Navigating the Complex World of Accounting for Contractors
In a recent podcast episode, Erin Andrews from Level Accounting and Advisory shared invaluable insights into the accounting world, particularly for contractors. From common mistakes to the importance of tax planning, Erin's expertise offers a roadmap for contractors looking to streamline their financial operations and avoid costly errors.
Key Takeaways
1. Importance of Proper Entity Setup
One of the foundational steps in starting a business is choosing the right entity. Erin emphasized that many business owners make the mistake of setting up their entity without consulting an accountant. This can lead to significant financial repercussions down the line. For instance, while an LLC might be a good starting point, as your business grows, you might benefit from electing to be taxed as an S-corp to save on self-employment taxes.
2. The Pitfalls of DIY Accounting
Many contractors fall into the trap of thinking they can manage their accounting using DIY software like QuickBooks. However, Erin pointed out that QuickBooks is designed for accountants and requires a solid understanding of accounting principles. Mismanagement of these tools can lead to a financial mess that is costly to untangle.
3. The Value of Specialized Accounting
Erin highlighted the benefits of working with an accountant who specializes in your industry. A generalist accountant might not understand the specific needs and challenges of contractors, such as handling cost of goods sold or navigating sales and use tax audits. A specialist can provide tailored advice and ensure your books are set up correctly from the start.
4. The Necessity of Tax Planning
Tax planning is not just for large corporations. Erin stressed that even small businesses can benefit significantly from proactive tax planning. Waiting until tax season to think about taxes can result in unexpected liabilities. Regular tax planning throughout the year can help you manage your cash flow better and avoid unpleasant surprises.
5. Handling IRS Notices
Receiving a notice from the IRS can be daunting. Erin advised that the first step should always be to contact your accountant immediately. Ignoring these notices or trying to handle them yourself can lead to bigger problems. An experienced accountant can help you navigate the complexities and respond appropriately.
Action Steps
1. Consult an Accountant for Entity Setup
Before you set up your business entity, consult with an accountant to understand the best structure for your specific situation. This can save you money and headaches in the long run.
2. Outsource Your Accounting Needs
Consider outsourcing your bookkeeping, payroll, and tax preparation to a professional accounting firm. This ensures that your financial records are accurate and compliant with tax laws, allowing you to focus on growing your business.
3. Engage in Regular Tax Planning
Schedule regular tax planning sessions with your accountant. This proactive approach will help you manage your tax liabilities throughout the year and avoid last-minute surprises.
Conclusion
Accounting might not be the most glamorous aspect of running a contracting business, but it is undoubtedly one of the most critical. By setting up your entity correctly, outsourcing your accounting needs, and engaging in regular tax planning, you can ensure that your business remains financially healthy and compliant with tax laws. Take these steps today to build a solid financial foundation for your contracting business.
Resources
Join my free Facebook group for Contractors: https://www.facebook.com/groups/contractorprofitblueprint
Free Sales Guide: https://theprofitclub.hammerandgrindpodcast.com/sales-training-optin
Profit Journal: https://www.lulu.com/shop/brad-huebner/profit-journal/paperback/product-ype4j9.html?q=profit+journal&page=1&pageSize=4
Direct Links:
Erin's website;
https://levelaccountingfirm.com/
Erin's Instagram Account:
https://www.instagram.com/levelaccounting/me
Erin's LinkedIn Account:
https://www.linkedin.com/in/erinhandrews/
Erin's Facebook Account:
https://www.facebook.com/erin.andrews.9/
Erin's Threads Account:
