Why Small Business Owners Should Consider Outsourcing Their Accounting and Tax Functions

Have you ever wondered why some of the most successful entrepreneurs and business leaders wear the same outfit each day? It is said that Albert Einstein bought multiple versions of the same gray suit to limit the number of decisions made each morning to preserve brainpower. Steve Jobs wore the same type of blue jeans and black turtleneck to prevent decision fatigue. Most recently, Mark Zuckerberg has been known to wear the same gray t-shirt each day. His reasoning, “I really want to clear my life to make it so that I have to make as few decisions as possible about anything except how to best serve this community”. When he says “serve this community” he means serving more than 1 billion Facebook users.

So you are probably reading this blog wondering, what does wearing the same clothes have to do with outsourcing your business’s accounting and tax functions?  To keep the analogy consistent with the clothing examples, it has to do with the many hats entrepreneurs and business owners have to wear each day. Being an entrepreneur often requires one to seamlessly shift back and forth between strategic planning, sales and marketing, human resource management, accounting, information technology, among other business functions. In everyday life there are only 24 hours in a day to contribute to running a successful business, growing your personal relationships, and arguably most importantly to live a healthy lifestyle.

Companies who take advantage of outsourced accounting and tax services save time and money, get access to timely and accurate accounting/bookkeeping services, and benefit from remaining compliant in all of their financial and tax reporting requirements.  Does outsourcing accounting make sense for you and your business?

Positive Outcomes from Outsourcing

  • Hiring an expert – First and foremost, outsourcing accounting and tax services to a CPA firm can help you rest at night knowing that you have hired experts to help you remain compliant with your ongoing financial and tax reporting obligations. CPAs are effective at assisting business owners in understanding how to use their books to understand and improve the overall health of your business.
  • Financial and Time Savings – In many cases, outsourcing services whether it is accounting or tax services, IT services, recruiting services or any other services may result in cost & time savings. Cost savings are derived from avoiding the costs related to employee payroll taxes, workers compensation insurance, unemployment taxes, health insurance, paid-time-off, and any other benefits your company may offer. In addition, business can also save on office space, furniture, computer equipment and software. The cost savings resulting from outsourcing can be significant. Time savings are accomplished by not having to hire, train, or manage employees. This can alleviate some of the hats mentioned above.
  • Continued Growth – Most of the time entrepreneurs get started because they have a skill, product, or passion that they believe if combined with their relentless drive to succeed will result in financial gains and a life worth living. Outsourcing accounting and tax functions can save you from getting lost in the monotonous details of bookkeeping and taxes and can help you maximize the time spent following your passion and leading your business forward.

Outsourcing Concerns

Despite some of the benefits listed above, many small business owners choose not to outsource their accounting and tax functions. Distance, response time, less control, and security risks are some of the potential concerns related to outsourcing.  While various cloud based technologies such as QuickBooks Online, Skype video conferencing, and secure document transfer portals such as ShareFile have greatly reduced the challenges associated with not having a team member physically in-house, there will always be various limitations associated with outsourcing services, but the accounting industry is continuously evolving to minimize and possibly eliminate these limitations.

If you are interested in learning more about outsourced accounting and tax services, please keep an eye out for our next blog which will describe some of the types of outsource services we provide for our clients.

Written by: Matthew Migal, Certified Public Accountant and QuickBooks Online Certified ProAdvisor

Levin Swedler Kennedy – Certified Public Accountants – Akron, Ohio

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Establishing Residency for State Tax Purposes

Have you been contemplating moving to another state with lower taxes? Your move could lower your state tax bill, but you want to make sure to establish that the new state is your place of legal residency (also known as your “domicile”) for state tax purposes. Otherwise, the old state could come after you for taxes after you’ve moved. In the worst-case scenario, your new state could expect to get paid, too. Here’s what you need to do to establish residency in the new state — and why moving your pet could be a deciding factor.

Recognize the Significance of Establishing Domicile

If you make a permanent move to a new state, it’s important to establish legal domicile there if you want to escape taxes in the state you left. The exact definition of legal domicile varies from state to state. In general, however, your domicile is your fixed and permanent home location and the place where you plan to return, even after periods of residing elsewhere.

Because each state has its own rules regarding domicile, you could wind up in the worst-case scenario of having two states claiming you owe state income taxes. That could happen when you establish domicile in the new state but don’t successfully terminate domicile in the old state.

Moreover, if you die without clearly establishing domicile in just one state, both the old and new states may claim that your estate owes income taxes and any state death taxes. So, it’s critical to know the rules that apply in your new and old states — and follow them.

How to Establish Domicile in a New State

Here are some actions that can help you establish domicile in a new state:

  • Keep a log that shows how many days you spend in the old and new locations. (You should try to spend more time in the new state, if possible.)
  • Change your mailing address.
  • Get a driver’s license in the new state and register your car there.
  • Register to vote in the new state. (You can probably do this in conjunction with getting a driver’s license.)
  • Open and use bank accounts in the new state. Close accounts in the old state.
  • File a resident income tax return in the new state, if it’s required. File a nonresident return or no return (whichever is appropriate) in the old state.
  • Buy or lease a residence in the new state, and sell your residence in the old state or rent it out at market rates to an unrelated party.
  • Change the address on important documents, such as passports, insurance policies, and wills or living trusts.

The more time that elapses after you move to a new state and the more steps you take to establish domicile in that state, the harder it will be for your old state to claim that you’re still a resident for tax purposes.

Don’t Forget the Dog

In the facts underlying a recent decision by the New York Division of Tax Appeals, the taxpayer lived in New York City until he took a job as chief executive officer at Match.com, which was based in Dallas, Texas. Ultimately, the court determined that he was legally domiciled in Texas, because that’s where he kept one of his nearest and dearest possessions — his dog. (In re Gregory Blatt, N.Y. Division of Tax Appeals, No. 826504, Feb. 2, 2017)

The taxpayer’s initial agreement with Match.com called for him to work in New York City. But in 2009, he decided to lease an apartment in Dallas and work from the Dallas office. His employment contract was amended to show that his principal place of employment was Dallas. He kept ownership of an apartment in New York City, although it was listed for sale after he agreed to work out of Dallas. He also kept a boat in New York, which he used while vacationing in the Hamptons.

By the spring of 2011, the taxpayer had terminated his employment with Match.com and moved back to New York City. Later in 2011, he sold his apartment in New York City and moved to the Hamptons.

For 2009 and 2010, the taxpayer claimed to be domiciled in Texas and, therefore, filed New York nonresident/part-year resident income tax returns for those two years. After being audited by the New York Division of Taxation, he was charged for state and city income taxes, interest and penalties totaling $430,065 on the grounds that New York City was his legal domicile for the entire time he was employed by Match.com.

Fortunately, the taxpayer was able to convince the New York Division of Tax Appeals that his domicile for 2009 and 2010 was, indeed, Dallas. The following factors helped persuade the court to accept Dallas as the taxpayer’s domicile:

  • He started going to the gym in Dallas, which he had never done in New York,
  • He had his prescriptions filled in Dallas, and
  • He obtained a Texas driver’s license and was registered to vote there.

As it turned out, the tipping point came when the taxpayer moved his dog to Dallas in November 2009. The significance of this action was documented in an email the taxpayer sent to a friend in which the taxpayer stated that moving the dog was the final step that he hadn’t previously been able to come to grips with. By taking the dog to Dallas, the taxpayer demonstrated that Dallas was officially his new home. The New York Division of Tax Appeals agreed, noting that moving items that are “near and dear” tends to demonstrate a person’s intention to change domicile.

Consult a Tax Pro

Planning to move to a new state with lower taxes? Unless you establish domicile in the new state and terminate residency in the old one, you could come under scrutiny by state tax authorities. Your tax advisor can explain the rules in your old and new states and how to avoid potential pitfalls.

Levin Swedler Kennedy – Certified Public Accountants – Akron, Ohio

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Reminder: Ohio Quarterly CAT Return Filing Deadline is Wednesday, May 10

The Ohio Quarterly CAT Return filing deadline is Wednesday, May 10, 2017. 

The commercial activity tax (CAT) is an annual tax imposed on Ohio business entities and certain out of state businesses for the privilege of doing business in Ohio. It is measured by taxable gross receipts from business activities in Ohio.  Businesses with Ohio taxable gross receipts of $150,000 or more per calendar year must register for the CAT, file all applicable returns and make all corresponding payments.  CAT applies to all types of businesses such as, but not limited to, retailers, service providers and manufacturers.  Certain receipts are not taxable receipts, such as interest, dividends, capital gains, wages reported on a W-2, or gifts.

Annual CAT taxpayers are those taxpayers with taxable gross receipts between $150,000 and $1,000,000.

Ohio CAT - Annual Filing Deadline

Taxpayers with annual taxable gross receipts in excess of $1,000,000 must file and pay returns on a quarterly basis.  Quarterly returns are required to be filed electronically through the Ohio Business Gateway.  Quarterly taxpayers are required to pay a $150 annual minimum tax for receipts up to $1,000,000 with their 1st quarter payment.  In addition, quarterly taxpayers pay a rate component for taxable gross receipts in excess of $1,000,000.

Ohio CAT - Quarterly Deadlines

Beginning in calendar year 2013, quarterly taxpayers shall apply the full $1,000,000 exclusion amount to the first quarter return for that calendar year and may carry forward and apply any unused exclusion amount to subsequent calendar quarters within the same calendar year.  Any unused exclusion amount from the calendar may not be carried forward into the next calendar year.

Taxpayers who are not registered for the CAT must register first before filing any return.

Commercial Activity Tax Deadline

Contact Levin Swedler Kennedy – Certified Public Accountants with any questions regarding Ohio CAT compliance.


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Keep in Mind These Basic Tax Tips for the Sharing Economy

If taxpayers use one of the many online platforms to rent a spare bedroom, provide car rides or a number of other goods or services, they may be involved in the sharing economy. The IRS now offers a Sharing Economy Tax Center. This site helps taxpayers find the resources they need to help them meet their tax obligations.

Here are a few key points on the sharing economy:

  1. Taxes. Sharing economy activity is generally taxable. It does not matter whether it is only part time or a sideline business, if payments are in cash or if an information return like a Form 1099 or Form W2 is issued. The activity is taxable.
  2. Deductions. There are some simplified options available for deducting many business expenses for those who qualify. For example, a taxpayer who uses his or her car for business often qualifies to claim the standard mileage rate, which was 54 cents per mile for 2016.
  3. Rentals. If a taxpayer rents out his home, apartment or other dwelling but also lives in it during the year, special rules generally apply. For more about these rules, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes). Taxpayers can use the Interactive Tax Assistant Tool, Is My Residential Rental Income Taxable and/or Are My Expenses Deductible? to determine if their residential rental income is taxable.
  4.  Estimated Payments. The U.S. tax system is pay-as-you-go. This means that taxpayers involved in the sharing economy often need to make estimated tax payments during the year to cover their tax obligation. These payments are due on April 15, June 15, Sept. 15 and Jan. 15. Use Form 1040-ES to figure these payments.
  5. Payment Options. The fastest and easiest way to make estimated tax payments is through IRS Direct Pay. Or use the Treasury Department’s Electronic Federal Tax Payment System (EFTPS). 98005
  6. Withholding. Taxpayers involved in the sharing economy who are employees at another job can often avoid making estimated tax payments by having more tax withheld from their paychecks. File Form W-4 with the employer to request additional withholding. Use the Withholding Calculator on IRS.gov.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return. 

IRS YouTube Videos:

  • Your Taxes in the Sharing Economy – English | ASL

Original article was published on March 30, 2017 by the Internal Revenue Service – IRS Tax Tip 2017-39

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Name Change? How It Impacts Taxes

A name change can have an impact on taxes. All the names on a taxpayer’s tax return must match Social Security Administration records. A name mismatch can delay a tax refund. Here’s what taxpayers should know if they changed their name:

  • Reporting Name Changes. Got married and now using a new spouse’s last name or hyphenate a name? Divorced and now back to using a former last name? In either case, taxpayers should notify the SSA of a name change. That way the new name on IRS records will match the SSA records.
  •  Making Dependent’s Name Change. Notify the SSA if a dependent had a name change. For example, if a taxpayer adopted a child and the child’s last name changed. If the child does not have a Social Security number, the taxpayer may use an Adoption Taxpayer Identification Number on their tax return. An ATIN is a temporary number. Apply for an ATIN by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions, with the IRS. Visit IRS.gov to get the form.
  • Getting a New SS Card. File Form SS-5, Application for a Social Security Card. The form is on SSA.gov or by calling 800-772-1213. The taxpayer’s new card will reflect the name change.

All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.
IRS YouTube Videos:  

Original article was published on February 23, 2017 by the Internal Revenue Service – IRS Special Edition Tax Tip 2017-19

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IRS Debunks Myths Surrounding Tax Refunds

As millions of people begin filing their tax returns, the Internal Revenue Service reminds taxpayers about some basic tips to keep in mind about refunds.

During the early parts of the tax season, taxpayers are anxious to get details about their refunds. In some social media, this can lead to misunderstandings and speculation about refunds. The IRS offers these tips to keep in mind.

Myth 1: All Refunds Are Delayed

While the IRS issues more than 90 percent of federal tax refunds in less than 21 days, some refunds take longer. Recent legislation requires the IRS to hold refunds for tax returns claiming the Earned Income Tax Credit (EITC) or the Additional Child Tax Credit (ACTC) until mid-February. Other returns may require additional review for a variety of reasons and take longer. For example, the IRS, along with its partners in the states and the nation’s tax industry, continue to strengthen security reviews to help protect against identity theft and refund fraud. The IRS encourages taxpayers to file as they normally would.

Myth 2: Calling the IRS or My Tax Professional Will Provide a Better Refund Date

Many people mistakenly think that talking to the IRS or calling their tax professional is the best way to find out when they will get their refund. In reality, the best way to check the status of a refund is online through the “Where’s My Refund?” tool at IRS.gov or via the IRS2Go mobile app.

Taxpayers eager to know when their refund will be arriving should use the “Where’s My Refund?” tool rather than calling and waiting on hold or ordering a tax transcript. The IRS updates the status of refunds once a day, usually overnight, so checking more than once a day will not produce new information. “Where’s My Refund?” has the same information available to IRS telephone assistors so there is no need to call unless requested to do so by the refund tool.

Myth 3: Ordering a Tax Transcript a “Secret Way” to Get a Refund Date

Ordering a tax transcript will not help taxpayers find out when they will get their refund. The IRS notes that the information on a transcript does not necessarily reflect the amount or timing of a refund. While taxpayers can use a transcript to validate past income and tax filing status for mortgage, student and small business loan applications and to help with tax preparation, they should use “Where’s My Refund?” to check the status of their refund.

Myth 4: “Where’s My Refund?” Must be Wrong Because There’s No Deposit Date Yet

The IRS will update “Where’s My Refund?” ‎on both IRS.gov and the IRS2Go mobile app with projected deposit dates for early EITC and ACTC refund filers a few days after Feb. 15. Taxpayers claiming EITC or ACTC will not see a refund date on “Where’s My Refund?” ‎or through their software package until then. The IRS, tax preparers and tax software will not have additional information on refund dates.

The IRS cautions taxpayers that these refunds likely will not start arriving in bank accounts or on debit cards until the week of Feb. 27 – if there are no processing issues with the tax return and the taxpayer chose direct deposit. This additional period is due to several factors, including banking and financial systems needing time to process deposits. Taxpayers who have filed early in the filing season, but are claiming EITC or ACTC, should not expect their refund until the week of Feb. 27. The IRS reminds taxpayers that President’s Day weekend may impact when they get their refund since many financial institutions do not process payments on weekends or holidays.

Myth 5: Delayed Refunds, those Claiming EITC and/or ACTC, will be Delivered on Feb. 15

By law, the IRS cannot issue refunds before Feb. 15 for any tax return claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC). The IRS must hold the entire refund, not just the part related to the EITC or ACTC. The IRS will begin to release these refunds starting Feb. 15.

These refunds likely won’t arrive in bank accounts or on debit cards until the week of Feb. 27. This is true as long as there is no additional review of the tax return required and the taxpayer chose direct deposit. Banking and financial systems need time to process deposits, which can take several days.

See the What to Expect for Refunds in 2017 page and the Refunds FAQs page for more information.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

IRS YouTube Videos:

Original article was published on February 3, 2017 by the Internal Revenue Service – IRS Special Edition Tax Tip 2017-02

Posted in Additional Child Tax Credit (ACTC), Akron Accounting Firm, Akron Certified Public Accountants, Akron Ohio Community, Earned Income Tax Credit (EITC), Internal Revenue Service, Refunds, Tax Refunds, Taxation, Uncategorized | Tagged , , , , , , , , , , , , , , , , , , | Leave a comment

Stop, Look and Think Before You Expand

The driving force in many expansion plans is to generate higher sales, with the hope that profits will rise. But before making moves to buy new equipment, expand your plant or implement a new business idea, you need to grasp the profit angle.

In some cases, an expansion plan boosts sales but not profits. You wind up working longer and harder for nothing.

You may think, “if we lose a little bit on each deal, we can make it up on volume.” That sounds good but may prove difficult in reality. To prevent problems, analyze three factors of success. Here’s a step-by-step guide.


Once you calculate these factors, you’re ready to analyze the impact of expansion. Let’s say your company makes Belgian chocolates and sells them in quarter-pound boxes at $10 apiece. Your variable costs are $8, giving you a contribution margin of $2 on each box to cover fixed costs and provide a profit. Your fixed costs are $100,000, so you need to sell 50,000 boxes to break even.

But you want to expand and fixed costs will rise to $125,000. Your contribution margin stays the same. Using the breakeven formula (fixed costs divided by contribution margin), you now have to sell 12,500 more boxes, or 62,500 total.


Once you get the figures, it’s a good idea to talk to your financial advisor about how cash flow, liquidity and profitability could change, depending on business conditions. But fundamentally, a solid grasp on these factors is critical to deciding whether you’re better off keeping the status quo or charging ahead with an expansion.


-Reposted from the Levin Swedler Kennedy Newsletter powered by Checkpoint Marketing

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