FOR BROKERS: Business Planning
What to Do When...
You want to take control of your company’s accounting.
BY ROBERT FREEDMAN
Orson Woodhouse, GRI, broker-owner of Woodhouse Group in Boise, Idaho, is paying 50 percent more for accounting services than he was at the end of 2002. He couldn’t be happier.
That’s because he replaced his old accounting firm with one that brings real estate and small-business experience to the table. His experience shows how critical it is to understand the ways accounting and tax issues can impact your bottom line.
The new firm proved its worth quickly by saving Woodhouse money on his taxes and creating more efficiency in his operations. “I didn’t have a bad experience with my old firm,” says Woodhouse, whose company specializes in new-home sales and relocation. “It just wasn’t leading-edge in our industry.”
Right off the bat, the new firm—Balukoff, Lindstrom & Co., in Boise—replaced Woodhouse’s manual bookkeeping system with QuickBooks, which enables the brokerage to tabulate everything electronically, then e-mail quarterly and annual reports to the accounting firm. When there’s a problem, the electronic system makes it easy to make changes. “We’ve seen a fivefold increase in bookkeeping efficiency,” Woodhouse says.
The accounting firm also recommended changes in how Woodhouse categorizes expenses, saving him money on his 2002 taxes. Among other things, it recommended that Woodhouse take advantage of tax laws favorable to real estate professionals for income-property investment losses. “Practitioners can write off 100 percent of their income-property losses, an option not open to passive investors,” says Michael Lindstrom, president of Balukoff.
The firm also recommended strategies that make sense for brokerages with independent contractors and a handful of employees. Among them:
- Asset growth. Changes to federal deduction laws enacted this spring enable business owners to deduct $100,000 a year, up from $24,000, on business assets such as software. “We recommended that Woodhouse spend money on assets rather than pay taxes,” says Lindstrom.
- Family savings. Federal laws provide favorable tax treatment for employing family members to do odd jobs such as post For Sale signs. A certain amount of compensation to family members isn’t subject to payroll tax. And children’s income is typically taxed at a lower rate. At Woodhouse Group, Woodhouse’s wife keeps the company books.
- Large vehicle deduction. A business car weighing more than 6,000 pounds can be written off in one year; lighter cars take longer to write off.
An accounting firm also can advise on how to structure your business entity, whether as an S, C, or limited-liability corporation. Each has advantages under certain conditions, and owners can change their structure as company goals change. (See “Match company structure to your goals.”)
So, how do you pick the right accounting firm? Woodhouse assembled leads by talking to colleagues in his market. He interviewed five companies before settling on Balukoff. “You can always find someone who can get your taxes done correctly,” he says. “It’s worth it to pay more for someone who has your long-term health in mind.”
Match company structure to your goals
Here are three examples of how to structure your business to respond to your company’s changing goals, according to Michael Lindstrom, president of Balukoff, Lindstrom & Co., Boise, Idaho. For specific advice, consult an accountant.
"C" Corporation
Advantage: Put yourself on a salary and get 100 percent of employee medical insurance costs deducted from your taxes. Helpful if anticipating high medical bills.
Disadvantage: May be expensive if more than a few employees.
Limited-liability corporation
Advantage: Maximize retirement benefits up to a certain point.
Disadvantage: Benefits are limited if the owner reaches $200,000 in income. In these cases, it may make sense to adopt an S corporation structure.
"S" Corporation
Advantage: Get favorable payroll-tax treatment.
Disadvantage: Lose out on the ability to fund retirement plans.
