Carry Over Business Expenses

While every entrepreneur seeks profits, it’s all too common to suffer losses. Carrying over expenses is when a business has undergone losses, and the business owner decides to carry over the loss to the next year; or even the previous year that your business was profitable. The carry over rule in business is an advantage as it enables business owners to offset their profits in the future with tax deductions. For you to reduce your taxable income, you can carry over home office deductions, net operating losses, and capital losses into future years of paying tax. If your business is currently facing operation losses, you can decide to carry back the two years’ loss for you to get a tax refund or you can take the option of carrying over the loss and offset your future taxable income. However, it’s important that you seek professional advice from an accountant or a tax expert for further guidance before you carry forward any business losses.

How A Carry Over Works

For you to carry over business losses, you have to generate a schedule that shows all the cumulative losses. The losses are then used to reduce profits in future years. When your capital gains are less than your capital losses for the year, you will have to deduct some of your losses from your income tax. However, annually you can only subtract losses up to a maximum of $3,500. The only way that one can get the tax benefit of any loss incurred in business is by applying the carry forward rule.

To carry over, you have to calculate the net operating cost for your business. Organizations find this easy, but it is very important that you ensure you have separated the business losses from the non-business ones. However, it’s impossible to carry over the business losses to the same extent as the non-business losses. The net operating losses can be calculated easily by deducting business expenses from work profits. For example, if your organization has made a profit of $7,000 and a loss of $25,000 your net operating loss will amount to $18,000. The carryover deduction is limited to the extent that it would surpass your tax liability. For example, if your net operating loss to carry over to year two is $18000 and your total earnings for the year is $7,000 you will have a limit of $7,000 to carry over losses for that year thus making you wait for future years to use up more of your permitted deduction.

How carry over businesses helps in saving money

One of the benefits of carrying over losses in business is that it helps you to save money and reduce business expenses. The carry over reduces the chances of you losing money on your investment because some asset sales are taxed more heavily than others. For example, if you are selling electronics or other things you can expect that your tax will be 28%. Most business bonds and stocks are taxed at 15%, thus enabling you to save a good percentage on your current earnings. If you are running a small business, you can easily reduce the taxable income and your tax burden through the carried forward losses.

The accounting method used should account for inventories in the same manner as supplies and materials so as to confirm your inventories in a financial statement. The method you use in your organizations determines the timing that you recognize your expenditures on your tax return. However, if it’s hard for you to deal with the accounting issues, you can work with a CPA firm that will handle the accounting sector and the business plans in your organization. Here are some of the reasons why hiring a CPA firm for your business is a good option.

Reasons Why You Should Hire A CPA Firm For Your Business

1. Enhances Efficiency In Business Operations

An accountant is very helpful when it comes to handling financial issues and managing your business transactions. The accountants will help in overseeing the company’s payment and payroll process, ensure that your contractors are well classified, provides professional advice on the tax payments that should be made annually, submitting and complying taxes and financial records, and will explain your company’s financial statements. These will ensure that your business operations are running smoothly thus increasing efficiency.

2. Will Help In Decision Making

As a business owner, you end up having so many roles and responsibilities in your company thus making it hard sometimes to make decisions properly. Having an accountant that will handle some of the responsibilities will help you to make informed decisions because you will have time to analyze the situation and the consequences that may come as a result of poor decision making. Hiring a CPA firm with experience in financial health will help you to acquire quality information when making decisions. A CPA firm will have you’re back allowing you to be more effective when performing your other roles.

3. Cash Flow Management

Lack of track of cash flow in business can easily damage your organization. Behind the success of every business, there is a professional accountant who manages the flow of cash. However, any mistake made on cash flow will bring your business down regardless of how big or small your business is. A CPA firm is very reliable as it knows the financial reports to analyze and can detect a financial problem earlier before the company faces loss. For example, when there is a change in customer payments, a CPA firm will know that it can result in problems in the future. Besides the organizations depends fully on the money come in from their clients. An account or a CPA firm will help you minimize the risk of making losses and help you identify the ways to maximize profits for your business in future.

4. Growth Of The Company

It is every entrepreneurs’ dream to see their business reaching greater heights. For instance, if it’s a local business, you will want it to become a multi-billion-dollar global company in the future. However, planning is the best as it will give a clear picture of you want your business to be in the future. Making additions to the line of your product and expanding to a new location are some of the ways that you can use to analyze the growth of your company. Hiring a CPA firm at the time of expanding your business will help you to ensure that your following your company is following the right path. Also, the firm will ensure that your company remains profitable as you expand to different geographical areas.

5. Will Help You Avoid Costly Mistakes

A CPA firm will help you know and understand the numbers of your company. The firm will help you get all the data you need like non-compliance issues, cash shortfalls and missed due dates. This kind of mistakes will cost you more than you could spend on hiring a company that will help you avoid spending more money and time in the long run. Besides putting up a business is expensive spending some extra cash is worth the risk if it will make your business successful and more profitable.

6. Eases Employee Payment

Hiring a CPA firm will save you the stress of handling the payroll as they are well experienced in that. An accountant will manage and solve the payroll issues thus reducing employee complains because of delayed payments. A CPA firm will properly classify the workers and will realize in time when there is an exemption to be made.

7. Auditing Becomes Easy

In case of an audit, a CPA firm will help you handle and guide you through the process. Having a CPA firm that understands and knows your accounting books well enough will help you meet the required business standards. The CPA firm will also help you to avoid penalties and expensive fines as they ensure that your organization stays in compliance with the tax rules even when they keep changing annually.

8. Helps You To Stay Informed

Hiring a CPA firm will help you get information about the new laws that govern the businesses. Such as tax deduction rules, local regulations, state and federal laws that relate to your day to day business operations. Also, the accounting firm will save you the time to read and to search for information regarding finances in business.

9. The End Of Year Reports

The end of the year is not only the time to close for holidays but also the time for your CPA firm to give you an annual financial report. The financial report will give you information on the profits and loss the company has made over the year. Also, it provides ways that you can use to minimize tax deductions. An account will be one of the most important assets when it comes to performing a health check on your business.

10. Professional Reputation

Having a good CPA firm will build a good image for your company thus improving your reputation in the industry — this important especially when your organization is new and strives to build strong business relationships with key players in their success. Portraying a good image to your clients and the public will also boost your productivity levels thus increasing profits.

A CPA firm will not only see the financial information of the many businesses in the industry but also can see the practices that are working for your competitors and also what has caused failure of some organizations in the industry. Here are some of the reasons why you should hire a CPA firm in your company or organization.

About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.