Know What You Need for Your Plumbing Company Tax Return
This Article Will Focus On what you need to get your Plumbing Company’s QuickBooks or Xero Accounting Online reports ready to hand off to your tax preparer.
Balance Sheet – Is the primary report most tax preparers begin with because it is the summary report. It is a snapshot that contains everything about your Plumbing Company including a line for Cash, Profit & Loss, Receivables and Payables for one specific day; the day the report was generated. You may generate the Balance Sheet report in the current year; however, the date you will need to apply to generate this report is the last day of the previous year.
Profit & Loss Report – Is a snapshot of events that happened over a given period of time and offers more detail to show what happened to your Plumbing Company during that period of time. This report is used to calculate how much income tax your Plumbing Company owes. It is imperative that all of your Plumbing Company’s income and expenses are recorded properly so that you DO NOT OVERPAY TAXES! Normally you will generate the Profit & Loss Report for the entire previous year from January 1st to December 31st depending on your Plumbing Company fiscal year.
What Do The Numbers Shown On The Tax Return Tell You?
Besides The Bottom Line – I suspect very little useful information is there to help you operate and grow your Plumbing Company. Why? Because the annual taxes return is put together by Internal Revenue Service for two main purposes:
- Collect money to operate and grow the government
- To generate information about how the economy is performing
It Doesn’t Offer Details – That are useful to operating and growing a profitable Plumbing Company Details such as direct and indirect costs, overhead vs. expenses, job costing reports or where money is being made or lost and why.
The “Big Bucket” Theory – Is where data entry clerks, tax accountants and bad or incompetent bookkeepers put as many transactions as possible into a single account in the Chart of Accounts.
Since The Annual Tax Return – Doesn’t need all of the details that means it is not relevant to the tax accountant. Remember it’s the “Big Bucket” theory and since tax returns continue getting longer and longer and there is such price pressure put on professional tax preparers to match the low price leaders of the national tax preparer chains you need professional contractors bookkeeping services now more than ever.
If Your Construction Company – Files annual tax return as Sub-Chapter S you know that most of the numbers transfer over to your personal return and the numbers repeat again.
We Have All Heard – “Garbage In” and “Garbage Out”. It is becoming more common to do the bookkeeping “fast” after all lots of contractors who have experienced massive business failures did so because they believed bookkeeping was a waste of time and money and it should only take about ten minutes a day. One shortcut is downloading transactions directly from the bank and it works well in most industries except construction because of the need to break up transactions between direct / indirect / Cost of Goods Sold / Supplies / Expenses / Overhead.
Who Should Do What?
Tax Accountants Make Terrible Bookkeepers – Because they setup QuickBooks Chart of Accounts to download from the bank and at the end of the year to download directly into their tax software. It saves them a lot of time and costs contractors a lot of money. Tax accountants are paid to prepare as many tax returns as possible in a short window of time, not running construction companies.
Construction Accountants Make Terrible Tax Accountants – Because we are paid to help all contractors increase profits by providing access to regular Financial and Job Costing Reports and consulting as you want it in order to help you operate and grow your Construction Company.
To Each Trade – Let your construction accountant setup QuickBooks and maintain oversee the data entry. Your Chart of Accounts will be rather large, more than needed for the Tax Preparer; however, just right for generating Job Costing Reports and Job Profitability Reports you need to run you Pluming Company year round.
Let Your Construction Accountant – Close the books at the end of the year and generate Balance Sheet and Profit & Loss Reports to be passed on to your tax accountant.
Your Tax Accountant – Will summarize the numbers shown on the Balance Sheet and Profit & Loss Reports and hopefully you will pay the right amount in taxes, not too much and not too little.
What Is The Reason For Having A Contractor’s Accounting System?
To help run your Plumbing Company more efficiently or just file your taxes? Neither choice is good or bad as long as you have made the choice and understand the outcome.
Like Most People – I go to my bank website often and one of the things I have discovered is that all banks appear to treat each transaction in a unique fashion. How do you get money out of your checking account?
- Do you write a paper check that is manually presented to the bank?
- Do you write a paper check that is electronically presented to the bank?
- Do you use your bank’s online bill pay that mails out a paper check you can present to the bank?
- Does your bank’s online bill pay – use EFT to transfer your funds to the vendor?
- Do you pay online using another bill pay service?
- Do you pay online by going directly to your vendor’s website?
- Do you pay online using pay pal bank?
From The Bank’s Transaction Report – It looks very easy. When the actual bank statement comes the transactions can look differently. Bank breaks transactions into Checks / Debit / ACH / EFT – Vendors may have a different name on the account that accepts each of these types of transactions.
Please Note – If you have had experience with downloading and synchronizing Outlook with a Customer Relationship Database like ACT, Goldmine or other CRM databases you understand the end result is NOT always what you expected.
Bank Downloads Appear To Love Quicken – QuickBooks is more complex and may create new surprises in your software.
Downloading Transactions Directly – From your bank can be a wonderful time saver if all goes well. I have heard stories of tax accountants without permission from their client, (they know everything they need to know to file your taxes) downloading a whole bunch of transactions into QuickBooks without properly mapping them.
Construction Companies – Have very complex Work In Progress (WIP), Job Costing and Job Profitability Reporting and Other QuickBooks Reports which means some transactions must be coded to Items and some to Accounts in order for the reports to be accurate.
Beware Of The Cheap Option, It Always Costs More In The End!
Some Plumbing Contractors – Believe accounting as “Overhead and a Waste Of Money” and they fall into the trap of getting the “Cheapest Option Possible” and thinking the tax accountant is the only one who “needs the information” so why not let them do it.
When In Doubt – Many times the Bad Bookkeeper or whoever is doing the bookkeeping will send the transaction to owner’s draw, personal expenses, or some other wrong place.
Another Dirty Little Secret – You may not be aware of is some accountants send the bookkeeping to a cheap bookkeeper somewhere in the world. Or worse yet they let the independent bookkeeper take your paperwork home to work on it; and share with your competitors.
Identity Theft – Could be an issue for you to consider if your records are unsecured and floating around in a stranger’s car or at their home with who knows coming and going. It really is a case you get what you pay for and if something is too good to be true there is a reason.
We Know Of Several Tax Accountants – That are a real pleasure to work with because they do not try to do bookkeeping in the off-season of tax preparation.
They Like “Clean and Tidy” QuickBooks – With reports and balances that make it is easy for them to review the Profit and Loss (P&L) and Balance Sheet, review their client’s entire financial picture, make decisions as needed and complete the annual tax return. And yes a good tax account takes more than 15 minutes to complete their client’s business return.
We Recommend You Have A Qualified Tax Accountant – To complete the annual tax return for several reasons:
- They are a fresh set of eyes reviewing your QuickBooks and your business as a whole.
- They are an important part of your Board of Advisors
- It makes it easier to get bank loans because the bank knows you have more than one person in your accounting
- We have used Tax Accountants for our business and personal annual returns for over thirty years
Congress Changes Tax Rules And Regulations – It appears to me the do it every time they meet! Who has time to focus on all those changes – It’s The Tax Accountant! After keeping on top of “The Big Stuff” they look for the simplest ways to prepare and file your annual tax return.
QuickBooks Provides A Common Language – We use QuickBooks Cloud Based Services which means we are able to work on your QuickBooks without sitting in your office and you can access it anytime 24/7/365 and anywhere you have internet service. We can both be in it at the same time, no fuss, no muss!
We Begin With Your – 1st sale / 1st deposit / 1st payment and put it away in QuickBooks in such a way that it creates easily understood reports for everyone who wants to review whether it is you the client / banker / tax accountant.
We Want Your Paper – In bags, boxes, cartons, crates, faxed, emailed, scanned to our cloud based storage server or whatever is easiest for you! And you don’t have to organize it or make it neat because we know what to do!
We Can Setup Your QuickBooks File – Clean-Up an existing QuickBooks file, customize construction invoices and we can help with Payroll, financial reports and the Five Key Performance Indicators (KPI Reports).
About The Author:
Randal DeHart, PMP, QPA is the co-founder of Business Consulting And Accounting in Lynnwood Washington, www.FastEasyAccounting.Com He is the leading expert in outsourced construction bookkeeping and accounting services for small construction companies across the USA. He is experienced as a Plumbing Contractor, General Contractor, Project Management Professional, Construction Accountant, Intuit ProAdvisor, QuickBooks For Contractors Expert and Xero Accounting Specialist and Bill.Com Guru.
I leave you with this heartfelt blessing – “May your integrity continue to grow and your strength and depth of character ever increase. Your wisdom and guidance and ability to always know and do the right thing are what makes you contractor. Remember it does not matter what happens in the short run; good times or bad, being a contractor is a calling, not a job and not just a career; you are where you are meant to be. And since you always bring good to everyone you come in contact with you will be blessed.”
Randal L. DeHart, PMP, QPA