The Chart of Accounts is the backbone of your accounting records. It is a list of all of the accounts – bank, loan, asset, revenue, and expense – in your General Ledger, which holds all of your accounting transactions.

Think of your Chart of Accounts as a collection of buckets that hold dollars of items related to your business. Each bucket should be meaningful and have a purpose. For example, if you have three checking accounts, you need three buckets on your Chart of Accounts to hold the transactions for each bank account.  It would not make any sense to have more or less than exactly one bucket for each checking account. 

While it’s standard to have certain buckets or accounts for assets, liabilities, and equity, the number of buckets that you create for revenue and expenses can vary greatly from company to company.  It makes sense to create and design your accounts for what you need for tax, accounting, and decision-making purposes in your business. 

Let’s say you are a hair stylist.  Do you want your revenue to be in one big bucket? That’s all that Uncle Sam requires. But for decision-making purposes, you may want to break out men’s and women’s services, or cuts versus color and other treatments, or both. In that case, you would have four revenue accounts: men’s cuts, men’s color, women’s cuts, and women’s color.  This type of detail would help you see where your revenue is highest so that you can better manage your supplies as well as target your marketing to that group.    

Having certain expense accounts matched to the tax requirements can reduce extra work at tax time. For example, separating travel costs – hotel and airfare – from meals and entertainment is a common one, as is keeping meals and entertainment separate.

The goal is to get your Chart of Accounts working for you. If, when you first set up your accounting system, you accepted the default Chart of Accounts, it may be time to redesign and restructure the list so it serves your needs better. Here are some additional considerations.

• What revenue or expenses do you want to watch more carefully? Should they be broken out in more detail? You can also use subaccounts to group transactions.
• Is there cleanup work to do due to misspelling or other duplication?
• Have you interviewed all the financial information users in your company to see how they need the data organized? 
• What spreadsheets could be eliminated if the Chart of Accounts was better organized?
• Does your Chart of Accounts support your budgeting process? If two people are responsible for controlling spending from one account, would it be useful to break it out?
• Do you have too many accounts? Or too few? (Most people have too many due to poor data entry hygiene.)
• Are you properly using other categorizing features in the accounting system, such as classes, divisions, and custom fields? 
• What reports could produce better information for taking profit-focused actions in your business if the Chart of Accounts stored the transactions differently? 
• How could key performance indicators be better linked to the Chart of Accounts?

These questions can help you begin thinking about how your Chart of Accounts can better serve you.  After all, it’s your business, your accounting system, and your Chart of Accounts. 

And if we can help you through the redesign process, please let us know. 

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The Child Tax Credit (CTC) is not new, but it was expanded as part of the American Rescue Plan Act of 2021, and you may be wondering what that means and how it will impact your situation.  The biggest takeaway is that instead of waiting until filing your 2021 tax return (in 2022) to take advantage of the credit, you can instead opt to receive part of the credit in advance, during 2021.

First, the overall amount of the credit was increased for taxpayers under a certain income level.  For those individuals, the CTC is $3,600 for each child 5 and under, and $3,000 for each child between the ages of 6 and 17.  This is an increase from $2,000 per child under the existing rules.  To receive the full amount of the expanded credit, your Adjusted Gross Income (AGI) must fall within the following limits:

• Single Filer – $75,000 or less
• Head of Household Filer – $112,500 or less
• Joint Filers – $150,000 or less

Beginning on July 15, 2021, IRS will begin sending monthly payments to parents with eligible dependent children.  These payments represent an advance on the full CTC, and the rest can be claimed on the 2021 tax return.  The full monthly payment will be $300 per child under 6 or $250 per child 6 to 17 years old, and will be paid each month from July to December 2021.  Keep in mind that if you are over the above income thresholds but within the existing income thresholds for receiving the CTC, you can still receive up to $2,000 per child, just like in years past.

To automatically receive these payments if eligible, you need to have filed a tax return for 2020 by the extended May 17,2021 filing deadline, even if you are usually a non-filer.  You are eligible for these payments even if you do not have any income to report or taxes due.  If you were not able to file by then, you will still get the higher credit amount if eligible, but will need to wait until filing your 2021 tax return to take advantage of it.

If you would prefer to NOT receive the advance payments and instead take advantage of the full CTC when filing your 2021 tax return, you will be able to opt out using an online portal that IRS will be opening on July 1, 2021.  There will also be another portal where you can update your information, such as changing the number of dependents you have.

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