To avoid the tax pitfalls of procrastination, here are 4 accounting and tax tips to implement!
There are several things pharmacy owners can do on a daily basis to improve their accounting situation which, ultimately, is the first step to proactive tax planning and mitigation. Procrastinating until year end or later can cost you more money, excess tax, wasted time, poor management control, and unnecessary stress and headache. To avoid the tax pitfalls of procrastination, here are 4 accounting and tax tips to implement!
Get an overview of your current system. To take advantage of many tax and accounting opportunities, you must understand where your accounting system stands currently. You probably have someone in “control” of your books such as a bookkeeper or outside CPA, but you need to understand what condition those books are in. From our experience, most books are not in good working order so an overview of your accounting system is a crucial first step. An overview of an accounting system always begins with making sure your accounting system ties into your tax returns because, if they do not, you have two sets of books! You should also make sure accounts are reconciled, the balance sheet is up to date and the processes for keeping the books current are efficient and able to produce timely information. Unfortunately, this process can be very intense, depending on the condition of your accounting system. Nonetheless, it is absolutely necessary if you want to take control of your back office, accounting and tax situations!
Implement technologies in the back office. Once you have an understanding of your current accounting system, take advantage of any technologies or processes to improve the accounting back office. This will streamline the accounting, provide better integrity in the data and produce timely financial information that you can rely on and thus manage your business by looking ahead not backwards. Furthermore, having timely and accurate information will open the door to proactive tax strategies you will not be aware of with a reactive accounting system. Technologies may include cloud-based options such as a hosted accounting file, automated bill paying process and workflow, as well as outsourced payroll processing. The old way of doing accounting is out the door; update to technologies that allow you to stay current and proactive.
Form W9 and 1099 reporting responsibilities. Form W9 tells you the information you need to complete a 1099 at year end, if it is required. Before paying vendors, it is highly advised you request Form W9 from them. It is much easier to request Form W9 before payment than to wait until year end and chase down the vendor. 1099 reporting is not an option with the IRS, so implementing technologies and daily processes can help you stay in compliance efficiently and without stress at year end. Staying in compliance with 1099s is very important and the penalties for non-compliance can be excessive if ever audited.
Inventory control. You have likely heard about inventory control and its importance to your pharmacy. Inventory management and control is vital to the integrity of your financial performance. If your inventory is off $50,000 on your balance sheet then your bottom line is off $50,000 on your profit and loss statement. Making sure inventory is as accurate as possible on your accounting records is paramount to making sure your accounting system is giving you the data you need to manage your pharmacy. Typical best practices for inventory management include buying better, frequent cycle counts with a perpetual system in place as well as biannual actual physical counts. These processes will give you solid data points and historical trends to help your pharmacy CPA make better accounting adjustments on your books. This will give you confidence in your accounting and financial statements.
Changing or updating your accounting system is the first step to being proactive with taxes. Catching up the books in the fourth quarter or after the year is over will not get your ahead with your tax situation. Implement these steps now for 2017 to help you make the most of this year!