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Tax Tips: Nine Questions to Ask Your Accountant Now

Howard Scott |

Many drycleaners see accountants as scorekeepers who produce reports that document results. And that’s too bad, because good accountants can be proactive partners in your business.
They can help you plan more optimal year-end results. They can help refine future strategies. They can create tools that enable you to steer the business better. They can aid you in making decisions. Finally, they can help you carve out a vision. The following are several questions you might put to your accountant in advance of this year’s tax time.What can I do to lower my taxes? Your goal is to make a profit, but you’d prefer to pay as little in taxes on that profit as possible. A proactive accountant can advise you on several ways to lower that tax liability.
He might suggest taking the full Section 179 on all equipment purchases. Most capital purchases are written off over five to seven years, but Section 179 lets taxpayers deduct up to $108,000 in the year of purchase.
If you buy a new drycleaning machine for $35,000 and two new vehicles at $20,000 each, you could elect to take a $75,000 deduction ($35,000 + $20,000 + $20,000) instead of the ordinary $15,000 ($75,000 ÷ 5). Doing so lowers the year’s profits by $60,000 and saves about $20,000 in taxes.
Another tax-cutting strategy is to maximize contributions to a simple IRA or SEP IRA plan. One can put as much as $44,000 into an IRA, and this lowers tax liability significantly. Or you could hire the consultant you’ve always wanted and pay that person upfront to lower your liability.Is this a good time to buy equipment? Can you purchase machinery now in anticipation of a store you plan to open next year? You can take the full deduction now, as shown in the above example. Or perhaps it would be better to wait until next year, when you’ll have a greater need to reduce profitability.
Losing a depreciation deduction next year can be overcome by several factors, including high store startup costs, next year’s projected capital purchases and changes in tax law. Major purchases are always a timing issue. Your accountant can help you look down the road and plan ahead. This is a much better strategy than buying on impulse.Are there changes in the tax code that could be meaningful? Tax rules change every year. For instance, a home office was a red flag to the IRS a decade ago. But since 2003, it’s been easy to claim offices inside your place of business and your home.
Tax credits for purchasing hybrid vehicles might have relevance to many drycleaners; you may wish to take advantage of the $2,000 credit before it runs out. And health savings accounts (HSAs) may be a good way to reduce company health insurance costs -- you can set up HSAs for staffers and lower contributions for employee and employer alike.What can I do to increase sales? A proactive accountant is a good businessman, too. He may have suggestions for you to consider in your quest to improve sales. For instance, he might have a corporate client that wants to offer drycleaning to its employees, and you could get into offices. Or he might have a idea about becoming a valet drycleaner that offers pickup and delivery via Internet.
The accountant might come up with a scheme to reward an “employee of the week” with a crisp $50 bill as a way to improve morale. Or perhaps he lives in a town where there isn’t a convenient, quality drycleaner, and suggests you open a drop store. New ideas can revitalize a business, and drycleaners should be continually looking to make constructive changes such as these.Do I need to increase or decrease year-end profit? The bottom line is tweakable, and you still have time to tweak. Say you’d like to appear only marginally profitable this year to reduce key employees’ demands for higher salaries. Perhaps your banker wants to see rosier results. Or maybe you’re thinking of selling, and impressive profits will woo perspective buyers.
Your accountant can offer many suggestions. They include pumping up inventory, making last-minute capital purchases, selling off unused equipment and prebooking future business. You can eliminate the owner’s salary for the last few months of the year and pay next month’s bills in advance, or you can do the opposite -- double the owner’s salary, take a year-end bonus and delay the bills -- depending on your needs.
The year-end goal to increase profits might be just the push you need to sell off unused equipment. Getting $8,000 for an old cleaning machine that’s fully depreciated adds $8,000 to profits.Could a better breakdown give me more information to make decisions? Your accountant may be able to create reports that help you run the business better. For instance, an hourly breakdown of volume might help judge staffing requirements.
Perhaps your 2:00 p.m. to 4:00 p.m. slot is slow, so you could send a counterstaffer home at 2:00 p.m. instead of 3:00 p.m. and have the high-schooler who comes in at 2:30 p.m. start at 3:30 p.m. That’s a savings of 10 hours in labor costs a week.
Would a redo breakdown based on garment type help you focus on categories of clothing that give you most trouble? Perhaps a shift-by-shift cash shortage analysis can tell you who’s sloppy or sticky-fingered.
A store-by-store category breakdown could point out marketing opportunities. For example, if one store does a better job selling gown restorations than others, you could study its methods and incorporate them into your other outlets. Or a neighborhood-by-neighborhood breakdown of housing values could help you pinpoint the focus of your pickup-and-delivery operation.Re-examine the own vs. rent scenario. Maybe now is a good time to purchase a building because of falling real estate values. Or it may be time to unload your storefront and use the cash to expand. Ownership isn’t automatically the correct answer; in fact, ownership might be disadvantageous in certain markets. Changing times call for changing options, but you won’t know unless you ask.Can I take a raise? Ask this question every year. You want the business to be successful, but you also want to reward yourself for good results. Perhaps now is the time to give yourself $150 a week more to compensate for the early years when you worked for peanuts to build up the business. A proactive accountant will figure out the cashflow consequences, as well as the tax implications. The first determination he will make is whether your marginal income is taxed less as wages or as profits.
What else can you do for me? This open-ended question may lead to a bunch of pleasant surprises. Maybe your accountant knows an ex-bookkeeper who would be the perfect office manager. Perhaps he has an inexpensive payroll program that would work for you. The accountant may have an “in” on a new, low-cost health insurance program that could save you thousands. You never know unless you ask.
Whether you are a solo operation or a chain, make your tax-time visit profitable by making your accountant a committed partner in your business.
 

About the author

Howard Scott

H&R Block

Industry Writer, Drycleaning Consultant, and H&R Block Tax Preparer

Howard Scott is a longtime industry writer and drycleaning consultant, and an H&R Block tax preparer specializing in small businesses. He welcomes questions and comments, and can be reached by writing Howard Scott, Dancing Hill, Pembroke, MA 02359.

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