fbpx

Three things to look for when searching for contractor accountants

When it comes to looking for a Certified Public Accountant for Contractors, the search can be tedious and long. More than likely, you might go through a few proclaimed contractor accountants before landing the “right” one. It’s not uncommon for a contractor to have a CPA turnover ratio of one certified public accountant for every two years.

Therefore, the purpose of this article is to help you with this search and help you identify the best contractor accountant for your contractor business. Below are three things to look for when interviewing your next contractor accountant.

Knowledge of the Industry  This is apparent, but the question remains on how to approach this without making the experience feel too much like in an interview. The best practice is to approach this conversation as you would any other sales meeting that you have with your customers, but at the same time being keenly aware of the questions that this contractor accountant is asking. Here are some key questions that your potential CPA should be asking you:

  • How long do your projects usually last?
  • What do your work in process schedule look like?
  • What states do you have a contractor type license?
  • Do you have a line a credit/if so how much?
  • Do you have a banking relationship? With who?
  • What does your backlog look like?
  • Any bonding?
  • Are you going to need attest services (compilation, review, audit)?
  • How are cash reserves?

Do they want you to make estimated tax payments?  You should ask your contractor accountant how they feel about estimated tax payments. If they are insistent on that this is something you SHOULD be doing, then this should be a red flag. Contractor accountants should know that cash is everything in a contractor type business and that business is cyclical oftentimes. Generally, it’s best practice for a contractor type business to wait until necessary to pay-in because it all it takes is ONE bad project to be in a cash crunch.

Do you like them?  This is meant to be a fun point, but it does hold true. Contractors are special type of people, they are unique from other types of businesses in the same way that you expect Silicon Valley tech gurus to be different than your ordinary Joe. Really pay attention to this one, Contractors cannot afford to move slow, Contractor license applications in comparison to renewals is night and day. Therefore, there are going to be times that a Contractor business is going to be very demanding when it comes to their needs. Does the potential CPA contractor know this? Do they understand this? Do they have the personality to handle this? Do they cringe when you talk direct and honest? Not every accountant is made to service Contractors. Contractor accountants need to be able to take the hits, but also give them in good manner. In my experience, this is what builds trust and lasting relationship when it comes to contractors and their accountants.

JAG CPAs & Co. specializes in serving contractor type businesses, for more information just email info@jagcpastx.com or give us a call at 713-234-5112.

An often-overlooked year-end tax planning strategy for cryptocurrency investors!

Rules and regulations pertaining to cryptocurrency transactions are limited. The only guidance we have is the IRS notice 2014-21. This notice provided that certain cryptocurrencies, labelled “convertible virtual currencies” are treated as “property” for U.S. federal income tax purposes, and thus, “general tax principles applicable to property transactions” would apply to transactions involving convertible virtual currencies. The Internal Revenue Service (IRS) defined “convertible virtual currencies” as those virtual or cryptocurrencies that had “an equivalent value in real currency, or that acts as a substitute for real currency.” By going with the property definition, gains and losses arising from cryptocurrency transactions are capital in nature, not ordinary income.

Most importantly, it should be highlighted that capital losses arising from “property” transactions are not subject to wash sales rules; wash sales rules are applicable to only “stocks or securities” per I.R.C § 1091.

I.R.C § 1091.

(a) In the case of any loss claimed to have been sustained from any sale or other disposition of shares of stock or securities where it appears that, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired (by purchase or by an exchange on which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock or securities, then no deduction shall be allowed under §165  unless the taxpayer is a dealer in stock or securities and the loss is sustained in a transaction made in the ordinary course of such business. For purposes of this section, the term “stock or securities” shall, except as provided in regulations, include contracts or options to acquire or sell stock or securities”.

In simple terms, a wash sale is a sale of a stock or security at a loss and repurchase of the same or substantially identical security 30 days before or after. Wash sale regulations protect against an investor who holds an unrealized loss and wishes to make it claimable as a tax deduction within the current tax year.

Losses arising from cryptocurrency sales are immune to wash sales rules and creates a great tax planning opportunity for certain taxpayers. Let’s look at the following example. Imagine you purchased 1 BTC for $5,000 on November 15th, 2018. On December 10th, price of 1 BTC went down to $3,000. If you were to sell this 1 BTC on December 10th, you would incur a $2,000 ($5,000 – $3,000) short-term capital loss. Since cryptocurrencies like bitcoin are treated as property by the IRS, this loss which would typically be disallowed under wash sales rules, is allowed. In other words, if you had the same transaction with stocks, the IRS would disallow $2,000 of short-term loss because you purchased the stock within 30 days prior to the disposition. The idea behind the wash sale rule is to prevent taxpayers from claiming artificial losses. Since this rule is not applicable to cryptocurrencies, in the example above, the taxpayer can claim a deductible loss and can renter the position at $2,000 per BTC again.

In summary, Capital loss harvesting is a handy year-end tax planning tool. Note that this strategy does not fit every taxpayer. Please consult your tax advisor to see if this strategy is a good addition to your tax plan.