Accounting Firm FAQs

LongSchaefer prides itself on delivering high-quality business services, financial planning, and tax planning to businesses and high net worth individuals in the Greater Cincinnati area. 

Today, we answer several frequently asked questions about accounting firms. 

What is the purpose of an accounting firm?

An accounting firm identifies the best possible financial solutions for businesses, companies and individuals while helping those entities achieve their financial goals.

What does an accounting firm do?

Accounting firms help their clients, whether businesses or individuals, with a wide range of financial services such as accounts payable/receivable, bookkeeping, payroll processing, and payment processing. The overall goal is to make sure clients stay financially viable by helping owners understand the financial health of their businesses while making sure transactions remain legal and accurate.

An accounting firm generally hires people certified to handle financial transactions, including financial planners and certified public accountants (CPAs).

What is a CPA?

A Certified Public Accountant (CPA) has met state licensing requirements to earn a designation as a CPA as part of being an accounting professional. All states require education as an accountant at an accredited institute of higher education before taking and passing their state’s CPA examination.

CPA Nameplate on a Woman's Desk

What is the difference between a CPA and an accountant?

An accountant is any person who keeps and interprets financial records, usually for just a single company, agency, or organization. CPAs, in addition to receiving state licensure, can perform several services based on their educational knowledge and experience.

How can accounting firms help businesses?

Four popular areas of expertise for CPAs at accounting firms include, but are not limited to:

  • Tax preparation and consulting, one of the most popular services for accounting firms.
  • Consulting services to help businesses achieve their full financial potential.
  • Financial planning for businesses and individuals.
  • Litigation consulting for when/if legal issues arise, such as those for succession planning in business and estate planning for individuals.

Why are accounting firms important?

Accounting firms play essential roles in the financial vitality of businesses and individuals, from tracking income and expenses to ensuring legal compliance and accurate tax reporting. CPAs at accounting firms help you make business decisions.

Are accountants considered tax professionals and preparers?

Yes, although not all income tax preparers are accountants working for accounting firms. Both tax preparers and accountants are qualified to assist people in filing their income tax returns. However, tax accountants (CPAs) are qualified and licensed to provide long-term assistance to individuals and businesses with tax concerns, tax planning, tax advice, and tax strategies that help a company decide how to better manage income taxes year after year.

Why hire a tax professional? 

There are several reasons why hiring a tax professional is a good idea:

  1. Reduce the chances of mistakes on tax documents.
  2. Better accuracy on your tax documents submitted to federal, state, and local tax agencies.
  3. Uncover possible tax benefits, deductions, and strategies to reduce tax liabilities.
  4. Give you practical tips and techniques to make sure you document all financial transactions correctly.
  5. Represent you during a possible audit.
  6. Lower your stress regarding your finances.
  7. Give you peace of mind with financial experts on your side.

What happens during an accounting audit?

An auditor creates a formal opinion regarding the finances of a business or individual based on an examination of a company’s finances to see if they comply with generally accepted accounting practices (GAAP).

An auditor does the following:

  1. Gathers information through bank accounts, accounts receivable, accounts payable, and payroll.
  2. Tests and compares numbers gathered from these sources.
  3. Forms an opinion as to whether or not the company is free of financial misstatement due to fraud or error.

Word Audit Underneath a Magnifying Glass

Why is an audit important?

An audit is not necessarily a bad thing because when the auditor’s work is complete, your company receives a stamp of approval. This could help you when you try to apply for financing or appeal to investors.

Why should you hire an accounting firm ahead of an audit?

Audits, particularly from the IRS, can be completely random without any reason given. The individual audit rate is about 1 in 250, while individuals who earn between $200,000 to $1 million have an audit rate of about 1 in 100. 

When the IRS sends you a notice for an audit, an accounting firm can prepare you for the process, discuss your finances with the auditor, and give you peace of mind that an accountant will accurately represent your books to the agency. Much like the auditor, an accounting firm will leave no stone unturned when examining your finances.

Do the benefits of hiring an accounting firm outweigh the costs?

Yes, the benefits of hiring an accounting firm may outweigh the costs due to several factors.

You might have lower costs than hiring FTEs. Your individual results may vary, which is why an initial consultation with an accounting firm is important.

Do accounting firms offer virtual consultations?

Yes, you can certainly discuss your company’s financial situation with an accounting firm virtually. Many accounting firms offer secure connections, and they must comply with privacy laws (notably, the Gramm-Leach-Bliley Act (GLBA), also known as the Financial Services Modernization Act of 1999) when consulting with you online. 

Your company can also submit documents securely online, as well. Discuss any privacy concerns you may have during an initial consultation.

Female Accountant consulting with a client

Do accounting firms offer free initial consultations?

According to a survey conducted by the National Society of Accountants, about nine out of every 10 accounting firms offer a free initial consultation. This consultation may last between 30 minutes to an hour, depending on the accounting firm.

Can you contact an accounting firm for an initial consultation?

Absolutely! Feel free to reach out to LongSchaefer if you’re interested in our business planning, financial planning, tax planning, or tax preparation services. Contact us online or call (513) 245-0300 for more information on how our accounting firm can help.

Why Hire a Tax Professional & Cincinnati CPAs?

Filing your taxes can be a complex and daunting task, depending on your financial situation and circumstances. Unfortunately, getting your taxes done can eat away several hours or even days of your time, leaving you frustrated, drained, and maybe even unsure that you’re doing it all correctly.

At LongSchaefer, our Cincinnati CPAs are available to help. Here’s why you should consider hiring one of our trusted financial advisors to help you get through tax season.

Related post: Tax Services Our Cincinnati CPAs Provide During the Summer Months

Save Time & Money

Instead of hiring a full-time accountant for your individual or business tax preparation, you can save money by opting to hire a tax professional. Although you’ll have to pay for tax preparation services, you’ll likely save money when you file because Cincinnati CPAs are likely to find deductions or tax credits you may have missed, which may exceed any fee you pay to have your taxes prepared for you. Additionally, you’ll probably save hours of your own time that you otherwise would have spent preparing your taxes on your own. Saving time allows you to enjoy other things or focus on your core business model as a business owner.

File Your Taxes Accurately & Quickly

Tax professionals have the knowledge and experience to answer any questions you have about your taxes and resolve any issues that come up. Cincinnati CPAs also keep up with complex tax codes that can be complicated and confusing for individuals and businesses. As a result, they can ensure that your taxes are free of errors and are prepared correctly so you don’t have to deal with any costly mistakes.

Help When You’re Audited

If you are audited for some reason, it can be intimidating and confusing to try to answer questions that you may not have adequate knowledge to answer. A CPA who files your taxes can easily answer any questions from the IRS for you and handle that communication so you don’t have to stress about it.

Related post: How Filing Taxes Electronically Works

Trusted Tax Professionals & Cincinnati CPAs

Our Cincinnati CPAs are trusted financial advisors that provide tax preparation services all year long. Contact us online or call (513) 245-0300 for a free consultation or to learn more about our tax preparation services.

Understanding Business Meal & Entertainment Deduction Rules From the IRS

The last few years have seen the IRS highlight quite a few changes in how the tax agency allows businesses to handle meal and entertainment costs in relation to their taxes. 

The 2018 Tax Cuts and Jobs Act (TCJA) eliminated deductions for most business-related entertainment expenses. 

Then the pandemic hit. The IRS has temporarily changed the tax-deductible amount allowed for some business meals. The overall goal is to encourage increased sales at restaurants as a kind-of stimulus. 

With the easing of restrictions, businesses may be considering company picnics for employee appreciation or starting up business lunches with clients again. 

The trusted business advisors of LongSchaefer are here to help you understand the business meal and entertainment deduction rules from the IRS in today’s blog.

Tracking Your Business Meal & Entertainment Expenses

With all of these changes, you must put a system in place to accurately track business food and entertainment expenses. Best practices are what they always were before the changes, but you should be aware of them in case you decide to take advantage of this new move by the IRS. 

Request detailed receipts from your restaurant, caterer, or entertainment provider. Track which costs fall under the 50 percent deduction, 100 percent deduction, or not deductible categories separately.

In addition to keeping excellent records, keep some additional things in mind about the business meal and entertainment deduction rules. Our handy chart highlights each deduction category particular meal and entertainment expenses fall under.

Meal and Entertainment Expense Changes

Under the TCJA, the IRS no longer allows businesses to deduct most entertainment expenses. This is true even if your expenses were a cost of doing business. Deductions for food and beverage-related to entertainment venues are only covered when you have detailed receipts separately stating the cost of the meal.

Another change from the TCJA is that spouse or guest meals are not covered during travel unless your business employs that person. So, if your spouse accompanies you on a work trip, meals are not deductible for the business.

Increased Deductions for Restaurants Unil 2022

The Consolidated Appropriations Act of 2021 (CAA) temporarily increased the deduction for business meals from restaurants to 100 percent for tax years 2021 and 2022. 

Not all meals are created equal, however. 

The 100 percent deduction is only available for meals provided by restaurants, which the IRS defines as: “A business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises.” Prepackaged food from a grocery, specialty, or convenience store is not eligible for the 100% deduction and would be limited to a 50% deduction. However, you could get catered food for your business to consume at a venue that’s not the restaurant to qualify for the 100% deduction.

Also note that the expenses must be considered ordinary (common and accepted for your business) or necessary (helpful and appropriate) rather than lavish or extravagant. An employee of the business or the taxpayer must be present during the meal, as well. 

Business lunches, holiday parties, birthday recognition, or promotion celebrations are all ordinary. But taking the entire company out to a five-star restaurant once a day might be considered lavish or extravagant. 

Quick Guide to Business Meal Deductions

 

Expense CategoryDeductible AmountTax Code Reference
Company social events and facilities for employees (e.g., holiday parties, team-building events)100%IRC Secs. 274(e)(4) and 274(n)(2)(A)
Meals and entertainment included in employee or non-employee compensation100%IRC Secs. 274(e)(2) and (9)
Reimbursed expenses under an accountable plan100%IRC Sec. 274(e)(3)
Meals and entertainment made available to the public100%IRC Sec. 274(e)(7)
Meals and entertainment sold to customers100%IRC Sec. 274(e)(8) 
Business travel meals50%

100% (1/1/2021 to 12/31/2022)*

IRC Secs. 274(e)(3) and 274(e)(9)
Client/customer business meals50%

100% (1/1/2021 to 12/31/2022)*

Notice 2018-76
Business meeting meals50%

100% (1/1/2021 to 12/31/2022)*

IRC Secs 274(e)(5), 274(k)(1), and 274(e)(6)
De minimis food and beverages provided in the workplace (e.g., bottled water, coffee, snacks)50%IRC Sec 274(e)(1)
Meals provided for the convenience of the employer 50% (through 12/31/2025)

0% (on or after 1/1/2026)

IRC Sec. 274(n) and 274(o)
Employer-operated eating facilities50% (through 12/31/2025)

0% (on or after 1/1/2026)

IRC Sec. 274(n) and 274(o)
Meals/beverages associated with entertainment activities when not separated stated on the receipt0%Notice 2018-76
Personal, lavish, or extravagant meals/beverages in relation to the activity0%IRC Secs. 274(k)(1) and 274(k)(2)
Entertainment without exception0%IRC Secs. 274(a)(1) and 274(e)

*Meals are only deductible in the 2021 and 2022 tax years if provided by a restaurant, as defined by the IRS in the above article. 

Talk to the Trusted Business Advisors of Long Schaefer

If you need help establishing a system to better track expenses or seek clarification on whether certain expenses are tax-deductible, give our team of Cincinnati CPAs and trusted business advisors a call today at 513-245-0300.

Why Hire a Tax Professional & Cincinnati CPAs?

Filing your taxes can be a complex and daunting task, depending on your financial situation and circumstances. Unfortunately, getting your taxes done can eat away several hours or even days of your time, leaving you frustrated, drained, and maybe even unsure that you’re doing it all correctly.

At LongSchaefer, our Cincinnati CPAs are available to help. Here’s why you should consider hiring one of our trusted financial advisors to help you get through tax season.

Related post: Tax Services Our Cincinnati CPAs Provide During the Summer Months

Save Time & Money

Instead of hiring a full-time accountant for your individual or business tax preparation, you can save money by opting to hire a tax professional. Although you’ll have to pay for tax preparation services, you’ll likely save money when you file because Cincinnati CPAs are likely to find deductions or tax credits you may have missed, which may exceed any fee you pay to have your taxes prepared for you. Additionally, you’ll probably save hours of your own time that you otherwise would have spent preparing your taxes on your own. Saving time allows you to enjoy other things or focus on your core business model as a business owner.

File Your Taxes Accurately & Quickly

Tax professionals have the knowledge and experience to answer any questions you have about your taxes and resolve any issues that come up. Cincinnati CPAs also keep up with complex tax codes that can be complicated and confusing for individuals and businesses. As a result, they can ensure that your taxes are free of errors and are prepared correctly so you don’t have to deal with any costly mistakes.

If You’re Audited

If you are audited for some reason, it can be intimidating and confusing to try to answer questions that you may not have adequate knowledge to answer. A CPA who files your taxes can easily answer any questions from the IRS for you and handle that communication so you don’t have to stress about it.

Related post: How Filing Taxes Electronically Works

Trusted Tax Professionals & Cincinnati CPAs

Our Cincinnati CPAs are trusted financial advisors that provide tax preparation services all year long. Contact us online or call (513) 245-0300 for a free consultation or to learn more about our tax preparation services.

Why Outsourcing Your Accounting Needs May Be What Your Business Needs to Grow

In 2020, there was record-breaking new business growth in the United States. The sheer number of new businesses created was 24 percent higher than the prior year. New employer identification number (EIN) applications broke records in quarter three. 

These new EIN applications took place despite the pandemic that has swept around the world. 

In the 1930s, an Austrian economist described this phenomenon of new business growth in times of uncertainty as “creative destruction.” In short, this creative destruction happens as people come up with new ways to overcome challenges, such as the inability to shop in person due to lockdowns or health concerns. Plus, many companies folded or scaled back during the pandemic.

In today’s blog, LongSchaefer’s trusted business advisors look at why outsourcing your accounting needs as you decide to grow your business.

Understand Financial Functions

It’s exciting and successful as your business takes off! But it’s hard to know what you don’t know about the financial functions and find the time to manage the books and your other priorities. 

Brushing important accounting and recordkeeping tasks to the side can hurt your bottom line because you aren’t paying attention to KPIs that denote your business’ financial health.

You also may not understand when tax payments are due, which creates stress for you as a business owner.

So how do you tackle this problem? Keep reading to find out.

Outsourcing Your Accounting

Your business will thrive when its financial functions are in working order. Business owners quickly realize they will either need to carve out the necessary time to manage their organization’s finances or hire someone to do it. 

Hiring a CFO is one option. However, most new businesses do not have 40 hours of work for a qualified individual. This is when outsourcing CFO services can be a practical solution. 

Benefits of Working With an Outsourced CFO 

Lower Operating Costs. Any change that reduces costs without endangering operations is generally positive. Many businesses simply don’t have enough cash flow to justify hiring a full-time, in-house CFO for your accounting.

Increased Efficiency. Inefficient operations harm your organization from the top-down. A real advantage of outsourcing your accounting is that behind your outsourced financial planning experts at LongSchaefer stands an entire team of accountants, partners, consultants, and bookkeepers at your disposal. All of us have areas of expertise that bring to bear for your success. When you outsource financial activities and have them analyzed by an independent third party specializing in finances, your company becomes more efficient.

More Flexibility. When a business owner wears too many hats, one is bound to fall off or fall by the wayside. Outsourcing your CFO functions and financial accounting will allow your organization to become more flexible. Rather than working on something outside your core business, you have more flexibility in dealing with your immediate environment and activities. Changes that make your organization more agile make it better able to excel. 

Reduced Risk. Outsourcing the financial functions of your company may reduce the risk your business or organization faces. Outsourcing payroll, for example, can reduce risk because experts now handle these financial functions and look for improvements. 

New Ideas. Outsourcing CFO and accounting duties brings new ideas to the table. Small businesses must recognize that outsourcing to an expert and trusted business advisor gives your business a clear advantage with their complex financial activities.

High Growth Potential. Many organizations face limitations when trying to take on more activities because their current staff is spread too thin. Outsourcing financial activities can allow business owners and other staffers to engage in better-targeted tasks as part of your core business model.

Talk to LongSchaefer About Outsourcing Your Accounting Needs

Outsourcing financial services for your business and organization can help you operate more effectively and efficiently. With LongSchaefer’s requisite knowledge of different organizational structures and financial expertise, we can help you create innovative changes in your organization. 

If you would like to learn more, please call LongSchaefer’s trusted business advisors at 513-245-0300 to speak with one of our professionals and learn how our outsourced CFO and accounting services can help enhance your business success.

Like-Kind Exchange Updates: Clarifying Real Property & Escrow Policies

If you own business or investment property, or want to exchange real property for others, you might take some time to become acquainted with “like-kind exchanges”, also known as a 1031 exchange. 

As with all tax code changes, the IRS consistently makes clarifications to previously unclear areas or adjusts the language based on new policy. In 2020, there were some larger changes noted to section 1031 of the tax code. This section deals with like-kind exchanges of real property. 

In today’s blog from the Cincinnati CPAs of LongSchaefer, we explain some like-kind exchange updates that clarify real property and escrow policies.

Defining “Real Property”

In the past, the definition of real property held more ambiguity. There was little difference between the state and local definitions. 

The new language allows real property to be defined by local and state guidelines in addition to the list included in the final regulations. Property must also pass a facts and circumstances test. 

The final regulations include updated and specific categories such as land and improvements to land, unsevered natural products of land, and water and airspace superjacent to land. Please note that property previously excluded prior to the 2017 TCJA is still excluded. 

Inherently Permanent

The purpose or use test that the IRS previously required to determine whether the property contributed to unrelated income no longer applies to like-kind exchanges.

Instead, the final rules state that if the tangible property is both permanently affixed and will remain affixed to the real property for an indefinite period of time, it’s considered inherently permanent and a part of the real property. 

This does not automatically include temporary items that might be easily removed from the structure, including installed appliances, sheds, carports, Wi-Fi systems, and trade fixtures. 

In addition, if interconnected assets serve an inherently permanent structure together, they are now analyzed as one distinct asset rather than separate assets. For example, a gas line powering a heating unit would qualify as part of the heating unit. However, if the gas line solely powered a stove or oven, it would not qualify. 

Facts and Circumstances Test 

Not all fixtures and assets are automatically included in the inherently permanent rule. Use the facts and circumstances test to determine if it’s eligible to be considered a part of the real property. 

For each fixture, ask:

  1. Is the asset designed to be removed?
  2. Would removing the asset cause damage to the real property?
  3. How much time or expense do you need to move the asset?
  4. Are there any circumstances that suggest the fixture can stay attached for a finite period of time? 

While there is still some room to get better, the facts and circumstances test are a vast improvement. The previous rule may have led to expensive and inefficient cost segregation studies. 

Incidental Property 

In the past, non-real property that could be transferred as part of an exchange could potentially violate escrow rules that permit a Qualified Intermediary to facilitate an exchange not made in real-time. This is also called a third-party exchange. 

The new regulations for like-kind exchanges now allow some leeway. Definitions say the fixtures or non-real property is deemed as typical for the kind of property transfer or if the aggregate value does not exceed 15 percent of the fair market value of the real property.

The new regulations are now considered incidental and will not be in violation of the escrow rules. Keep in mind, real property is still a separate transaction. These transactions are not included in the gains deferment of the exchanged real property. 

Qualified Intermediaries 

The new regulations for like-kind exchanges maintain the transaction must be structured as an exchange. The seller cannot receive funds from the sale before becoming owner of the new property. Qualified intermediaries can hold the properties or funds in an escrow account within the prescribed time limit. As such, the transaction looks like an exchange. 

Bottom Line

Most of the time, the sale of any investment property not considered your primary residence can result in capital gains tax. Utilizing a 1031 like-kind exchange can help defer that tax until later. You could see a lower tax liability down the road. 

On April 28, 2021, President Joe Biden introduced a new economic plan that would impact 1031 exchanges. His proposal would abolish 1031 exchanges on real estate profits higher than $500,000. As we move further into 2021, LongSchaefer will continue to monitor the impact.  

Talk to LongSchaefer’s Trusted Business Advisors

If you would like to discuss tax strategies in business or investment properties, give LongSchaefer’s Cincinnati CPAs a call at 513-245-0300. Our team can help you understand if the decision you are making falls in line with applicable tax laws and if it’s the best strategy for your real property investments.

May 2020 COVID-19 Update

In order to comply with the Ohio Health Department Order & CDC social distancing recommendations, our offices are closed until further notice. Rest assured that our established protocols and available technology will allow us to provide the same level of service and quality you expect from LongSchaefer during this time.

The SBA has announced details of how it’s helping small businesses through the Coronavirus outbreak. The IRS is sending payments to families affected by this crisis. 

Please click on our Coronavirus information pages for more information.