Accounting Problems Lead to Nightmares…

Posted by Kevin Jimeno   //   Blog  //  No Comments

The biggest nightmare for any entrepreneur is having to deal with Accounting Problems!

It doesn’t matter if you are a big South Florida Corporation or a one man entrepreneur trying to make a living,
bookkeeping and taxes can get complicated if you ignore it.

Take the story of legendary internet entrepreneur John Reese who recently blogged about his accounting problems leading to
some very expensive nightmares of his own:

How Small Accounting Problems Can Become Large Accounting Problems
by John Reese

“I admit it (and have in the past) I hate accounting.  I hate that side of running a business.  I love coming up with new ideas, and working to make them grow, but I’ve never enjoyed dealing with managing the actual money.  So I’ve always paid others to do it.

We always used ADP (payroll service) to manage our employee pay checks (and tax withholdings) but the corporate profits had to be handled separately by a CPA.  Our federal taxes (Florida has no state income tax) had to be figured out each year and then paid.

After major personnel changes about 5 years ago, our accounting fell behind.  Our accounting got overcomplicated because I had created multiple companies and projects.  And to make a long story short, we got behind on paying the full amount we owed in federal taxes.  We made some payments, but without the accounting being fully caught up, we didn’t know the exact balance.  And to make matters worse, some things were written off and structured improperly.  For example, a large domain name sale was treated as long-term capital gains (a 15% rate) when it turned out that the original name purchase was depreciated as an advertising expense; making the sale taxable at a full income rate (35%+).  And that was just the tip of the iceberg.

It was an accounting nightmare that was hanging over my head for several years.  I was constantly reaching out to the CPA and asking that we sit down and audit everything and get it all figured out and get things caught up once and for all — and I had put money aside to pay what I believed was owed.

I don’t mean to point fingers, and ultimately I take full responsibility for what happened, but we were often put off because our CPA firm was in the middle of tax season or some other issue that continued to drag things out – because every month that went by made our accounting situation became more and more complicated, requiring more time to get things caught up.  It became one huge mess.

Ultimately, I had to get rid of our long-time CPA firm and hire a new one, along with a tax attorney.  I was no longer going to live in fear of the IRS seizing my life because I hadn’t paid them everything I had owed (and didn’t even know what that amount was) —  I had honestly been trying to get things caught up for several years, but every month things got worse.

By the way, I have met many entrepreneurs that have found themselves in the same situation.  It’s easy to do when you work for yourself and don’t have tax withholdings automatically withheld from a paycheck.  If you find yourself in the same situation, drop everything and do what you can to get it caught up or it can become very expensive.

After hiring the new CPA firm and tax attorney, we’d set out on a 10-MONTH JOURNEY of working with the IRS to get everything caught up.  I literally had to help go through several years of accounting documents, expenses, and statements.  It was brutal.

And as if this wasn’t all stressful enough, this was going on at the exact same time that my new company was struggling and I was fighting to save the company from bankruptcy.

Ultimately, the outcome was very expensive.  Even after making a large payment from what I had set aside for the taxes, there was still an additional balance owed of about $500,000. And if that wasn’t bad enough, the IRS nearly doubled that amount due to penalties & interest.  Leaving a balance of about $1 Million.  OUCH.

In the end, my tax attorney was able to work with the IRS and after they reviewed all of our current accounting, agreed to let us make a sizable downpayment and then pay off the balance over time.  Which really helps the company long-term.

It was an incredibly tough and expensive lesson to learn.

And as a side note, should you ever find yourself behind on taxes, don’t buy into the hype about hiring a tax attorney and settling with the IRS for pennies-on-the-dollar.  They will carefully examine your accounting and if they realize that you can easily pay back the full balance, they will expect you to pay back every penny including penalties & interest.”

John makes some very good points and I respect him a ton for sharing his story.

Don’t make the same mistake and get on the phone with us right away so we can help you avoid these headaches.

Email or call me for your free business financial review consultation!

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