The answer to this weeks question is pretty simple. I don't know. QuickBooks can be a big investment for a small business. If your business still has a small enough number of transactions that you can keep everything organized with a spread sheet or pen and paper, then I say continue with what you're doing!! I would say as you add additional bank accounts, credit card accounts, clients, contractors etc. it's time to get some sort of professional accounting software.
I think software allows you to see the big picture of your business and create financial statements for review in an instant. For businesses such as contractors, an accounting software program is imperative to ensure you know the profit you are making on a job in real time. I have worked with so many contractors who have no clue what jobs they've made or lost money on because they simply aren't keeping track.
Programs like QuickBooks offer features where your transactions roll in for classification as they happen. The biggest thing this feature does over a "by hand" method, is ensure each and every transaction is accounted for. Additionally, this will likely save time in the long run. For most small business owners who fear spending money on x, y, and z, the big question should be, "what is my return on investment?".
If you are an attorney who bills at $250/hour and it takes you 5 hours/month to manage your accounting by hand, chances are QuickBooks (and a bookkeeper) will be cheaper than the $1250 you could have billed that month had you not been focusing on accounting.
If you're ready to pass off your paper and pencil method accounting, I would be happy to help! Please contact me at 314-450-1140 to set up a consultation.
One of the most common questions I get from small business owners is, "Can I deduct xyz". For the most part they are able to discuss the things they ask about whether that be work travel, a new printer, tax software, lawn mowing equipment, etc. Of course those answers are different based on the line of work the client is in. If I, as an accountant, tried to deduct the cost of my lawn mower, that would be a no go. However, if I had an office where I was required to maintain the outside appearance of my building, a lawn mower may be perfectly acceptable. See how this can get tricky? :)
The IRS says for an expense to be a deductible business expense it has to be "ordinary and necessary". That is a fairly vague explanation. Typically if the IRS does an audit and something is considered not deductible in their eyes, it is up to the business owner to prove that it is. You can usually find case law specific to the types of deductions you may be looking to take if you're unsure. Also, as I stated before, what's necessary and ordinary for me as an accountant, may not be necessary and ordinary for someone in a different field.
Questions come up a lot around personal appearance items and clothing. People say, "I need to look professional because I'm a realtor, that's why I get my nails done." However, if we go back to the IRS description of necessary and ordinary, I think we see that may not cut it. Can you successfully do your job as a realtor without having your nails done? Now, let's say you're an actress or a model, it may be a requirement of your job that you look and present yourself a certain way, and thus maybe your nail appointments can count.
Business owners will tend to get very passionate regarding what they feel should be deductions. Typically a quick Google search can tell you what the IRS stance was on a certain item for your profession, because odds are someone has tried to argue that it is "ordinary and necessary" in the past and either won or lost their argument.
If you're unsure if something is deductible, or even the type of deduction you can get for an item, I suggest reaching out to a tax professional before making any big purchases.
Clients come to my office all the time concerned they're going to owe taxes on the sale of their primary home. Luckily, that is very uncommon. If you owned, and lived in the house, 2 of the 5 years leading up to the sale, you are able to make $500,000 profit ($250,000 filing single) on the sale of your home without tax consequences. The stipulation on this would be if you excluded the gain of a sale of another home within two years of the sale of your current home. That stipulation ensures you are not able to live in a home while upgrading or "flipping" for two years, claim it as your primary home, then sell the home with no tax consequences, over and over again.
As you can see, due to the large profit you are able to make on the sale of your primary home, without tax implications, it is not common to owe taxes on this transaction. As with anything regarding taxes, there are additional rules for certain circumstances including transfer of home during divorce, etc. I would always suggest you discuss with a tax professional before making any decisions that may effect your tax return.