Bookkeeppers vs. CPA's - Which is Right for Your Business?

Business owners have the choice of hiring either a bookkeeper or a CPA to handle their business’s financial records and keep track of sales transactions. However, if they’re being honest, most business owners really don’t know or fully understand the difference between the two.  

It’s easy to see why they would have this problem since the distinction between the two professions is becoming less and less clear, especially with all of the combination bookkeeping and accounting software available today. However, there is still a difference between a bookkeeper and a CPA, and every business definitely needs one or the other. For that reason, it is imperative that business owners educate themselves on the two options and on which one is the best fit for their business.

Bookkeepers

Bookkeepers are responsible for keeping track of all of the daily transactions that go on within a business. Some of their responsibilities include:

l  Recording sales

l  Recording purchases

l  Keeping track of receipts

l  Noting payments from customers

l  Noting payments to vendors

l  Posting credits/debits

l  Generating invoicing

l  Balancing ledgers

l  Reconciling bank accounts

l  Preparing financial statements

Because they have so many major responsibilities, most bookkeepers have at least a two year degree in the field and work exclusively for one business. They tend to be a part of the workplace just like any other employee.

Accountants

Accountants or CPAs, on the other hand, are not quite as “hands on” or visible in the workplace. Most CPAs have several business clients that they work for, and more often than not, they will work from their own, separate business location.

Like bookkeepers, they deal in the finances of the businesses that they work for, but they are less concerned with day-to-day tasks and recordings than they are with looking at how a business is doing financially over all and on what choices would be wise for a business to make to maintain good financial footing.

Some of the tasks of a CPA include:

l  Analyzing budget and operational costs and suggesting improvements

l  Preparing financial reporting statements

l  Performing audits and assessing their findings

l  Making informed predictions about a business’s financial future, as well as suggestions for improvement and better performance

l  Completing tax returns

Which One Should You Choose?

Now that you understand a little bit more about accountants and CPAs, hopefully you’ll have a better idea of which one might be the right fit for your business.

If you’re still on the fence, then you should consider what exactly you’re looking for, as well as the size of your business. Smaller businesses can often handle bookkeeping tasks on their own, especially with the right software, and really only need an accountant. Larger businesses may need the help of both.

In general, if you can only choose one or the other, an accountant is the way to go since this person will basically serve as a financial adviser on your most important business decisions, but the choice is yours to make, so put some thought into it before hiring a CPA, a bookkeeper, or both.

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Tips for Tax Time Savings

Tax-time is a stressful time, especially if you haven’t prepared for it properly!   

The best way to reduce the stress is to have a plan in place! Each year, after you file your taxes, take a look at what you were pleased with and what you wish was different. Then, you can come up with a plan to help improve the following years’s tax returns.

Below, we’ve offered up some simple strategies that can help you to have a better time on your taxes next year, but if you need more specific advice, a qualified CPA is always the best person to turn to.

Tip #1: Think Long-Term

When you file taxes, it’s tempting to just go with whatever is going to get you the most money the soonest. However, you really need to consider how your tax decisions today are going to affect you in the future; in other words, think long-term!

For example, when it comes to passive index investing, people often put off selling their best portfolio pieces because they don’t want to pay the capital gains. More often than not, though, capital gains aside, selling would still be the wisest and most profitable decision over time. And that phrase- “over time”- is key; no matter what kind of decision you’re trying to make, choose the option that is going to pay off for the longest amount of time, even if it costs you money upfront or gives you a smaller-than-you’d-like amount upfront.

Tip #2: Change Custodians (if necessary)

If your current custodian isn’t working for you, or, if another custodian is offering you better service and a nice bonus to change custodians, then by all means, do it! These days, you can typically switch everything over online, meaning no hurt feelings. Plus, no capital gains taxes are involved, so it’s really a win-win, providing you research your new custodian carefully and make sure it’s a good, long-term choice.

Tip #3: Get Help from a Pro

Finally, recognize that no matter how much you know about taxes and tax law, a professional is going to know more.

As mentioned, a financial advisor can be a wonderful asset to you. Even if you don’t want to work with an advisor on a regular basis, it’s still a good idea to have one go over last year’s tax returns and point out areas in which you can do better. It can make a world of difference!

What Your CPA Wishes (S)he Could Tell You

Have you thanked your accountant lately? If not, then you probably should. These professionals have to put up with a lot and, more often than not, get absolutely overwhelmed during tax time with fixing their clients’ mistakes.

Undoubtedly, every accountant wishes, at one time or another, he could call out clients on their mistakes, but most are too polite and just grin and bear it. However, if your accountant could give you some 100% honest advice, we have a pretty good idea of what he’d say...

Don’t Ask for Help at the Last Minute                                                    

If you have some sort of tax or financial problem, such as not having kept good track of your charitable donations or 401(k) contributions, you’re probably aware of it. If you’re not sure of your weak spots or of any of the details related to your finances, that’s a whole other problem in itself.

The thing is, though, if you’re aware of problems or potential problems, bring them up to your accountant as soon as you notice them. Absolutely do not wait until the very last minute, i.e. the height of tax season, to bring up issues to your accountant.

Why? Well, first off, it’s rude! Your accountant is super busy during this time of year and doesn’t need to be swamped by your last minute requests. Secondly, if you’re fortunate enough to have a kind accountant who is willing to offer you last-minute help, it’s probably going to be rushed and not offer you the best possible outcome. If you want tax time to go well for you, make it go well for your accountant by never waiting until the last minute to bring up problems or concerns.

Turn in All Requested Forms and Information on Time

There’s a reason your accountant gives you tight and specific deadlines for when to have what information to him. That reason is so that he can give your taxes his full attention and so that everything gets to the IRS on time.

If you force your accountant to chase you down for forms and information, there’s a good chance that your taxes could be filed late and that you could incur penalties...and that will be your fault, not your accountant’s.

Remember, this professional is working on your behalf, and whatever he asks of you is in your best interest, so do it and do it on time!

Don’t Play the Blame Game

Finally don’t blame your accountant for things that are out of his control and that, more often than not, are your fault, not his.

If you lose out on potential credits because you didn’t keep careful enough records, for example, don’t yell at or fire your accountant when he tells you there’s nothing he can do.

That’s not to say that all accountants are perfect or that they don’t make mistakes. Some do. But, as long as you’ve chosen your accountant carefully and are working with someone who knows his stuff, there’s no reason you shouldn’t do what is asked of you and give a little credit (and thanks!) where credit is due.

Don't Fall Victim to Telephone Scams

Predatory people will try to make an easy buck off of hapless victims in any way possible, and unfortunately, the IRS has recently reported a surge in the number of telephone scams. While several different types of telephone scams exist, the most common is one in which the scammer calls the victim and claims to be an IRS agent.

The scammer typically sounds very official and convincing and will often go so far as to provide a false name and even a false IRS badge number. Once the scammer has gained the victim’s trust, he or she will secure from the victim and use that information to engage in fraud and other types of illegal activities.

personal information

Checking your caller ID isn’t protection enough either; many scammers can rig caller ID displays so that the call actually appears to be coming from a legitimate IRS bureau. The best protection is to educate yourself, and you can easily do that with the help of a knowledgeable CPA. A CPA can explain to you the dos and dont’s of keeping your personal financial information secure; find your Naperville CPA at Susan S. Lewis, Ltd. of Naperville.

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CPA Responsible for Apple’s Recent Victory

High-powered corporations Apple and Samsung have long been in a heated legal battle over allegedly violated patent infringement laws as they relate to the iPhone. Fortunately for Apple, it made a very smart choice in terms of who it called to be its expert witness on damages; that “who” was Julie L. Davis, a CPA from Chicago.

The evidence provided by Davis was sufficient enough for Apple to receive $290 million in funds from Samsung. The vital assistance provided by Davis proves that accountants can be smart, knowledgeable people who know their stuff, but the operative word is “can.” Not all CPA professionals are as trustworthy and as knowledgeable as Davis. Fortunately, though, all the ones who you’ll find at Susan S. Lewis Ltd. are. For that reason, you should entrust all of your financial matters to the friendly experts at this amazing Naperville company.

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Mark Kronforst Named Chief Accountant

Mark Kronforst was recently called as chief accountant, which is a higher honor than just being a traditional CPA, of the Securities and Exchange Commission. Kronforst will work directly in the organization’s Division of Corporation Finance and is taking the place of former chief accountant, Craig Olinger. Olinger, however, is not leaving the organization; instead, he plans to serve as deputy chief accountant in the Securities and Exchange Commission’s Corporation Financial division.

Kronforst comes to the position highly qualified, having served as a divisional associate director in control of disclosure operations for the past three years. Kronforst, in fact, has had a long history with the Securities and Exchange Commission, having once served as the deputy chief accountant, and before becoming employed by the organization, he served as the director of financial reporting at Solectron Corporation.

If you’d like to work with a CPA who is every bit as qualified as Kronforst and who lives and works right here in Naperville, then come on down to Susan S. Lewis, Ltd!

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Building Up Your Client Base

As the owner of a small business, you undoubtedly have a lot of responsibilities to handle and pressing demands on your time. No matter how much you have going on, however, it’s important that you never stop looking for new clients and building up your client base. Many small business professionals make the mistake of stopping the “client hunt” when business is good. Those times when business is booming, however, are the best times for finding new clients. You won’t be under as much pressure to secure clients and earn money so the process will be a lot less stressful; plus, prospective new clients will see that you’re running a thriving, top-notch business and will be eager to be a part of it.

It’s a lot easier to devote time to finding clients and building your business when you’re not worried about finances or tax issues, so let your Naperville CPA take the reins in that area. Then, devote your time to finding great new clients. Become a people person, even if doing so is not within your comfort zone. Use every viable opportunity as a chance to network. If you find yourself at a party or social event with people who could become clients, for example, bring up your business! Likewise, consider attending local business conventions, joining the Chamber of Commerce, and getting involved in community activities that will make you better known in the area.

For more advice on helping your small business thrive, talk with your Naperville CPA. Most CPAs have worked with countless small business owners and, as such, will know a few good tips and tricks.

With the Help of a CPA

Have you recently received a tax assessment that you believe to be wrong? Or maybe you’re sure that you’re being charged more than you should by the IRS. When you feel the IRS has made a mistake, remember that it’s important to trust your instincts. Yes, standing up against the IRS and fighting for what you know to be right can be scary, but if it ends with a more just outcome, then it’s well worth it. However, you shouldn’t fight your tax battles alone. You have a much better chance of making yourself heard and of speaking the IRS’ language if you’re backed by a reputable Naperville CPA.

When you encounter what you believe to be a tax error, you should contact your Naperville CPA before you attempt to communicate with the IRS. Your accountant will comb through your findings and records to make sure that an error actually has occurred and, if so, where that error occurred and who is at fault. While the IRS is imperfect and does occasionally make mistakes, most tax related errors are actually due to errors in reporting or documentation on the part of the taxpayer.

If your accountant does find that the IRS has genuinely made a mistake, then he or she will have the inside knowledge on who to contact, how, and what to say. Not only does this equal less stress for you, but it also ensures a quicker resolution to your problem. For accountants that have years of experience dealing with tax errors and with the IRS, choose Lewis CPA.

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The Importance of Working with a Naperville CPA

You might think that all accountants are the same and that any one you choose will be able to help you file your taxes correctly. The truth of the matter is, however, that there are many so-called accountants who don’t actually possess the training, experience, education, and skills required to do the job justice. One easy way to ensure you get someone who knows his or her stuff is to work only with a Naperville CPA. CPA stands for  certified, public accountant, meaning an accountant who has met the state’s requirements for the title and who is able to provide tax services to all people and entities.

When you choose to work with a Naperville CPA, you’ll find that there are many things working for you! First of all, your accountant will hold some type of formal education in accounting or a related area. This might take the form of an associate’s degree, a bachelor’s degree, or even higher levels of education. That education ensures that your accountant knows tax law forwards and backwards. And, as if the education wasn’t enough to speak for itself, certified accountants have also passed required examinations that put that knowledge to the test.

A certified accountant will strive to do a good and ethical job with your taxes, not just because he or she cares about your needs, but also because his or her license and certification status depend upon it. Why take chances with an uncertified accountant when you’ve got plenty of certified, friendly accountants willing to help you at Lewis CPA?

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Understanding Your Social Security Options

About half of retirees file for Social Security benefits when they first become eligible at age 62.¹ The age to receive “full” Social Security benefits is 66 for workers born between 1943 and 1954.

If you were born in this period and file for benefits at age 62, you would typically receive 75% of your full benefit. If you wait until age 70 before filing, your maximum monthly benefit would be equal to 132% of your full benefit.² Your decision on when to file for Social Security might be based on a combination of factors, including your health, life expectancy, work situation, retirement goals, and other sources of income.

If you are married, Social Security allows additional filing strategies that you and your spouse may want to consider. Here are two hypothetical examples shown for illustrative purposes only; individual results may vary. Both examples assume that the husband and wife have reached age 66 and are eligible for full retirement benefits.

Example 1. Bill is eligible for a $2,000 monthly benefit at age 66, but he wants to keep working until age 70 in order to receive his maximum benefit of $2,640 ($2,000 x 132%). Bill’s wife, Alice, is eligible for a monthly benefit of $600 based on her own earnings history. If Bill applies for benefits and requests to have his benefits suspended, Alice could receive a spousal benefit of $1,000 (equal to one-half of Bill’s full benefit amount).³

Example 2. John and Mary are eligible for benefits of $2,000 and $1,600, respectively. If they both claim full benefits at age 66, they could receive a total of $1,036,800 over the next 24 years. Alternatively, Mary could claim her benefit and John could claim a spousal benefit of $800 (one-half of Mary’s $1,600 benefit amount); then at age 70 John could switch to his own maximum benefit of $2,640 based on his own work record. This strategy would yield the couple a total of $1,132,800 over 24 years, an additional $96,000.⁴

Social Security regulations are complex, so it might be wise to seek professional Naperville CPA guidance before taking any specific action.

1) smartmoney.com, March 2, 2012
2–4) Social Security Administration, 2012

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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Naperville Estate Planning: A Will Isn't Enough

Unless you take extra steps, much of your net worth may not end up where you want it.

Drawing up a will may not be the most pleasant task, but it seems straightforward: You leave behind a legal document that specifies how you want your property doled out when your time on this earth is up. What you may not realize, though, is that much of your net worth can be passed along outside of that will. Without some planning, you could unwittingly disinherit intended beneficiaries, including your children, from significant portions of your estate.

Start with your 401(k) plan. If you’re married, your spouse is automatically entitled to every dime in the account when you die, regardless of what your will or the beneficiary form says. And that applies even to accounts you established with former employers years before you met your better half. If you want to leave a 401(k) to someone else, your spouse must first file a written statement waiving rights to it. In rare situations your 401(k) plan may not require this spousal consent if your marriage is less than a year old. But that’s not the norm, notes Ary Rosenbaum, a retirement-plan lawyer in Garden City, N.Y. In most cases your spouse will become the sole heir to all of your 401(k) accounts the minute you say “I do.”

Don’t count on a prenuptial agreement to solve this kind of quagmire either. A person can’t give up spousal rights to inherit a 401(k) until actually married. “A prenup by itself is not a valid waiver according to the rules governing 401(k) plans,” says Rosenbaum.

Then there’s the money sitting in your IRA accounts. In most states your will has no bearing on who inherits any of your IRAs at the time of your death. The person who gets the cash will be the one you named on the beneficiary form. And it doesn’t matter how long ago you named the recipient. A spouse you divorced 30 years ago, for instance, will usually collect if his or her name is still on the form.

Here, at least, you’ve got a bit more flexibility. In most states an IRA, unlike a 401(k), doesn’t revert automatically to your current spouse when you die; you can name anyone you want as beneficiary. Beware, though: Once you’re married, you can’t transfer the assets of a 401(k) account into an IRA and then name a new beneficiary—effectively disinheriting your spouse from the 401(k)—without obtaining your spouse’s written consent first, notes Ed Slott, a C.P.A. and IRA specialist in Rockville Centre, N.Y. But if you’re about to get married, it’s perfectly legal to roll a 401(k) account into an IRA before you walk down the aisle.

Finally, remember that another financial asset not governed by your will is life insurance. Once again, those who get the money are the people you named on the beneficiary forms. The bottom line: It’s crucial that you get the full picture of who really stands to cash in on your estate. Review the beneficiary designations on your retirement and insurance accounts on a regular basis, and make sure they’re in sync with the intentions outlined in your will. After all, it’s your loved ones you ultimately want to enrich at the end of the day, not their attorneys.

Information provided is general in nature.  Consult an attorney, Naperville Estate Planning advisor or Naperville CPA regarding your specific legal or tax situation.

From the Aug. 15, 2011 issue of Fortune. © 2011 Time Inc. All rights reserved. By Janice Revell 

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What’s Your Retirement Vision?

Wouldn’t it be disappointing to dream about a comfortable retirement and then find yourself unable to enjoy your leisure years because of limited financial resources? Unfortunately, this is a possibility for people who underestimate retirement expenses and the rising cost of living.

Evaluate Spending and Costs

Although your expenses may change when you retire, reductions in some areas (such as clothing and transportation to and from work) could be offset by higher costs in others. For example, your home energy expenses may be higher if you spend more time at home, and health-related costs typically increase as you grow older.¹

Some expenses, such as food and housing, may stay about the same. Home-related expenses represent at least 42% of spending for Americans aged 50 and older, regardless of whether they are retired.² One study found that even though three out of five workers expect to spend less in retirement, half of retirees said their spending in the early years of retirement was about the same or higher than it was when they were working.³

Where you live could play a significant role in your overall expenses. If you’re living on a limited income, your money might go further in some cities and states than it could in others (see the cost-of-living chart). You’ll need to consider not only the cost of housing, food, and utilities but also taxes. States have varying rules for taxing pension and Social Security income, and property and sales taxes may vary not only by state but by county.

Enjoy the Lifestyle You Want

As you calculate the savings it may take to retire, remember to factor in your retirement wants as well as your basic needs. What do you picture for your retirement? The top retirement dream for today’s older Americans is vacation and travel.⁴Perhaps you’d like to see South America or go fly fishing in Alaska. Maybe you want to work on your golf or tennis game, or enjoy a hobby that you don’t have time for now. You might like to volunteer for your favorite charity or move closer to your children and grandchildren.

Sixty-nine percent of middle-income Americans say they’d like to work in retirement in order to “stay busy.”⁵ While this could be a worthwhile goal, wouldn’t it be nice to work on your own terms — to pursue your passion instead of a paycheck?

If you’re young, retirement may seem too far off to worry much about. If you’re approaching the end of your working years, you may have a clearer picture of life after work. Regardless of your age, a solid financial strategy could help you retire more comfortably.

1–2) Employee Benefit Research Institute, 2012
3) Employee Benefit Research Institute, 2010
4) AARP, 2011
5) Journal of Financial Planning, August 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville CPA. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.

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What Is the Capital Gains Tax?

Tax (Photo credit: 401K)

Capital gains are the profits realized from the sale of capital assets, such as stocks, bonds, and property. The capital gains tax is triggered only when an asset is sold, not while the asset is held by an investor. However, mutual fund investors could be charged capital gains on investments in the fund that are sold by the fund during the year.

There are two types of capital gains: long term and short term; each has different tax rates. Long-term gains are profits on assets held longer than 12 months before they are sold. As a result of the 2003 tax law, the long-term capital gains tax was reduced from 20% to 15% (0% for individuals in the 10% and 15% tax brackets) through 2012; the 2010 Tax Relief Act extends the reduced tax rate through 2012. Short-term gains (on assets held for 12 months or less), on the other hand, are taxed as ordinary income at the seller’s marginal income tax rate.

The taxable amount of each gain is determined by a “cost basis”— in other words, the original purchase price adjusted for additional improvements or investments, taxes paid on dividends, certain fees, and any depreciation of the assets. In addition, any capital losses incurred in the current tax year or previous years can be used to offset taxes on current-year capital gains. Losses of up to $3,000 a year may be claimed as a tax deduction.

If you have been purchasing shares in a mutual fund over several years and want to sell some holdings, instruct your financial professional to sell shares that you purchased for the highest amount of money, because this will reduce your capital gains. Also, be sure to specify which shares you are selling so that you can take advantage of the lower rate on long-term gains. The IRS may assume that you are selling shares you have held for a shorter time and tax you using short-term rates.

Capital gains distributions for the prior year are reported to you by January 31, and any taxes that must be paid on gains are due on the date of your tax return. The reduced rates on long-term capital gains taxes may not be around much longer if Congress doesn’t extend the 15% reduced rate beyond 2012, so it may be wise to take advantage of the lower rates before they are scheduled to expire.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville CPA. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.

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