Accounting – Sometimes Less Is More

I was recently asked by a client to assist with setting up some accounting policies for his bookkeeper. When reviewing the client’s financials, I could immediately see why this was necessary.

Here’s an example of “more:”

·         A chart of accounts that reads like a phone book

·         A balance sheet that is 4 pages long

·         A profit and loss that has a line item for every.single.vendor

For example, here is what I saw on my client’s chart of accounts:

·         Taxes

·         Taxes & licenses

·         Property taxes

·         Income taxes (which he never had to pay)

·         Taxes – payroll

·         Payroll taxes

·         Sales tax (again, he never had to pay sales tax)

·         Car taxes

This is what we proposed:

·         Taxes – Property & Other

·         Taxes – Payroll

·         Business license

Boom! This was only one example of what we changed. The financial statements were condensed from nearly 9 pages (most of which were never reviewed) to only 3 pages (all of which contained useful information for our advisory work). The banker who had to review those statements each quarter thought we had invented the wheel and maybe even fire.

Accounting isn’t about endless data. It’s about useful data. Sometimes less is, in fact, more.

IRS Summertime Tax Tip 2015: Back to School Education Tax Credits

If you, your spouse or a dependent are heading off to college in the fall, some of your costs may save you money at tax time. You may be able to claim a tax credit on your federal tax return. Here are some key IRS tips that you should know about e tax credits:

• American Opportunity Tax Credit.  The AOTC is worth up to $2,500 per year for an eligible student. You may claim this credit only for the first four years of higher education. Forty percent of the AOTC is refundable. That means if you are eligible, you can get up to $1,000 of the credit as a refund, even if you do not owe any taxes.


• Lifetime Learning Credit.  The LLC is worth up to $2,000 on your tax return. There is no limit on the number of years that you can claim the LLC for an eligible student.


Things to remember with these credits:

• One credit per student.  You can claim only one type of education credit per student on your tax return each year. If more than one student qualifies for a credit in the same year, you can claim a different credit for each student. For instance, you can claim the AOTC for one student, and claim the LLC for the other.

• Qualified expenses.  You may use qualified expenses to figure your credit. These include the costs you pay for tuition, fees and other related expenses for an eligible student. Refer to IRS.gov for more on the rules that apply to each credit.

•  Eligible educational institutions.  Eligible schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify. If you aren’t sure if your school is eligible:

o Ask your school if it is an eligible educational institution, or
o See if your school is on the U.S. Department of Education’s Accreditation database.

• Form 1098-T.  In most cases, you should receive Form 1098-T, Tuition Statement, from your school by Feb. 1, 2016. This form reports your qualified expenses to the IRS and to you. The amounts shown on the form may be different than the amounts you actually paid. That might happen because some of your related costs may not appear on the form. For instance, the cost of your textbooks may not appear on the form. However, you still may be able to include those costs when you figure your credit. Don’t forget that you can only claim an education credit for the qualified expenses that you paid in that same tax year.

• Nonresident alien.  If you are in the United States on an F-1 Student Visa, the tax rules generally treat you as a nonresident alien for federal tax purposes.  To find out more about your F-1 Student Visa status, visit U.S. Immigration Support. To learn more about resident and nonresident alien status and restrictions on claiming the education credits, refer to Publication 519, U.S. Tax Guide for Aliens.

• Income limits. These credits are subject to income limitations and may be reduced or eliminated, based on your income.

Visit IRS.gov and use the Interactive Tax Assistant tool to see if you are eligible to claim education credits. Visit the IRS Education Credits Web page to learn more. Also see Publication 970, Tax Benefits for Education. You can get it on IRS.gov/forms at any time.

Following Up is Like Gold

I ran over a muffler on I-385 a few months ago.  I have no idea how that muffler got there, but it was shiny and looked like a piece of rogue sheet metal….until I got right up on it and couldn’t get out of the way.  So, I managed to put a hole the size of a loaf of bread in the floor of my car.  When you run over a muffler at the rate of speed of 55 mph, that’s what happens. 23 days later, I still didn’t have the use of my car.  The insurance company blamed the body shop for losing the paper, and the body shop blamed the insurance company for not returning phone calls.

Since the incident, every time I wanted to find out what was going on at the body shop, I had to call.  Even after they promised to keep me in the loop every couple of days, I had to call.  I finally felt so much like a nuisance that I limited my calls to one per week, so as not to inconvenience Becky at the body shop.  Let’s not discuss the inconvenience of being down to one car for almost a month.

I learned something valuable. We should be following up BEFORE it crosses your mind to call us. We should be more proactive.

Silence isn’t golden. Family businesses know their business, but they don’t necessarily know everything that we know. When a client receives a tax notice from the ever-cordial IRS or SC Department of Revenue, they freak out. They bring those notices to us for resolution in a timely manner (in other words, please help me with this because I have no idea what to do next). Our job is to ease their minds and provide solutions. Easing their minds equates to regular updates as we work with IRS to resolve the issue. Our silence only frustrates the client, like the body shop’s silence frustrated me. I just want to know that my problem will soon not be a problem anymore.

The blame game never works.  Family businesses have enough on their plates, with making profit and paying their employees for great work. If I get a phone call from the client, asking for follow-up on the tax notice, and I blame IRS for not getting back to me or blame Congress for budget cutbacks which make me hold for an agent for nearly an hour, I have only frustrated my client even more. When I called the insurance agent and asked about the status, and he blamed Becky because he most certainly remembered sending her what she needed, nothing was solved. I just became angrier.

Just this once, yes, I should be able to read your mind.  If I’m as good at my job as I think I am, then I should be documenting when I called you and updated you last, and when you expect me to update you again. I should be able to read your mind, and contact you before you actually request information from me. Becky promised me that she could call me last week and update me, since the work was finally commencing and she knew I was anxiously awaiting the return of my car. But, she didn’t. When I called her, she told me that there was another hold-up with the insurance company. At this point, I just have to believe her. I wonder how many times my clients have felt that way? Well, no more. I don’t want you to JUST believe me because you have no other choice. I want you to TRUST that I have your best interest at heart, knowing that I’m doing all I can for you.

I finally did get my car back, and the repairs were complete. It didn't come without its share of curse-inducing moments, however. One thing is certain, I am sure the experience made me a better CPA for my family business clients. I might owe that shiny muffler a thank-you note.