To every question, there is an answer.
For Bookkeeping, Taxes, and Accounting, the answers are… well, IT DEPENDS.
When we have a question about something, we want a simple answer right away. There is nothing wrong with seeking quick and easy solutions for complex problems; however, just because the solution is quick and easy does not mean it is the right solution. When it comes to bookkeeping, taxes, and accounting, a complex question would sometimes require a complex answer that can be identified through critical thinking and effective research.
One problem would be deciding how to account for a personal vehicle used for a business.
For example, an individual runs their own therapist business where they schedule meetings with their clients either at their main office or at the client’s house. For the meetings that are at the client’s house, they use their own personal vehicle to get there. At the end of the year, they hire a CPA to prepare the business’ financial statements to report on their tax return for the year. They ask the CPA if they can add their personal vehicle as an asset and record its depreciation as an expense for the year.
A simple answer to this question would be “yes” because an asset is any object or resource owned by an individual or business that provides future benefit to the business and has monetary value. The vehicle has monetary value and is used to help get to the location to perform a service for the client; however, this is a personal vehicle that is also used to go home, to the grocery store, to the doctor’s office, and so on. Because of this, the CPA will need to ask additional questions to determine if the vehicle can be accounted for as an asset.
The CPA will then determine the business use of the vehicle by asking for the miles driven for meetings with clients and for personal use. With these amounts, the CPA can calculate a percentage on how often the vehicle was used for business-related purposes for the entire year. If the vehicle was used more than 50% for the business, then it can be accounted for as an asset; however, if the vehicle was used less than 50%, it would be better and safer to deduct the business-related mileage as an expense. These are hidden details that the CPA would’ve missed if they just added the personal vehicle as an asset based on solely the definition of an asset. It is important for a professional to ask additional questions and perform additional research to avoid the mistake of adding a vehicle as an asset that had more personal use than business use for the year.
This is just one of the many questions and scenarios that we face here at Loggins Kern & McCombs CPA Firm. As tax professionals, we perform our due diligence in asking additional questions and assessing the situation through critical thinking and effective research so that we provide our clients with the correct solutions to their problems.
So, the next time you have a complex question regarding bookkeeping, taxes, or accounting, do not be shocked if a true professional gives a solution that starts out with, “Well… IT DEPENDS.”