How to pick an accountant for your online business

Choosing an accountant for your business is always a delicate endeavour. It’s incredibly important for your accountant to understand your business thoroughly, inside and out, backwards and forward. So, for some non-traditional businesses (i.e. professional blogger), this can be tricky to say the least.

A post titled How to pick an accountant for your online business appeared recently in a blog called Fortuitous, which is written by one of the co-founders of MetaFilter, Matt Haughey. I thought the post had some great advice for web workers and bloggers in particular, but some additional insight could be provided from an accountant’s point of view.

I feel finances are important enough to warrant bringing in outside professional help. If you’re a geek, the temptation is to think “this is math — I know numbers!” but what you might be ignoring is the additional tax of having to learn an extremely complicated system. Leave it to the pros so you can focus on the thing you do uniquely well. […] A good accountant recognizes all the costs of running an online business, offers tips for good investments (that in turn, reduce taxes), and offers advice on how best to grow your business.

If you run a business as a sole proprietor or through a corporation, it will definitely save you money and hassle to hire an accountant to take care of the tax side of things. The article focuses on taxes, but your professional accountant will provide advice on areas other than tax, such as market strategy, operations management, financing options and retirement saving (which admittedly has a tax component to it).

The rules governing taxes on business are geared towards the traditional, capital-intensive types of businesses… If you don’t have to buy parts, pay a large staff, or purchase trucks to move products around, you don’t have a lot of options when it comes to built-in deductions against your revenue.

Built-in deductions are the typical ones certainly, and don’t on first glance seem to apply to a web worker. But logically any expenditure incurred to earn business income is deductible. As long as it can be reasonably proven to have a business purpose, deduct. I would argue an online business would have as many deductions if not more than a traditional one, especially if you work from home, where a portion of any expenses of the home are an expense of the business.

What I found after using several local accountants was that they just didn’t understand how the internet worked. They would ask me about equipment (minimal — just a laptop), how much I drove (none, I do it all online from my home office), and how many employees I had (zero, though I’ve paid programmers and moderators as contractors for the past couple years).

Your accountant is always going to ask you about the typical deductions, because that’s a good starting point to the discussion. They should start to give you an idea of the types of things that are allowed. In the case of an online business, equipment would be any peripherals for the laptop, the desk you worked at, the chair you sat in, and the whiteboard you brainstormed on. You can renovate a home office and deduct the cost. Plus, what was spent on contractors is clearly a deduction. Any driving done which is reasonably for the purpose of earning income – to a potential clients, for example – is deductible.

In the end, the big city accountant asked me the right questions and figured out a couple deductions I didn’t know I qualified for, and saved me $1500 below what TurboTax came up with. I probably could have gotten my TurboTax return to match but I probably mis-read one of the hundreds of questions lobbed at me during the online process. The local accountant I wasn’t a fan of turned out to be the worst option, coming up $1200 over my own TurboTax return. I suspect she left off a few business expenses I listed.

That’s a huge difference between the accountants. It would be interesting to know whether it was the local one’s conservative nature that contributed to the difference or something else. Regardless, it’s important to always examine your tax return even if it is prepared by a professional, and get explanations for anything you don’t understand or think is missing.

I’m glad someone wrote a post like this, as it seems the group of people earning their primary incomes from blogging is increasing, and we accountant bloggers frequently lament the dearth of accountants who “get” this sort of thing.

As a disclaimer to the above though, I should remind readers I’m a Canadian CA student, not too familiar with tax systems other than Canada’s and not a tax specialist.

The value of blog postings and comments

It was a long time ago in internet years that I started reading Dave Winer‘s blog, Scripting News, and even longer since I started reading Jakob Nielsen‘s writings on his site, useit.com. These two are truly pioneers of the digital age, with Winer instrumental in the development and promotion of RSS and Nielsen writing the book(s) on web usability.

Winer recently discussed why he doesn’t allow comments on his blog, which morphed into a full-blown examination of whether the ability to comment on posts is what defines a blog.

Do comments make it a blog? Do the lack of comments make it not a blog? Well actually, my opinion is different from many, but it still is my opinion that it does not follow that a blog must have comments, in fact, to the extent that comments interfere with the natural expression of the unedited voice of an individual, comments may act to make something not a blog.

He makes a compelling argument, as previously I was in the camp that believed a blog must have comments, else it was but a mere shadow of a ‘true’ blog. His main point was that everyone can comment on what he writes by linking to it on their own blog, rather than appending their thoughts to the end of his post. Those responses are much more valuable and meaningful, since it will filter out the abusive comments and be more constructive.

Jacok Nielsen’s latest article talked about (to be blunt) how useless most of the blogs out there are because they rarely, if ever, offer something new and valuable to their readers. Most blogs just link to the interesting stuff, and Jakob was lamenting the fact that so few blogs make the effort to create the interesting stuff rather than just linking to it.

Blog postings will always be commodity content: there’s a limit to the value you can provide with a short comment on somebody else’s work. Such postings are good for generating controversy and short-term traffic, and they’re definitely easy to write. But they don’t build sustainable value.

This one really had me thinking for days last week about what I’d done with my blog since February 2006, whether I was creating sustainable value with it, and what I could improve or change to make the stuff I write better. I like to think with this blog it’s a mix of short-term, newsy posts and long-term stuff that would continue to attract readers long after it vacated the home page.

I did a lot of thinking this week about where I want this domain to go in the future and how it was going to get there, and where it has already been and how that turned out compared to my expectations. You’ll probably begin to see the results of my meditations very soon, as I transform this space into something more representative of my various interests.

Mid-tier firms offer better experience

So says this recent story on Accountancy Age, quoting a Cantos interview with the ACCA’s head of development, Tony Osude:

“If you went to one of the mid-tier firms, one of the beauties about being there is you might not be paid as much necessarily, but you have much more hands on experience. You can expect to actually meet your clients in the flesh and have much more dealings with your clients and also, importantly, if you want to stay in practice and recognition is important to you, there’s a greater chance of being recognised and career tracked.”

I have worked only at my current mid-size firm, so I can’t give a first hand comparison of the difference between it and a Big Four firm.

I know that at my firm, I was given greater responsibility on files fairly quickly after starting, and when I started there I was as green as you can get. I thought a discontinued operation was an error message in Windows.

In a non Big Four firm, you’ll generally have more opportunity to effect change within the organization, and there’s a better chance the firm will be on the cutting edge technologically speaking. I have a feeling the first firm to truly go paperless, if that ever does happen, will be a small one.

In a non Big Four, you’ll have more direct client contact because the engagements are smaller – the team is smaller, the risks are lower, and the client is less complex. With fewer staff on the audit, the lower level employees will necessarily have to take on more responsibility, leading to more client face time. Because the work is less complex, lower level employees can work with the client and have the necessary expertise to do so.

There are great opportunities within small firms and students should know all the options when they are considering where to apply. It can mean the difference between a rewarding few years leading up to getting their designation versus doing nothing but low-level rote work.

Inching towards international accounting standards in the US

In Canada, the Accounting Standards Board (AcSB) has already taken the first steps of convergence with international standards by outlining the plan under which publicly accountable enterprises will transition completely to IFRS. The change will occur over the next 5 years, and the Board expects the changeover process to be complete by fiscal years beginning in 2011, although it could still be pushed back if circumstances require it.

In the US, the SEC has recently proposed that foreign companies will not have to reconcile their IFRS financial statements to US GAAP:

If the current SEC proposal is approved, foreign companies registered with the SEC that use IFRS, which is published by the International Accounting Standards Board, wouldn’t have to provide a separate reconciliation report starting in 2009.

This is a great development and real progress towards convergence. Foreign companies will likely jump wholeheartedly on this proposal, as it will allow them to save significant costs. This means less work for the professionals, but so be it. The work is redundant and does not add value in the slightest. It is inefficient to have to present financials in two different sets of GAAP.

The SEC seeks comment on the proposal, in particular regarding the possible need for additional disclosure or information on areas where the two sets of GAAP don’t agree, and whether this might require too much knowledge on the part of users of the IFRS statements.

In particular:

Should issuers and auditors consider guidance related to materiality and quantification of financial misstatements?

This struck me, because if there are significant differences on these two very fundamental audit issues, perhaps convergence is farther off than I’d originally hoped.

CA Magazine knows information wants to be free

I need to commend the publication of my profession here in Canada, CA Magazine, for offering the full content of each issue online as soon as the physical copy of the issue arrives on my doorstep.

There are many magazines that charge for access to their full content, but CA Magazine realizes that increased readership of its articles will only help the profession’s stature in this country and internationally. It also helps bloggers like me link to and discuss the articles.

The source of the headline was Stewart Brand who, at the first Hackers’ Conference in 1984, said:

On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time.

Read the June issue.

(Yes I realize we’re into July now, but you’ll have to trust me that the contents have been available for over a month now!)