By Bryce Welker
Proper preparation is essential in accounting. You need to be in the loop with regard to new tax law changes that can impact you and your business. The best way to stay on top of your accounting is to keep your accountant handy and work with them on a timely process for financial planning and maintaining your company’s books. But it’s not always that easy.
Be Aware of Tax Changes That Can Affect You
Meet regularly with a tax advisor to stay aware of IRS updates and tax law changes. For example, Section 179 now allows companies to expense up to $500,000 on certain business equipment and expenses that will significantly lower your total tax bill at the end of the year.
Your business is allowed to claim an additional depreciation for certain property in the first year of the recovery period. If your property is placed into service in 2015, 2016 or 2017, the bonus depreciation is 50 percent. For 2018, it drops to 40 percent and 30 percent for 2019. This means if your business bought new software or hardware, you can depreciate half the cost as a “bonus depreciation.” 2017 might be the best year for you to invest in the most innovative equipment possible.
In addition, pay attention to tax law changes that are predicted to happen under Trump’s administration. It's expected that Trump's plan will reduce the corporate tax rate from a maximum rate of 35 percent to 15 percent. Also, U.S. manufacturers will be allowed to fully expense new plant and equipment investments, forgoing any deduction for net interest expense.
The expected elimination of most tax credits could lead to major consequences for startups. Trump’s tax reform is anticipated to benefit the wealthy and large corporations over smaller businesses, so you and your accountant need to keep an eye on what’s to come. Make sure to be objective about politics in your day-to-day business tasks. View the president and the government as a whole through the lens of your specific endeavor.
Disruption Is Coming: Are You Ready?
The world of accounting is no exception to technological change and is quickly approaching a transition from automated compliance services to an expansion of advisory capabilities.
The evolving internet and innovative cloud technologies open up a variety of ways that customers can connect with accountants. The cost of repeatable processes and compliance requirements are also evolving with the increase in automated software. Disruption happens quickly, crippling unprepared businesses.
So how do you get ready to ride the wave of disruption? Start by updating your business model. Replace the older time-based model standardized with “necessity” services with a model that is based on providing a range of “discretionary” value-driven advisory and governance services for all sorts of customer requirements.
It’s important to embrace new technologies and be innovative with how you can use them in a customer-centered way. This means different levels and forums of discussion between your team and your clients. Doing something better is not going to cut it. You must create an explorative mindset that is open to meeting customer needs and dismantling outdated truths.
Avoid Common Accounting Mistakes
The smallest accounting mistakes can have negative impacts on your startup. They are all too common and young business owners and executives are unknowingly overpaying taxes. Here a few common accounting mistakes you need to be aware of.
- Stay on top of receivables. The process of recording receivables is easier said than done, and customer deposits are often not handled in a timely manner. But when tax season rolls around, you end up with a bunch of customer deposits in your revenue account. And that leads to a confusing receivable report. You’ll waste hours updating the receivables listing and may end up overpaying your taxes, which is any entrepreneur’s nightmare. Make a point to follow up on receivables and apply payments to invoices on a monthly basis. Doing so will save you money in the future.
- Record cash expenses. While running your startup, it can be tricky to track every expense. If even the small expenses are overlooked, they can cause you to overstate your annual income. This can seriously throw off your plans, so be sure to develop a method for tracking cash expenditures. There are a couple ways you can do this, depending on what type of business you are running. You can keep a journal that combines sales and cash receipts in order to simplify record keeping. If daily cash transactions are part of your business, you can prepare a daily cash sheet to monitor your cash received and paid out for the day. Find out whatever method will be the most efficient for your specific business and stay on track with your record keeping.
- Hire a professional accountant. This one might seem obvious, but you would be surprised at how many entrepreneurs think they can save money by doing their own taxes instead of hiring an expensive CPA. I myself was a CPA and have a deep understanding of accounting and taxes. But since I changed my career goals and followed the entrepreneurial path that has required a shift in my focus away from accounting tasks. Even though I technically have the skill set, I needed a professional to be my accountant and guide for tax and finance issues. Investing in a professional accountant from the start is crucial for your new business. You’ll have an expert who can apply the right tactics for your financial situation.
Bryce Welker is the CEO of multiple companies in the online education and e-learning space including Gryfin.com.