CHICAGO — Can tax time really be right around the corner? You know the drill. Taxes mean paying as little as possible while staying within the rules. Your CPA, accountant, enrolled agent, or tax preparer does the calculating, then gives you the results. You write out the checks.This year, don’t just comply with his/her instructions, make this exercise a learning experience. Here’s how to go about it.(Editor’s note: Howard Scott has spent 13 years as an H&R Block tax preparer specializing in small businesses.)ORGANIZATION AND ANALYSISOrganize your revenue and cost categories. Your computer records all costs, but make your own list. Make sure everything is accurate. For example, if certain costs are erroneously placed in one category, put them where they belong.Evaluate these costs in terms of revenue. If the cost of utilities is supposed to be 22 percent, but is 27 percent, what accounts for the 5-percent overage, and what are you going to do about it? How can utility costs be cut? How can you pump up volume? Is raising prices the key? All this activity forces you to investigate your costs, and possibly make changes.If overhead came to 18 percent and should have been 15 percent, what brought the figure up? Was insurance more expensive this year? Did you spend too much spent on unsuccessful marketing programs? Did you contract out more jobs (equipment repair, window cleaning, etc.) than last year?What about revenue? If commercial revenue was down this year compared to last year — from 15 percent to 6 percent, for example — what is the reason? Did you experience drop-off delivery delays, which annoyed customers? Did you have quality-control problems? Did you lose a key employee? Did the market dry up because a new laundry “low-balled” the work? Can better service win back lost customers?Try assembling costs to ascertain profitability between store, commercial and drop-off work. Was drop-off service profitable? To calculate, you must separate the labor costs and put a value on other costs. Even though it’s a guess, the exercise will help you examine the different aspects of your operation.Get your accounts in order so that you and your accountant see the big picture.ASK THE RIGHT QUESTIONSWrite down questions for your accountant. Your accountant can deal with these issues because he/she is familiar with your business, is financially savvy, and is a small-business owner facing the same questions that you are. Perhaps you are wondering about the following:
- Which is better tax-wise — owning or renting a property?
- What are the variables?
- Is it better to lease or own vending machines?
- Should I be taking advantage of a home office, since I do some paperwork at home regularly?
- How can I make my cash flow more efficient?
- How can I look at my business as a venture for sale?
- How can I incentivize people through their paycheck?
- Can I offer a bonus system?
- Is there a formula that deals with equipment replacement?
- How do I know if my marketing programs are working?
- How do I deal with rising labor costs?
- What new tax credits are open to me this year?
Have your accountant explain certain tax strategies that you don’t understand. For example, do you know about Section 179 depreciation deductions and how they work? Is it better to take full or partial advantage of the Section 179, or not take advantage of it at all?Do you know which travel strategy — standard mileage or actual costs — is best for you? Can you use one travel strategy one year and switch back to the other later? Have you taken advantage of your home office? How much will this help? What is the downside of the home office? Do you meet the requirements?EVALUATE THE ANSWERSMake your accountant explain the results. Don’t just write out the checks. Have your account explain the income statement. Make sure you understand each entry. Are you unclear what depreciation covers? Do you understand why professional fees are so expensive? Figure out what the bottom line means. Is your profit comparable to the average neighborhood store? Or is your competition far more profitable? Why?Make sure you are current with your estimates. Estimated taxes are a guess of your year’s tax liability. Your accountant might have you pay four estimates on the proper due dates — April 15, June 15, Sept. 15 and Jan. 15 (2012). Make sure you have complied. If you do this, you will have covered your tax liability and won’t owe any money. If you haven’t complied, you will pay a penalty.The problem is, come tax time, there are often many bills to pay, and you might not have enough in the till. Not paying the IRS in a timely fashion is a costly proposition. Businesses have been ruined because they’ve ignored their obligation. Don’t be one of them.Ask your accountant what else he/she can do for you. Your accountant should be a savvy businessperson, and should act as a consultant without requiring extra fees. Perhaps he/she can offer tips on personal investing, such as setting up IRA simple accounts out of business profits. Maybe he can advise on how to employ your children and give them a sense of self-worth, as well as absorb some profit. Possibly he/she has some contact with financial firms that could be a source of funds for your next investment. Perhaps your accountant could help you solve a sticky employee issue, and save a good staffer. If your accountant also works for other laundry owners, he/she might help you form an owner’s group.Turn tax time into be a positive experience.
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].