Breaking Up Is Hard to Do, Leaving your Spouse, your Accountant, your Hair Stylist

Divorce is always messy, even when all the parties agree to the breakup. But what about when you find yourself needing to change your accountant, your hair stylist or even your landscaper? None of us like change but how do you know when it is time? Sometimes, the changes are forced upon us by a move or someone closing their business or their retirement, but when it comes to your CPA or accountant who, like many professionals can do their work remotely, and often do work with clients all over the world, how do you know it is time to make the split?

In business, there are many types of breakups. The new guy down the street just moved in and is cheaper, faster, better looking or whatever than who you’ve done business with before.  Sometimes you’ll decide to move on to someone else and never even inform the original service provider that you were unsatisfied, like going to a different mechanic than the one who worked on your car last time that forgot to tighten an important bolt. Maybe your needs have changed and your current provider doesn’t offer the services you now need. I have had this happen to me as clients leave and as new clients come to me. I always ask potential clients why they are considering changing. When they say they are unsatisfied and just want to move on, I’ve often found they are just price hopping, and they want it done cheaper. For those people, I normally tell them upfront that I am probably not going to be their cheaper option and they should consider talking things over with their current provider.

But, when the provider doesn’t have the type of services you would like them to, then is really when it is time to start looking for other options. Maybe you traded in that old clunker on a fancy new sports car. The old shade tree mechanic might not be sophisticated enough to maintain your new thoroughbred ride. Keep in mind that you will often be paying more for those new services.

The most common reasons why my clients say they’ve choose to find a new account is, because I insist that my clients use cloud based accounting application and some just don’t want to do that. Some have changed businesses or moved and have decided to go with someone nearer to them, although most of my clients aren’t even here in Colorado where I am (that is what is so great about the online cloud based accounting solution we recommend – I don’t need to be local to their business to work on their accounting – but I digress).

When a new client comes to me, I’ve been told it’s because their current provider does not understand their business or that they don’t provide the services they are looking for. Some have found me because of the cloud based applications I use. And some have come to me because their current accountant has apparently fallen off the face of the earth or gone into Wittiness Protection and the client can’t reach them (this is very common in accounting firms because our clients like to have us on speed dial but don’t like to make appointments to talk about their situation at a decent hour). I’ve had a client show up to our house at 11pm because “the phone was busy, so we must be there and able to see them” (we had teenage boys, on the phone, with their friends). And to be honest, I’ve also been told a few times that it can be hard to reach me (Yes, I’m working on fixing that).

So, my advice to you, is before you switch accountants – talk to your current advisor. Often, they’ll know there is a problem and can refer you to someone that may be better suited to your needs or they will change the way they do business and start offering the services you desire. But we will take the late night, 11pm accounting services notion “under advisement.”

The Fascinating History of Tax Stamps and Tax Coins

By $1LENCE D00600D at English Wikipedia, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=32892050

A few years ago, I was going through my grandmother’s things after she had passed away. I came across these little red and green plastic “coins” that said “1 Sales Tax” and “5 Sales Tax” on them. I had never seen anything like them before, and being a CPA, of course I was wondering how something like them could have slipped past me. Thus, started my love of tax stamps and tax coins.

It turns out that these little plastic discs were tokens that were used in twelve states in the early nineteenth century. The number on the coin represented one tenth of one Cent. These coins were used to pay your sales tax. When sales tax first started being collected, the tax had to be paid separately from the purchase. So, you would pay your bill then you would pay a second time for the sales tax which was (and still is) a percentage of the overall sale. The thing was, that it was in fractions of a cent so instead of receiving change, often you would get sales tax coins that you could then use later for paying only sales tax.

This method of collecting sales tax only lasted a few years, in 1933 11 states adopted sales tax as a form of revenue for the state. By the end of the 1930’s the sales tax coin was no longer used except in Missouri, were my grandma’s coins were from; the colorful little tokens continued being used there until the late 1940’s.

Tax Stamps, go all the way back to the Ottoman empire and are still in use today. They are also known as Revenue Stamps. Today, they are only found on tobacco, alcohol and firearms, but they were once used for almost everything bought and sold to indicate that the taxes had been paid. In 1937, while cannabis was still a legal agricultural crop, the federal Marihuana Tax Act used a tax stamp to signify not only that the tax had been paid on the sale of the plant but what type of cannabis it was (Indica, sativa, or hybrid). Believe it or not, the tax was imposed on physicians who prescribed cannabis as a medicine. Of course, the marijuana tax stamp went away when the plant was made illegal. I am currently writing a book on Accounting for the Cannabis Industry and in it I plan to include more history of the marijuana tax stamp.

Who knew there is so much history in something as mundane as tax collection. As a CPA who specializes in taxes and as a history buff, I am always fascinated to find a little tidbit of how taxes were collected, used and enforced. Like did you know that the notorious mobster Al Capone was brought in by Revenue Agents and ultimately convicted on tax fraud charges? But that is a whole other story.

Disabled Kids’ Dependency

I was recently asked how much income a disabled child could earn and still be considered a dependent for taxes.

First, any child under the age of 24 (whether they are disabled or not), and if they are a full-time student, and are not married filing a joint return with their spouse, can be claimed as your dependent; no matter how much money they make. They must however, file their own tax return, and not claim the exemption for themselves. For this reason, it is often more beneficial for the parent to not claim the child but remember that any tuition credits follow the exemption so the one that claims the exemption would also claim the tuition credits regardless of who paid the tuition. That is why a good tax-preparer will always run some comparison scenarios to see how the entire family would benefit the most, come tax time.

Now, if your child is disabled, and is either over the age of 24, or no longer in school, you can still claim them as a dependent. For this to happen, your child must first meet two criteria: first, they cannot be gainfully employed – that does not mean they can’t work at all, but that the work they do would not be paid enough to sustain themselves, and you must still be providing over half of their financial support. Second, a board licensed Doctor must have determined that the child’s condition must have either lasted, or be expected to last for at least one year or more, or will result in the child’s death. That means that even a child who is temporarily disabled do to a car accident, or other trauma, can still be considered as disabled if that condition is expected to last a year or more.

Remember this is information for taxes only. If your child is receiving disability through the government or other agency they could loose that classification if they make to much money so check with the agency first before they are employed.

If your child is expected to out-live you, despite their disability, it is often beneficial to set up a Special Needs Trust. This is a specific kind of trust that normally holds any inheritance they would receive. The reason for this type of a trust is that when your child receives the money they can and often are taken off any government assistance such as Medicaid because they are no longer eligible. A Special Needs Trust can be set up in such a way as to ensure that they are still eligible, because the trust is designed to only pay for things not medially related or not covered by Medicaid or Medicare. This would ensure that normal non-medical expenses could be taken care of such as non-medial housing, hair-cuts, education and even basic living expenses such as groceries could be provided without being considered income for the child. Special Needs Trusts are also occasionally used to make sure that a child who is not disabled cannot spend their inheritance on things that the parent might consider frivolous or harmful to the child.

Let us help you with tax planning for a disabled child – give us a call and we can work with you and your attorney to make sure your child will be taken care of beyond your expectations.

Claiming Dependency for Kids That Don’t Live with You

What happens on your tax return when your children are living with someone else (such as your ex-spouse)? As with every tax situation the answer is, “It depends.”

If your child doesn’t live with you due to a divorce, this can be quite complicated. Most divorce decrees will split the kids evenly for tax purposes and often has such language as child one will be claimed by one spouse and child two by the other. It can also say things like even numbered years they are claimed by Spouse A and odd years by spouse B. The problem is, that the IRS is a federal agency, and as such, they can ignore the divorce decree because they have their own regulations for when someone is a dependent. The IRS even has different regulations for claiming an exemption for that child, claiming head of household status and for earned income credits (EIC). To complicate matters even more, as far as the IRS is concerned, a child can be an exemption for one parent but the other parent could claim Head of Household status and claim Earned Income Credits. Things like child tax credits, child care credits and tuition credits could all go to the parent who claimed the exemption, no matter which parent paid the actual expenses. What a mess!

Because it doesn’t matter what the divorce decree says, Head of Household and EIC are taken by the parent or guardian who the child spends more than half their time with. Even if both parents lived right next door to each other and the kids go back and forth all the time, the parents need to come to an agreement and determine who has who with them for when and how long.

The exemption claim however, is not based on time – other people including grandparents could claim exemptions for the kiddos. The parent who has the child more than half the time must give the other parent a form 8332. This is a declaration of the custodial parent that they will not claim the exemption for that child – it can be for one year or it can have a list of which years it applies to. Unfortunately, the problem is that most lawyers don’t include this form as part of the divorce proceedings, giving the custodial parent control over when, or if, they will sign the form. In addition, this form does not say who they are giving the exemption to. This same form can be used to revoke the exemption claim, too, allowing the custodial parent to claim that child despite what the divorce decree states. Yes, you can force the issue by going back to court but that can take years.

Don’t depend on just your lawyer when getting divorced. Make sure you talk to a tax-professional to see how this is going to affect your taxes. The age-old advice about getting a divorce, “just think about the kids” is really truer than most people think.

New Accounting Book Coming Out in September

As some of you know, I am currently working on a new book on Accounting for Cannabis Businesses (No, I haven’t finalized the title just yet) and how it affects them so here is a sneak peek.

“This is the only industry that the entire process can be seen in one place. You start with the grow facility. These are normally large greenhouses but can also be found outdoors in some areas. There are even a few that use both methods of cultivation to ensure year-round production. Once the product is harvested, you move to either the dispensary (retail) or to manufacturing. In manufacturing, the plant is extracted then processed into everything from tinctures to edibles. And some varieties of the plant like Industrial Hemp can also be used for making fuel, paper, concrete, plastic, ropes, medicine and even clothing. It is then transported to a retail location and from there the processed product is sold. Each of these processes has their own specialized accounting practices. On the internet, you can find several sources for how to grow it, the medical and industrial benefits of the plant, and even recipes how to make “special” brownies, and the legal ramifications for each state. Here, in this book we will only go through how to account for all this activity and keep the finances in line to allow you not only to be compliant for tax issues, but also to give up-to-date, complete and accurate information to your investors.”

Look for more excerpts as we get the book further along. You will also be able to pre-order the book around the middle of August. Do you have an idea for something that should be covered or you would like to see discussed in this book? Contact us and let us know. We might even mention your business and give you credit in the book when it is published.

Don’t Trust Your Bank

Recently, one of my clients came across a very disturbing trend when it comes to banks. Especially those who offer credit cards. Did you know that the convenience of online bank statements may not be all that convenient?

My client cancelled his credit card because he was switching to a lower interest card.  What we didn’t realize was that when he canceled the card his on-line access to the information about the account; including the monthly statements; was also terminated within hours of him canceling the card. This was despite the fact he still had other open accounts with that same bank.

That meant we could no longer access the credit card statements at all, and to make matters worse when he called to ask for paper copies of the statements, he was told it would take them up to two weeks for them to get them, because the bank did not have access to them either – since they were all on-line.

That same client; had another common banking issue during the same week. One of the banks he used was bought out and merged with another bank. Again, all access to the previous bank statements from before the merger was gone, and the bank itself didn’t have access to get any copies of them to us.

So why is this a problem? If you run a business, those bank statements can often serve as proof of your paying a bill from a vendor, or even serve as documentation for the IRS. If it is your personal banking information, it’ll often be requested for obtaining a mortgage or a loan. Your banking history might even be requested before getting hired for certain jobs.

The bottom line is this: if you switch to on-line bank statements, make sure you download them to your computer regularly and back them up every month! You don’t want any financial institution to put your business or your personal finances into jeopardy simply because you can’t get the information in a timely manner.

We Can’t Help You if we Don’t Know.

Every year, at least one of my clients will surprise me with something they did that will drastically affect their taxes and they didn’t tell me about it. Usually they did something like selling or buying a house, or they got married or divorced. That could mean they’ll get a nasty surprise when filing their taxes.

This year was no different, except it has much harsher consequences than even I had anticipated. This year one of my clients started a small business and didn’t tell me about it. By the time they called me to get their taxes done, there was nothing I could do to help them plan for the coming tax bill. A surprise tax bill of $5,000.00 is never fun, but this one cost them over $20,000.00!

Another client changed his LLC to an S-corp, just because his best friend had an S-corp, too. So he thought he should change his. What he didn’t realize was that it meant he had to do payroll. Again, he had a big tax bill that he was not prepared for.

You know I like surprises to a certain extent, but I don’t like ones that have a negative impact and could have been prevented. One simple phone call would have kept both clients from lots of pain simply because I could have prepared them for it and shown them ways to lower their tax bills. You cannot plan for something after the fact. It is best to be done before the event even occurs. But with the proper notice, we can often mitigate the surprises by simply putting a plan in place before the end of the year.

So, the next time you go out and buy a Big Red Semi Truck or plan to do something that affects your business, or when a life change such as getting married and buying a house happens, or even if something that you didn’t plan for happens, let me know as soon as possible. I would rather help you plan now for the tax consequences than give you another big surprise when we file your taxes.

Diversify Your Clients

We all know that putting all your eggs in one basket can be disastrous. I mean dropping the basket could mean you have egg on your face, or worse no eggs at all. This adage is often used in the area of financial advisors and retirement plans. When talking to most investment advisors, they are going to tell you that having too much of your money in one stock or fund could be a problem in the long run and therefore you should spread your risk by diversifying your portfolio.

Well the same applies to your business. You don’t want all your income coming from one client or one industry. If over half of your income comes from one client and that client either goes out of business or decides to purchase from someone else, you’ll find yourself scrambling to keep your business afloat. If all your income is from one industry, and if that industry is threatened by a new technology your business will be at the same risk of survival as theirs.

This is complicated by all the marketing gurus trying to get you to choose a niche which is basically relying on one industry to hold up your business.

So, what do you do about it. First you do need to identify a niche to give your marketing a focus but that doesn’t mean when someone outside of that niche asks about your services you turn them down simply because they are not in your niche. It also means that you must keep up on the industries that you service as well as your own – let’s say you work with paper manufactures who use only wood fiber to make their paper. Right now, those businesses are being threatened by the manufactures who use alternatives to wood for making paper such as hemp. Now you need to reposition your business to work with both those using wood and those using hemp. By doing so you now have not only widened your horizons, but you can also offer alternatives to your clients who are struggling by introducing them to how they can also start using these alternative means of making paper and possibly save their business at the same time you are saving yours.

How do you know if you need to start looking for other clients or industries to work with? The answer is that you never stop looking in the first place. But a good rule of thumb is to never have more than one quarter to one third of your income from one source. Several years ago, about half of my income was coming from one client. I didn’t realize that because that one client encompassed several different projects. When they closed their business, I was in trouble. It took about a year to recover from that but I learned a valuable lesson that forced me to look at other means of reaching new clients and new industries. That meant by the end of that year I had not only replaced that client, but also doubled the income I had from that one client.

This week you need to analyze your client list and see if you would be able to handle losing your top clients. If so, you are in good shape; but if not, what can you do now to diversify?

The Cheapest Option is Not Always the One that Will Save You the Most Money

Have you ever considered what something costs you? Let’s consider a service plan; it doesn’t matter what kind of service plan; it can be for a vehicle, a website, accounting services or even for your computer. Often, we don’t want to pay the cost of a service plan at all, I mean how could anything we have possibly stop working?

Let’s use a computer plan for an example. My Computer Service Tech, Chris is the most amazing person, (he is also a great friend). Often, it seems the only thing I have to do is tell my computer I am calling him and the machine starts doing what it was supposed to. Sometimes though, I really do have to call him in. At first I figured I would save money by just paying him on an hourly basis when I needed him. But that meant that I would wait until I had no choice but call him and then it would take twice as much time and at an hourly rate that could cost me at least $300.00 per visit and even if that was only twice a year. Doing that, I was spending $600.00 a year or more, minimum. Now Chris offers a service plan that he will come do maintenance once a quarter automatically – I just make an appointment and he comes – no extra fees or anything – and it is way less then what I was paying before and it keeps me from throwing my computer out the window.

Just this week my husband came across this issue with one of his clients – the client had purchased a website hosting package before consulting with the one building his website and had chosen the cheapest hosting plan available. The problem was, that the one they had chosen was very limited. The client wanted a blog and they needed the ability to use a contact us page on their website – these are both very basic needs, but the package they had chosen would not support either of those because they wanted a cheap option. It turned out that the option they had chosen because it was cheap was costing them $20 a month or $240 a year. After evaluating all the options, it turned out that the package they needed was $30 a month or $360 but if it was purchased for three years you received a discount. That discount brought it down to a total of $450 for all three years making the monthly cost only $12.50. That made the more expensive plan the cheapest and gave them the options they needed to build a website they could be proud of.

Remember the phrase, “Penny wise and pound foolish?” Every business is obligated to save as much money as possible, but don’t let being frugal stand in the way of your business goals – spend the money required to make your business run as smooth as possible and you will find it growing. You can also make your business go stagnate by not spending the money necessary to keep your technology up to date. Any time you need to analyze which option is not only best for what you need but also the best bang for your buck give us a call we can help.

Let’s Talk Software

Throughout the year, I give you updates of new software I have found. Well it’s been a while so I’m going to go through all the software I use to run my business and why I use it. I’m not going to go through the tax software and boring stuff – just the software that I use to keep my business running smoothly. Many of these are software we set up or recommend for our clients in our Light Keeper CFO Services program.

  1. Xero – this is an accounting software that allows me to do everything from keeping track of my checking account, doing payroll for my employees, knowing which of my clients owes me money and what bills I need to pay. It also keeps track of my budget and spending, which is one of the most important parts of running a successful business. If you haven’t set goals and restrictions on your budget, you will never know if you are keeping your plans in motion.
  2. HubDoc – this is my favorite program. Why? That’s easy. I really am bad at keeping track of receipts because I hate having paper all over the place. This allows me to take a picture of the receipt, categorize it, push it into my Xero accounting software, and I don’t have to remember where I stashed the receipt. It also pulls all my bank and credit card statements so they are in one place. I can have invoices that I need to pay sent to my HubDoc automatically so I only have one location to find all my bills and other financial records.
  3. MileIQ – this keeps me out of trouble with the IRS! It keeps track of my mileage and I don’t have to remember to write anything down. This app lives on my smartphone and when my phone is moving it tracks the distance. No more paper logs that get tossed in the trash or blows out the window of my vehicle, no more recreating where I was all week because it will remember for me. And best of all, at the end of the year I pull one report and I’m done.
  4. Google Calendar and TimeTrade – these two work together. My Google calendar of course keeps track of where I need to be but when combined with TimeTrade it allows my clients to schedule their own appointments with me. No more playing phone tag or emailing clients back and forth just to see if I’m available to meet next week. They can go to my website, click on Schedule an Appointment and it will show them when I’m available, they can choose a time that works for them, and presto! Their appointment is on my Google calendar. And even better, TimeTrade will check my google calendar before showing when I’m available so no more double booking just because I forgot to write something down.
  5. Jigsaw Planet – why would I include a puzzle game in my business apps? Because I use this every day. Every morning this is how I get my mind ready to concentrate. We all need something that helps focus us – I also use Spotify if I lose my focus during the day – music can cut out the other noises and distractions bring me back into focus. Find something that can help you focus and relax your mind so it is ready to attack the next project. You will be more productive, I guarantee it.
  6. Zoom – this online video chat app allows me to have in person meetings with both my clients and employees (all of whom work virtually) without having to travel around the world every day.

How about sharing your apps and other software that you use every day to organize your life and your business?