I'm a CPA Ask Me Anything

[andyCPA]

Hello all,
Licensed Certified Public Accountant in the state of Michigan here. Long time viewer of these forums but first time poster. My wife and I are aspiring innkeepers and I couldn't possibly place a value on all the amazing information we've gained from these forums.
Since we set the goal to become innkeepers I've been researching every aspect imaginable on the financial side of things, like common tax deductions B&B owners miss (for example refinancing costs for loan), what is the best costing method for inventory, what's the best accounting software to meet all our needs, and how should I structure the purchase of the property in relation to the business.
I see this section of the site doesn't get a lot of activity but I wanted to try to give back. If I don't get many questions I'll assume it's because things are going so well for everyone.

Anyway, I'll be monitoring this post for the next week or so, ask away if you'd like!
AndyCPA

 

[cloudbedsna]

AndyCPA - thanks for making yourself available. I have a question. You mention you can recommend the best accounting software. Which package do you think is best, for say, a very small inn: 3-10 rooms?
Thanks for sharing your insights!

 

[Morticia]

Best wishes on your new adventure!
I'd hazard a guess the reason this section is so small is because whenever anyone has a question about accounting and setting up business we recommend they consult an accountant!

 

[Morticia]

AndyCPA - thanks for making yourself available. I have a question. You mention you can recommend the best accounting software. Which package do you think is best, for say, a very small inn: 3-10 rooms?
Thanks for sharing your insights!.

If you hire an accountant, the best software to use is whatever they want. Best to ask them first to save money.
QuickBooks seems to be the popular option for the DIYers in the crowd.

 

[JimBoone]

AndyCPA - thanks for making yourself available. I have a question. You mention you can recommend the best accounting software. Which package do you think is best, for say, a very small inn: 3-10 rooms?
Thanks for sharing your insights!.

Just my view, but I would think it would depend on the style of operation more than just the number of rooms, mom & pop, cash business or would there be staff, payrolls, and events that required a billing system?
In another life I used Peachtree (now I think Sage Accounting), but in that application we had receivables, payables and payroll and employment taxes for a large staff, was a nice program, but maybe an overkill for my present operation. In our present life we are mom & pop, I've used Quicken or Microsoft Money, more of a computerized checkbook, checks are written manually and the program sorts the amounts into accounts that are meaningful to me and our CPA

 

[gillumhouse]

AndyCPA - thanks for making yourself available. I have a question. You mention you can recommend the best accounting software. Which package do you think is best, for say, a very small inn: 3-10 rooms?
Thanks for sharing your insights!.

Just my view, but I would think it would depend on the style of operation more than just the number of rooms, mom & pop, cash business or would there be staff, payrolls, and events that required a billing system?
In another life I used Peachtree (now I think Sage Accounting), but in that application we had receivables, payables and payroll and employment taxes for a large staff, was a nice program, but maybe an overkill for my present operation. In our present life we are mom & pop, I've used Quicken or Microsoft Money, more of a computerized checkbook, checks are written manually and the program sorts the amounts into accounts that are meaningful to me and our CPA
.

I was in a workshop several years ago put on by a State organization (cannot remember which one) that was packed with a financial person as the speaker for this all-morning session. He said do nto use a CPA to do taxes - use an accountant, because the CPA will say "this will raise a red flag" and "that will raise a red flag" (is covering A). Take the deduction. It may go through for 10 years and then be told, No cannot take this. THEN you say, Oh, sorry, will not take it again.BUT you got 10 years of that deduction!!
I used a CPA to set up my business & had him do my taxes for a few years. My current tax guru went over the last 3 years he did - and she got me a refund of $200 for each of those 3 years. Guess who does my taxes now. Plus State tax laws vary by State as do regs - something we tell each newbie that comes on here.

 

[JimBoone]

AndyCPA - thanks for making yourself available. I have a question. You mention you can recommend the best accounting software. Which package do you think is best, for say, a very small inn: 3-10 rooms?
Thanks for sharing your insights!.

Just my view, but I would think it would depend on the style of operation more than just the number of rooms, mom & pop, cash business or would there be staff, payrolls, and events that required a billing system?
In another life I used Peachtree (now I think Sage Accounting), but in that application we had receivables, payables and payroll and employment taxes for a large staff, was a nice program, but maybe an overkill for my present operation. In our present life we are mom & pop, I've used Quicken or Microsoft Money, more of a computerized checkbook, checks are written manually and the program sorts the amounts into accounts that are meaningful to me and our CPA
.

I was in a workshop several years ago put on by a State organization (cannot remember which one) that was packed with a financial person as the speaker for this all-morning session. He said do nto use a CPA to do taxes - use an accountant, because the CPA will say "this will raise a red flag" and "that will raise a red flag" (is covering A). Take the deduction. It may go through for 10 years and then be told, No cannot take this. THEN you say, Oh, sorry, will not take it again.BUT you got 10 years of that deduction!!
I used a CPA to set up my business & had him do my taxes for a few years. My current tax guru went over the last 3 years he did - and she got me a refund of $200 for each of those 3 years. Guess who does my taxes now. Plus State tax laws vary by State as do regs - something we tell each newbie that comes on here.
.

I suppose it all may vary with the individual as with any other trade, now for me I wouldn't want to raise any red flags, just not a hassle I'd want in my life. We've used the same CPA for nearly 30 years and as one who works with many similar small businesses has found ways to save me taxes that I would not known, would another guy be as helpful, don't know.
I've always taken a large report (spreadsheet style) with income and expenses broken out into my accounts (categories), figured it was up to the guy with the education to know which classes were current operating expenses to be taken off in the current year and which were capital items to be prorated over a period of years.

 

[gillumhouse]

AndyCPA - thanks for making yourself available. I have a question. You mention you can recommend the best accounting software. Which package do you think is best, for say, a very small inn: 3-10 rooms?
Thanks for sharing your insights!.

Just my view, but I would think it would depend on the style of operation more than just the number of rooms, mom & pop, cash business or would there be staff, payrolls, and events that required a billing system?
In another life I used Peachtree (now I think Sage Accounting), but in that application we had receivables, payables and payroll and employment taxes for a large staff, was a nice program, but maybe an overkill for my present operation. In our present life we are mom & pop, I've used Quicken or Microsoft Money, more of a computerized checkbook, checks are written manually and the program sorts the amounts into accounts that are meaningful to me and our CPA
.

I was in a workshop several years ago put on by a State organization (cannot remember which one) that was packed with a financial person as the speaker for this all-morning session. He said do nto use a CPA to do taxes - use an accountant, because the CPA will say "this will raise a red flag" and "that will raise a red flag" (is covering A). Take the deduction. It may go through for 10 years and then be told, No cannot take this. THEN you say, Oh, sorry, will not take it again.BUT you got 10 years of that deduction!!
I used a CPA to set up my business & had him do my taxes for a few years. My current tax guru went over the last 3 years he did - and she got me a refund of $200 for each of those 3 years. Guess who does my taxes now. Plus State tax laws vary by State as do regs - something we tell each newbie that comes on here.
.

I suppose it all may vary with the individual as with any other trade, now for me I wouldn't want to raise any red flags, just not a hassle I'd want in my life. We've used the same CPA for nearly 30 years and as one who works with many similar small businesses has found ways to save me taxes that I would not known, would another guy be as helpful, don't know.
I've always taken a large report (spreadsheet style) with income and expenses broken out into my accounts (categories), figured it was up to the guy with the education to know which classes were current operating expenses to be taken off in the current year and which were capital items to be prorated over a period of years.
.

My guru, although not a CPA, does taxes for people with oil & gas royalties, stocks, & other complicated taxes. She is ALWAYS current on the tax law changes. I give her a printout of the checkbook in categories for expenses and a list of ALL income and let her work her magic. Although we are "buds", we do not want to share a cell.

 

[JimBoone]

AndyCPA - thanks for making yourself available. I have a question. You mention you can recommend the best accounting software. Which package do you think is best, for say, a very small inn: 3-10 rooms?
Thanks for sharing your insights!.

Just my view, but I would think it would depend on the style of operation more than just the number of rooms, mom & pop, cash business or would there be staff, payrolls, and events that required a billing system?
In another life I used Peachtree (now I think Sage Accounting), but in that application we had receivables, payables and payroll and employment taxes for a large staff, was a nice program, but maybe an overkill for my present operation. In our present life we are mom & pop, I've used Quicken or Microsoft Money, more of a computerized checkbook, checks are written manually and the program sorts the amounts into accounts that are meaningful to me and our CPA
.

I was in a workshop several years ago put on by a State organization (cannot remember which one) that was packed with a financial person as the speaker for this all-morning session. He said do nto use a CPA to do taxes - use an accountant, because the CPA will say "this will raise a red flag" and "that will raise a red flag" (is covering A). Take the deduction. It may go through for 10 years and then be told, No cannot take this. THEN you say, Oh, sorry, will not take it again.BUT you got 10 years of that deduction!!
I used a CPA to set up my business & had him do my taxes for a few years. My current tax guru went over the last 3 years he did - and she got me a refund of $200 for each of those 3 years. Guess who does my taxes now. Plus State tax laws vary by State as do regs - something we tell each newbie that comes on here.
.

I suppose it all may vary with the individual as with any other trade, now for me I wouldn't want to raise any red flags, just not a hassle I'd want in my life. We've used the same CPA for nearly 30 years and as one who works with many similar small businesses has found ways to save me taxes that I would not known, would another guy be as helpful, don't know.
I've always taken a large report (spreadsheet style) with income and expenses broken out into my accounts (categories), figured it was up to the guy with the education to know which classes were current operating expenses to be taken off in the current year and which were capital items to be prorated over a period of years.
.

My guru, although not a CPA, does taxes for people with oil & gas royalties, stocks, & other complicated taxes. She is ALWAYS current on the tax law changes. I give her a printout of the checkbook in categories for expenses and a list of ALL income and let her work her magic. Although we are "buds", we do not want to share a cell.
.

we do not want to share a cell.

I'm certainly with you on that feeling, don't want to throw away money, but not like we choose this business for the vast riches anyway, if I'm paying some taxes, maybe it means I've been lucky enough to make some money along the way.

 

[andyCPA]

AndyCPA - thanks for making yourself available. I have a question. You mention you can recommend the best accounting software. Which package do you think is best, for say, a very small inn: 3-10 rooms?
Thanks for sharing your insights!.

Hi cloudbedsna!
Let me start out by saying that each professional accounting software has its merits. They all generally do the same thing, the balance sheets still balance, and the income statements still end up at net income. But like anything in life the devil's in the details.
I've had clients who use me just for taxes and prefer very simple software packages where they can do everything on their phone, like freshbooks. I've also worked with clients so big they need to use QB's Enterprise and hire a full time bookkeeper to operate it.
Take this with a grain of salt since I don't know the details of your operations, but I would probably recommend that a B&B of your size use QB Online Plus. I think in 10-15 years almost all accounting software is going to be cloud based, and it's the software that most accountants are going to be familiar with and prefer to use. I use QBO exclusively. I'm not sure what it is for a small business to purchase directly but it's probably around $50 a month.
The nice thing about QBO Plus is you can still track inventory. Keep in mind though, if you're going from QB desktop, that desktop tracks inventory using the Avg. cost method and QBO uses FIFO, this is a change in accounting method and usually requires notifying the IRS using form 3115.
Hope this helps! Best of luck!
andyCPA

 

[andyCPA]

AndyCPA - thanks for making yourself available. I have a question. You mention you can recommend the best accounting software. Which package do you think is best, for say, a very small inn: 3-10 rooms?
Thanks for sharing your insights!.

Just my view, but I would think it would depend on the style of operation more than just the number of rooms, mom & pop, cash business or would there be staff, payrolls, and events that required a billing system?
In another life I used Peachtree (now I think Sage Accounting), but in that application we had receivables, payables and payroll and employment taxes for a large staff, was a nice program, but maybe an overkill for my present operation. In our present life we are mom & pop, I've used Quicken or Microsoft Money, more of a computerized checkbook, checks are written manually and the program sorts the amounts into accounts that are meaningful to me and our CPA
.

I was in a workshop several years ago put on by a State organization (cannot remember which one) that was packed with a financial person as the speaker for this all-morning session. He said do nto use a CPA to do taxes - use an accountant, because the CPA will say "this will raise a red flag" and "that will raise a red flag" (is covering A). Take the deduction. It may go through for 10 years and then be told, No cannot take this. THEN you say, Oh, sorry, will not take it again.BUT you got 10 years of that deduction!!
I used a CPA to set up my business & had him do my taxes for a few years. My current tax guru went over the last 3 years he did - and she got me a refund of $200 for each of those 3 years. Guess who does my taxes now. Plus State tax laws vary by State as do regs - something we tell each newbie that comes on here.
.

Hi gillumhouse!
I have to admit that's a new one for me. Let me start by saying this, every CPA is an accountant, but not every accountant is a CPA (I know, obvious right). Generally speaking, when we do tax returns it's not about avoiding "red flags" it's about getting you every deduction you're legally entitled to and lowering your tax liability as much as we're allowed. Then *if* an issue comes up later (which will be unlikely) you can breath a sigh of relief knowing we can substantiate every line of that return.
In other words, I don't need to worry about "red flags" because I know I'm doing everything right according to the Internal Revenue Code.
I don't really follow the reasoning of the speaker you referenced, let me give you a few reasons why:
First of all the IRS isn't exactly a "say you're sorry and don't do it again" type of agency. They have this nasty habit of sending you an audit notice at the worst possible time. If they find that errors were made, or you took a deduction you weren't entitled to or can't substantiate, then they're going to collect what they're owed. However, you don't owe the taxes as of the date of the audit. You owe the taxes from the date that you should have paid them. If the audit comes three years after you should have paid the taxes, you'll be billed for the taxes as well as three years' worth of penalties and interest. To add insult to injury, penalties and interest will keep accruing after the audit until you pay off your balance in full.
And yes, they can legally go back 10 years if they choose to.
All that being said, I'm not some CPA elitist. There are plenty of excellent prepares who are tax attorneys, enrolled agents, or are uncredentialed. It seems like you found one you really like and that's great!
andyCPA

 

[andyCPA]

AndyCPA - thanks for making yourself available. I have a question. You mention you can recommend the best accounting software. Which package do you think is best, for say, a very small inn: 3-10 rooms?
Thanks for sharing your insights!.

If you hire an accountant, the best software to use is whatever they want. Best to ask them first to save money.
QuickBooks seems to be the popular option for the DIYers in the crowd.
.

Morticia,
There's definitely truth to that. I work exclusively with QuickBooks Online in my practice. Some B&B's may choose to do the day to day accounting themselves though, and that's fine (though keep in mind it could take you hours to do what a good accountant could do in minutes). In that case use whatever software package you're most comfortable with or provides the best value. As long as it can print out accurate balance sheets and income statements at the end of the year I'm sure your tax accountant will be happy.
andyCPA

 

[andyCPA]

AndyCPA - thanks for making yourself available. I have a question. You mention you can recommend the best accounting software. Which package do you think is best, for say, a very small inn: 3-10 rooms?
Thanks for sharing your insights!.

Just my view, but I would think it would depend on the style of operation more than just the number of rooms, mom & pop, cash business or would there be staff, payrolls, and events that required a billing system?
In another life I used Peachtree (now I think Sage Accounting), but in that application we had receivables, payables and payroll and employment taxes for a large staff, was a nice program, but maybe an overkill for my present operation. In our present life we are mom & pop, I've used Quicken or Microsoft Money, more of a computerized checkbook, checks are written manually and the program sorts the amounts into accounts that are meaningful to me and our CPA
.

The most important thing is finding a system that works for you (and your tax accountant if you have one). I've known businesses who do everything in spreadsheets on excel, and they swear by it. However, given how affordable and user friendly accounting software has become in recent years I really don't recommend going that route. Especially in an industry like this where you may have inventory to track, depreciation schedules to keep, and payroll to process. Best of luck Jim!

 

[GoodScout]

OK, slightly bringing the topic back around, here's my question:
Quickbooks or Quickbooks Online?
I have the Mac version which allows me to access my backup file via my iCloud desktop so I can work on my books at my desk or at my laptop.
What do I gain if I start shelling out a monthly fee for the online version? Thoughts of both CPAs and innkeepers using QB appreciated.

 

[JimBoone]

AndyCPA - thanks for making yourself available. I have a question. You mention you can recommend the best accounting software. Which package do you think is best, for say, a very small inn: 3-10 rooms?
Thanks for sharing your insights!.

Just my view, but I would think it would depend on the style of operation more than just the number of rooms, mom & pop, cash business or would there be staff, payrolls, and events that required a billing system?
In another life I used Peachtree (now I think Sage Accounting), but in that application we had receivables, payables and payroll and employment taxes for a large staff, was a nice program, but maybe an overkill for my present operation. In our present life we are mom & pop, I've used Quicken or Microsoft Money, more of a computerized checkbook, checks are written manually and the program sorts the amounts into accounts that are meaningful to me and our CPA
.

The most important thing is finding a system that works for you (and your tax accountant if you have one). I've known businesses who do everything in spreadsheets on excel, and they swear by it. However, given how affordable and user friendly accounting software has become in recent years I really don't recommend going that route. Especially in an industry like this where you may have inventory to track, depreciation schedules to keep, and payroll to process. Best of luck Jim!
.

The most important thing is finding a system that works for you (and your tax accountant if you have one).

Thanks Andy, I agree, our first step when choosing to follow this path 28 years ago was to find a CPA to guide us, he and I have grown old together over the years. I figure my job is to keep my guests happy, his job is to keep me straight and keep the IRS happy.
We don't actually use a spreadsheet, have used Quicken/Money, sort of single entry accounting programs, but the resulting report is formatted in a sort of spreadsheet style. We don't send bills so the income side categories are pretty simple cash/credit card payments/interest/payments on other property. The expense side is split into about 50 detailed categories depending on the type of expense, this is the information we discuss with our CPA, don't have payroll or items held for sale and our CPA keeps the depreciation file.

 

[cloudbedsna]

AndyCPA - thanks for making yourself available. I have a question. You mention you can recommend the best accounting software. Which package do you think is best, for say, a very small inn: 3-10 rooms?
Thanks for sharing your insights!.

Hi cloudbedsna!
Let me start out by saying that each professional accounting software has its merits. They all generally do the same thing, the balance sheets still balance, and the income statements still end up at net income. But like anything in life the devil's in the details.
I've had clients who use me just for taxes and prefer very simple software packages where they can do everything on their phone, like freshbooks. I've also worked with clients so big they need to use QB's Enterprise and hire a full time bookkeeper to operate it.
Take this with a grain of salt since I don't know the details of your operations, but I would probably recommend that a B&B of your size use QB Online Plus. I think in 10-15 years almost all accounting software is going to be cloud based, and it's the software that most accountants are going to be familiar with and prefer to use. I use QBO exclusively. I'm not sure what it is for a small business to purchase directly but it's probably around $50 a month.
The nice thing about QBO Plus is you can still track inventory. Keep in mind though, if you're going from QB desktop, that desktop tracks inventory using the Avg. cost method and QBO uses FIFO, this is a change in accounting method and usually requires notifying the IRS using form 3115.
Hope this helps! Best of luck!
andyCPA
.

Thanks for your insights, andyCPA. It sounds like you know your stuff.
Quick follow up question: Is the Avg. cost method preferred for the hospitality industry, vs other methods?

 

[andyCPA]

OK, slightly bringing the topic back around, here's my question:
Quickbooks or Quickbooks Online?
I have the Mac version which allows me to access my backup file via my iCloud desktop so I can work on my books at my desk or at my laptop.
What do I gain if I start shelling out a monthly fee for the online version? Thoughts of both CPAs and innkeepers using QB appreciated..

Here's the two biggest advantages of desktop (aside from the extra features) it's a one time purchase and you can use one software package for multiple companies, which depending on the makeup of your business(s) can be a huge advantage.
There are some downsides though, the obvious one is most small businesses who use it are usually tied down to a single computer. You seem to have found a nice work around for this though. Another is, even though earlier I said it's a one time purchase, Intuit usually only supports each package for 3 years, so I really can't recommend going any longer than that without buying the newer version anyway. Also if you want to have multiple users (with potentially different privilege levels) this is much harder in desktop.
Here's a few things you'd gain if you ever decided to make the switch to QBO: The online sync with your bank account is automatic and much quicker in Online than Desktop, setting up multiple users is very easy, it's nice knowing you're always using the latest version of the software, you can access it from any computer or mobile device, and it's easier to share access to your company file with your accountant.
I know monthly fees aren't appealing but as I said in an earlier post I really believe cloud based software is the future (it definitely seems to be the direction Intuit is moving), I think in 10-15 years almost all accounting software will be cloud based.

 

[andyCPA]

AndyCPA - thanks for making yourself available. I have a question. You mention you can recommend the best accounting software. Which package do you think is best, for say, a very small inn: 3-10 rooms?
Thanks for sharing your insights!.

Hi cloudbedsna!
Let me start out by saying that each professional accounting software has its merits. They all generally do the same thing, the balance sheets still balance, and the income statements still end up at net income. But like anything in life the devil's in the details.
I've had clients who use me just for taxes and prefer very simple software packages where they can do everything on their phone, like freshbooks. I've also worked with clients so big they need to use QB's Enterprise and hire a full time bookkeeper to operate it.
Take this with a grain of salt since I don't know the details of your operations, but I would probably recommend that a B&B of your size use QB Online Plus. I think in 10-15 years almost all accounting software is going to be cloud based, and it's the software that most accountants are going to be familiar with and prefer to use. I use QBO exclusively. I'm not sure what it is for a small business to purchase directly but it's probably around $50 a month.
The nice thing about QBO Plus is you can still track inventory. Keep in mind though, if you're going from QB desktop, that desktop tracks inventory using the Avg. cost method and QBO uses FIFO, this is a change in accounting method and usually requires notifying the IRS using form 3115.
Hope this helps! Best of luck!
andyCPA
.

Thanks for your insights, andyCPA. It sounds like you know your stuff.
Quick follow up question: Is the Avg. cost method preferred for the hospitality industry, vs other methods?
.

It's pretty difficult to define "best" costing method. Sometimes businesses will change from one valuation method to another in order to maximize net income to attract investors or minimize net income in order to lower their tax liability. That's why when there is a change the IRS requires that they be notified.
I guess overall for a B&B I'd recommend FIFO. This is the method most restaurants use as well. The first in-first out method is best for cases where inventory has a short demand cycle or is perishable as in the foodservice business. This is because prioritizing the oldest goods will maximize the use of inventory before items go to obsolescence. At restaurants, chefs will use the ingredients purchased earliest with the nearest expiration date in order to avoid spoilage. Foodservice businesses therefore tend to prefer FIFO as it matches the actual flow of food in the kitchen.
This sort of logic would also apply to a bed and breakfast of course. So this is another reason I recommend to my clients QuickBooks Online. But as I said earlier you can't really say that one method is overall better than the others, they're just different ways of getting to the same end result, but depending on the specific circumstances one may be preferred.
I hope this helps and I didn't bore you to death