Posts Tagged ‘April 15’

Are you getting the most out of your accountant?

Often, clients put their accountants in a box like this and won’t let them out.  I have experienced this.  Once a client gets it in their head that “Polito is our tax guy”, it’s really hard to shake that image.   Our profession has so much more to offer!

When I was in the publishing business, before I knew what accountants did, I was the same way.  I called my accountant for tax stuff and little else.  I failed to take advantage of his years of knowledge and experience.  That business never flourished!

Many CPA’s start their careers as auditors for national firms auditing financial statements.  That is an extremely valuable experience.  Frequently, after between 2 to 5 years, these auditors  join public companies as controllers and chief financial officers….. and,  a significant number go on to become CEO’s of large public companies.  Indeed, there is a lot more to accounting than financial statement preparation and tax compliance!

About 10 years ago, we developed a service for a number of clients who had what I  term “technician syndrome”.  These clients  knew their particular trade or business and were fairly successful at it, but knew nothing about  the financial condition of their company.  They had no idea how they were really doing.  If there was cash in the bank, things were ok.  Actually, they were in a contest with their competitors but they weren’t keeping score!  In many cases, they didn’t understand the scoring system!

With the help of  my associates, I developed a series of graphs and reports tailored to each particular business.  We find elements of the financial records that if measured, could provide tools to gauge the success of various strategies.  We call these” Key Performance Indicators” (KPI’s).  We  model the effects of slight changes in these measures.  What would happen , for example if the company could increase margins by one percent?   What it would mean to the company, its owners, its employees, and other stakeholders.  We benchmark the clients by industry and size so they can see how they are doing compared to their peers.

We meet with these clients quarterly to go through the financial statements and the special reports that we designed specifically for that client.  At first, these meetings were the only time the clients seriously looked at their financial data. The meeting  is a really important part of this service.  It takes fairly deep study and analysis to really utilize the data.  This analysis coupled with the prodding of a seasoned professional outside the business, provides a stimulating atmosphere for new ideas on how to improve the business.  The brainstorming that goes on in these meetings is extremely valuable.

How do we use the data?

Using break-even analysis, we illustrate profitability scenarios.  We work with clients to develop budgets that support their strategies and we develop financial tools to measure the effectiveness of new strategies.  We develop forecasting models which our clients can use to project income and cash flow, and finally, we do tax projections with cash analysis so that the demand on cash for any suggested tax strategy can be quantified in cash required and cash saved.

To a non-accountant, this stuff is daunting.  I am convinced that one  reason some businesses can never “break through” to that proverbial “next level” is because they fail to make full use of their financial data.  By meeting regularly, even on a quarterly basis, for the sole purpose of assessing the performance of the business, clients tend to be more engaged, execute strategies more consistently, and frankly, make a heck of a lot more money!  In the final analysis, we are helping them keep themselves accountable by orchestrating  the reading of the scorecard.

At this time of year when we “resolve”  to improve, it’s a great time to develop tools to measure business performance and get very intentional about the way we run our companies!  How’s this for a New Year’s resolution…call your accountant and ask him or her how they can help you better measure your performance.  You might be amazed at the untapped resource on your team!

Year End Tax Planning Time!

As the end of 2011 approaches, it is a good time to start year-end tax planning to minimize your individual and business taxes.

Here is a list of Year – end strategies for individuals:

  1. Realize losses on stock while substantially preserving your investment position. For example, you can sell the original holding at a loss, then buy back the same securities at least 31 days later.
  2. Postpone income until 2012 and accelerate deductions into 2011 to lower your 2011 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2011 that are phased out over varying levels of adjusted gross income. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year. However, in some cases, it may pay to actually accelerate income into 2011 if a person’s marginal tax rate is much lower this year than it will be next year.  Bush tax cuts apply through 2012. If Congress does not act rates will go up in 2013.
  3. Consider using a credit card to prepay expenses that can generate deduction for this year.
  4. Estimate the effect of any year-end planning moves on the AMT for 2011 keeping in mind that many tax deductions allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction of property taxes, state income taxes, miscellaneous itemized deductions, and personal exemption deductions. As a result, in some cases if you pay Alternative Minimum Tax, these deductions should not be accelerated.
  5. If you believe a Roth IRA is better than a traditional IRA, and wish to remain in the market for the long term, consider converting all or part of your traditional IRA to a Roth IRA. Keep in mind, however, that such a conversion will increase your taxable income for 2011. If you are expecting a business loss in 2011 that could offset the income realized on the Roth conversion, your tax consequences may be minimal.
  6. If you are a homeowner, make energy saving improvements to the residence. You may qualify for a tax credit.
  7. If you are age 70-1/2 or older, own IRAs and are thinking of making a charitable gift, consider arranging for the gift to be made directly by your IRA trustee.  This is more tax efficient than taking the IRA distribution in cash then making a cash contribution.
  8. Purchase qualified small business stock (QSBS) before end of this year. There is no tax on gain from the sale of such stock if it is purchased after September 27, 2010 and before January 1, 2012, and held for more than five years.

Although I have covered a number of topics in this blog, I did not address every issue.  We recommend that you always, see a professional when considering tax planning strategies for your personal situation.  There are very important details underlying each of these strategies which must be thoroughly understood before you employ them!

Finally, April 15th!

I have already had quite the morning.  My delicious protein smoothie spilled ALL OVER my car while driving in this morning.  REALLY?  That is how my day is going to start?  When are the car makers going to figure this out? MAKE DEEPER CUP HOLDERS!  I’m talking to Ford, GMC, Toyota – all car makers.  Do you not drive in your vehicles?  Do you not use the cup holders?  I know this isn’t in anyway related to accounting, but I thought I had to throw it out there.

So now that I’m starving, I’m eating an apple I packed in my lunch and counting on Paul bringing in Froggie’s doughnuts like he always does on April 15th.  The Polito family swears by these doughnuts.  Forget the diet for one day, I’m hungry.  The good thing is this day can only get better from here.  The partners are taking us out to a nice dinner tonight so at least I know it will end well.

Another tax season under the belt, the deadline has finally come.  It’s April 15th and I hope you have your tax returns or extensions filed.  Failure to file on time is a 5% penalty per month (maximum of 25%).  Keep in mind the extension is only for filing your tax return, NOT an extension to pay your tax (more penalties for not paying on time).  If you have a tax liability and do not pay the tax by TODAY, you will start racking up the interest and penalties.

What are we going to do?  Take some well deserved time off.  Our offices will be closed through Monday, April 19th.  We won’t be answering phone calls or replying to e-mails.  Don’t take it personally; we just need to catch up on sleep and family time.  We will be back to work on Tuesday April 20th.

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