Situational Conundrums to watch out for
Welcome to another episode of the ‘Not Boring (Boring) Small Business Bookkeeping and Accounting Podcast. I’m (ramping it up for tax season) Paul Rosenblum.
I know that I have been speaking about the 1099 situation in recent episodes, but today, I promise not to. We have other things to talk about. Specifically, things that I see every day running my practice and being involved in putting together clients’ books.
I can talk about tax rules, and bookkeeping theories all day long, but one of the best ways of learning and applying to your particular situation is to hear about what others are doing. So, I put together a short list of things that I have run into recently as it gets busier and busier leading up to tax season that I’ve seen some clients do.
Question: How many credit cards does your business have?
I have several clients who have multiple credit cards that they use for business transactions (and occasionally non- deductible personal expenses as well). I’ve asked some clients as to WHY they have so many. The most common answer is that they want points on one CC, travel miles on another, cash back on a third, and good shopping rewards on another. I have one client who has seven (yes, 7!) credit cards – 3 Amex’s and 4 Citibank cards. Each one is between a half a page and 2 pages long, but since I have to log in to different websites to gather all of these statements, and print them out before I enter them, sometimes it takes me longer to log in to the individual websites and do what I have to do than it does for me to enter the actual transactions.
If you have a similar situation, try and cut down to one or two business credit cards and one or two personal cards that you use 100% for personal expenses, so your bookkeeper doesn’t need to see how you spend your personal money. Remember, bookkeepers read every expense line on every credit card and bank account, so if you don’t want your bookkeeper to know where you buy your underwear, use a business credit card 100% for business and your personal credit card(s) 100% for personal expenses. Sometimes I think I know too much about my clients, and it’s a bit scary!
I have several clients who don’t’ feel comfortable giving me access to their bank accounts for the business and access to their credit card accounts, and I explain to them that if I don’t have access, then they are responsible for sending me the statements as they come out every month. I might not get them done as promptly as they might want, but at least they will be in my queue. Inevitably, clients will forget to send the statements, and I’m busy working on the statements that I do have access to, only to have them forgotten about. In October or November, they realize that they haven’t sent me anything since April, I then receive 7 bank statements, and 7 credit card statements in email. And once I have them, the client wants to be brought up to date ASAP (meaning yesterday!). This adds stress to my life, and the last person you want to stress out is your bookkeeper (you don’t want your bookkeeper rushing through and making possible mistakes). So, BGTYB (Be good to your bookkeeper) That’s the lesson here.
I have another client who has run a U.S. S Corporation for several years and now lives overseas. There are specific IRS laws (and laws in other countries) about where taxes are filed and paid. If you live in a country over a certain amount of days per year (even as an American Citizen), then you might have to pay taxes in that country AND the US if you are making money abroad. If my client has a U.S. Corporation, are the meals in restaurants that the owner goes to overseas counted as Local meals or Travel Meals on a U.S. tax return? There are accountants who specialize in these kinds of matters, and they shouldn’t be ignored. In this case, the CPA here, in the U.S.really doesn’t know what specifically to do and asked the client to hire an international accountant overseas, so that they can advise them on what to do, but all of us still aren’t on the same page. I’ve been told to just assume (at least for now) that the U.S. Corporation is going to file in the U.S. and that we aren’t responsible filling abroad. The client has been advised. If you have a situation like that, don’t wait until the last minute to figure out what to do -- find out NOW so that you can prepare the paperwork and who and where you will be file taxes.
I have been a bookkeeper and a bookkeeping trainer for many years, and I feel strongly about a new business owner doing their own bookkeeping for a few months before they sit down with a bookkeeper and go over all the errors, but once in a while I have a client who wants to do their own bookkeeping with me overseeing on a monthly basis. Because of the number of clients that I do bookkeeping for, and I am almost always behind, I welcome the client who wants to do their own bookkeeping in house or hire someone to do the bookkeeping. However, I’ve had a recent situation where a client of mine who I have done bookkeeping for since 2014, decided to go to QuickBooks Online and wanted to change the system of his bookkeeping. His idea was to have it done through the online version so that daily bookkeeping could be done so he can have accurate numbers at any time. That made perfect sense to me. I didn’t and don’t have the bandwidth for daily bookkeeping, so I converted the desktop file into the online QuickBooks system.
He was using an outside third-party payroll company, but now with QBO, he wanted to use their version of payroll. He did this without telling me or his accountant. And not surprisingly, it was set up incorrectly from the very beginning. The first month that they were taking over, they didn’t know what to do with the payroll entries that were downloaded from the bank. I explained to them that what was supposed to happen is that the when the payroll was done every 2 weeks, the payroll module exports the taxes and each employee paycheck to the actual QuickBooks database, and in theory the downloaded information from the bank should match the exported payroll information automatically.
After a zoom session, I noticed that however they set up payroll, that wasn’t happening. The employees were getting paid, but the payroll was downloaded from the bank, and not from the actual payroll software. I will fix it by the end of the year so that next year it will work fine, but I don’t like to make changes in the middle of the year that could affect the W-2 situation. So, I spent almost 2 hours figuring out where the payroll transactions were in the downloads (they were excluded, so I didn’t see them immediately), so I brought them back, accepted them into the database and was then able to reconcile the bank account. I called the owner and asked if the person who he had hired to do this was actually a bookkeeper. Not surprisingly, he said no. As I have spoken about in other episodes, this is one of the differences between traditional bookkeeping and ‘computerized’ bookkeeping. The ‘bookkeeper’ (and I say this in quotes), has to know bookkeeping as well as the functionality in the bookkeeping software.
Business owners think it’s easy and you can hire someone for less than self-employed bookkeepers charge, (or in house bookkeepers for that matter) put them on payroll as an employee with lots of other duties, and include bookkeeping as just one of those duties. It actually hurts me to see the profession that I have been in for so many years changing in this way. But as usual, I digress.
I have a client who I started with in 2019, when the company was in its first year, and she was single. Now, she’s married to another client of mine, her husband, with his own LLC. They asked me recently if they should file jointly or separately—which would make the most sense? Since I don’t have the tax software in my office, I suggested to them the first thing to do is to have their accountant run everything once it’s all done as filing as married, but separate tax returns, or married Jointly to see what the financial tax liability was. Sometimes it almost no difference, other times there could be a large difference, depending on how much taxable income they both had. I also told them that psychologically, sometimes it makes a difference to each spouse to have their own accountant who they are comfortable with and do their taxes separately, even if it ends up costing more money in taxes. At the time of this recording, I haven’t gotten an answer yet, as to what they have elected to do.
And the last thing that I wanted to talk about today is something that I have heard on other business podcasts --- and that is --- If you are a bookkeeper-- When do you walk away from clients? And if you are a client, When do you walk away from your tax preparer?
As a bookkeeper, the easy answer is that if the client wants to do something illegal and tells you about it or you see it in the books, it’s time to walk away. However, that’s not the only reason why a bookkeeper might walk away from a client. Sometimes it has to do with how demanding the client is, or the personality of the client, or even if that client is a very slow payer, although they seem to take 4 vacations a year and stay at a 5-star hotel. Whatever the reason, it’s the single hardest thing for me, personally, to do -- is to walk away from a client. When I start with a new client, it takes me a week or two of thinking and getting my head around the company and forming a ‘bond’ with that company’s bookkeeping. Very few bookkeepers are like me, but every set of books that I put together, there is an emotional attachment that I have to those books, even if I didn’t create them. So, when I occasionally walk away from a client, even for exactly the right reasons, it’s still a very difficult emotional experience for me.
A client walking away from an accountant is also a very tough decision. You want to try and walk away for the right reasons. Don’t walk away just because your tax liability is more than you thought it was going to be. Don’t walk away because of emotion or anger. If you told your accountant that you do not want to be on extension and you sent all the paperwork well in advance of the deadline and you were still put on extension, then that’s a good reason. Remember, the accountant or tax preparer works for YOU, not the other way around. If you have a question for your accountant either during tax season or even in July or August, and you can’t reach them because they are out of the country for 6 weeks, that would be a good reason to look for someone else. Your accountant is almost your financial therapist. You should be having quarterly conversations with them about the amount of payroll you are taking for yourself if you have an S Corp, or quarterly estimates that you should be paying or any Unincorporated business taxes (For LLC’s for an example) that you can pay estimates on. If your tax preparer isn’t available or doesn’t return your phone call, then it might be time to move on.
In a prior episode I talked about what auditors look for in an IRS audit. I’ve recently had a client that was audited for two years at the same time (which is kind of rare), and they IRS found a few things that he did that weren’t compliant with the tax code, and so he got audited again for the next year. Even after I told him for years that he needs to document everything carefully, and keep receipts, the client still didn’t comply. When do I walk away from him? It wouldn’t be ethical to walk away in the middle of an audit, but when it’s over, and things settle down, knowing that he will get audited again, I should walk away even though bookkeepers are not liable legally for wrong doings of an owner of a company. But even in this circumstance, it’s still very hard to take that plunge by walking away from a client.
For the foreseeable future, I am going to keep a list of situations that happen in my practice and convert them to episodes on this podcast. This is the time of the year that I meet more people, and with that, come face to face with bookkeeping and accounting situations that have to be dealt with to get the books up to date and ready for an accurate tax filing. As I have said before, tax season for busy bookkeepers starts in October and goes through the beginning of April. Some days, I wish I just had ONE company to do the books for! I’d take a vacation right after Jan. 31st! But no -- that’s not the bus route that I got on -- Sometimes I feel like I got on a run-away subway! It never seems to slow down around here!
As you get ready for Thanksgiving, I am feverishly getting books ready for the ‘official’ tax season that starts on Jan. 2nd, and last 3 ½ half months.
Until next time, I’m ‘focused on bookkeeping’ – Paul Rosenblum.