Accounting and tax questions, answered

Working together

Where are you located, and can you work with me outside Colorado?

I am based in Denver, Colorado, and I work with clients in all 50 states. Everything runs remotely: documents are shared securely, meetings happen by phone or video, and returns are filed electronically. Being in Denver does not limit who I can take on.

Will I work with you directly, or get handed to staff?

You work with me. The person who reviews your books, prepares your statements and signs your return is the person you call. Nothing is passed to a rotating account manager.

How do we exchange documents securely?

Through a secure client portal rather than email attachments. Bank and payroll data can also be connected read-only so recurring documents flow in without you gathering them each month.

What accounting software do you work in?

QuickBooks Online most often, and I can work in QuickBooks Desktop, Xero and most job-costing or industry systems. If you already have a system that works, I use it. If you do not, I will recommend one that fits the size and type of the business rather than the most expensive option.

How often will we talk?

Monthly or quarterly for ongoing accounting clients, matched to your close cycle, plus a call before year end for planning. Tax-only clients usually need two conversations: one to scope the return, one to review it before filing.

How do you charge?

Billing is based on the time the work takes, which depends on transaction volume, how many entities and states are involved, and the condition of the existing books. I will give you a realistic range once I understand the situation, and I will tell you if something turns out to be larger than it looked before the hours get spent rather than after.

Do you take on one-off projects, or only ongoing clients?

Both. A cleanup, a single return, a set of statements for a lender, or a second opinion on a filed return are all reasonable engagements on their own.

Can you work alongside my current bookkeeper?

Yes. In many cases the bookkeeper keeps handling day-to-day entry while I handle the close, the WIP review, the workpapers, the statements and the tax side. That is often the least expensive structure that still produces reliable numbers.

What if I already have a CPA?

A second opinion is a normal request, especially if your books and your return do not tell the same story, or you have never had the numbers explained to you. If your current CPA is doing good work, I will say so.

How do we get started?

Call 239-896-6799 or email zach@zacharyschwarzcpa.com and describe the situation. A short conversation is usually enough to find out how I can help you and your business.

Bookkeeping and the monthly close

What does full-cycle accounting actually include?

Entering and coding AP invoices, billing and applying receivables, capturing bank and card activity, running payroll, reviewing work in progress and booking over- and under-billing entries, closing the month with accruals, prepaids and depreciation, preparing workpapers that support every balance sheet account, and producing the financial statements that come out of all of it.

What is the difference between a bookkeeper and a CPA?

A bookkeeper records transactions. A CPA is licensed, is responsible for whether those records are right, and can take them the rest of the way: adjusting entries, workpapers, financial statements, tax positions and representation. Many businesses need both, and the work overlaps less than people expect.

My books are behind or were never set up properly. Can you fix them?

Yes. Cleaning up an existing set of books, or building the process from scratch, both count as a normal starting point. The first step is finding out how far off the current numbers are and what it takes to get the periods closed and reconciled.

What does a month-end close involve?

Reconciling every bank, card and loan account, booking accruals and prepaids, recording depreciation, clearing suspense and undeposited funds, reviewing the balance sheet account by account against its supporting workpaper, then producing statements and reviewing what changed.

Why does it matter that a closed month stays closed?

Because numbers that keep moving cannot be compared. If March changes every time someone edits an old transaction, you cannot trust a trend, a budget, or a year-over-year figure. Closing a period and locking it is what makes the history usable.

What are balance sheet workpapers, and why do they matter?

A workpaper is the support behind an account balance: what the number is made of and how it ties. Cash ties to the reconciliation, AR to the aging, fixed assets to the depreciation schedule, loans to the lender statement. When every account has one, a lender, an auditor or a buyer can follow your books without you in the room, and errors surface in weeks rather than at year end.

How quickly should I get financial statements after month end?

Two to three weeks is a reasonable target for most small businesses, faster once the process is clean. Statements that arrive three months late can only explain history; statements that arrive promptly can still change a decision.

My QuickBooks says I am profitable but my bank account is empty. Why?

Usually some combination of receivables you have earned but not collected, inventory or WIP tying up cash, loan principal payments that reduce cash without reducing profit, owner draws, and timing of payables. Profit and cash are two different measurements, and the reconciliation between them is one of the more useful reports a small business can have.

Do I need to reconcile accounts every month?

Yes. An unreconciled account means the number on your statement is a guess. Most serious bookkeeping errors, duplicated expenses, missing deposits, misapplied payments, are caught by reconciliation and almost nothing else.

How long should I keep records?

Generally at least three years from filing for supporting documents, seven years is a safer default, and permanently for entity formation documents, major asset purchases, depreciation schedules and prior returns. Digital copies are fine if they are complete and retrievable.

Accrual and cash basis

Why keep the books on accrual if my return is filed on cash basis?

They answer different questions. Accrual books match revenue to the work that earned it and costs to the period they belong to, which is the only view that shows whether a month or a job was actually profitable. Where cash-basis reporting is available and advantageous for tax, the accrual books are converted back with documented adjustments, so the return reflects what moved through the bank while the books still tell you how the business performed.

What is the difference between accrual and cash basis accounting?

Cash basis records revenue when money arrives and expenses when money leaves. Accrual records revenue when it is earned and expenses when they are incurred, regardless of when cash moves. Cash basis tells you what happened to your bank account. Accrual tells you what happened to your business.

Which basis should my business use?

For running the business, accrual, once you have receivables, payables, inventory or jobs that span months. For filing, whichever method you are eligible for and which produces the better result, which is often cash for smaller businesses. The two are not mutually exclusive: you keep one set of books and convert for the return.

How does the conversion from accrual to cash basis actually work?

Receivables, payables, accrued liabilities, prepaid items and WIP get reversed out with documented adjusting entries, and every adjustment is supported by a workpaper. The result is a cash-basis return that reconciles line by line back to accrual books, so both views stand up if either is questioned.

Can I switch accounting methods?

Often yes, but a change in method generally requires filing for the change and applying an adjustment so income is not counted twice or skipped. It is a planning decision with real tax consequences, not a setting to flip mid-year.

Does accrual accounting mean I pay tax on money I have not collected?

Only if the return itself is filed on accrual. That is exactly why the two are separated: the books can be accrual for management purposes while the return is filed on the method that is appropriate and advantageous for your situation.

WIP, job costing and contractors

What is a WIP review, and does my business need one?

A work-in-progress review compares job costs incurred against what has been billed, tests the estimate to complete, and books the over- or under-billing entry that brings revenue in line with the work performed. Any business that bills in stages or holds jobs open across months, contractors especially, needs one to keep monthly results honest.

What are over- and under-billing entries?

If you have billed more than the work completed to date, you are overbilled and part of that billing is a liability, not revenue yet. If you have completed more than you have billed, you are underbilled and have earned revenue that is not on an invoice. The entry moves the difference so the income statement shows what you actually earned in the period.

Why do contractors get surprised by a bad quarter?

Because cash from overbilled jobs feels like profit. Front-loaded billings make early months look strong and later months absorb the cost, so a job that was losing money from the start looks fine until it is nearly finished. A monthly WIP review surfaces that while you can still reprice, renegotiate or slow down.

Do I need job costing, or is a profit and loss enough?

If you run multiple jobs or projects, a company-wide profit and loss can hide a losing job inside a profitable month. Job costing tells you which work actually makes money, which is the difference between knowing you made 12 percent and knowing which jobs made 30 and which lost 10.

How do you handle retainage?

Retainage is tracked as its own receivable so it does not distort the current aging and you can see what is actually collectible now versus what is held until completion. Lenders and sureties look at this closely.

What is percentage of completion, and does it apply to me?

It recognizes revenue in proportion to the work completed rather than when billed or collected. It generally applies to longer-term contracts, and it is what makes monthly results meaningful for a contractor. Which method you must use for tax purposes depends on contract length and the size of the business.

What reports do sureties and lenders usually want?

Accrual-basis financial statements, a WIP schedule, an aged receivables and payables listing, and often comparative prior-year statements. Books kept properly produce all of these without a scramble.

Payroll, employees and 1099s

Do you handle payroll and the filings that go with it?

Yes. Payroll is processed and filed on schedule, with wages, withholdings and deductions allocated correctly across accounts and jobs, and with reasonable-compensation questions handled by the same person who prepares your return.

What is reasonable compensation for an S-corp owner?

It is the wage you would have to pay someone else to do your job, supported by what the business earns and what your role actually involves. Taking too little salary and too much distribution is one of the most commonly examined positions in small business tax, and it needs documented reasoning rather than a rule of thumb.

Should this worker be an employee or a contractor?

It depends on control: who sets the schedule, who provides the tools, whether the worker serves other clients, and how integral the role is to your business. Misclassification is expensive, because back payroll taxes, penalties and interest all land on the employer. It is worth getting right before the first payment, not after.

When do I need to issue a 1099?

Generally when you pay an unincorporated service provider 600 dollars or more during the year. Collecting a W-9 before you pay anyone is what makes January straightforward, and it is the single easiest process fix in most small businesses.

I have employees in multiple states. What does that change?

Each state where an employee works can create registration, withholding and unemployment obligations, and sometimes local ones. Remote hiring quietly creates multi-state payroll exposure, and it is easier to register correctly up front than to unwind several quarters later.

Can I pay myself as an LLC owner through payroll?

A single-member LLC taxed as a sole proprietorship takes owner draws, not wages. If the LLC has elected S-corp treatment, the owner generally must be on payroll. Which structure you are in determines the answer, and getting this backwards is a common source of amended filings.

Business tax and entity structure

Do you prepare individual returns as well as business returns?

Yes. Federal and multi-state individual returns, and business returns for S-corps, partnerships, C-corps and sole proprietors, reconciled to the books they came from.

Should my business be an LLC, S-corp or C-corp?

LLC is a legal structure; S-corp and C-corp are tax treatments. The right answer depends on profit level, how much you take out, whether you have partners or outside investors, payroll cost and state treatment. An S-corp election can save meaningful self-employment tax at a certain profit level, and cost you money below it.

When does an S-corp election actually make sense?

Broadly, once profit is consistently high enough that the self-employment tax saved exceeds the cost of payroll, filings and a separate return, and the owner is drawing a reasonable salary. It is a math question specific to your numbers, and it should be re-run as the business grows rather than decided once.

What are the main business filing deadlines?

S-corps and partnerships generally file by March 15, with an extension to September 15. C-corps and individuals generally file by April 15, with an extension to October 15. An extension moves the filing date, not the payment date.

What is the deadline for making an S-corp election?

Generally within roughly two and a half months of the start of the tax year you want it to apply to, or when a new entity is formed. Late elections can sometimes be accepted with reasonable cause, but planning ahead avoids the argument entirely.

Do I owe taxes in other states if I have remote customers?

Selling into a state can create income tax or sales tax obligations depending on the type of business and the volume of activity there. Having employees or property in a state almost always does. This is worth reviewing annually rather than assuming last year’s footprint still applies.

What business expenses can I actually deduct?

Ordinary and necessary costs of running the business, documented and separated from personal spending. The common problem is not aggressiveness but substantiation: no receipt, no mileage log, no business purpose recorded. Clean books capture the deduction at the time it happens rather than reconstructing it in March.

Can I deduct a vehicle, a home office or meals?

Each has specific rules and each needs records. Vehicles require mileage or actual-cost documentation and a business-use percentage. A home office must be used regularly and exclusively for business. Business meals are deductible at a limited percentage with the business purpose and attendees noted. All three are legitimate and all three are commonly disallowed for lack of support.

What are quarterly estimated taxes, and how do I avoid penalties?

Businesses and self-employed individuals generally pay tax in four installments, due in April, June, September and January. Penalties are avoided by paying enough through the year, usually measured against your current-year liability or your prior-year tax. Estimates calculated from actual books, rather than last year’s guess, keep you from either overpaying or being penalized.

Can you help if I get an IRS notice?

Yes. Most notices are narrower than they look and come down to a mismatch, a missing form or a payment applied to the wrong period. The first step is reading what is actually being asked and responding to that within the deadline, with the workpapers to support your position.

What happens if I have unfiled returns or back taxes?

They get addressed in order, oldest first, because penalties and interest compound and filing stops part of that. There are also payment arrangements available. The situation is nearly always more workable than people fear, and it does not improve by waiting.

What is the R&D credit, and could my business qualify?

It is a credit for developing or meaningfully improving products, processes or software, and it reaches more businesses than the name suggests, including some construction, manufacturing and software firms. Qualifying depends on documented activities and costs, which means the tracking has to exist in the books during the year.

Individual tax

When is a CPA worth it for a personal return?

When there is more than one moving part: self-employment or 1099 income, rental property, equity compensation, a business interest, multiple states, a major life or asset change, or income high enough that planning decisions carry real money. A straightforward W-2 return usually does not need one.

I got a 1099 for the first time. What do I need to do?

Track income and related expenses separately from personal spending, expect self-employment tax on the profit in addition to income tax, and plan on quarterly estimated payments. The most common first-year surprise is not the tax rate, it is having no money set aside for it.

How much should I set aside for taxes on self-employment income?

It depends on your total income, deductions, filing status and state, so a single percentage is a guess. The reliable approach is a projection from your actual numbers once, then quarterly payments based on it, adjusted as the year develops.

I work remotely from a different state than my employer. Where do I owe tax?

Generally where you physically perform the work, with a credit mechanism to prevent double taxation, but several states have rules that complicate this. If you moved mid-year, worked from more than one state, or your employer withheld for the wrong state, that return needs attention rather than software defaults.

I own rental property. What do I need to know?

Rental income and expenses are reported separately, depreciation is required rather than optional, improvements and repairs are treated differently, and losses may be limited depending on your income and involvement. Basis and depreciation records matter enormously when you eventually sell.

I have equity compensation. When should I get advice?

Before the event, not at filing. RSUs, ISOs, NSOs and ESPPs are taxed at different points and in different ways, withholding is frequently insufficient, and the cost basis reported on your brokerage statement is often incomplete, which leads to paying tax twice on the same income.

What records should I keep for my personal return?

Income documents, records supporting any deduction or credit claimed, brokerage statements with cost basis, closing statements for property purchases and sales, and records of improvements to property you own. Keep at least three years after filing; seven is safer, and property records should be kept as long as you own the asset.

Should I file jointly or separately?

Joint filing is usually better, but not always. Separate filing can make sense with large medical expenses relative to one spouse’s income, income-driven student loan repayment, or liability concerns. It is a calculation, and it is worth running both ways in the years it might matter.

Can you help me plan, not just file?

That is where most of the value is. A return records decisions already made; planning changes the decisions while the year is open. Entity structure, owner compensation, timing of income and purchases, retirement contributions and method choices all have to be addressed before December 31.