A Millennial’s View

Guest blog by: Isaac Bumgarden, audit intern, Eide Bailly LLP

Accountant: the career that seems like it’s filled with numbers nerds, gloomy days reading over spreadsheets and days spent typing away on a calculator. If we’re talking about a public accountant, everyone thinks you’re an evil number cruncher who’s up to no good (and maybe even works for the IRS).

So how does someone, let alone a millennial, decide accounting is the right career path?

As you know, everyone is different (yes, even us millennials have different tastes and interests). While I don’t speak for everyone, it seems a majority of millennials have a similar experience when it comes to choosing a career, especially if they landed on accounting. When looking at the accounting profession (at least before having much exposure to it), we tend to think of someone sitting behind a desk, quickly punching numbers into a calculator all day, or even someone working for the IRS – and often times, these views don’t seem to sit well with us millennials. After all, we are said to be a social generation which thrives off of each other.

However, college and schooling comes around, and a whole new world presents itself. Rather than hearing about the IRS auditors, you start learning about different options in the accounting world.

“A CFO? What’s that?”

            “There are other auditors besides the IRS? Well what’s the difference?”

           “I can open up my own tax accounting firm in my small home town if I                           understand this stuff?”

You begin to realize that maybe accounting isn’t a one-size-fits-all career path, and there might even be something about it that catches your eye. In fact, I see accounting as a door that leads to a lot of potential in the business world, which is something I never would have even thought of on my own.

Many of the potential scenarios in accounting appeal to us millennials if we are exposed to these options. If you enjoy being alone, maybe the traditional accounting job is for you. If you like interacting with people, take a look at the business side of accounting, such as being a CFO, where you get to go in and work alongside different companies. If travel is your idea of an ideal career, maybe an auditor is the right choice for you. There are many different opportunities and possibilities for each personality and skill set.

For myself (and other millennials, too) and even the general public, accounting is often seen as a boring profession, as explained before. However, accounting is so much more than just the numbers. Public accounting is not only a way to help individuals, but businesses as well.

Being an auditor allows you to help businesses be sure they are on the right track both legally and financially. If you’re the tax man (or woman), you can make sure individuals, families and businesses are being taxed properly, which can lead to saved money and greater revenue and income. Many people don’t realize accounting truly allows you to help people do what they love.

It seems the reason millennials aren’t choosing accounting as readily as other generations simply stems from the lack of information about what accounting really entails. When it comes to accounting, you’re never really stuck in one area. We millennials enjoy variety and a change in scenery, and accounting allows us to have just that.

Have Questions? We have Answers

In our line of work, we get a lot of questions on anything and everything related to owning and operating a business (and we’re happy to answer them, too)! While a lot of these questions are usually pretty easy to answer, sometimes we get a few that really make us think. Even then, we enjoy researching and finding the answers to help business owners be successful.

So, what questions do you have about your business? We would love to help you reach your dreams and goals.

In case you think your question might be too far out there, we promise it’s not. Check out some of these questions (and our answers) to get you started on finding the information you need to watch your business succeed.

“I have invoices coming out of my ears! What do I do with all of them?”

When you have a large amount of invoices to deal with, it’s easy to get overwhelmed and lose track of what needs to get done. When invoices aren’t being properly managed, your business can see some serious negative side effects, such as fraud. Following this list of tasks can help you make sure you’re keeping everything in check. Looking to an automated system, such as QuickBooks, is also a great way to keep your invoices at a manageable level.

“Where in the world did all of my cash go?”

This question is more common than you may think. While your business may be profitable, you can still be running out of cash, which might be a concern. Financial struggles can be hard, but our professionals are available to help. Check out this blog – and then, let’s talk!

“Why don’t I have enough time to do everything that needs to get done?”

We get it: owning and operating a business means you have a lot on your plate. From accounting and finance, to human resources to the day-to-day operations, you probably don’t have enough time to do it all yourself. The good news is you don’t have to! Consider your team of employees. What can you delegate to take some of the burden off your shoulders and free up some time? Another option is outsourcing. When you outsource some of your business activities, such as your accounting processes, you free up time to focus on why you got into business in the first place.

“What is this accrual accounting thing I hear so much about? Am I doing it?”

Knowing the specific ins and outs of accounting can be a confusing, daunting task. What it comes to what method of accounting you are using, the water may get even muddier. Maybe you’ve heard of cash based accounting and accrual accounting, but you really have no idea where to begin. We’ve written multiple blogs on how to tell the difference and how to select what fits your business and set up your books. Check them out!

“Taxes terrify me. Where do I even begin?”

Taxes are a complex issue, and questions regarding this topic are common. Whether you want to know more about R&D tax credits, employer vehicles and mileage, how to track your taxes or even all those pesky (yet necessary) forms, we’ve got you covered. Check out our tax archive for answers to all your most pressing questions. If you can’t find the answer, let us know.

Remember, although we numbers nerds really like our financial lingo, we promise to answer your questions in a way you will understand, not just a bunch of accountant talk. After all, we want to see your business succeed!

The Sales Tax Cap

It’s time for a facelift. Last summer, we posted a blog about the North Dakota sales tax cap, and to this date, we still get tons of views on it. What does this mean? It’s a hot topic that’s important to business owners! So, we decided to bring it front and center again so you can get all the info you need without having to dig too far (we’re nice like that).

If you’re doing business in the state of North Dakota, there’s some important tax issues you need to know about: local sales tax cap and minimum tax.

There are multiple cities and counties in North Dakota, which means there are multiple local sales tax jurisdictions that have a max amount of sales tax you are responsible to pay – or, in other words, the refund cap. However, it’s not the vendor’s responsibility to cap the sales tax on your purchase.

The good news? You can submit a claim for a refund with the State!

So, how does all this cap stuff even work? Let’s look at an example:

Gary is working on a project, and bought $10,000 worth of lumber. He had the lumber delivered right to the job site – which is located in Fargo. He received a bill from the vendor, with the total being $10,750. This included sales tax at a rate of 7.5%, which was properly imposed.

Material Cost    $10,000.00

            Sales Tax                 750.00     

            Total                 $10,750.00

Gary went ahead and paid the bill for $10,750. However, in this case, the sales tax on the purchase is in excess of the maximum tax. This means Gary should apply for a refund. But how is the sales tax more?

Well…

The Fargo sales tax rate – which is the 7.5% that was applied to the purchase – is made up of three components:

State of North Dakota   5.0%

            City of Fargo                2.0%

            Cass County                  0.5%

The maximum tax for the City of Fargo is $50, while $12.50 is the maximum tax for Cass County (the State itself doesn’t have a maximum tax). In other words, the sales tax only applies to the first $2,500 of your purchase. Let’s recalculate Gary’s bill using the tax cap:

Material Cost    $10,000.00   

            Sales Tax               562.50

            Total                 $10,562.50

Confused about where the $562.50 came from? State tax = $500 ($10,000*5.0%), City tax = $50 ($2,500*2.0%), and County tax = $12.50 ($2,500*0.5%).

This means that our good friend Gary is eligible for a refund of $187.50 from the State of North Dakota – and who doesn’t love getting money back?

So how does Gary go about getting his refund?

Easy as cake (which Gary could definitely indulge in with his refund money)!

  1. Visit https://www.nd.gov/tax/salesanduse/forms/
  2. Under “Other Forms” click on “Claim for Refund Local Sales and Use Tax Paid Beyond Maximum Tax
  3. Follow the instructions to complete and send back

A few other things to keep in mind with maximum tax include:

  • The refund claim must be postmarked no later than three years from the date of the invoice. (This means if you weren’t aware of the cap, you can look back three years and see if you have any claims to submit!)
  • You need to include with the form a copy of all invoices covered by the claim.
  • The refund claim only applies on properly imposed sales tax – which means the sales tax needs to be right in order to claim a refund from the state.
  • The refund claim applies to a single transaction, not an item on a transaction or total purchases for a month.
  • Not all cities and counties impose a maximum tax. The claim for refund form has a table which outlines the cities and counties that impose this tax.

If you still have questions, let us know. We have tax people who can help make taxes a little less… taxing.

Setting up for Success: Part 1

You’ve decided to start a new business – how exciting! There are many important things to consider when getting everything set up, such as your human resources policies (your employees matter!) and software and solutions (you want everything organized and running smoothly). Another important component you need to consider is your accounting – after all, these numbers lay the foundation for your business and essentially tell your story.

Accounting is an important part of your business, and getting it right the first time is crucial. So where do you even begin?

First, it’s important to understand your business and industry. This understanding can help you answer some important questions for designing your accounting system. Some of the questions that may come up include:

  • “What basis of accounting should I be using?”
  • “What information should I be tracking in order to make informed decisions?”
  • “I know what I want to track, but how do I track it?”

Let’s start with the first question: selecting your basis of accounting. Your basis of accounting is essentially a framework used to record your transactions. There are a few different types to choose from, with the following being the most common.

  • U.S. GAAP (United States Generally Accepted Accounting Principles) – Try saying that one ten times fast. This is an accrual based framework in which revenues and expenses are recorded when they are earned and incurred, respectively. This is the most commonly recommended type.
  • Cash Basis – In this framework, revenues and expenses are recorded when cash is received or paid, respectively. Cash basis presents two different methods of accounting: pure and modified. The difference comes in that under modified cash bases, some transactions follow U.S. GAAP. Check out this blog to learn more about cash versus accrual methods.
  • Income Tax Basis – This is a framework in which revenue and expense recording depends on tax regulations. This helps eliminate the need for converting from one basis of accounting to another for tax return purposes.
  • Regulatory – In this framework, a regulatory agency prescribes the best method.

Now that we’ve looked at the different basis types available, it’s time to determine what information you should be tracking. The key here is to capture all of your business transactions in the simplest, and most efficient, way possible. This includes both cash and noncash transactions.

Depending on your specific business or industry, you might need to consider tracking your transactions in greater detail. Here are some areas to consider tracking:

  • Should you be tracking direct and indirect costs related to construction or manufacturing contracts so you can see the profitability?
  • What sales tax jurisdictions do you need to track for sales tax reporting?
  • Do you need to track certain items for tax return purposes?
  • If you do business in multiple states, should you be tracking transactions by state for tax purposes?
  • Do you have different departments or divisions that you need to track in order to view profitability?

Once you decide what information you should be tracking, you can select an accounting solution, and start designing your accounting system.

Stay tuned for the second part of this blog, where we go in depth about how you track your information. Although we’ve shared similar posts about these topics in the past, we think a refresh and reminder is important. If you need help in the meantime, just ask!

When it Comes to Accounting, Communication is Key

By: Kristie Rants, Eide Bailly LLP

We get it: the thought of sitting down and talking with your accountant might be a little scary. After all, all they do all day is sit and stare at numbers and do math, and their jargon and lingo is hard, if not impossible, to understand, right?

Not exactly.

While the thought of having conversations with your accountant might be intimidating, it really shouldn’t be. More often than not, your friendly number cruncher wants to talk to you, too (and we promise to use words that make sense)!

To help the conversation go smoothly, we came up with some tips to help you have successful conversations with your accountant.

Communication is key

  • First and foremost: figure out the best method for communicating with your accountant. Whether it’s in person, email or even Skype, agree on what works best for both of you.
  • Decide on frequency for communicating. Some businesses may need to have meetings weekly, while others may be on a monthly schedule. This is usually driven by business needs.
  • Make sure you’re both on the same page. It’s important that your accountant understands your business, just as you should be able to understand what they’re talking about. If you are unsure about the topic being discussed, don’t nod your head – ask more questions!
  • Establish a relationship. Create an environment where both you and your accountant are comfortable with each other. When you have a solid relationship with your accountant, it’s often easier to ask whatever is on your mind, no matter how basic it may seem.

 

Be prepared

  • Come prepared to each meeting. Make sure you have organized and complete information to share. If you’re not sure what exactly to bring, ask your accountant. He or she can give you a list of documents and information that might be needed.
  • Be prepared to share any changes occurring in your business. This keeps your accountant in the know and decreases the likelihood of any unwanted surprises in the future.
  • Ask questions throughout the year and as they arise rather than holding them all in. It’s easier to remember and examine information right away, rather than waiting six months down the road.
  • If your accountant sends out newsletters, articles, etc., read them! These often contain current and important information that can impact your business. If your accountant thinks it’s important, you should give it a read as well.

Accountants wear many hats

  • Your accountant likely has access to many resources to help you with any phase of your business. Your accountant can do all sorts of tax planning, whether you’re interested in putting away additional money in a retirement plan or wondering what your options are for depreciating equipment. Maybe a cost segregation study to accelerate depreciation or a 179d study makes sense for you!
  • Accountants can even help train you or your staff. Ask them if they offer an on-site service. Sometimes a few hours of training makes all of the difference. (Shameless plug: our accounting coach services do just that)!
  • Consider what stage your business is in. If you’re thinking about selling (or buying) or even retiring, your accountant can likely help you or introduce you to someone who can get you on the right track for a successful transition. They have the expertise to help you succeed.

The moral of the story…

Communicating with accountants can seem intimidating and confusing. Using these tips can help you have successful conversations. If you’re still intimidated, reach out. We promise to help you understand the accounting side of your business so you can get back to doing what you love.

Is it a Hobby or a Business?

Every business idea, no matter how big or small, starts somewhere. Whether it came from a random daydream or a well thought out business plan, your idea was fueled by something you thought the world needed.

Perhaps you had another job or responsibility you were attending to at the time, and you weren’t able to devote all your time and resources to your new idea. Instead, you kept it as a side project which turned in to a fun little hobby.

While keeping your main job and running a hobby business can be fun and energizing (after all, you’re running your own business now!), there are certain tax implications that must be taken into consideration when your business idea is just a hobby.

Your tax liability will be affected depending upon whether your work is classified as an actual business or as a hobby. Here are nine factors from the IRS regulations used to determine if an activity is a business or a hobby:

  • Do you conduct the activity in a businesslike manner? This includes keeping accurate books and records and pursuing operating methods and business techniques with the motive of turning a profit.
  • Do you have expertise in the business?
  • Do you devote much time and effort in carrying on the activity?
  • Are the assets of the activity expected to appreciate in value?
  • Have you had success in starting a new business or converting an unprofitable business into a profitable one?
  • Is the history of income or losses from the activity indicative to a profit motive? If you have continued losses, this may suggest that the activity is a hobby. There is a safe-harbor rule that states if you generate a profit in three out of five years, your activity is deemed a trade or business. For horse racing, breeding, training or showing the test is two out of the last seven years. The IRS can still disagree, but the burden of proof to show the activity is a hobby versus a trade or business has now shifted from you to them.
  • What is the amount of profits in relations to losses? An occasional small profit in an activity which generates large losses or from an activity in which a large investment has been made would not necessarily translate into a profit motive.
  • Do you have substantial income or capital from other sources? If so, losses from the activity may generate tax benefits by offsetting income from other sources, which is generally not looked kindly upon by the IRS.
  • Does the activity present personal pleasure or recreation? The IRS is more likely to attack an activity that has recreational elements such as racing, horse or dog training or showing, or even weekend farming, rather than tax preparation services (although we think this is kind of fun!).

So what does this mean for you? Any form and amount of income, no matter where it is coming from, is taxable and should be reported. However, hobby activities are reported differently than trade or business activities and have certain limitations. On a positive note, hobby activities are not subject to self-employment tax. However, expenses related to hobby activities are only deductible as itemized deductions subject to 2% of adjusted gross income. Taxpayers who utilize the standard deduction do not receive any benefit from these expenses and those with higher income will also be limited. Additionally, retirement plan contributions, self-employed health insurance and an array of other deductions cannot be used to offset hobby income.

The moral of the story…

The IRS needs to know about any money you’re bringing in, whether it’s from your daily job, or the hobby app building company you run from your garage. If your business is just a hobby, remember you still need to report it and planning can go a long way in terms of tax benefits and pitfalls.

Accounting Tasks for Small Business Owners

Being a small business owner can be tough. You have a lot on your plate to handle, and sometimes it can seem downright overwhelming. From keeping up with the competition to making sure your employees are satisfied, being a small business owner always keeps you busy.

In the midst of all this, it’s important to ensure you’re not neglecting parts of your business. One area is (you guessed it) your accounting and finance functions. These functions often sound daunting and somewhat scary (don’t worry – we can help!), but they are too important to be forgotten.

We’re not saying you need to drop everything and pay attention to your accounting and your accounting only, but there are some simple tasks every small business owner should stick to in order to keep the business finances operating smoothly (and help make your accountant’s job a little easier).

  • Stay away from the back burner – When you’re busy and have a million thoughts running through your head, it’s easy to look at something and think, “I’ll take care of it later”. When it comes to invoicing, send the invoice right away. Better yet, add a process to automate invoices being sent right away. This will get the bill to the client quicker, which can in turn lead to you getting paid quicker, and who doesn’t want that? This reduces the risk of you forgetting to send it altogether, and can lead to improved customer satisfaction by being on the ball. When you receive this payment, deposit/cash/spend it right away, rather than letting it sit around and risk it getting lost or even stolen. Another option is to consider receiving electronic payments.
  • Keep your eyes open – Running a business means you have a lot of financial statements to deal with (think balance sheet, income statements, etc.). Likely you have an accountant who is helping you maintain these records and keeping track of what is going on with your financials (and if you don’t, let us know!). But, you should still be doing some monitoring yourself. No one knows your business as well as you do, so you should be able to notice if something seems off. Start by reviewing your cash flows weekly. Your cash flow can tell you the money that is coming and going from your business during the week, and this can give you a good picture of where you’re standing. Occasionally viewing other financial statements allows for more eyes to be on the lookout for any issues and red flags that may arise.
  • Track your taxes – We know that taxes aren’t everyone’s favorite topic, but they are really important. As nice as it would be to only worry about taxes during tax season, that’s not the case. Taxes should be monitored and kept up throughout the entire year, whether it be filling out forms, making tax payments or just keeping note of what you may need to change when you file your year-end taxes. Being alert and aware of what’s going on with your taxes can lead to less surprises come tax season.
  • Keep in touch –While looking over your financials and taxes, remember to keep your business advisor or accountant in the loop. Not only will it make their job a little easier, they’ll also be able to provide helpful feedback and answers so you can make smart, informed business decisions.

Running a business can be a challenge, and not monitoring your financials can make it more difficult than it really needs to be. By keeping up with these simple tasks, you can put you and your business in a better position and get back to working on what really matters – the success of your business.