Get Ahead in 2023 with These Best Accounting Practices for MCA Companies
As we draw the curtain on 2022 with the festive holiday season and prepare to kick off 2023 with a bang- with ambitious goals and the highly anticipated industry meetup at deBanked Connect in Miami on January 19-, your company accountant is gearing up for a busy quarter. Depending on the level of financial organization in your MCA business, filing your annual taxes can be a breeze or a nightmare.
Better Accounting Solutions has been the premier accounting partner in the MCA space for over a decade, and we’ve compiled some of the best accounting practices you can implement now to make your taxes easier next year:
1. Determine your income recognition method and be consistent with it:
This is important for three reasons:
a) Accurate financial reporting: Consistently applying a single income recognition method ensures that the financial statements accurately reflect the income earned by the business. This is important for internal decision-making and stakeholders such as investors and creditors who rely on these statements to assess the business’s financial health.
b) Tax compliance: Proper income recognition is important for tax compliance purposes. The method used to recognize income can affect the amount of tax that a business owes. By consistently applying a single method, the business can ensure that its tax returns are accurate and avoid potential issues with the tax authorities.
c) Simplicity: Consistently applying a single income recognition method can also make it easier for the business to prepare and file its tax returns, as well as to manage its overall financial record keeping. This can save time and reduce the risk of errors or discrepancies.
2. Understand Writeoffs:
As a business owner, it is important to understand how to maximize write-offs in order to reduce your company’s tax liability, and one way to do this is by taking advantage of deductions and credits that are available to the company. For example, businesses can write off typical expenses such as employee salaries, office rent, and supplies. On top of that, you may be able to write off meals, trips, and events if they are being done for the business, so consult your accountant to see what counts.
It is also important to ensure that these expenses are properly documented in the company’s financial records, and that they are being paid for using company cards accounts rather than personal accounts for business expenses. This is because personal expenses are not tax deductible, whereas (many) business expenses generally are. By using clearly delineated company accounts, businesses can ensure that they are able to properly document and claim these expenses as deductions on their tax returns.
3. Documentation, Documentation, Documentation!
Businesses and governments are run on the back of paperwork, and ensuring you are on top of your documentation and records is the best way to ensure smooth operations and compliance. This includes making sure:
All your business licenses and registrations are in order.
Your W-2’s are filed by the end of January.
Determine who you need to get W-4’s and W-9’s from:
It’s important to know how to categorize your partners to establish clean and complete records. Filing inconsistent records, internally or compared to their paperwork, can cause issues and complications down the road when you file your taxes.
For example, an ISO is typically classified as an independent contractor rather than an employee. As such, an ISO would typically need to fill out a W-9 when working for you, rather than a Form W-4.
Form 1099 is a tax document used to report various types of income other than wages, salaries, and tips that are reported on a Form W-2. Form 1099s are typically issued by businesses or other organizations to contractors or other independent workers for services rendered or income received.
Independent contractors, including ISOs, are responsible for paying their own taxes and are not entitled to the same employment benefits as employees, so you’d need to get a W-9 form from them and then give them a 1099 based on the information they gave you.
Better Accounting Solutions recommends not giving syndicators 1099s from you because we’ve found that many syndicators have different methods of reporting their recognized income to the IRS, and we do not want to report differing numbers to the IRS, which can lead to obvious complications.
It is important for businesses to correctly classify workers as either employees or independent contractors to ensure that the proper tax forms are used and that the correct amount of taxes are withheld or paid.
Speak to an experienced financial expert to determine how to classify your partners, vendors and employees.
Get a W-9 from all of your partners (ISO’s, etc.) before you pay them, otherwise, you’ll have to chase them for paperwork when they’ll have no incentive to get it to you in a timely manner.
4. Ensure You Are Getting The Best Financial and Accounting Advice:
If there is a major theme in this piece, it is the importance of having access to expert financial and accounting advice and guidance, particularly in an industry as complicated as merchant cash advance.
Whether you work with an in-house CPA or work with a large accounting firm, do consistent check-ins and self-audits to make sure your business is getting the premier service it deserves, which will certainly save you a significant amount of stress, time and money.Last modified: January 6, 2023
David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.
To connect with David, email email@example.com.