TAX question!!!!

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blackiris

blackiris

SPFG, Supreme Picture Framing God
Joined
Aug 31, 2007
Posts
10,624
Loc
Sandwich, IL
Being that in April we will have been in business 1year....I have a couple of questions about our tax return. Hopefully you guys can help me out... But type slowly I get confused with big word and techinal stuff!:p

When you do your end-of-year inventory................
1. How did you count your matboard? We counted 18x24 and up as full sheet? Same with foamboard?

2. Displays that you bought or made for the business? I some how remember back in the day, working at the BB store (i know, i know) that we counted the displays as part of inventory every year. Even if they didn't change.

My tax lady is fighting me on some stuff...........difinately NOT using her next year............Just wanted to see what you guy did. Thanks!:thumbsup:
 
blackiris said:
My tax lady is fighting me on some stuff...........difinately NOT using her next year.
Click to expand...

My suggestion is to not use her this year. Find another one ASAP. If the next one says the same thing(s) then maybe you are wrong.

PS: I can tell you from experience that having to file amended returns because your accountant didn't know what they're doing is no fun, and expensive besides.
 
I don't inventory anything ...I expense everything out. Scraps are scraps.

Fixtures should be counted as an asset to the business and depreciated.

I have no equipment that I depreciate because I haven't bought anything in years. I rent my Wizard.

K.I.S.S.

Don't bloody your accountant.
 
Whatever you do for inventory, the key is to be consistent.
I inventory finished goods, (photo frames, artwork for sale, etc)
A "display" would be inventoried if it is for sale.
Length Moulding,
Glass in boxes.
Full sheet mat board, foam, backing board only.

What is your accountant fighting you about?
 
Mats are expensed as framing supplies for us. Is your display for sale? If so then it may be inventory otherwise it is not.

You say your tax person, is that person a CPA, if not get one.

As Cliff said the key is to be consistant, since this is your first year you are now setting up for years to come.

Get a CPA, ask them not a bunch of framers. How you do your accounting may depend on how you have set up your business and other personal considerations have to be looked at as well, only your CPA would know the answers to all of the questions.
 
Unless I’m horribly mistaken, the Feds don’t care how many mat boards you have left, but just how much you paid for them over the year. My accountant doesn’t care, either.

I do do a year end inventory, but that is mainly for my own information, and to help me do a Year End Balance sheet. If that is somehow integrated into my tax forms, I’m not aware of it.

BTW: I only count full sheets of anything – no fractions. But, as Cliff points out, you need to be consistent.

Fixtures, such as displays, are generally depreciated over a period of time like seven or ten years (computers, generally 3 years of useful life while giant capital expenditures can go out to 15, I think.) I don’t fully understand the depreciation schedules, but your accountant will (or should).
 
Need medical advice .... ask a doctor
need artwork repaired ... ask a conservator
need legal advice ... ask an attorney


Find a qualified CPA that you can work with and will be come intimately involved in the particulars of YOUR business.
 
Higher inventory = Lower expenses = Higher taxes

I have to agree...if you're unhappy with your accountant, don't wait until next year.

We don't count partial sheets of matboard or foamcore or misc lengths of moulding. We expense the sheet/moulding when it's used for the first project. If we're able to use the partial later, BONUS! then we have lower COGS and a higher profit on the job and the IRS gets a bigger cut.

Fixtures are assets and can be depreciated...but if the cost is lower than a certain point (I don't remember what it is but it's something like $10K) it can be expensed. Once again, check with your accountant.

Displays are often expensed as advertising, depending on what it is.

Your accountant will be able to tell you how to best handle depreciation or expensing an item.

I haven't read anything here that I disagree with BUT we're just a bunch of opinionated framers. Get a good accountant that you're comfortable with and listen to their opinion. If you get audited, you can be pretty sure that none of us will show up to defend you.
 
My computer repair business
I have zero inventory on Jan 1 and zero on Dec 31.
First of year and end of year are zero showing I sold everything.

As for my framing business....
if its scrap it is scrap and not on my inventory.
Few boxes of glass I have on hand are "supplies" and not an "item" bought for resale.

GET SOMEONE NEW NOW!!!!!!! Next years taxes will be a wreck if you dont!!!
 
Make sure your accountant is a CPA not just a tax preparer, a tax attonery might be a good suggestion. My first year of business my tax preparer told me not to worry about paying my estimated income tax because I wouldn't make any money my first year. Well if I'm not making money I can't be in bussiness. I was stuck pay back taxes for years , trying to break the cycle of "paying old taxes while trying to save for estimated taxes". They also wouldn't redo items left out of my tax forms. I said "See Ya" to them, it's a shame to because they where neighbors.

If they're not working with you/for you get rid of them and buy business ed. of Quicken.

Inventoring is correct as described above, whole items, fixtures are a one time expense, not inventory.
 
There is a big difference from the point of view of the IRS re: "disposable displays" vs "permanent fixtures". You have not exactly described what you have. There are also thresholds of what you can expense in a given year vs have to depreciate and or amortize. There might also be some property tax issues on those assets (varies per state and other taxing authorities). In my specific case there is a county assessor who visits every couple of years to look at my fixtures and equipment to see that all is properly listed so that they can get their $$$$.

I agree, change your tax "expert" now. Remember that all CPAs do not have the same experience under their belts. You want one who has small business clients. A CPA who is an expert in mergers of Fortune 500 companies is not a good match for your needs.
 
Even thought everyone here says get rid of your tax person you need to tell us the entire story. Just because you two are arguing about how to do something does not mean that you are right and they are wrong.

You asked a pretty generic question to a bunch of framers and now a bunch of people who are not trained in taxes, including myself, are telling you how to do your taxes and that you need to get rid of somebody that we do not know anything about at all.

I agree that all CPAs have different experiences but having a CPA is much better than a "tax person", that could be a 80 year old lady who has done taxes out of her home for the past 50 years for all we know.
 
I think my point was that you need someone that you're comfortable with, and someone who is comfortable with your business. You don't always have to agree with them. In fact if they did everything your way, it could be disasterous.

And yes, I agree that we're missing a big part of the story. Tell all!!!
 
My point was that if you've already decided that you aren't using them next year (I'm assuming there is a good reason), then start out right and don't use them this year.
 
Great Advice guys-------Problem being I freaked out a little when she said end-of-year inventory..........and the only "Inventory" that I have EVER done is with a corporate BB store. That's why I asked the question of what other framers do. This is my FIRST year and I don't want to SCREW it up!:)

I am seeking a new tax preparer now.........I need someone that can talk to me like a "normal" person not with all the mumble jumble jargon and take time to explain things to me without making me feel stupid.....:(

As far as displays I purchased moulding to frame 2 mirrors......one for the bathroom (yes permanant fixture) and one for display not for sale. Again working in BB framing we counted it every year.

Sorry if I was vague before in the post. Sometimes I think people should just be able to read my mind!:icon19:
Thanks for the advice!
 
Oh about the tax lady, who has 15 cats that I am allergic to in her house------(I love cats! Not to offend the cat lovers!)

I think our personalities clashed from the start-She immediatly thought I knew everything and anything about tax write offs and such. To be honest we have never itemized before. I have saved every reciept, every form, document you name it for a year.

Our misunderstanding was about a donation that I had made to a church auction......cost of materials was roughly $450. The church sent me a deduction notice for the amount that it sold at auction $2000. I of coarse wanted to write off that $2000! That $450 does not include the 14 8x10 autographed 1985 Chicago Bears photos. How do you price that? She did not explain to well why I couldn't write off that amount other that it being a form of advertising for the business. I just didn't get the feeling she wanted to take the time to explain everything to me.

So I guess its not that I didn't like her answers to my questions, but she didn't explain herself very well and I just don't trust her. I'm not sure she has done to many businesses either! So a certified CPA is on my list to find ASAP.
Maybe they can explain everything and get me on the right track for this year!
 
blackiris said:
Our misunderstanding was about a donation that I had made to a church auction......cost of materials was roughly $450. The church sent me a deduction notice for the amount that it sold at auction $2000. I of coarse wanted to write off that $2000!
Click to expand...


She's right. As unfair as it seems, you only get to deduct the cost. It would be great if you could deduct what the Church gained but it just doesn't work that way ~ even though everybody who comes in asking for a donation tells you that it does. Whoever said that taxes were fair?

She may or may not know her stuff. The bottom line is that you're not comfortable with her. You'll be better off with someone who can explain things to your satisfaction and who you feel is a member of your team.

And I do have my degree in Accounting. Was an accountant for 35 + years. And I LOVE to do taxes. I know, sick puppy. But I'll say again what everyone else has told you. You need to find an accountant that you trust and ask the questions of your accountant. We're just a bunch of framers with strong opinions. We won't be with you at that audit if it would ever happen. Your accountant will be.

Good luck.
 
One way to get around the charitable contribution deduction limitation is to label it as marketing expenses.

But: You need to have proof (say a brochure listing the donors) with your name on it. It's like an ad, essentially.
 
If you expensed the materials to begin with then you can't take it as a donation, you would be trying to take a deduction 2 times on the same item.

I think that your person is correct but you obviously are not comfortable with them and it sounds as if the person is not a CPA. You need one

Also, never ever, and I mean never ever, trust anyone with 15 cats. (I have cats at my house so animal lovers don't get on me about that comment)
 
My understanding is that you can expense the COST of what might be called a charitable donation if it has marketing value to it, such as an "ad" in a program flyer. However, it does not go beyond the actual expense of what it cost you. What it does is put it in an expense category rather than the charitable donation category, which S-Corps (and maybe some others) can't deduct as expenses. S-Corps have to pass on charitable donations to the shareholders, where, if the shareholder itemizes deductions, they can be taken.
 
" she didn't explain herself very well and I just don't trust her"

this is the bottom line on this thread!!!!!!!!! good/bad/indifferent...drop her--get one you are comfy with....do it NOW!
they work FOR you...they dont work FOR you, they work against you!!!! (& FOR the IRS!)
 
Paul, and all others....

I course you can deduct the total retail value of your deduction and place that total expense in any account of your P & L that you wish.......






However, when you are audited by the IRS..... who is going to pay the unpaid taxes an penalty, if any,


YOU and not your aggressive opinion oriented accountant.





.
 
RE: ...... your aggressive opinion oriented accountant.

The scary thing is that ANYONE can hang out a shingle and do taxes. ANYONE can claim to be an expert. The IRS has no criteria....your tax preparer only has to sign your tax return, they need no minimum qualifications. And Jerome is exactly right, if you're audited and there's a discrepancy, you're the one who pays the tax and penalties. No penalty to the preparer. You have to do your homework and make sure that your tax preparer is qualified.

A CPA is a good start since you know they at least passed the state board.....but like everything else, there's the good and bad out there,
 
You need to be careful in the manner in which you inventory your mats, etc. First of all it will be a chore to determine what you inventory was on 12/31/07 because of what you may have sold or received during the period from 1/1/08 to the point of inventory. It's not an impossible task, just takes a little thought and research on what you've sold and received.

Also you need to talk with your account with regard to your tax status and how you carry your mat board in your financials. Your accountant will find your cost of goods sold by taking your beginning inventory 1/01/07, adding your purchases for the year, and then subtracting your ending inventory 12/31/07. This will give you the total cost of goods sold. Then they will take your sales, subtract any returns and the cost of goods sold, and that will yield your gross profit. This is the point where they begin to subtract your expenses.

What I'm getting at is that how you value your non-full sheet mats, etc. If you do not inventory anything that isn't a full sheet, it will have the effect of lowering your EOY inventory. This will tend to raise your cost of goods sold which will decrease your gross profit.

If you inventory all your non-full sheet goods, this will increase your EOY inventory and effectively lower your cost of goods sold and increase your gross profit.

So you need to think this through very carefully because it can have quite an impact on your tax situation.
 
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