Year End Tax Planning


We’re Los Angeles CPAs helping some of the best companies (and individuals!) in greater Los Angeles.

The year 2020 isn’t coming to an end soon enough for many people as we head to the end of the year. With the end of year coming it is a good time to finalize tax planning to reduce your taxes. In this post we will discuss some opportunities and items to check prior to yearend.

Many individuals have had income changes that have occurred during the year but have not changed their tax withholdings. This is a mistake as those changes will affect how much is due. For those that have lost income and are making estimated payments, the 4th Quarter payment is coming up and this payment can be reduced or eliminated which will help cash flow. If the opposite occurred and there is more income, then a similar increase in payment should be made. In the case of salaried employees with a large change in income, if still employed, a change in withholdings could be warranted. If you have the opportunity to defer income such as bonuses it may make sense to do this in a year with high income as well.

Retirement accounts such as IRA, SEP, and Roth IRAs allow reductions in taxable income. In addition, these contributions can be done in the year after taxes are due, typically allowed up to the tax filing due date. This is one of the few items that can be changed after the tax year has been completed to adjust your tax liability.

If you itemize then there are opportunities to make additional mortgage interest payments, real estate tax (below 10,000 cap with state income tax), medical expenses, and contributions prior to yearend. With the higher standard deduction this may also be necessary in order to be able to take the deduction at all so strategizing and batching the expenses will be advantageous. If capital gains are going to be big for the year and there are capital losses that haven’t been recognized, it would make sense to have a conversation with your broker about whether to sell to reduce the tax on those gains prior to yearend.

Make sure that when yearend arrives and you aren’t surprised by a large tax bill that you could’ve planned for with a little bit of work in December. If you have any tax planning concerns, we can help and review your current situation.

We’re standing by to help you with all your accounting needs, feel free to contact us anytime!

Year End Tax Planning2020-12-03T07:28:44-08:00

Tax Preparation and Planning: Eliminate Surprises on Tax Day


Check back for our monthly posts on taxes, we’re Glendale tax accountants helping some of the best companies in Glendale.

One of the most dreaded words for the average person is to hear “taxes”. The connotation is money that needs to be paid no matter what and a sneaking concern that there will be an amount owed. You will find taxpayers who would rather get large refunds then deal with the possibility of owing taxes at the time of filing even though this is not a good money management strategy. This post will try to help bring a rationale approach to getting ready for tax filing time and planning so there won’t be surprises.

The first item that needs to be defined is what type of income are you going to need to report. There are three different categories that you will typically fall into: Employee, self-employed and passive income which is dividend, interest, and rental income as examples. Passive income from an income tax point of view is more limited then the list above but conceptually understanding this group as passive is the easiest way of think about it as you are not actively involved in the earning of that income as you would with a normal job.

If you are employed, you have a concrete understanding of how much you will make and can make choices of how much your withholdings will be. If you are going to have a substantial change in that amount, then you may need to take out more withholdings to reflect the higher income. The lower your withholding, the higher the amount that will be withheld. The W-4 which you fill out when you start is a general guideline of withholdings, don’t let it fool you into thinking that it will take into account all of your circumstances.

Things get more complicated when there are other income and deductions available. All taxpayers have the option to take a standard deduction or to itemize based on having certain expenses that are tax deductible. Itemizing usually hinges on owning a principal residence with a mortgage but can occur if you have large medical or charitable deductions. Itemizing should be pretty standard with most expenses that you can take as a deduction being known year in year out.

Challenges come into play when you have investment portfolios as interest, dividends, and capital gains can swing wildly. One tip is to have an understanding of when brokers are selling stocks and getting an understanding of gains. I see taxpayers not being aware of the tax implications of stock sales and how much of a hit they will take on capital gains. With proper planning you can rid yourself of stocks that are doing poorly in years where you have gains to net them and reduce your taxable gains.

Self-employed people usually have challenges with tax planning since the income usually swings more often than salaried. This is where tax planning comes in and takes a much larger place in the equation of understanding how much tax will be due. This circumstance is best dealt with by doing an accounting of earnings in December and figuring out what income will be to make certain that payments are made by year end. Self employed individual make their payments quarterly as estimated payments and the last payment is due January 15th of the subsequent year so this allows for time to figure out if there are additional amounts owed and be able to make payment timely.

Similarly, if you have investments in other businesses it becomes imperative to get estimates of how much you will be getting from those businesses. Unfortunately, this sometimes becomes difficult as some businesses are better run then others and can give you decent forecasts and some can not.  This results in many people with very complicated tax returns paying 100-110% of last year tax (depending on income) to cover current year and wait to receive all of their various third party activity later and deal with the potential liability at that time as paying that amount will at least eliminate penalties and interest.

In summary understand all your income and deductions and make sure you are taking out the proper withholdings or making estimated payments. If your income veers wildly year in year out, then a December accounting of what your situation is absolutely necessary so you can figure out true amount owed for that year. Be proactive and you will find that taxes may be unpleasant but not a word to be feared.

We’re standing by to help you with all your accounting needs, feel free to contact us anytime!

Tax Preparation and Planning: Eliminate Surprises on Tax Day2020-10-16T16:48:21-07:00

Financial Statements Explained


We’re proud to be Glendale accountants helping some of the best companies in Glendale.

You are running your business and making sure that you are servicing your customers in the manner that you know they deserve. You treat your employee with value and try to keep them challenged. Your sales are hot and growing but something is wrong. Every time it comes for paying bills there seems to be a shortage of cash. There are many things that can create this situation. Some are problematic and some are unique to running your business. This leads to the question of what reports to look at and what information do they give you?

The standard reporting for a typical financial statement is the Balance Statement, Income Statement, and Statement of Cash Flows. There are other reports, but these are the critical ones to be discussed in this article.

The Balance Sheet is made up of Assets, Liabilities, and Shareholder’s Equity. The Balance Sheet reports where things are as of a specific date such as year end 12/31. Assets are accounts that have a value such as Cash, Accounts Receivable, and Fixed Assets. Liabilities are amounts that you owe such as Accounts Payable and Accrued Expenses. Shareholder’s Equity is the differential which is made of stock, ownership contributions or draws and the earnings of the company. A negative number in this section denotes a business that overall is running a loss. Balance Sheets are looked at extensively by lenders and investors as it gives an overall feel for the health of a company and how they have been doing typically over a longer term then an income statement.

The Income Statement is also known as the P & L which stands for Profit and Loss. This report shows for a period of time how a business has been doing. A typical Income Statement would be reporting activity for the month or year for example. At its simplest it reports revenue and expense activity. This report is used the most extensively by the business themselves as it tells the clear story of whether you were profitable or not. This report can get more complicated as there are certain expenses such as depreciation that are not reflective of actual monthly expenses and are an allocation so there are alternative numbers that are sometimes reported other than Net Profit such as EBITDA which stands for earnings before income tax, depreciation and amortization to remove expenses that are not directly connected to the business operations.

The Statement of Cash Flow shows where did your cash go or come from. There is the obvious gain or loss on the P & L but then there are the changes that are not income statement based but come from, for example, receivables or payables being paid from prior periods. This report is helpful in that it will show you where those changes have occurred. You may have had a terrible month but you had lots of receivables from last month, so your cash ends up being net positive for the month. This report will show that activity and will allow you to pinpoint differences between actual profitability or loss and cash position.

These three reports are the core of what every business should look at on a monthly basis. The earlier you can get these reports the quicker you can make choices that may need to be made as far as allocation of resources, spending more or downsizing. A well-run company will have an accountant who has a consistent approach to month end closing and can get the financials prepared in a set time. On our next post we will discuss analytics and how to best use these reports and others to extract pertinent information to be looked at.

We’re standing by to help you with all your accounting needs, feel free to contact us anytime!

Financial Statements Explained2020-09-08T10:31:22-07:00

Vendor Discounts + Rebates: Should I Take Them?


As a group of leading LA accountants, we’re glad to provide useful information that may help you in establishing your business.

Vendors quite often offer customers that have significant sales with them rebates and discounts. Should a customer take advantage of these opportunities and what are the down sides of these offers? A client of mine came to me to ask me to analyze what would be the most beneficial in their circumstance.

The definition of a discount is a deduction from the usual cost. This is typically given for paying earlier then terms. So, for example you will receive an invoice that will say 2/10 Net 30. That means the full amount needs to be paid within 30 days however if you pay within 10 days you can take a 2% discount off the price.

The definition of a rebate is a pay back of money already paid. This is typically given based on quantity of money spent. So, for example if you purchase 1-5 million dollars annually the company will get back 2% of all purchase and from 5-10 million you will get back 5% of all purchases and so on.

There are two primary discussions that need to be made regarding this decision. The first is cash flow, does the business have the capability to pay early? This may not be a uniform decision so may have to be made on a case by case basis depending on time of year and cash balances available.

The second point is more interesting and is a mathematical equation. Every time you take a discount, your sales is reduced by that amount and the amount available for rebates will be lessened. Is it worth it to minimize the discounts and focus on the rebates that will be received at the end of the year or vice-a-versa?

In the case of this client, cash flow was not an issue so taking a discount made sense. This vendor after calculations was more favorable to discounts versus rebate. In conclusion discounts should always be taken by this company with this vendor. Rebate would be less but not as much of a reduction as would be received on the discounts.

In conclusion a discussion with heavy volume vendors should occur to see if they offer discounts and rebates. Even if they do not, it would behoove companies to have that conversation especially if there is ample cash flow to take advantage of discounts. Rebates will be a win-win as they require no change in business and promote sales to specific vendors.

We’re glad to help you determine your entity type, feel free to contact us anytime!

Vendor Discounts + Rebates: Should I Take Them?2020-08-06T14:09:03-07:00

Why you need a cash reserve and emergency fund


As one of the leading LA Accounting Firms, from time to time we’ll provide valuable information to help you accomplish your financial goals.

As we continue to struggle with the consequences of the global pandemic of the novel coronavirus, there are many lessons that can be learnt from how we reacted and how ready we were to deal with this unique challenge. Most people regardless of current situation would say significant room for improvement regarding response and preparedness is warranted. There will be books written about this event and lengthy analysis of where things were done right and wrong. A first-time mistake in cases as life and death as this one is not easily forgiven. Fortunately, this is a financial blog and the worst thing we deal with are losses of a replaceable asset.

As we reach unemployment that is close to Great Depression numbers, many people look to the government for support. The CARES Act has given individuals and businesses some opportunities to be able to get by. Unemployment has offered additional payments to try and replace lost wages. However, we don’t know how long this will last or how long stimulus will be available.

Many workers live paycheck to paycheck, so it becomes difficult for them to try and build a reserve to cover situations where government assistance is not sufficient. This also becomes a difficult conversation to quite often have with people as the definition of necessity is very different for different people. Was is necessary to go out to eat or to have that vacation? As we see with the isolation, mental health quite often comes into the equation.

I feel one of the realities of every one of us is that there is some dollar amount that can be put away. If you look at putting away a dollar amount every paycheck as a necessity just like buying food, then it will happen. This then becomes more a matter of resolve and mind set then can it be done. Are the sacrifices easy, for many it is gut wrenching and hard choices need to be made. There is an immediate need versus putting away money that will sit in potential, what is the right choice?

Probabilities speak to this as most of us will have a point where we will be unemployed and most probably it will happen multiple times. If this is the case, then we can look at a rainy-day fund as not a potential situation but a circumstance that will happen to all of us. If this is so, we understand that we must do what we can to create some buffer for these situations. The preferred is six months cash reserve but two months or even one month is better than nothing.

We want to control out destinies and financial independence or at least some flexibility allows this to happen. I hope that this provides some insight and incentive to try and create a cash liquid fund that will be readily available in case some unforeseen setback occurs whether it is a layoff or a pandemic that we are going through now.

Why you need a cash reserve and emergency fund2020-06-02T12:43:05-07:00
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