Q:

I  came across your website when looking for Tips on Quicken and there they were –

Can you answer a question possibly for me?  years ago I set up Quicken incorrectly and set it up literally by “Accounts” – meaning my various bank accounts !!!  since incorporating 2 years ago, now a nightmare for reports –

If I set up all the accounts correctly now, will I lose all the account info now already set up for years???

Thanks for any help you might send to this accounting-inept mind !!!

A:

I’m not really sure what you mean in regard to setting up your Quicken “By Accounts.” 

To clean things up properly, there are some very basic things you need to do.  First is to import all of your Quicken data into QuickBooks and use that program instead.  I have a lot of info on my website as to why QB is vastly superior.

Next, you should be coordinating your QB chart of accounts and reports with your professional tax preparer and what s/he uses for the business tax returns.  You should be able to modify the pre-existing accounts to the proper types, including merging redundant accounts, without losing any historical data.

Any accounting pro who has experience with QB should be able to help you do this.

Good luck.

Kerry Kerstetter

 

Q-1:

Subject: help 🙂

 

Hi

 

I am so happy I found your site. A bit too late to help me with 2005 taxes but live and learn. My husband and I have been incorporated in the state of Florida as an s-corp. since 1997. Our business subcontracts home framing crews to other builders (we have 4-5 crews depending on demand) we also have a cabinet shop that manufactures cabinets for builders and designers. In prior years after paying ourselves and the workers…tools etc. We would generally show a loss or a very small profit. In 2004 we had 34,000 profit that got tacked on to our taxes. Well, in 2005 109,000 got added to our 1040. We had income from W-2’s of 131,000. We use a payroll leasing company to run all our payroll and had paid 16483 in taxes on that income. When our accountant told us we owed 37000 something dollars on money we had not received we weren’t to happy. We did manage to put 8000 in an IRA before the filing deadline and reduced that to 34,000 something. We were not advised to do that we just were trying to reduce it anyway we could. I have at various times asked my accountant if now that we are making money wouldn’t it be best to switch to a regular c-corp and he always advises against it. We take home a salary and occasional bonuses which are all run through payroll. We have had to take a draw to pay the taxes!!!. Please if you have some time could you advise me where I should go for help. My husband has a friend who’s brother is a tax attorney and he was thinking of going to him. I would like to start looking into some retirement planning for the company…Roth ira.. etc but I don’t know if I should first change to a regular corp.

 

Thank you for your time in reading this

A-1:

It is very frustrating that so many so called tax pros have blinders on and consider S corps the perfect solution for everyone, without doing the analysis that is required to determine the best entity for a particular situation.  Everyone’s circumstances are unique.  I receive at least one email just like yours every single day.

It does sound as if you need to find a tax pro who is more open minded and not stuck in his/her ways.  Unfortunately, we don’t have anyone to whom we could refer you. If you haven’t already done so, you should check out my tips on how to select the right tax preparer for you.

Something to keep in mind is that it’s not an all or nothing situation, where you have to run all of your business operations through one C corp or one S corp.  There are many reason to use multiple entities, and an experienced tax pro can help you with that. 

For example, if you’ve seen my article comparing C and S corps, you will know that employee benefits for owners are much more lucrative with C corps, including the ability to have an unlimited medical reimbursement plan.  This can get dangerous if you also have non-family employees; so a technique that has been around longer than I have, is to set up a separate corp with just the family members as employees that can offer them the lucrative benefits, while the non-family employees are employed by the other corp, which doesn’t offer the same expensive benefits.  Doctors have been doing this for decades, so as not to have to cover all of their staff.

Having both an S and a C corp also allows excellent opportunities for income smoothing, when the C corp has a fiscal year ending in a month other than December.

None of these ideas are new or very difficult.  An experienced tax advisor can help you save thousands of time his/her fee by utilizing the proper combination of entities for your situation.

Good luck.

Kerry Kerstetter

Q-2:

Kerry,

 

Thank you for your prompt reply. I will be shopping for a new tax preparer. Thank you also for the advise on multiple companies. We do have a corporation set-up that is in-active and never been used (we do pay the corp. fees each year). We were going to separate the cabinets from framing when we organized it but never did since separating the books at that time involved separate general liability, workers comp, and payroll. Also at that time we needed to have credit on our payables and most people want a few years history. I guess we should revisit that idea. If you at some later date think of someone in my area that is a good preparer please let me know. We are located in Pensacola, Florida. I will continue to visit your site. I hope one day soon to lower my taxes. One more question. Are there any good books on this subject that you could recommend?

 

Thanks again!

A-2:

Nolo Press has several good books on this kind of thing.

Kerry

 

Q:

Subject: Exchange Question

 

Hello,

 

I’m actually curious about guidelines in Oregon.  My parents use their home as a primary residence and as their place of business.  They have lived in the home for one year and now have some changes that may require them to sell it and relocate.  (My father was just diagnosed with depression.)  I am wondering if they would be able to sell it and not pay capital gain taxes for either of those reasons: using it for business or the health diagnosis.

 

Thank you so much!  Your website has been incredibly helpful.   

A:

Using the home for business won’t allow a tax free sale.

The medical condition, if unforeseen when the home was purchased,  would allow them to use the pro-rated exclusion of  $714.28 profit per day the home was owned and used as a primary residence.

I have this all explained on my website.

Your parents should definitely consult with their personal professional tax advisor to both calculate the actual potential gain and verify whether they would qualify for the pro-rated exclusion.

Good luck.  I hope this helps.

Kerry Kerstetter

 

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