Month: August 2021

Should You Fund Your IRA or Roth IRA First?

If you’re trying to decide whether it makes the most sense to fund your IRA or Roth IRA first, you’re not alone. This is a question many people face and often struggle to answer. Since we’ve talked to plenty of clients about this issue, we want to share exactly what you need to know to make the best decision for your personal situation:

The Basic Differences

Before we look at where you should contribute, it’s worth doing a quick refresher of what sets these individual retirement accounts apart. Both were created by the federal government to encourage people to save. With a traditional IRA, the amount you contribute immediately reduces your income tax for the year. Then after you retire and begin withdrawing the money, you’ll pay taxes on that income. With a Roth IRA, you pay the income tax when you contribute but are then able to withdraw from it tax-free after retirement.

Deciding Based on Your Stage of Life

Although these savings vehicles are similar, there is a very big difference in how they affect an individual’s taxes. That’s why the answer of which account you should contribute to first will depend on where you’re at in life. If you’re under the age of thirty, it’s probably going to be in your best interest to put some after-tax money into a Roth IRA. The reason is you’re likely paying a relatively low tax rate, which means a tax break won’t help you as much.

If you’re between the age of thirty and fifty, chances are you have things like a home mortgage deduction, a child tax credit or two and the benefits of filing as one half of a married couple. This may make it seem like traditional IRA contributions should be your primary focus. However, many people in this bracket still pay a relatively low tax rate, which means that Roth IRA contributions can still work best. An additional selling point of Roth IRA contributions is if you ever need to withdraw money you put into it, you can do so without facing any penalties or additional taxes.

For those over the age of fifty, first maxing out your annual traditional IRA contributions are the best course of action. The one exception is anyone who’s at least 71 and still working. For individuals in this situation, Roth IRA contributions can create an appealing stockpile for down the line.

As you may have realized from what we covered above, the optimal account for contributions can actually change from one year to the next. Needing to take a dynamic approach to planning for your financial future is just one example of why it’s so beneficial to have a knowledgeable financial professional on your side. If you want to learn more about how Donohoo Accounting can help, be sure to take a look at our tax services page.

Should You Set Up a New Company As An LLC or S Corp?

There’s a lot that goes into getting a new company off the ground. Although it’s normal for this experience to be quite hectic, it is important to take care of all the basics. That includes choosing a formal structure for your company. Whether a company suddenly takes off or hits hard times, having a formal structure in place is the best way to protect everyone who is involved.

Now that we’ve established why it’s so important to establish a new company as a legal entity, the next question to answer is which structure to choose. The two most popular options are the limited liability company and the S corporation. While the structures of an LLC and S corp share similarities such as income pass-through to owners and limited liability protection, there are some key differences, which we’re going to cover right now:

Limited Liability Company

The basic premise of an LLC is it takes the limited liability features of a corporation and combines them with the tax efficiencies and operational flexibility of a sole proprietorship or general partnership. With an LLC, each member (which is the term used for owner) uses their individual federal tax return to report profits or losses. Another reason new companies may choose this structure is it’s relatively easy to operate and administer. There are also relatively few restrictions in regards to distributing earnings through profit-sharing.

S Corporations

Like an LLC, shareholders in an S corp are taxed at their individual income tax rates. This is because income, losses, deductions and/or credits are passed through the S corporation structure. That being said, there are still significant potential tax advantages to consider, such as only wages paid to owners or employees being subject to FICA tax for Social Security and Medicare. Other net earnings from an S corporation that pass through to shareholders are considered passive income and not subject to SECA tax. In terms of administrative operations and record-keeping, S corporations do require more work than limited liability companies. This structure is also limited to a total of 100 shareholders, all of whom must be individuals or certain trusts (as opposed to partnerships or corporations).

The Bottom Line

If you feel like you now know more about both options but still aren’t sure which one is right for your new company, the good news is you don’t need to answer this question on your own. Donohoo Accounting Services has over two decades of experience helping clients with financial and tax issues. We’ve worked with a wide range of companies, which means we can assess your specific situation and advise you about which structure will benefit your company the most. Contact us now for a free consultation by calling 513-528-3982.

Preparing for a Big Accounting Job Interview

Whether you’re searching for your first accounting job out of school or are in the process of looking for the next step in your accounting career, doing well during job interviews are a key part of reaching your goal. Although it’s completely normal to be a little nervous about a big job interview, the good news is there are clear steps you can take to prepare.

As far as what to expect during an accounting job interview, behavioral interviews are commonly used throughout the industry. The focus of this type of interview technique is to learn about your past behavior and use that as a way to evaluate what can be expected from you in the future. During this type of interview, you can expect questions that focus on your core competencies. Another important thing to keep in mind about behavioral interviews is they pose questions in the form of a situation, action, and result.

Now that you know a little bit more about what to expect during an accounting job interview, we want to share some actual examples that may come up:

Deadlines and Details

Given that deadlines and details both play important roles in the professional lives of accountants, expect questions about these topics. With the former, you may be asked to provide an example of a time when you had various tasks to complete in order to meet accounting deadlines. And for details, you may be asked about what steps you take to ensure that your work is completed with full attention to detail.

Communication and Teamwork

When people outside the industry think of accounting, they often picture individuals who are poring over spreadsheets on their own. While accounting does involve plenty of independent work, communication is still essential within a company or firm of any size. The same is true for teamwork. That’s why behavioral interviews for accounting jobs tend to include questions about these topics. You may be asked to describe experiences where you effectively communicated within your department, with someone in a different department or with a client.

Solving Problems and Setting Goals

If you’re looking for your first accounting job, you can expect to encounter plenty of situations that require problem-solving once you land it. And if you’re already in the accounting field, you’re well aware of why problem-solving is such an important skill. The same is true for setting goals and being able to contribute to hitting goals set by the organization. As you prepare for your accounting job interview, think of examples of situations that required problem-solving, along with other occasions when you worked towards a personal or organizational goal.

By giving yourself time to prepare and keeping the topics we covered above in mind, you’ll be in the best position to do great during your accounting job interview!

Thinking About a Career in Accounting?

At Donohoo Accounting, we feel great about the type of work we get to do on a daily basis. If you’re thinking about a career in accounting, we can confidently say from personal experience that there are a lot of really great things about this field. Since we’ve spoken to plenty of individuals who are excited by the prospect of getting into accounting but are unsure of the next steps they should take, we want to answer some of the questions that often come up:

Changing Careers to Accounting

Whether you’re in college and are thinking about changing your major to accounting or you’re already an established professional looking for a new career path, the first thing to consider is the type of accounting work you want to do. The two main options are industry or client service. With industry accounting, you will work for the accounting team of a company. For client service, you will focus on tax services or other accounting services for clients. It’s common for client services accountants to gain experience with a small to medium firm and then later go out on their own. The reason it’s important to think about the type of accounting work you want to early on is this influence many of the other decisions you need to make.

Education Requirements for Accounting

The most common path that accounting professionals take is getting an accounting or business-related degree and then taking the CPA exam. One question that often comes up with education requirements is if a master’s degree is necessary. The simple answer is no. However, given how many educational hours most states require to obtain a CPA license, plenty of professionals decide that pursuing a master’s degree makes sense for them.

 

When to Take the CPA Exam (and How to Prepare)

 

The other big element of starting a career in accounting is passing the CPA exam. The first question that tends to come up about this exam is when someone should take it. The best rule of thumb is as soon as possible, but not before you’re truly ready. The reason for that advice is this exam is harder than ever. Another question many potential accountants have about the CPA exam is how to prepare for it. There are many different books, courses and programs that provide prep for this exam. The best approach is to understand your learning style and then choose your prep options accordingly. Some people do best with the self-study route, while others need a more structured program to do well on the exam.

If you have any additional questions about starting a career in accounting, don’t hesitate to contact us.