What does every tax professional have to know, but most of them don’t?
Read the partnership agreement, particularly in regards to loss allocations to partners with negative tax basis. This gets missed constantly in the startup community when the founder has raised a round of funding.
Also, the accounting system shouldn’t match your return (posting MACRS depreciation, etc) – that’s what book to tax adjustments are for. The accounting system is primarily a management tool that business owners should be interacting with on a regular basis, vs tax preparation that happens once a year.
1) MACRS vs GAAP deprecation.
2) 50% M&E – where do you book the other half?
3) Prepaid and Accrued Expenses to keep the matching principle intact.
4) Reserve for Bad Debts.
5) Deferred Revenue – many more reasons.
As per my original point, the accounting system (and there are more systems than QB) should be kept on a GAAP basis as it gives the truest (I know, not perfect, but best) presentation of what is actually happening in the business.
Taxes keep people compliant , but operational accounting and finance helps them grow.
Dan Schmidt is the President and Founder of The Emerging Business CFO, providing CFO and accounting outsourcing to startups, entrepreneurs, nonprofits and growth stage companies.