CEO and Founder of BookSmarts Bookkeeping and Accounting, Jenny Groberg, was asked to share her favorite tax strategy for business owners, and individuals who manage their own side hustles as a feature for Forbes. Written by an renowned tax expert Kelly Phillips Erb, a Forbes journalist and esteemed Lawyer, published this article on January 19, 2024, titled: “A Simple Accounting Strategy Can Help Businesses Avoid Tax and Other Surprises” together Kelly and Jenny dive into this often overlooked financial review practice that has the potential to save clients thousands by identifying outliers.
Diving a Bit Deeper into this Strategy:
Step 1: Gather Profit and Loss Statements* (P&L statements) for the past 3 years. These statements may be provided by your bookkeeper or accountant if you have one, or if you use quickbooks, you likely can find it under the reports section.
Step 2: Compare them side by side year from year. You can also do this quarterly (every 3 months).
Step 3: Check for any outliers. Are your expenses significantly higher one year to the next? What about your revenue?
One of our clients was able to avoid paying over $50,000 in excess taxes when we used this tax strategy. This same strategy also helped another client identify employee theft.
You’ll also gain invaluable insights into how your income and expenses are growing, identify ways to save money, and even see how much you should be increasing your prices to cover your costs!
Our accounting team applies this practice to our monthly, as well as, yearly reviews for all our clients! We know how important it is to have accurate financials for proper tax reporting. This is the most common error we see as we perform clean ups for our clients! Peace of mind can be yours when you can rely on accurate financials.
In celebration of this feature, we’d love to help review this strategy with you in depth with your own financials in a 30 minute video call. Please schedule your review using this link, and mention FORBES in the event description.
As a conclusion, Kelly wrote it best:
“Whether you run a company and oversee employees, or just manage your own side hustle, you want to look at more than what you’re putting in your pocket at the end of the day. You want to understand which of your products and services are making money — and which are not generating much revenue at all. And, keeping an eye on costs can help you avoid waste, even when it’s unintentional.
Comparing your income and expenses to previous years allows you to spot trends, as well as outliers—those transactions that are out of the ordinary—and make appropriate changes, including tax planning, to help avoid any surprises during tax season. While you might have an idea of how well the business is doing based on your bank or related statements, your P&L statement can give you the level of detail you need to know for sure.” (Forbes, 2024)
*Profit and Loss Statements: Total Revenues (minus) Total Expenses. A profit and loss statement (P&L) is a financial report that summarizes revenues, costs, and expenses during a specific time frame (i.e. fiscal quarter or year). It shows a company’s ability to generate earnings, detailing net profit or loss by subtracting total expenses from total revenues.
