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Choosing the Appropriate Business Tax Year
Equine Accounting
Wednesday 25th of August 2010 12:29 PM

A year always means the same thing, right? Well, yes and no. A year consists of 12 months, but different types of businesses use different types of “tax years” when it comes to figuring taxable income. There are two different annual accounting periods, also known as tax year periods that a business may have to choose between: a Calendar Year or a Fiscal Year. A Calendar Year is exactly what it says, January 1st to December 31st. On the other hand, a Fiscal Year is a consecutive 12-month period ending the last day of any month, except for December.

 

There are limitations as to which tax year your equine business can use. If your business is a sole proprietorship, the tax year must be the same as your individual tax year. A partnership or LLC must use the same tax year as the majority of its owners. Generally these businesses will use a Calendar Year. Regular C-type corporations can usually elect either a Calendar or Fiscal Year without restrictions (unless it is a personal service corporation). Exceptions to these general rules may be made if you can establish to the satisfaction of the IRS that you have a business purpose for using a different tax year.

 

Often it is easier for small business owners, including equine business owners, to use a Calendar Year as it lines up with payers of interest and dividends and other income which report on a calendar year basis. Some businesses have "seasons" that don't follow the traditional calendar. If your business will have such seasons, you may be eligible to use a 12-month fiscal year to match your business’s income with the expenses that generated it. A winter ski resort open December to March is a good example of a business that would need to use a Fiscal Year for accurate tax reporting.

 

Whether you choose a Calendar Year or a Fiscal Year, you must choose it for your first tax return and use it for all your records and reporting. If you decide to try to change an existing tax year, an IRS Form 1128,

"Application To Adopt, Change, Or Retain A Tax Year" must be filed. If you need help deciding the tax period you should use or whether or not you should change, contact us and we can help.

 


Are You Seeing Double?
Equine Accounting
Wednesday 18th of August 2010 03:27 PM

I had an equine business owner once tell me how he was going to do his own bookkeeping to save money. I asked him what accounting method he was going to use, and he looked at me in surprise and asked what bookkeeping had to do with accounting! The word “bookkeeping” sounds much less daunting than “accounting”, but every business (including sole proprietorships) needs to keep track of sales, expenses and profits – which is, in essence, accounting. The “books” that are kept to record these transactions provide valuable financial accounting data.

 

The first common type of accounting is single entry, which works like a checkbook. All business transactions are recorded on one account with a running balance showing debits as checks are written and credits as customer payment deposits are made. This is a very simple method of accounting that can be used by individuals or small sole proprietorships as it’s easy to understand and record. However, this method is more limiting for accuracy, information and auditing. An income or expense is only posted once with no other account offsets, so it is more difficult to catch errors. Single entry can only calculate profit and loss and not a balance sheet, so it really doesn’t give a business a complete picture of its financial position.

 

The second type of bookkeeping is double entry accounting. In double entry accounting, every transaction has two journal entries: a debit and a credit. Debits must always equal credits which help to eliminate common bookkeeping mistakes. Double entry is more complex since it involves determining which accounts your transactions should be posted to and can involve more than one ledger, journal, and even schedules. While more involved to maintain, double entry systems produce income statements and balance sheets giving accurate pictures of a business’s financial position.

 

The good news is that whether you call it bookkeeping or accounting, the process doesn’t have to overwhelming. There are great software packages on the market that handle single or double entry accounting and simplify the steps for you. Some double entry packages run the second entry behind the scenes, so you only have to enter a transaction once. If that still sounds like too much accounting, contact us and we can help get your system up to speed and on track for maximum results.


Benefits of Outsourcing Your Bookkeeping
Equine Accounting
Wednesday 11th of August 2010 11:30 AM

All equine businesses, whether small or large, require bookkeeping. If you have a small equine business, you need an accurate, organized and chronological system that readily provides reliable information when needed. Accurate financial reporting is the key to knowing whether your equine business is successful or if changes need to be made. Any mistakes that are made can cost your company tremendously.

More and more, business owners are outsourcing their bookkeeping functions to improve accuracy, save time and save money. Outsourcing your bookkeeping system to an experienced professional will assure that your books are handled in the most efficient and productive way. Also a third party can be more objective regarding financial decisions that you, as the owner, may need to make. More time will be available to focus on the core activities of running the business and the stress of managing the books will be removed. Cost savings are instantly realized when you outsource as you will not have the administrative burden of hiring and training accounting staff or paying fixed salaries, insurance and benefits. An outsourced bookkeeper also saves you valuable office space that would be taken by another internal employee.

With all of the additional benefits, outsourcing a bookkeeper is more effective than doing it yourself or having one permanently in the office. Outsource today and start focusing on what matters in your equine business!


Who Needs Structure
Equine Accounting
Wednesday 4th of August 2010 12:00 PM

“As long as I keep track of everything, it doesn’t matter how the books are sorted – it will all work out in the end.” This sort of relaxed attitude will not give you a clear financial picture or help you make informed business decisions. I have seen entrepreneurs create expense categories that drill down to each specific client, which can mushroom uncontrollably as the list grows. On the other hand, I have seen such general categories created like “Travel Expenses” with everything thrown in, when it should have been broken down by categories such as “Business Meals”, “Entertainment” and “Transportation”.

 

If you are a breeder, horses can appear in either “Inventory” or “Equipment Fixed Assets” depending on what they are being used for.  For example, your sale horses would be classified as inventory while those being used in lesson programs are equipment fixed assets.

 

A standard structure of your accounts is paramount to insightful bookkeeping. Creating an industry and business specific chart of accounts will provide a solid framework for establishing financial control of your business. If you are unfamiliar with the chart of accounts you should be using, your best option is to hire a professional bookkeeper or accountant. A proper chart of accounts will easily answer these three questions:

1.       What are your variable costs?

2.       What are your fixed costs?

3.       What is your breakeven point?

 

One of the keys to running a successful business is truly understanding where your income is coming from and where your expenses are going.  Getting your books set up properly from the start with the aid of a professional bookkeeper will eliminate future nightmares and helps you know the answers to how your business is doing right away. 


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