Welcome back, Coders! After an extended holiday hiatus, Carter “The Marketer” Johnson and I return to our regularly scheduled programming (though last week I did release an income report for December–go check it out if you haven’t already).
As I forecasted in that income report, our topic this week is accounting and taxes. This has been on our list for quite some time, and the subject matter is right in Carter’s wheelhouse.
Accounting is an incredibly important part of your business, and this is the perfect time of year to talk about it since most of you are probably beginning to work on your taxes. There are a lot of things you can do to decrease the tax burden on your business, and then you can reinvest what you saved.
Once Carter and I got talking about the subject, we realized it would be best to split the episode into two parts. So consider this part the “big picture” introduction to accounting and doing taxes for your business.
As a disclaimer: neither Carter nor I are CPAs or tax experts. We hope to give you some general information and ideas to try for your business, but you should definitely consult a professional regarding your specific situation.
Tracking Your Expenses
First off, if you aren’t tracking your expenses, start doing so! This is really a no-brainer.
There are a ton of reasons why you should track your expenses throughout the year, not least of which is the fact that you’ll make your life a whole lot easier come tax season.
Back when Carter was still running his first business (the moving company in Cincinnati), he went through all of his bank statements once a month and categorized each purchase, created line items, and so on. It was tedious and time-consuming.
Luckily, there now exist a number of great apps you can install on your phone or computer that will make the process much easier.
Carter’s first recommendation is the Self-Employed app from Intuit (the same company that makes TurboTax). This app helps you keep track of your business expenses as they occur, which prevents everything from piling up.
You can connect multiple bank accounts to the app and then easily categorize each expenditure as business or personal. You do this by swiping left or right on the mobile version of the app, which makes your accounting work feel a little like a game.
Another app Carter likes to use for his accounting is Shoebox, which is a digital photo storage service. He uses the app to take photos of all his receipts for business purchases and enters notes about each receipt.
Here’s why: an accountant once informed Carter that business owners can deduct a lot of expenses off their taxes, but they need to document the purchases and take detailed notes.
For example, you can deduct the expenses of a business lunch, but you should document when it occurred, with whom you met, and what you discussed so you can prove the legitimacy of the deduction in case you are audited.
Of course, no one ever hopes to be audited, but it’s a good idea to have that insurance just in case it happens. Using Shoebox for this purpose creates one destination for all your business receipts and allows you to keep your notes right there with the photo.
As for me, I am fortunate enough to have a father who is very knowledgeable about accounting; he is my CFO, and he does my accounting for me. We use an online app called Wave Accounting, which has served us well thus far, although there is typically a large delay between the time of the actual transaction and when it is reflected in the app.
Another service Carter has heard of but never actually used is Bench.co, which provides you with a team who will take care of all your bookkeeping. Pricing plans begin at $125 per month, billed annually.
These are only a few of your options for web-based accounting. Surely there are many more out there; try running a Google search for “accounting apps.”
In the end, it doesn’t really matter what app you use or how you do your accounting. What does matter is that you create a predictable, reliable system you understand and are familiar with, and you keep your expenses up to date throughout the year.
Consulting Tax Professionals
At the beginning of the new year, when it is time to file your taxes for the previous year, you should seriously consider consulting a CPA to help you file for your business.
You probably shouldn’t do business with the first accountant you come across, though. Like you would do with a lawyer, you should try to find an accountant who understands you and your business and will give you the best value for your money.
Carter recommends finding several accountants in your area (again, a simple Google search will set you on the right track) and setting up an initial consultation with 3-5 of them (these are almost always free).
Tell each accountant about your business and how it works. In addition to the specific details of your operation, you should also explain your broader, more long-term business and life goals. The right accountant can give you advice for working toward these long-term goals.
Narrow down your choice of accountants by trying to get a feel for which one understands you and your business best. You can do this by judging each one in relation to the others. Ask each one about tax issues you need to look out for given the nature of your business, and compare their answers. Ask one accountant about topics the others mentioned.
You should choose a CPA who is not only knowledgeable, but with whom you feel comfortable. Be transparent with your needs and concerns, and you will start to get a feel for each person and whether they are a good fit for you.
Also consider that some firms specialize in certain industries or long-term goals. For example, if you are a tech-based company, there are CPAs who specialize in the relevant tax laws. Alternatively, if you want to use real estate as a way to grow wealth and decrease your tax burden, other firms specialize in that scenario.
So, in summary, your goal is to find an accountant who is knowledgeable in your industry, understands your business and your long-term goals, and with whom you feel comfortable. This may seem like a tall order, but that’s why Carter advises you to investigate several and pick your best fit.
As for the cost of service, it varies based on what they do for you, but most CPAs charge an hourly fee. When Carter hired an accountant for his moving company years ago, he payed somewhere between $200-300 per hour, but it only took the accountant two hours to do their taxes.
Again, do a little research to get an idea of what you can expect to pay. Google is your friend. You can also ask each accountant about their fees when you have your initial consultation.
Ever the repository of knowledge, Carter has a couple of book recommendations to help you learn more about accounting and taxes.
First up is Keys to the Vault, by Keith Cunningham. This is a very informative book that teaches you how to navigate the accounting world. Some of the subjects it covers are the different ways to report your taxes and what they mean.
The second book is Tax-Free Wealth, by Tom Wheelwright, founder of the Arizona-based accounting firm ProVision. We actually featured this book back in our episode on customer service. Carter attests now, as then, that this is one of the best books on taxes he has ever read.
Wheelwright begins the book by explaining how 99% of the tax code is designed to help businesses save money through deductions. He walks you through the entire accounting process, and he presents the information well for people who know almost nothing about the subject matter.
We’ve only just begun to scratch the surface of accounting and taxes. We provided some great books you can read to learn about taxes and some apps that can help facilitate the bookkeeping process, but there’s so much more to talk about.
Given this big-picture information, what should you be doing on a daily, weekly and monthly basis to keep your accounts in order? This question leads us into the nitty-gritties of the subject, and that’s what we plan to discuss in next week’s episode.
The most important thing we can share with you today is this: take action on one of our suggestions. Whether that means reading one of the books we mentioned, downloading one of the apps, or reaching out to Bench.co or ProVision and seeing if they would be a good fit for your business, take action on just one thing.
Doing so will get the ball rolling and put you on the right track for 2016.
Intuit’s Self-Employed app
Wave’s Accounting app
Keys to the Vault by Keith Cunningham
Tax-Free Wealth by Tom Wheelwright
ProVision accounting firm