Meet with Your Accountant and Ask These Five Questions
I know — you’ve got better people to hang out with. I’m a Certified Public Accountant and I admit I’m not the most exciting guy in the world. I’m not the life of the party. I’m asleep at 10, except on the weekends when I’m asleep at 11. But you’ll want to meet with me after reading this. Or your accountant.
I’m sure your accountant’s a nice guy (or girl), but sometimes he can’t be as proactive as he’d like to be. Look — he’s not a marketing genius or a customer service guru. He’s good with numbers and taxes and that’s why you hired him. So don’t wait for him to call. You call him. This is not about friendship. It’s about 40% of your profits. So it’s up to you take the initiative. Give him a call. Grab some coffee. Maybe a burger. Spend some time with him right now. It’s important. And when you do get together with him, ask him these five questions.
1. Can I save taxes when I buy a new computer or piece of equipment?
The answer is yes. If you’re eligible, you can take a deduction for accelerated depreciation under Section 179 of the tax code. This deduction was made permanent by Congress at the end of 2015, and using it you can write off up to $500,000 of capital expenditures (equipment, computers, machinery, etc.) immediately instead of having to depreciate the cost over multiple years.
2. Do I qualify for the Research and Development Tax Credit?
The rules around this credit were changed last year too, making it permanent and easier for many smaller companies to qualify. Remember, this is a credit, not a deduction. That means you can offset the amount against taxes owed, and even if you don’t owe any taxes, you can carry it back or forward. You can use it if you’re developing or improving a product or process, particularly if the process involves chemistry, engineering, or software development. There’s a calculation that must be performed and your accountant may recommend an outside firm to do this for you because the calculation is kind of complex. But you may qualify and this could save you big.
3. Can I save taxes by hiring my kids?
If your child has no other income, you may be able to put him on the payroll and take a deduction for the cost. He may not even have to file a tax return depending on how much he earns. Of course, I’m not advocating you put your four-year-old at the reception desk. But a middle school or high school child that can perform legitimate services (filings, moving, paperwork, data entry) can be put to good use, learn a few good work practices, and earn a few bucks to be put into savings…and not spent on a new Xbox.
4. Should I write off bad receivables and inventory?
Definitely. Show your accountant your receivables ledger. If you’ve persuaded him to visit your company, walk him around and show him your inventory. Here’s what he’ll tell you: get rid of the old stuff. If there are receivables hanging around for more than 90 days, then write them off your books. The same goes for old inventory – dispose of that stuff. You can’t take a deduction for this stuff until you remove them entirely from your books and your premises. I know – this hurts. And it’s frustrating. But you’ll just have to suck it up, take your lumps (and a deduction) and move on.
5. Will a 529 plan help me save on college costs?
Yes! A 529 savings plan is available in all states and your accountant can probably recommend a few good ones. With this plan, you can put after-tax money away into a savings account and it’ll grow and grow tax-free, assuming you use the money for higher education expenses for yourself or family. Higher education expenses can include tuition, room, board, books, and many other related items. I did a lot of research before writing this and can comfortably conclude that the cost of college is … high. Very high. A 529 plan, by saving you taxes on income and gains, is a great way to reduce that cost.
So please, have dinner with your accountant. In fact, make this a twice or three-times-a-year thing. Taxes eat up a giant share of your profits, but if you plan ahead, you can take steps throughout the year to minimize expenses and put more money in your pocket. Besides, we accountants aren’t such bad people. Maybe a little boring (at least in my case). But it’s worth it.