefits from flexible services. Hiring outsourced CFO services for your Sacramento business means you don’t have to worry about the changing business landscape. If you foresee tough financial times and prefer to handle your own finances until circumstances change, you are free to do so without the hassle of firing one or more full-time employees.

Additionally, hiring an outsourced CFO services team, like Cook CPA Group, means you don’t have to rely on just one person to keep the financial health of your business in check. Having a whole team of expert viewpoints and skill sets can be a valuable benefit when dealing with complex financial or accounting issues.

And the flexibility this arrangement gives you is one of the main benefits of hiring an expert outsourced CFO. In these uncertain times, it’s more important than ever to have expert financial forecasters on your team. Ensuring your business stays nimble is one of the best ways to ensure long-term success.

Save Time By Outsourcing Your CFO Responsibilities

Hiring an outsourced CFO services team allows you more time to run your business the way you envisioned. With an expert financial team taking care of your CFO responsibilities, your business can run smoothly in the background. You don’t have to waste time wondering what is going on in your company’s finances, where there may be trouble ahead, and where you may need to course-correct to get back to financial stability.

Bookkeeping is a tedious task that leaves you and your team too exhausted to focus on the things that matter to your company. An outsourced CFO saves you time by taking care of accounting practices, such as:

Account receivables
Cash flow reports
Updated balance sheets
Payroll

With your financial books in order and fewer administrative tasks to deal with, you and your team can focus on the long-term success of your Sacramento business.

Get Expert Insights with an Outsourced CFO By Your Side

When you hire an outsourced CFO for your Sacramento-based business, you’re hiring a plug-and-play partner. As soon as you outsource your CFO services, a team of financial experts gets to work on your specific business needs. There’s no need to onboard new employees, show them the ropes, and start them off slowly as they adjust to their new role and responsibilities. An outsourced CFO team hits the ground running and gets to work on the financial aspects that make a real difference to your company.

Handing off the company’s financial responsibilities to a team of experts means you never have to worry about dealing with financial issues during busy seasons or when you’re taking some well-deserved time off. Outsourced CFOs have spent their professional careers working on accounting, bookkeeping, and other financial problems and know the right solutions to just about every problem that your company may face. Dealing with unique financial challenges is what they do best. Outsourcing CFO services for your small business means having a team of accounting experts on your side every step of the way.

Make Filing Business Taxes a Breeze

Most business owners will tell you tax season is the most stressful time in their business. Sorting through paperwork, scrambling to balance and update their books, and searching for expense receipts are just some of the struggles business owners face before filing their business taxes. However, with a professional outsourced CFO on your side, you can rest easy knowing your bookkeeping is updated, your accounts are balanced, and your expenses are properly accounted for.

Outsourcing CFO services for your Sacramento business means you can ditch the chaos and panic this tax season. Hiring Cook CPA Group as your outsourced CFO partner provides the flexibility you need to run your business without worrying about filing your taxes for the biggest return possible. We’re committed to helping our business clients tax advantage of every business expense to keep your tax bill as low as possible.

If you’re interested in learning more about what Cook CPA Group can help you accomplish with our outsourced CFO services, schedule a call today!

5 Ways You May Be Exposing Yourself to a Tax Audit

Tax season is an incredibly stressful time of year. Most of us try our best to keep accurate records of all our finances for smoother tax filing. However, there are still several ways you may unknowingly be exposing yourself to an IRS tax audit.

Each year, the IRS audits a small percentage of taxpayers, most of whom are high-earners or made audacious claims on their returns. But the chances of getting audited are still severe enough that you should be aware of the ways in which you are potentially risking an IRS tax audit.

Claiming work-related expenses on individual filings, recording losses instead of gains, and deducting unusual expenses from taxable income are all ways you may be exposing yourself to a tax audit this year. Keep reading to learn the five ways you are unknowingly exposing yourself to a tax audit and how to avoid getting in trouble with the IRS this year.

Audit Red Flag #1: Underreporting Your Income

One of the first audit risks you should be aware of is underreporting your taxable income. It may be tempting to fib your way through your tax filing by reporting a lower taxable income amount than what you actually earned, especially by including more dependents than you have or reducing the amount of taxes owed.

However, the IRS will cross-check your tax filing with your Form W-2 to ensure you are reporting the correct taxable income. For example, if you made $70,000 in taxable income this year but only reported making $45,000, you are likely to be audited by the IRS. The IRS ensures you are filing accurate income by using a computer algorithm to check your Form W-2 against your return. If your income appears too low or too high, you may be exposing yourself to an IRS audit this tax season.

Audit Red Flag #2: Unjustifiable Business Deductions

Some taxpayers attempt to justify large tax deductions to lower their overall taxable income. For example, filing a $30,000 deduction for business travel expenses when you only made $100,000 is a huge red flag and can get you in serious trouble with the IRS.

Additionally, filing for unusual deductions can also tip off the IRS that something may not be right with your taxes. If you are self-employed and operate your business from home, you may deduct home-based business expenses, such as depreciation, utilities, rent, and repairs. While these are tax deductions you are eligible to make as a self-employed person, if you file too many or too high of deductions, you may be risking an IRS audit.

Audit Red Flag #3: Unreported Foreign Accounts

If you have any accounts in a country other than the United States, you must report those accounts on your tax filing to the IRS. These accounts can be retirement accounts, checking accounts, or investment accounts in any foreign country. If a foreign account has more than $50,000, it must be reported to the IRS to comply with federal regulations.

Failing to report a foreign account not only comes with an audit but you are also guaranteed to pay a high penalty. In recent years, the IRS has bolstered its investigation team to crack down on taxpayers with foreign accounts who have not accurately reported these accounts in past tax filings.

If you need help accounting for or filing these foreign accounts to the IRS on your next tax return, reach out to us today. Cook CPA Group can help you properly report your foreign accounts to the IRS to avoid unnecessary tax audits.

Audit Red Flag #4: Withdrawing or Depositing Large Cash Amounts

Withdrawing or depositing large sums of cash into or from your accounts may put you at risk of an IRS audit. Withdrawing large sums to purchase assets or equipment, such as a vehicle, without reporting the expense on your tax return may raise a red flag for the IRS.

Conversely, depositing more than $10,000 in cash into your bank account will trigger your bank or credit union to report that transaction to the IRS. While depositing more than this amount does not mean you’ve done something illegal, it does raise red flags for the IRS, and you are more likely to be audited.

Audit Red Flag #5: Filing Math Errors

The IRS uncovers millions of math errors on tax returns every year. While many of these mathematical errors are honest mistakes, they can still trigger a tax audit in a small percentage of cases. Luckily, if your deductions are legitimate but are slightly off due to a calculation error, you can easily explain this to the IRS in the case of an audit.

It’s critical you maintain adequate recordkeeping throughout the year for all your expenses in case of an IRS tax audit. With proper documentation, you can easily prove your deductions are legitimate and quickly resolve any questions your auditor may ask you.

If you find maintaining your records and accurately reporting your information on your taxes too overwhelming to do alone, don’t hesitate to reach out to us today. Schedule a call with us to learn more about how we can help you accurately file your tax return to avoid IRS tax audits or aid you in the case you get audited. We’re always here to help!

6 Red Flags You May Be Missing In Your Business Financial Statements

Understanding your business’s balance sheet or cash flow statements is essential to operating your business. But staying on top of your business financial statements while running a successful business can be hard when you don’t have the same expertise and clarity as an accountant.

Luckily, spotting red flags in your business financial statements takes a cumulative approach – you don’t need to act on every last red flag as they crop up. However, as your business operations become more complex, it’s crucial that you take an active role in monitoring and updating these records.

This post guides you through six key red flags in your business financial statements that will alert you to problems lurking in your business. Once you know what you’re looking for, these red flags will be easy to spot so you can work with your team or an expert accountant to help you fix any issues.

Monitor for Irregular Cash Flows

Cash flow is one of the most important metrics in your business. Monitoring your cash flow is the easiest part of your financial statement reporting process, as it often uses a simple template.

If your business is generating consistent cash flow, there isn’t much to worry about. However, if your cash flow becomes irregular, you may be facing a financial red flag.

Irregular cash flows can occur for a number of reasons, including paying too much in taxes, mismanaging your accounts receivables, and unexpected expenses. If you notice your cash flow has become irregular over the last few months, you will want to investigate the root cause. The irregularity may be due to a temporary fluctuation (such as an unexpected expense) or a deeper financial problem.

Rising Debt-to-Income Ratio

The debt-to-income ratio is a classic metric indicating how much debt you’re using to finance your business operations. In your first few years of business, monitoring your debt-to-income ratio is crucial to setting a baseline for the rest of your business’s financial life.

If you notice your debt is starting to rise while your income remains stagnant or decreases, you may be facing a critical red flag in your business financial statements. When your debt-to-equity ratio reaches 1:1 (over 100%), your business is considered to be in a debt crisis.

Another way to determine the debt-to-income ratio of your business is by looking at the falling interest coverage ratio. To calculate this ratio, divide net interest payments by your operating earnings. If the ratio is less than five, your business is facing a financial red flag.

There are many free debt-to-income ratio calculators to choose from. Here is a simple calculator provided by Wells Fargo.

Decrease In Revenue Year-Over-Year

Depending on the type of business you operate, you may be facing financial red flags if your notice a decline in revenue over the past three years. If you’re operating a seasonal business, you may want to review your revenue from one year to another to determine whether it has decreased.

If you notice your revenue has decreased, you will want to investigate the cause to determine whether it is due to a temporary fluctuation or a larger problem. You can offset these downturns through several cost-cutting measures, including reducing overhead expenses and cutting payroll-related expenses. However, you should note that these measures can only do so much for the financial health of your business.

If you track three or more years of revenue downturn, it may be too late to make any measurable change to your business financials. Your best option is to seek out accounting experts to help you determine the best next steps.

Rising Accounts Receivable

Accounts receivable is the money you owe your clients. To reduce financial red flags, you want the time it takes to collect these payments to be as low as possible. If you notice your accounts receivable are rising, it could be a sign your clients are having difficulty paying you back on time.

Fortunately, there are several steps you can take to address this problem. First, ensure the terms of your contract are clear. Then, take steps to implement an accounts receivable management software that will automate some of the collection processes.

If these efforts don’t reduce your accounts receivable, you will want to investigate the root cause and determine if the fluctuation is temporary or due to a larger problem.

Higher Liabilities Than Assets

The difference between your assets and liabilities is your business’s net worth. In any business, liabilities and assets fluctuate throughout the year. However, if you notice your business liabilities have exceeded your assets, you should investigate the cause to determine whether it’s due to a temporary fluctuation or a bigger problem.

For example, companies with more cyclical operations (i.e., agriculture, construction, and other season-based companies) may notice their liabilities outweigh their assets a few months per year. This should not be considered a red flag on your business financial statements as it is expected year-over-year.

Decreasing Gross Profit Margin

The gross profit margin on your business financial statements shows the amount of money your business makes after subtracting the cost of goods sold from your total sales. This is an important metric to track as it is easy to understand and helps you determine how much money the business is actually making.

A financial red flag to look out for is a decrease in your business’s gross profit margin. Your business’s gross profit margin accounts for production costs and any additional money needed to cover operating expenses. It’s vital you thoroughly investigate any decreasing gross profit margins on your financial statements to avoid potential financial risks.

There are many red flags indicating potential problems in your business financial statements. If you notice any of these six red flags, you will want to investigate to determine whether they are due to temporary fluctuations in your business or if they point to a much larger problem.

If you find your business is in financial trouble, reach out to Cook CPA Group today. We’ll help you make sense of the issues and guide you through steps you can take to avoid a potential financial disaster.

Tax-Saving Tips for Your College-Bound Kids

With colleges across the country opening their campuses for a fresh new set of students, it’s the perfect time to consider the tax savings your family can take advantage of this tax season. While every family’s economic situation differs, several tax credits and deductions are available to most families with college-bound kids.

Continue reading to learn the tax-saving tips your family can use this year to save on college-related expenses come tax time.

Tax-Saving Credits For College-Bound Kids

As the parent or guardian to a first-time college student, you know how much paperwork and filing goes into assuring the child in your life is set up for success. Many families get so bogged down by the overwhelm of it all that they don’t take advantage of several tax-saving options.

One of the easiest ways to save money on your taxes this year is by carefully considering tax credit options for eligible students and their families. The two most common tax credits your family can leverage to save money this tax season are the American Opportunity Tax Credit and the Lifetime Learning Credit.

American Opportunity Credit (AOTC)

The American Opportunity Credit helps college-bound families pay for education expenses in the first four years of post-high school schooling. Although subject to income limitations and strict requirements, your family could receive a maximum annual credit of $2,500 per eligible student. Additionally, your family could receive up to a 40% refund if you owe no tax at the end of the year.

To claim AOTC on your tax return, make sure you and the student in your family check these boxes:

The student is you, your spouse, or a dependent listed on the tax return.
Must be pursuing a degree or credential.
Have qualified education expenses, including tuition, books, and equipment from an eligible. institution. See this page for a list of the U.S. Department of Education’s Database of Accredited Post Secondary Institutions and Programs (DAPIP).
Be enrolled at least part-time for at least one academic period beginning in the tax year.
Not have finished the first four years of post-high school education at the beginning of the tax year.
Not have claimed the AOTC for more than four tax years.
Not have a felony drug conviction at the end of the tax year.
Modified adjusted gross income (MAGI) is $90,000 or less (or $180,000 for married filing jointly).

If your family meets these requirements and is qualified to apply for the AOTC, complete Form 8863 and attach it to your Form 1040 or Form 1040A to apply.

For more information, visit the IRS webpage for the American Opportunity Tax Credit or reach out to us today.

Lifetime Learning Credit (LLC)

The Lifetime Learning Credit is another great tax-saving opportunity for families wanting to offset the cost of tuition and education expenses for the student in their life. Although subject to income limitations and other requirements, your family could receive a maximum annual credit of $2,000 per tax return.

Unlike the AOTC, the LLC has no limit on the years you can claim the credit and has less stringent eligibility requirements. Be aware you cannot claim both the LLC and AOT in the same tax year.

To apply for the LLC, make sure the student in your life meets these requirements:

The student must be yourself, your spouse, or a dependent listed on your tax return.
Have qualified education expenses, including tuition, books, and equipment from an eligible institution. See this page for a list of the U.S. Department of Education’s Database of Accredited Post Secondary Institutions and Programs (DAPIP).
Be taking higher education course(s) to get a degree, credential, or improve job skills.
Be enrolled for at least one academic period beginning in the tax year.
Modified adjusted gross income (MAGI) is between $59,000 and $69,000 (or $118,000 and $138,000 for joint returns).

If your family meets these requirements, and are qualified to apply for the LLC, complete Form 8863 and attach it to your Form 1040 or Form 1040A to apply.

For more information, visit the IRS webpage for the Lifetime Learning Credit or reach out to us today.

Tax-Saving Deductions For College-Bound Kids

As college tuition and related education fees increase, more and more students and their families must take on student loans. According to recent census data, around 13.5% of Americans have some form of student loan debt. And while this debt is a financial burden, there are some ways to save money during tax season.

The two most common tax deductions your family can leverage to save money on tuition and related college expenses this tax season are the Student Loan Interest Deduction and the 529 Plan Contributions.

Student Loan Interest Deduction

Your family or the student in your life can take advantage of up to a $2,500 tax deduction. Including required and voluntary pre-paid interest payments, the deduction can either be up to $2,500 or the amount of interest you paid during the tax year, whichever is less.

To claim the student loan interest deduction, the following requirements must be met:

You paid student loan interest during the tax year.
The loan holder is legally obligated to pay interest on a qualified student loan.
Tax filing status is married filing jointly.
Modified adjusted gross income (MAGI) is less than the annual limit.
If filing jointly, neither spouse can be claimed as a dependent on someone else’s return.

If your family and the student in your life meet these requirements, and are qualified to apply for the student loan interest deduction, make the deductions directly on Form 1040.

For more information, visit the IRS webpage for the Student Loan Interest Deduction or reach out to us today.

529 Plan Contributions

Operated by the state or an educational institution, 529 plans allow your family to save for college and other higher education. Any earnings in the 529 plan are exempt from federal taxes and are often exempt from state taxes when you use the funds for qualified education expenses.

Although 529 plans are not tax deductible at the federal level, many states offer deductions or special tax credits for these types of contributions. Check out this site for a list of states that offer deductions or tax credits and the corresponding deduction or credit.

Regardless of deductions or credits available in your state, investing in a 529 plan remains an advantageous way to grow education-related savings tax-free.

If you have any questions about 529 plans or how your family can leverage tax credits or deductions on your next tax filing, book a consultation call with us. We’ll walk you through all your tax-saving options and ensure you never pay more than you have to.

How to Account for Independent Contractors in Your Business Taxes (4 Questions You May Be Asking)

With nearly 60 million Americans identifying as independent contractors, it’s important to understand how your business should account for these types of workers come tax season. Your company may hire independent contractors for a wide variety of projects, many of which fall outside the scope of your existing team’s responsibilities.

With an increasing freelancer workforce, you may be considering how you can leverage independent contractors for your own business. This post guides you through four questions you may be asking about accounting for independent contractors in your business taxes this year, including:

What is an independent contractor?
Are independent contractors treated as a payroll expense?
What independent contractor documents should my business retain for tax purposes?
How do I deduct independent contractor expenses from my business taxes?

How Does the IRS Define an Independent Contractor?

The IRS provides specific guidelines to determine whether a person is an employee or an independent contractor. There is a fine line between the two classifications so it’s important your business understand the difference.

Generally, your business can determine how to treat this difference by understanding the business relationship. You can do this by following the IRS’s Common Law Rules – three distinct questions to help you determine the degrees of control your business has in the relationship:

Behavioral Control – Ask yourself this: “Does my company control what the worker does and how the worker does their job?” This question will help you determine the type of instruction you provide the individual, the degree of the instruction, and the evaluation system you use to measure the details of the job.
Financial Control – Ask yourself this: “Are the business aspects of the worker’s job controlled by me, the payer?” The financial control question gauges how significant of an investment the relationship is, any unreimbursed expenses, and the payment method.
Type of Relationship – As yourself this: “Are there written contracts or employee-type benefits, including insurance or paid vacation?” This question will help you determine how you and the worker perceive the working relationship. Employee benefits and the timeline of the worker-business relationship can help you determine if the worker is truly an independent contractor for tax reasons.

If you need more guidance on this issue, check out the IRS’s Independent Contractor or Employee guide.

Are Payments to Independent Contractors a Payroll Expense?

As we’ve just determined, hiring an independent contractor shares many similarities with hiring an employee. However, just as there is a difference in the relationship, there is a difference in the way you pay your workers.

When you hire an employee for your business, you request that they fill out a Form W-4. You then pay for certain standard employee benefits and taxes.

You would not do the same for independent contractors. Because each independent contractor is responsible for paying his or her own payroll taxes, unemployment insurance, social security, and other payroll taxes, you would not treat independent contractors as a payroll expense.

Rather than a payroll expense, independent contractors should be treated like any contract work. Your business likely hires other service professionals like lawyers and accountants on a contract basis. Independent contractors fall under this same category. And, as such, the work they perform should be treated as a tax-deductible expense.

What Independent Contractor-Related Documents Do I Need to Retain For Tax Preparation?

Hiring an independent contractor for your business requires far less recordkeeping than hiring full-time employees. Because independent contractors handle most of their own important tax documents, you may only need to retain a few important documents for tax filing purposes.

Before hiring an independent contractor, ensure you have the following three documents in place:

A Form W-9 with updated contact information for the independent contractor, including a taxpayer ID number (EIN or SSN). Note that your business is not required to send the completed W-9 form to the IRS. Ensure you keep the form for recordkeeping purposes in the case of an audit or other concerns.
A written contract outlining the scope of work the independent contractor is being hired to complete, including deliverables, timeline, and ownership. Both parties should sign the contract and retain a copy for their records.
Any payments made to the independent contractor, including deposits before work begins and invoices for expenses or materials your business is responsible for covering.

These are three important documents to retain for tax-paying purposes, but you may want to consider the need for other documents. Including sub-agreements like confidentiality, non-solicitation, or non-compete agreements are documents aimed at protecting your business trade secrets, your clients, and your unique business process.

How Do I Deduct Independent Contractor Expenses From My Business Taxes?

The first step in deducting independent contractor expenses from your business taxes is retaining compensation documents. If your business has paid an independent contractor more than $600 for the year, you must complete Form 1099-NEC. This form serves to report how much your business paid independent contractors and other nonemployees for the year. You should fill out this form and then submit a copy to the IRS and the freelancer by January 31st each year.

You can download a copy of Form 1099-NEC from the IRS here.

Once you have properly filled out Form 1099-NEC, reach out to an expert accounting firm like Cook CPA Group. We’ll help you file Form 1099-NEC and other eligible business deductions to save your business money this tax season.