Contractors Reflect On This Year's Results As The Last Quarter Begins
Going into the last Quarter of the year. Time for some basic reflection about taxes. Officers in S-Corps tend to take payroll later in the year. Now is the time if you have not already been taking payroll. Don't wait until it is time to prepare your Construction Company tax return.
Next review your Estimated personal Taxes paid to the IRS. How much did you pay in taxes for the current year? Internal Revenue expects that you have paid a percentage Federal Taxes before the end of the year.
Reviewing Federal Withholding for yourself and your employees to avoid surprises when your annual taxes are filed. Contractors who file as a Sole Prop or as an LLC fining as a Sole Prop tend to forget that payroll taxes on their net income is due. I call this “Chef’s Surprise” as it is based on Net Income. Everyone wants the last few jobs to pay before the end of the year.
As the Sole Prop or 1099 Contractor, the amount due will be both the employer and employee portions (combined is 15.3% + federal income taxes) Refer to your Tax Accountant about the ability to claim the employer portion as a deduction on your taxes.
Time for some basic reflection about your bookkeeping methods
How are you keeping track of your income and expenses?
Do you use software or on a paper system?
Many Contractors use Shoeboxes, Cardboard Boxes and paper bags
The issue comes when your Banker, Liability Insurance Company, Worker’s Comp Insurance Company, Bonding Company or State Agency or Internal Revenue want reports. I have seen some manual systems that are quite good.
I remember the days pre-computer days where I used an oversized 13 Column Pad. It worked, not a great as the multiple ledgers and from there that first version of Quicken was wonderful. Now using QuickBooks which can be customized is fantastic. Being in Washington State where sales tax is destination based – customization is the key to easy reporting. Other states have different reporting requirements.
Additional reflection is needed when multiple partners are involved
- Is it an active partner or someone who is behind the scenes (investment versus day-to-day activities)?
- Is each partner doing what you expect them to do?
- There are additional challenges when multiple partners are not actively engaged.
- The net profit is divided based on the percentage of ownership.
Many times, partners have different visions for the company.
- Growth Of The Company (How Big, How Fast)
- How Much Money To Take Out of Company
- Reinvestment Of Profits Into The Company
- Should They Add A Vehicle (new or used)
- What Tools And Equipment To Purchase
- Compensation For Employees
- Compensation For Owners
Decisions Happen Every Minute For Working Construction Contractors
The most frustrating situation happens when one partner is actively working in the day-to-day activities, and the other partner is a “Manager” and is practicing “Seagull Management” but is never there for the day-to-day activities.
It is easy to say I’m working on the business. Reality is that it may not have the same meaning to all partners. Working on the business is Planning, Marketing, Doing Active Things in the business.
I have heard many stories where One Partner tells the other partner (while managing from afar) You need to be doing [fill in the blank]
- The sales are not that high you have plenty of time
- The paperwork is not that much; it will only take you 10 -15 minutes [a week, a month] to do it
- Or saying “After The Fact: that decisions you made were not the ones I would have made.
It is easy for the person Not Doing The Work - to say, we (Meaning YOU) what should or should not have done [fill in the blank]. This happens a lot when partners are not in the same city. Or to say I can’t because you are better at [fill in the blank]. The last thing you need is for someone else to assign you a task to do. As a Construction Contractor, there is no shortage of “tasks to do” in running your Contracting Business.
These sort of challenges is one of the reasons we recommend being an S-Corp. It is easier to have a business relationship with someone that is something other than a 50-50%. It is by EXCEPTION that multiple partners will be equally invested in the company. (Time, Money and Effort).
Usually, the Construction Company is weighted with one partner doing more, spending additional hours in the Construction Side of the Work to bring in the money or save on employee hours.
Many times, that same partner is asking their spouse to pitch in and do the bookkeeping without pay because it will benefit them in the long run. Then it becomes two people actively working in the business for the financial benefit of one. If spouses are paid on payroll – they are valued.
(It can be the gesture more than the money)
As an S-Corp owner’s payroll will better reflect activity in the business. Life Happens!
If one of the owners is working fewer hours due to personal reasons; there is compensation that can be more easily given to the other working owners above and beyond the net profit of the company. Easier to facilitate a Loan To Shareholder as needed. When you discuss in the beginning, it Saves “White Noise” and “Hard Feelings.” later.
Years ago; I read a book that described how one partner was very upfront in saying.
- Why should I work so hard when I know you will?
- I can just sit back and get my share of the profits without doing much of anything! (not an exact quote)
- It was just a story, but a few times when meeting with Construction Partners that attitude has come through.
Not all partnerships have problems. I know of several who have been friends and partners for decades. Partners discussed their roles and how to work together. It is awesome! I am always glad to talk to them and catch up.
The Rest Of The Year Will Go By Fast Halloween Is Almost Here
It Is Time To Review Your Current Year Construction Accounting
How are you currently handling your bookkeeping?
If you are comfortable Doing It Yourself and just want a little TLC - we can help.
Additional resources are on FastEasyAccount.com (website) and FastEasyAccountingStore.com (store)
We accept all major credit cards and PayPal. Also available PayPal credit offers six months same as cash.
We Help A Little Or A Lot Depending On Your Needs. Do you want to explore a QuickBooks file cleanup, or discuss Outsourced Accounting? Offer One Hour Free Consulting. Sometimes Contractors use just to vent about business stuff, and for a variety of reasons, all I can do is be the ear on the end of the phone and offer suggestions.
Never am I going to be nasty about your bookkeeping no matter how “icky or artistic” you have been. We are here to help with your assistance we can create a file with good reports that are useful to you.
Remember your financials are based on the documents you provide in person, electrically, or by using our document management system. Unfortunately, many tools used on Star Trek are still not available.
Year-End Planning Tip: As the economy and your cash flow is improving, do you have all the tools and equipment you want or need? If purchases are made before December 31st, it is a deduction for the current year.
Looking forward to being of assistance.
About The Author:
Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. http://www.fasteasyaccounting.com/sharie-dehart/ 206-361-3950 or sharie@fasteasyaccounting.com
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Most Contractors Setup QuickBooks Desktop Version In One Of Three Ways:
#1 EZ Step Interview inside QuickBooks Setup
#2 Asked Their Tax Accountant To Setup QuickBooks
#3 They Attended A How To Setup QuickBooks Class Or Seminar
And QuickBooks Does Not Work The Way They Want It Too!
The Answer: