Import Export Accounting Firm in Chicago

November 16, 2015
Import Export Accounting Firm in Chicago
Chicago was born as a transportation hub in the Midwest, and still functions as one today. We do a lot of work in the industry. The tax law can be extremely tricky. But most of this has everything thing to do with inventory valuations and when inventory actually becomes the property of the client.
Why is this important? Because the value of your inventory has everything to do with your taxable income.
Don’t believe me? Ok. Let’s use a couple of examples. Let’s start with an asset called cash. Your on an accrual basis, and your cash balance at the beginning of the year begins at $10,000 and ends the year at $25,000. Only looking at cash, not paying attention to other accounts, what happens to your net income? Did it go up, down, or not change? I think that we can all agree that your income increased.
Now let’s look at inventory with the same thing circumstances occurring. The balance in inventory at the beginning of the year started at $10,000 and ended at $25,000. What happened to your net income? Did it go up, go down, or remain the same? Most people answer that there is no change, which is reasonable. But the answer is that it goes up. The point is that all assets work the same way.
Assets generally work in the same direction as your net income. When they increase, you net income does as well. When they decrease, your net income goes down. Its one of the most basic concepts of accrual accounting.
The point that I am trying to make is that it is relatively easy to control your net income when you are in the import export business. If you are having a good year and want to pay less in income tax, reduce your inventory until after the first of the year. Does that sound entirely too logical? It shouldn’t. If your accountant was doing their job, then you would already know this.
What about the other scenario. What happens if you are having a lousy year and know that you will need to go the bank for a loan in the following year. What are you going to do? If you hand the bank financial statements showing a loss, you know that they are going to say no. Order some inventory and increasing that line item on your balance sheet.
It’s called tax planning. Nothing tricky. Nothing illegal. Just heads up accounting work.
If you are having problems with your taxes or just need a good Import Export Accounting Firm in Chicago, please give us a call. I can be reached at 773-267-7500 or
Chris Amundson is the President of Accounting Solutions Ltd., a full service public accounting firm of Certified Public Accountants and Enrolled Agents handling the bookkeeping, accounting, tax preparation, and audit representation needs of Businesses, Estates, Trusts, and Upper Income Individuals.