Tag: personal finance

The Five Most Important Pieces of Advice from Your Accountant

Follow These Five Accounting Tips That Could Save Your Business Time, Money, and Aggravation

Financial advice persists everywhere we turn: On the Internet, the radio, TV, and in your email and snail mail boxes. But what is often overlooked is some basic accounting advice that not only could save you or your company from difficulties associated with being audited but also save you time, money, and aggravation in the long run. Whether your business already has an accountant or you’re looking to hire one, follow these five important pieces of accounting advice.

 

  1. Be (or Get) Organized

The simplest and perhaps most important advice an accountant can give you is to stay organized. You’ve heard that there are “pilers and filers” when it comes to being organized. That may be true, but whatever your method, know where your documents are when you need them or if they are called for by the IRS. The better organized your papers and electronic files are, the less likely you’ll have trouble in your financial matters whether they be tax-oriented or not.

 

The simplest and perhaps most important advice an accountant can give you is to stay organized.
The simplest and perhaps most important advice an accountant can give you is to stay organized.

 

  1. Keep Business Expenses Separate

An important part of being organized is to properly categorize your expenses as business or personal. Be sure to keep business expenses separate – don’t tell yourself it’s OK to blur the line or to “fudge” it. If or when you have an audit – internal or external – questions will assuredly arise about any questionable business expenses that may in fact be personal. Keeping business and personal expenses separate, too, will ensure that you don’t accidentally pay for a business expense out of your personal funds without reimbursement. Some accountants like to say, “If you want to reduce your business expenses, reduce your personal expenses.” That’s an indirect way of saying keep them separate.

 

An important part of being organized is to properly categorize your expenses as business or personal.
An important part of being organized is to properly categorize your expenses as business or personal.

 

  1. Document Business Expenses

While you’re keeping your business expenses separate from those that are personal, be sure to create – and maintain – a paper trail on your business expenses. Of course, many of those expense records may also be in electronic form, but you get the idea. The more documentation you keep on your business expenses, the better. Simply stated, for each expense, document and be able to answer these questions:

  • Who incurred the expense?
  • What was purchased?
  • Where was the purchase made?
  • When did the transaction take place?
  • Why was the item or service needed? and
  • How much did it cost?

 

  1. Do an Internal Audit

When your documents are in order, you’ve successfully separated your personal and business expenses, and you have your expenses documented, you’ll have little to worry about when you’re audited. And the best way to get ready for an IRS audit is to perform an internal audit. When your accountant conducts an internal audit, you may feel like your business is being turned inside out. It is, and that’s OK. Better to turn your business inside out and make corrections to your financial records on an internal audit than to have to answer to Uncle Sam in the form of a penalty.

 

  1. File and Pay Taxes

Above all, perhaps the best piece of advice a wise accountant will give you is to file and pay your taxes on time. Just at the federal level, there are at least five forms of tax that apply to businesses. They are: Income tax, estimated tax, self-employment tax, employment taxes (Social Security, Medicare, federal income tax withholding, and federal unemployment tax), and excise tax. These are in addition to any state and local taxes, which vary according to the location of your business. Financial penalties for failure to file, failure to pay, failure to pay estimated tax, and dishonored check/payment (“bounce”) have the potential to cause a significant financial setback to your business or even cause it to close. Having an excellent accountant on staff – or contracting with an accounting firm – to meet your tax filing and payment deadlines is even better than doing it yourself.

 

Above all, perhaps the best piece of advice a wise accountant will give you is to file and pay your taxes on time.
Above all, perhaps the best piece of advice a wise accountant will give you is to file and pay your taxes on time.

 

Donohoo Accounting Services is a professional accounting services provider, dedicated to helping our clients overcome the challenges and burdens that small businesses face. To learn more about how Donohoo Accounting can help your business prosper, call us today at 513-528-3982 for a free consultation.

How to Save for College

College is an important topic of conversation for many families. While there are lots of exciting things to talk about related to college, there are also some very stressful ones. Money is probably the most stressful. Given how common significant student loan debt has become, paying for an education can seem like a very big obstacle.

 

For many years, getting a college degree seemed like a reliable way to land a great job and get ahead in life. But because plenty of parents are still trying to pay off their own student loan debt, the path no longer seems as clear. Due to this disillusionment, plenty of families get overwhelmed and have no idea where to start as far as saving goes. That’s why only about one-third of low-income and middle-income families are saving at all for college.

 

If you agree that this topic is stressful but want to figure out how to save for your child’s college education, we want to cover the three best options to make that happen this year:

 

  1. 529 College Plan

 

The state of Ohio offers a 529 college savings plan. This plan can also be referred to as a Qualified Tuition Program (QTP). The way a 529 plan works is you invest after-tax money into it. Then when your child reaches college, money can be withdrawn tax-free for qualified expenses like books or tuition. The tax-free status includes gains made by the plan. One of the great things about this plan is you can contribute quite a bit to it each year.

 

  1. Roth IRA

 

When most people think of a Roth IRA, they think of it as a retirement account with a favorable tax status. What isn’t as well known is that this account can be used for college as well. As long as funds have been in the account for at least five years, they can be withdrawn for qualified college expenses without triggering any tax penalties. The biggest appeal of this account is the flexibility to pay for both college and retirement expenses.

 

  1. Coverdell Education Savings Account

 

This option has a lot of similarities to a 529 plan. That includes being viewed as your asset, so it won’t hurt your child’s odds of receiving financial aid. But as you probably guessed, there are some important differences as well.

 

The biggest difference this option provides is it’s not limited to college expenses. Instead, it can be used for any educational expenses ranging from kindergarten through 12th grade and beyond. A common example is private school tuition. The main limitation is how much you can contribute each year.

 

If you’re interested in speaking with a tax planning professional about the best ways to start saving for your child’s college education, get a free consultation by calling Donohoo Accounting at 513-528-3982.

First Year Tax Deduction Strategies for Your Startup

 

Over the last few years, the startup landscape has absolutely exploded. Some of the factors that have contributed to this explosion are decreasing technology costs, increased awareness about startups and access to more sources of capital. But even though there are more startups than ever before, successfully growing a startup into a meaningful company remains a significant challenge. For every success story shared in the media, there are dozens, if not hundreds, of untold stories about startups failing.

Although we could spend all day talking about why growing a startup is still very hard, we want to focus on a specific topic that all founders need to care about. That topic is expenses. Whether your startup is bootstrapped or you have some form of outside funding, keeping a close eye on expenses is a must for making it through the challenges you will inevitably encounter as you work to grow your startup.

There are plenty of stories of startups that had traction but were cut short due to running out of money. So if you want to have the best chance of success, you need to have the funds to stay around. In addition to knowing exactly what your startup is spending money on every month, you should be aware of your tax situation. Doing so will help you avoid getting caught off guard by an unexpected tax bill. This awareness will also give you the ability to make strategic decisions about the deductions your startup takes during its first year.

With that in mind, we want to highlight three deductions that can really help your startup during this time:

Equipment

Depending on your specific startup, equipment may make up a significant percentage of your expenses. If that’s the case, you’ll want to take full advantage of the equipment deductions that are available. A great starting resource for knowing exactly what and how much you can deduct is our Section 179 guide.

2. Startup Costs

As a first-year startup, the IRS allows you to take a $5,000 deduction for startup costs. Examples of qualifying costs provided by the IRS include ads and salaries, as well as travel and other necessary costs for securing prospective distributors, suppliers, or customers. The one caveat to this deduction is your total startup costs must be $50,000 or less.

 

  1. Organizational Expenses

If you structure your startup as a partnership or corporation, you can deduct an additional $5,000 for organizational costs. Just keep in mind that the same rule of limiting your total startup costs to $50,000 or less applies to this deduction as well.

We hope the deductions we highlighted help your startup reduce its tax obligations at the end of its first year. And if you want more hands-on help with your taxes, you can easily contact Donohoo Accounting Services for a free consultation.

Garnishment 101

The term garnishment means that debt collectors can take payment for what they’re owed directly from someone’s bank account or paycheck. Although that sounds quite scary, it’s important to understand that garnishment is generally viewed as a last option for debt collectors. But even though the road to garnishment is long, it does happen, which is why we want to help you better understand the details of this process, along with what you can do about it.

The Basics of Garnishment

The two types of garnishment are wage and nonwage. With the former, a creditor will be able to legally obligate your employer to give part of what you earn each month for your debts. And with nonwage garnishment, creditors can legally tap your bank account to help pay debts.
As mentioned above, both types of garnishment come after a debt collector has made multiple attempts to secure some type of payment for what they’re owed. However, wage garnishment is still surprisingly common. A study of thirteen million employees found that 7.2% had their wages garnished over the course of a year. For employees between the ages of 35 and 44, over ten percent were impacted by wage garnishment. Of the nearly million employees identified in this report, the most common reasons for wage garnishment were child support, consumer debts, student loans and then tax liens.

The standard process for garnishment occurs after a debt goes unpaid for a period of time, which is often six months. The debt is then often sold to a collector, who in turn may try to secure payment and then sue if unsuccessful. Losing this suit or not showing up at all can result in wage or non-wage garnishment. It’s worth noting that in cases involving federal student loans, child support or back taxes, garnishment can occur without requiring a court order.

What You Can Do About Garnishment

Individuals do have some specific rights in regards to garnishment, including receiving legal notification, being able to file a dispute if information is incorrect, exemption of certain forms of income like Social Security and being protected from getting fired over one wage garnishment (although this protection doesn’t apply if you have multiple garnishments).

Once a garnishment is instituted, options for dealing with it include working out a different deal with the creditor, challenging the judgment or paying off the garnishment in a lump sum. Keep in mind that a garnishment will show up on your credit report and stay for as long as seven years, so taking any available steps to prevent the situation from escalating to this point will help you a lot in the long-term.

If you’re dealing with wage garnishment, Donohoo Accounting Services has the expertise to help. Call us now at 513-528-3982 for a free consultation.