Tricks Your CFO Should Be Using To Be More Effective

senior cfo having a meeting with other employee

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

cfo leveraging business grade financial software of their company

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

a cfo discussing his report about financial growth

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

cfo giving task to their staff

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

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

business owner doing paper works for 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

calculator calendar and alarm clock on green background

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

female accountant sorting 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

4 Ways to Simplify Your Business

4 Ways to Simplify Your Business

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

different colors of arrows merging

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

interview of an 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

5 Ways Outsourced CFO Services

5 Ways Outsourced CFO Services

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:

  1. Marketing the open position on job sites
  2. Training and onboarding a new employee
  3. Payroll
  4. Bonuses
  5. Health insurance
  6. Life insurance
  7. Disability leave
  8. 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

meeting 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:

  1. Account receivables
  2. Cash flow reports
  3. Updated balance sheets
  4. 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

team of financial experts discussing about a business

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!

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

6 Red Flags You May Be Missing

6 Red Flags You May Be Missing

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

businessman analyzing 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

rising stack of silver and gold coins

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

stressed businessman looking at decreasing gross profit of his business

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.

5 Strategic Accounting Tips for Mid-Sized Businesses

five straregi accounting tips for mid size businesses

five straregi accounting tips for mid size businesses

As a mid-sized business, you know how difficult it can be to stay on top of your accounting. With employees to manage, fires to put out, and a healthy work-life balance to maintain, making time to keep on top of your accounting practices is more complicated than ever.

As you grow your company and employee base, staying on top of your accounting operations becomes increasingly important. This post will guide you through five strategic accounting tips your mid-sized business can use today, including:

  1. Maintaining business records
  2. Defining an accounting strategy
  3. Automating accounting practices
  4. Leveraging business tax credits
  5. Outsourcing your accounting practice

Strategic Accounting Tip #1: Maintain Updated Business Records

The first strategic accounting tip for your mid-sized business is to maintain accurate and updated business records. Recordkeeping is an essential function of any business and a critical component of complying with IRS accounting requirements. There are three main accounting areas to pay particular attention to as you strive to maintain accurate business records.

  1. Gross income

The most straightforward business recordkeeping responsibility is tracking gross receipts or gross income. This is the income your business generates. Make sure to maintain accurate records of sales in the form of deposit receipts from both credit card and cash sales, any invoices

  1. Expenses

Expenses are all the costs you incur running your business, including payments and transfers. Consider using accounting software that automatically keeps track of this type of business record for easy accounting during tax season.

  1. Assets

Calculating the annual depreciation of your business fixed assets is an important recordkeeping practice. Ensure you maintain original asset documents, including purchase and sales receipts, as well as any proof of payment documents to make your business accounting run as smoothly as possible.

Strategic Accounting Tip #2: Decide on Your Accounting Strategy and Stick With It

people sticking to their goal

Once you have a handle on your recordkeeping habits, the next strategic accounting tip your mid-sized business should leverage is deciding on one accounting practice and sticking with it. Choosing between accrual accounting and cash basis accounting is a matter of preference.

While cash basis accounting tends to be easier for small and mid-sized businesses, accrual accounting is used most often.

The difference between the methods comes down to the way expenses are deducted. In cash basis accounting, revenue is documented as soon as payment is received. Conversely, accrual accounting records revenue when the product or service is delivered.

At Cook CPA Group, we recommend your business align with Generally Accepted Accounting Principles (GAAP) by using the accrual accounting method. In addition to being the most common accounting method for mid-sized businesses, accrual accounting provides a general overview snapshot of your business. This can be very helpful in determining the financial health of your business.

Strategic Accounting Tip #3: Automate Accounting Practices

You may reach a point in your mid-sized business where manual accounting practices are no longer efficient or productive for your team. Automating basic accounting practices for your business is a strategic tip you can leverage today.

Finding the appropriate accounting software for your business can be challenging, but once you select and install it, keeping your financial books in order is a breeze. To determine the right software or accounting automation plan for you, consider which accounting processes you can automate.

You may need to consider your company’s existing technology and the necessary training to ensure your staff has the know-how to use automation software. It’s also important to involve your team in the automation process. Make sure the entire team knows expectations for recordkeeping and basic troubleshooting processes.

Consider automating these accounting practices to keep your company’s finances running like clockwork:

  1. Accounts payable
  2. Accounts receivable
  3. Payroll
  4. Credit card and bank statements
  5. Account and statement reconciliation
  6. Routine banking tasks like transfers and monthly payments
  7. Financial reporting and tax compliance functions

Automation for your accounting tasks is one of the best steps you can take for your mid-sized business. Stop wasting precious time and overcome year-end hassles by automizing your business accounting process today.

Strategic Accounting Tip #4: Leverage Business Tax Deductions

man hammering tax text

As a mid-sized business owner, you’re no stranger to tax deductions. And while it’s easier to put off recording those business deductions until right before tax season, our recommendation is to figure out the deductions you can leverage before tax season.

There are plenty of tax deductions your mid-sized company can take advantage of to reduce your tax burden. The trick is to ensure your strategy for keeping the appropriate accounting records for each business expense.

The most common business tax deductions your mid-sized business can leverage are labor costs and operating expenses. Payroll and administrative expenses to the equipment you use on a daily basis are common tax deductions you’re likely already aware of.

However, other business expenses like marketing and advertising can be claimed on your tax form as deductible expenses so long as you retain the appropriate records. Another deductible your mid-sized company may not think to leverage is the payment for professional services. Payments to accountants, lawyers, and even professional membership networks can and should be leveraged deductions at tax time.

With the right accounting practices in place, you can appropriately document and justify these business expenses to save big this tax year.

Strategic Accounting Tip #5: Outsource Accounting

Outsourcing your accounting tasks to a professional accounting group is a great way to save time and an easy way to save your company money. Rather than hiring and training new employees to perform basic accounting functions, outsource your business accounting functions to a trusted professional.

Remember, hiring a professional service provider like an accountant to help with business tax is an eligible deduction come tax time! Save yourself the headache of getting your financial records in order and filing your taxes the right way.

Expert business accountants like Cook CPA Group can help you file federal corporate taxes and save you money on your tax bill. With decades of professional accounting experience, we can efficiently and accurately help you file your mid-sized company’s federal corporate tax.

Schedule a free consultation today if you’re ready to leave the important accounting functions to the pros.  

 

9 Lesser Known Tax Write-Offs for LLCs and S-Corps

nine lesser known tax write offs

nine lesser known tax write offs

As the owner of an LLC or S-Corp, paying less money in taxes means you have more to spend on building your business to new highs. The more deductions your small business can take at tax time, the lower your tax bill will be.

While you may be aware of a few more common tax deductions your LLC or S-Corp can take this tax season, we’re sharing a list of lesser-known small business deductions you can use on your tax return to lower your taxable profit for the year.

  1. Self-Employment Tax
  2. First-Year Start-up Costs
  3. Training and Education Costs
  4. Professional Services Fees
  5. Pass-through Entity Deduction
  6. Independent Contractor Deduction
  7. Charitable Contributions and Gifts
  8. Association and Membership Dues
  9. Retirement Contributions

Self-Employment Tax

The first tax deduction you should take advantage of this tax season is the self-employment deduction tax. Every year, you can claim 50% of what you pay in self-employment tax as a federal income tax deduction. These are Social Security and Medicare taxes you pay as a self-employed citizen.

Deducting the employer-equivalent portion of this tax is done with your adjusted gross income and only affects your overall income tax.

To read more about eligibility requirements, check out this helpful IRS website.

First-Year Startup Costs

The first year in business is one of the toughest. Luckily, there are tax advantages for your start-up LLC or S-Corp you should know.

Start-up costs, as defined by the IRS, are expenses your LLC or S-Corp paid or incurred for creating your business or researching the creation or acquisition of your business. To be eligible for this deduction, your LLC or S-Corp must meet both of these requirements:

  1. You can deduct the expense if you paid or incurred the cost to operate an existing business if it is in the same field as the business entered into.
  2. The expense is something you paid for or incurred before your business began.

To see a list of eligible start-up costs, visit this page.

Training and Education Costs

woman completing her assignment

Building a successful small business requires constant learning and growth. Your LLC and S-Corp may save money this tax season by deducting the cost of business-related training and education.

Eligible training and education expenses must:

  1. Maintain or improve job-related skills
  2. Be required by law to keep your current salary, status, or job.

Note that the training you take cannot be part of a program that educates or trains you for a new business. All training, certifications, and education programs must enhance your current trade or business.

Visit the IRS guide on the topic for more information on filing requirements.

Professional Services Fees

Running a business often means hiring and engaging with professional service providers to help keep daily operations running smoothly.

Your LLC or S-Corp can deduct fees paid to accountants, lawyers, consultants, and other service professionals. However, the expenses must be directly related to your current business and not for work to acquire business assets.

Additionally, you can deduct the cost of hiring tax professionals like Cook CPA Group to prepare for and file your LLC and S-Corp business taxes. Save money on your small business taxes this year by contacting us today.

Pass-Through Entity Deduction

Pass-through entities, like your LLC or S-Corp, are uniquely qualified for up to a 20% deduction on net business income from federal income taxes. There are some limitations, including:

  1. Your taxable income
  2. The type of trade or business
  3. The amount of W-2 wages paid
  4. Unadjusted basis immediately after acquisition of any qualified property held by the business

If you are interested in reading more about what taxable income includes, please see this IRS article for a detailed breakdown.

Independent Contractor Deduction

business owner instructing an independent contractor to paint walls

With the upswing in workers taking to freelancing or independent contractor work, it’s only natural that your LLC or S-Corp hire a nonemployee to perform services for your business. If your business hired an independent contractor, the expense is deductible from your year-end taxes.

For more information on deducting independent contractor expenses, read our recent blog post, How to Account for Independent Contractors in Your Business Taxes.

Charitable Contributions and Gifts

Your LLC or S-Corp can deduct qualified charitable contributions if they are in the form of cash contributions. Otherwise, this deduction is more advantageous for an individual come tax time.

That being said, any expenses your LLC or S-Corp incurs for business gifts can and should be deducted. Exceptions to this deduction include:

  1. Business gifts of more than $25 for every direct or indirect gift
  2. Gifts expenses that include any incidental costs (like packaging and mailing)
  3. Gifts with a permanent  imprint of the company’s name
  4. Gifts meant for wide distribution, such as pens, bags, and cases

For more information on exceptions, read IRS Publication 535.

Association and Membership Dues

Many small businesses are not aware that the IRS allows tax deductions for membership or association dues that are required or directly related to your business.

For example, if you join your local Chamber of Commerce or pay dues for a similar business-related association, your LLC or S-Corp can claim the fee as a deduction.

These expenses can be claimed on your Schedule C form. Reach out to us today to ensure you never pay more than you have to.

Retirement Contributions

woman calculating her retirement contribution

Saving for future financial needs is more important than ever. Make sure your LLC or S-Corp takes advantage of the retirement contributions deduction.

The IRS outlines a special rule you should use to calculate retirement contributions for yourself as a self-employed individual. Essentially, your retirement plan contribution is calculated based on compensation. To calculate this plan compensation, you should:

  1. Deduct a portion of your self-employment tax, and
  2. The amount of your retirement plan contribution

Once you have that number, you’ll calculate your own contribution and deduction.

Head over to the IRS’s guide on Calculation Your Own Retirement-Plan Contribution and Deduction, for a detailed overview of how to calculate your retirement contribution deduction

If you are interested in paying fewer taxes this tax season for your LLC or S-Corp, book a call with us today. Our team of expert accountants has decades of experience filing taxes and saving money for LLCs and S-Corps, and we’d be happy to help you take advantage of these lesser-known deductions!

 

Charitable Tax Harvesting

putting coins in a piggy bank

The next video is part two of advanced tax planning options as this topic covers how to use charitable deductions to minimize capital gains.  Please feel free to watch the video or read the transcript.

 

The Government Confiscatory Tax System

We all know that we live in a confiscatory tax system. We make money from income capital gains, and we know that we get the keep a part of it and that we get to be mandatory donors to the IRS and franchise tax board charities.

We live in a philanthropic confiscatory tax system where depending on how much money you make, you may pay more or less, but a portion of whatever you’re doing will support the IRS.

What We Don’t Know

reactive tax planning and proactive tax planning

  • 60% of our income tax is optional
  • 100% of long-term capital gains tax can be optional
  • 100% of estate tax is optional

How Do You Pay Less Tax?

No tool makes it work for everybody and everything. But generally, the three main things that can help you pay less tax are insurance, business or trust, and a charity. Effective tax planning usually involves these three different things working together to create optimized opportunities.

Question: What is the maximum amount of money or assets a person can donate to a charity each year?

Answer: No Limit!

Maximum Charitable Adjusted Gross Income Deduction Rules

Schedule A, Line 11 –  Cash= 60% (Can be 100% as of 2022 because of the Secure Act)

Schedule A, Line 12 – Appreciated Assets(Eg. Stocks and Real Estate) = 30%

If your adjusted income this year is $100,000, the most you can claim as a charitable deduction for cash under most circumstances usually is sixty percent or sixty thousand dollars.

If you give up to 60,000 to charity and claim it as a gift, you have reduced your adjusted gross income from 100,000 down to a 40,000 tax event. In doing so, you have probably not only reduced your taxable AGI, but you may have a lower tax rate. You can drop down one or two thresholds to get you into a more favorable income tax deduction

Example of using charity for people in 50% tax Bracket

If you have a $1,000,000 AGI, normally, you will be in a 50% tax bracket and have to pay 50% tax to the IRS. That means $500,000 goes to your tax, and you take home $500,000. But if you decide to gift $50,000 in cash to your IRS-approved charity, you can save $25,000.

This is how it works. Now that you gift $50,000 to a charity, you can include that in your Schedule A, Line 11. By doing so, you can get a $25,000 tax deduction. Your current AGI now becomes $950,000; you only have to pay $475,000 of your tax and used the $25,000 tax deduction.

Income and Captain Gains Tax Rescue Play

income and capital gains tax rescue play

Now, let’s make this more interesting. What if five years ago, you had $40,000 burning a hole in your pocket. You went out to your financial planner to buy four positions for $10,000 a piece. That will be your basis, after-tax money.

Two of those positions did really well, and we call them racehorses. One of these positions started out pretty good, and then about two years down the road becomes flatlined. It grew to $50,000 in value, but for the last three years, it’s been doing nothing. Technically, you have lost an opportunity cost in this case. We call that one a donkey. The last position that you bought is hanging on for his dear life. It’s still worth $10,000, but you lost on opportunity cost.

What if you gave the $50,000 donkey to a charity? If you tried to sell the $50,000 stock and gain $40,000, you’re going to pay tax. Well, let’s think a little bit differently. So if you give the $50,000 as a block of stock that has a basis of $10,000 to a charity, technically, the charity’s going to turn it around and sell it. The charity has the same net effect.

If your charity doesn’t have a brokerage account, tell them to open up one. They’re not making it easy for donors to donate by not having one. So you better ask them to have one.

So you tell your financial planner to give the $50,000 value of the stock to the charity. The Charity converted that stock into cash. You get rid of the donkeys that are going to cost you money if you sell them, and you get $15,000 of money off the IRS. You may be confused, but let’s check out the image below.

giving cash or stock to charity comparison

On the left side, it shows you gave $50,000 of cash and bought you $25,000 off the tax statement. On the right side, you gave a charity $50,000 of stock that had a basis of $10,000. Now you’re in a 50% tax bracket on the tax form.

On the tax form, it’s the same. It’s the same deduction on the tax form except for one thing. Notice the basis here. In this case, $10,000 of basis bought you $25,000 of tax savings. Now, that’s $15,000 money you made off the IRS.

Conclusion

Overall, first, determine if you have highly appreciated poorly performing assets. You may want to consider making money off the IRS while still accomplishing your philanthropic objective.

At an early age, most of us were taught just to give cash to charity, and that’s all we’ve ever been doing. If you like making money off the IRS and still want to help your chosen charity, you may want to look at this concept.

 

A Tax Strategy You May Be Missing

One of my joys in April (just before tax season is over) is getting the iPad all cleaned up and updating the app to watch the Masters. The beautiful course is a needed refresher that helps me to persevere the last few days until April 15. The scenery is stunning, the competition is rigorous and the unexpected seems to happen. The app has many ways to watch the competition such as focusing on specific holes like Amen corner or player groupings. As my mind drifts into a post tax season mode, I wonder what it would be like to watch in person one year.

Augusta tax rule
Amen Corner at Augusta Golf Club

There are houses on the course that one must be able to rent….

How much is it to rent?  Do they pay taxes on the rental income?  Surprisingly, the answer to the tax question is they probably don’t pay taxes: the tax code has something called the “Augusta Rule.”  This strategy was created to allow residents of Augusta, Georgia to rent their homes during the Masters’ golf tournament, without having to include this rental income on their tax returns.

The Augusta Rule 

The Augusta Rule has become a tax planning strategy that allows your business to pay rent to you for the purpose of holding business-related meetings in your primary residence or vacation home. For example, if you have a monthly meeting with the board of directors, your company can pay a reasonable amount to rent your home to conduct these meetings. Your company gets to take an expense deduction on the business tax return and you do not have to report the income on your personal tax return. This can be used for a maximum of 14 days each year. Keep in mind that if you go over the maximum of 14 days, you will have to report the entire rental income, and you will not receive any tax benefit since you will have to report the money as rental income on your personal return.

Tax Savings for Your Business 

According to the Augusta rule, you can rent out your home to your business (or for other purposes like Airbnb) for a total of up to 14 days each year. This home can be located anywhere in the United States, and the income from the rental will be excluded from your taxable income. For example, a rental expense of $35,000 (paid to you) generates your corporation $7,350 in tax savings while providing you $35,000 of tax free income.

Establish Rental Rate  

To establish a reasonable rental price you first need to document local pricing standards. You can do this by contacting at least three local establishments where businesses would normally have meetings, such as country clubs or hotels, to get an idea of venue costs in your area. 

You can use your home for a variety of business purposes, including planning sessions and even company parties. It’s recommended that you schedule your meetings in your calendar system and send out an agenda, if possible, since this provides additional documentation at tax time. 

There is no minimum participant requirement for these meetings, but keep in mind: 

  • The daily rental rate doesn’t include the cost of business meals. 
  • The home can’t be considered a full-time rental property. 
  • If you rent out your home for more than 14 days, you’ll have to report all of the income, and you won’t get the tax benefit.

Execute a Rental  Agreement 

To comply with the tax code, a written rental agreement is required between yourself and your company.  Additionally, thorough documentation supporting the rental price must be maintained as well as meeting documentation such as meeting minutes or notes.

Furthermore, to take advantage of the Augusta rule, the business entity structure must be an S corporation, C corporation, or partnership. It can’t be a Schedule C (self-employment income), unless the entity is a Single Member LLC. 

So, if you want to make your accountant and other employees happy, post tax season, consider scheduling a tax planning meeting at your house, on that course near the Masters…and we can help you be compliant with IRS regulations.

Augusta Rule
Augusta Golf Club at Sunset
References: Internal Revenue Code sections and related regulations include PLR 8104117; IRC Section 280A; IRC Section 274(a)(1)(B);IRC Section 267(a)(2); IRC Section 262; IRC Section 162; Gregory v Helvering, 293 U.S. 465 (1935); Frank Lyon Co. v United States, 435 U.S. 561, 573 (1978); Rev. Rul. 76-287; Leslie A. Roy v Commr., TC Memo 1998-125 PLR 8104117 

Minimizing Tax Season Stress (6 Effective Tips That Work)

Minimizing Tax Season Stress

Arf! Arf! It’s me, Breyer, the office curator. This is the next installment of my Cook CPA blog, and I am still giving the best advice a dog can. 

I am so glad that we dogs rely on your humans to take care of us–we don’t have to worry about an annual tax filing. I am sorry to let you know that even though you provide great care for us, you can’t claim us as a dependent. 

What I can help you with, though, is by giving you some efficient tips on finding a way to minimize tax season stress. This blog will identify key steps you can take to make the process smoother, resulting in less stress for you.

Reducing Tax Season Stress By Reviewing Your Documents

Minimizing Tax Season Stress 6 Effective Tips That WorkThe most significant step you can take to make the process easier and alleviate tax season stress is reviewing your information and documents before handing these materials over to your CPA firm. 

This ensures that your CPA is able to accurately calculate your return on the first review. This will minimize any surprises since updated information may result in recalculating your return or what is owed. 

Another reason to review everything before handing the materials over is to avoid the kind of back-and-forth requests for information. 

These always remind me of a dog friend of mine who waits at the door to go out, two minutes later is waiting at the door to come in, and once in, is waiting at the door to go out again. By the time this exchange is over the dog and owner are frustrated. 

We suggest creating “financial mindfulness” which starts with having your documents organized as you move through the year, making sure that you are comfortable with the different technologies for retrieving and sharing those documents, and making a point to communicate questions early on. 

The Tax Organizer – A Tax Season Stress Reliever

Most CPA firms will ask you to complete a tax organizer; this is your opportunity to communicate about important tax events that happened during the year. The organizer will allow you to upload key documents. We recommend becoming familiar with technology so that you are comfortable sending and receiving documents.

Minimizing Tax Season Stress By Creating A Clear Communication Path 

Some other ways to minimize your tax season stress are about creating a clear path for communication. When you promptly respond to questions from your CPA firm, they can continue processing your return. 

Consider requesting an exit meeting to review tax returns since this can help you to understand a complex tax return and this meeting would give you an opportunity to clear up any question you may have. This type of meeting can also help you prepare for the next tax season, further minimizing stress. 

Eliminating Tax Season Stress (6 Powerful Tips) 

Eliminating Tax Season Stress 6 Powerful TipsWe dogs have a mental checklist as we prepare for our walks–leash (check), circle three times near the door (check), bark and nudge the door (check), and finally, get the owner on the end of the leash (check). Below is our 6-point checklist to help you work toward a more stress-free tax season: 

  • Save tax documents to a separate tax folder as they arrive
  • Schedule your tax appointment as early as possible to avoid last minute stress
  •  Use the tax organizer to make sure you have addressed everything. Don’t forget to completely fill out the organizer since doing so ensures you are ready for your appointment
  • Provide all documents such as W-2s, form 1099s, cost basis of securities sold, total of charitable donations, and a rental recap in excel to your CPA at the first meeting.  By providing all items, your return will be completed more quickly
  • Sign all documents such as the engagement letter and e-file authorization as timely as possible. Failing to sign these will create delays in filing which can lead to frustration for you
  • Be kind. It is a very busy time as deadlines change and there is an amazing amount of data for a CPA firm to process during this time. Kindness will create cooperation instead of adding more stress