I was able to achieve some exciting results for a client recently.
It was a consulting job. He approached me to help him make corrections to his business’ books to make sure all of the numbers were in the right place so I could then prepare an accurate tax return.
If the books are messed up (for a business), the tax return will be messed up as well.
I initially ran an income statement and his business was showing a good profit for just starting out. I gave him an estimate on what his tax liability would be BEFORE I started making corrections.
It was over $10,000.
- To that, he said: “That stinks, I feel like I didn’t make very much money this year. I’d hate to owe taxes on top of that.”
- My reply: “Let me dig into the books and see what needs to be corrected and then we’ll form a plan based on the results.”
I took some time to trove through his transactions. There weren’t a whole lot of corrections needed, but I did form a list of transactions for us to discuss to make sure I knew what exactly they were so they would be categorized properly.
In going over that list with him every transaction fit my assumptions and didn’t need correcting...EXCEPT the largest one.
It turns out that he had an investor’s contribution to his company categorized as sales revenue (income). This lead the accounting software to overstate his total income and profit by a large amount and he didn’t even remember doing it.
After re-categorizing the transaction in question, it turns out that his business actually lost a little bit of money for the year. No one wants to lose money with their business, but fixing this mistake REDUCED his tax liability by over $10,000.
Do you run a business that may need some help similar to this?
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