Alternative Business Solutions
1400 Candlelight Dr #247
Eugene, Oregon 97402
If you use QuickBooks software, you may be in for a surprise. If IRS decides to audit you, they may summons you for your electronic QuickBooks file. If this is the case, refuse on the grounds that the file contains more information than the year they are examining. If they refuse, tell them you want to appeal the decision. You can even request a different examiner. In any case, however, you must provide a paper copy of the books but only for the year being examined.
Most IRS examiners will select the larger amounts in your books to review. If you cannot find all your receipts on the smaller amounts, it may not matter. It is, however, a good idea to have all receipts. It depends on the examiner and how much time they were allotted for the audit. Remember my first issue about keep your income "air-tight" .
With IRS it is illegal to not report all your income but overstating expenses is just a mistake. So, make sure your sales are correct and the deposits in your books match the bank's deposit. Your income needs to be "air-tight" but expenses can be a little sloppy-it's called poor bookkeeping.
Employee vs: contract labor-what are the specifics. Contract labor should have a contract, W-9 and they bill you on their invoices. They also must have business cards and work for others. They are issued a form 1099 at the end of the year for all services of $600.00 or more. If the person does not "qualify for these criterias" they are an employee and must be on payroll. Payroll involves payroll taxes, tax returns, workers comp insurance and a W-2 is issued at the end of the year. Be careful with this one, it can get very nasty and expensive for you.
Are you aware that the evaluation of your inventory can make or break you? If your software/cost system is inconsistent, there is no way you can tell if you are profitable or not. The method that is used and the reporting type makes a major difference to your cost of sales and gross profit. That means your bottom line may not be accurate. Make sure you understand your inventory evaluation process. Also, take inventory count often... like cycle counting.
Meetings and home businesses can be a problem. It is best to meet elsewhere i.e. a restaurant to avoid household disruptions. Whether it is a staff meeting or other business meeting, the expense should be recorded as "business meetings and trade shows". It is not necessarily considered "meals and entertainment", it is a meeting. Consider the fact that if you had a banquet with customers, staff, vendors, etc. it would not be considered as entertainment since it would be a presentation and/or meeting. Meals and entertainment are considered promotional and subject to only half of the deduction for tax purposes.
Embezzlement is a big problem in most businesses. A trusted employee may run into financial difficulties and begin pulling money from petty cash. If you notice a change in personality in an employee, protect yourself. Do not leave unsigned checks around. If you need to do that due to COD's, etc. state on the check above the signature line VOID OVER a certain amount ( i.e. $500.00). Review all bank statements and make sure the bank sends all images. Also, review petty cash reconciliation for the over/short and the expenditures. There are a lot of signs of misconduct as well protection.
Did you know if a business does not issue a form 1099 for rents, labor, services, interest (there are many variables) which you paid $600.00 or more for the year and are not reported on payroll/W-2, the expense taken will be disallowed by IRS? If the payee is a corporation, it is not required in 2010, however, all other entities such as LLC, partnerships, sole proprietors and individuals are required. IRS does double check what you reported on the 1099 vs: what you expensed in the books and will only allow the amount on the 1099.
Are you aware large companies have more than one set of books? Yes, they usually have three and all three are legal. One set based on tax law, one set for investors' requirements and one set for internal use which usually has a budget. So, it would not be unusual for you to have more than one set of books- i.e. one for tax and one for internal use and/or the bank.
C-Corporation or S-Corporation, what's the difference? C-Corp is its own entity, pays its own income tax based on the Net Income and is owned by shareholders. Sub S-Corp, although, owned by shareholders, is tied in directly with the shareholder's personal income tax return-reported on the 1040 form through a Schedule K-1. In either case, however, shareholders who work for the Corporation must be on payroll. Personal shareholder's expenses cannot be paid from the Corporation.
Your business mileage log doesn't have to be fancy. You can use your calendar to track your mileage. All you need is the "where, who, what" and the mileage to satisfy documentation. However, if there is information that is contained in the calendar you do not want to be seen, you will have to transfer the info to a log. Always make sure your business and personal use mileage matches what has been reported on the Income Tax Return.
Are you one of those that hates having to save receipts from travel? Well, there is another way around it by using the "per diem" method. The rate varies by location of where you are traveling. It covers basically lodging, meals and in town transportation. The larger expenses, such as airfare, etc. are in addition to the per diem. If you feel your actual expenses are higher than the per diem allowance, by all means keep your receipts.
Minutes are a legal requirement for Sub-s & C corporations. You must have at least annual minutes to stay legal. The minutes are governed by the by-laws and parts of the resolution minutes. If you get caught without minutes, you can lose your corporate status as well as being assessed with fines and penalties. Check your corporate paperwork and make sure you have all your minutes.
So you got QuickBooks and you think the accounting structure was set up properly by the software. Well, QuickBooks will set up a chart of accounts conducive to the industry selected but cannot tell you how to post transactions. Don't be fooled by the advertising and make sure your books get reviewed by someone that knows accounting. They can instruct you on proper structure and how to post. There are many common mistakes that cause books to be inaccurate, so you make poor decisions.
It's almost the end of tax season. Do yourself and your tax preparer a favor. If you are not ready at this point and feel you would be pushing it into last minute, file an extension. If you do a sloppy job and forget important information, amending a tax return can trigger an audit. Tax preparers get very tired about this time of the year and may miss important information. If you think you may owe money, send some with the extensions. Then, you can do the work properly since you will now have until Oct 15th to turn in your return.
For those of you who filed a tax extension-well, it's time to get back to it. There was probably a real good reason why you extended in the first place! Although the extension gave you an extra six months, NOW is the time to dive into the problem(s) and get the issues resolved. Remember, amendments triggers audits, so do it right the first time. If you wait, the problem will probably not go away and will haunt you.
There are many common mistakes made if you are not knowledgeable with accounting. Here are some common mistakes: Posting car payments to auto expense, credit card and loan payments posted as an expense, not sure so you post to "misc.", expense equipment that is over $500.00, net payroll check instead of gross, expensing payroll taxes when they are paid, expensing personal expenditures, recording both sales and monies collected as income which duplicates your sales, setting up job costing wrong. These are just a few mistakes that are common. If you have QuickBooks, the software doesn't care about these types of mistakes.
If you are a sole proprietor or LLC, you are more likely paying S/E (self-employment) tax. Before you complain too much, be aware that this tax goes into your social security fund. It is good to keep it active and funded as you may need it for disability (SSD) as well as Social Security. If you don't keep it funded, you may lose all your benefits when you need it most.
Non-profit organizations- did you think I forgot about you? No way. The biggest problem with non-profits is non-compliance to the required forms and reporting. If you ignore these responsibilities, you will loose your non-profit status as well as penalties assessed. The officers of the organization are personally liable for payment. It takes several years for IRS to give a tax deductible donation status, so complying is crucial to the organization's survival. I know everybody wants to be in the "program" and not paperwork but please make provision for the forms.
So you got a grant and everybody wants to go on a spending spree right? Wrong, grants are usually restricted funds with contractual agreements. They seldom cover administrative expenses. You must adhere to the agreements or you will have to repay the grant to the grantors. You need to get unrestricted donations/funds in order to cover administrative expenses. So, start fundraising!
You know it takes at least two years of reporting to IRS before they determine you are a "tax deductible charity" organization? Until you receive the letter of determination, donations/contributions are not tax deductible for the donors. Fundraising becomes difficult as you need to inform the donor their donation is not tax deductible. If your program is a good cause and benefits the community or other type of well-being, you should be able to get donations anyways. Fundraisers need to get creative and explain the program effectively. Grants are awesome, but usually the grantors want community donations first.
Many people think "we are a non-profit" and therefore, exempt from all taxes. Not true, only income taxes. The organization is still liable for other types of taxes such as payroll taxes, sales tax from other states, state fees, county assessments, penalties for non-compliance or late reporting. There are many reporting requirements, some with fees that a regular for profit organization are not required to do. After you file for a non-profit it becomes public record and subject to public review. So, before you decide on a non-profit, investigate all the requirements necessary so there are no surprises.