Monthly Archives

May 2014

What is Cash vs Accrual Accounting?

By 2014, Tax Tips

When considering your accounting management for your business, the possibilities are endless. However, two of the most popular accounting types are accrual and cash. They are very similar, and in fact mostly differ only when it comes to the timing of when transactions are credited to your accounts. When using the cash accounting method, money is only counted when it is physically received and the accrual accounting method counts income as soon as the order is placed instead of when the actual payment is received.

The cash method is the more commonly used method of the two, especially for small businesses. Businesses that make more than $5mil annually or that stock inventory to be sold to the public with over $1mil year in gross receipts must do their accounting on an accrual basis. Otherwise, it is optional for those with less than $5mil to do accrual or cash based accounting depending on their preferences.

The accrual method is useful to businesses due to its very thorough recording of expenses and payments, giving you a thorough idea of your cash flow. However, because payments and expenses are being recorded when they haven’t actually happened it may be difficult to keep track of your actual current assets.

Cash Flow Accounting has the benefit of offering an accurate, current picture of assets to a small business. At any time you will know exactly how much money you have. A major disadvantage is that it may offer an inaccurate overall profitability report. If business has been slow in a particular month but a lot of bills were paid, the business may show a spectacular month when it reality cash flow is limited.

Your trusted business advisor is the best qualified to sit down with you and go over your options when it comes to the accounting method you prefer for your small business. Call today at 303-232-8300 and speak to one of our experienced representatives to schedule your free consultation!

Three Ways to Trigger a Business Audit

By 2014, Tax Tips

For many business owners, the threat of an audit is a daunting prospect. A recent survey performed last year by Xero, as summarized here polled 400 accountants and compiled the most common mistakes that a small business owner can make that are known to trigger an audit.

According to the study, the third most common way to trigger an audit with an 11% response rate from CPAs is deducting a home office. This means you’ve turned a room in your home into a home office, and you’re paying yourself rent – which you then deduct as an expense. It’s a controversial deduction and more often than not will draw the attention of the IRS and trigger an audit.

Second on the list, with 27% of CPAs supporting it as a major cause of audits, is misidentifying workers. An independent contractor and an employee are two different types of workers – notably

made different by whether they work for multiple employers independently or just one – and misidentifying an employee as a contract worker means you may actually owe that employee a

higher wage and overtime, benefits, and back taxes. You should always check with your trusted advisor to ensure you have classified your employees correctly to avoid triggering an IRS audit.

Finally, with 43% of CPAs naming it, the most commonly cited way to trigger a business audit is with excessive deductions. It can be tempting to deduct everything that might possibly be related to the function of your business, but not every purchase can be deducted and taking too many deductions can draw the attention of the IRS, causing an audit as they double check all of those deductions.

Of note, 63% of the CPAs surveyed stated that they feel it’s best to have contact with an accountant all year, instead of just when tax season approaches. That way when taxes are due, there are no surprises and you don’t accidentally stumble into one of the three most common audit triggers. It’s important to have frequent check-ins with your trusted advisor to protect yourself and your business.

Call Accounting & Tax Solutions today at 303-232-8300 and let us help you protect your business from these common mistakes!

Beware Scammers Posing as the IRS

By 2014, Tax Tips

ATS: Accounting and Tax Services

 

Date:  04/27/2014 Beware Scammers Posing as the IRS

Featured in Wall Street Journal by Tom Herman

Watch out for con artists posing over the phone as representatives of the Internal Revenue Service.  It’s an old idea, but Treasury and IRS officials say thousands of people have fallen for increasingly sophisticated phone scams designed to steal money or identities.

“The increasing number of people receiving these unsolicited calls from individuals who fraudulently claim to represent the IRS is alarming,” J. Russell George, the Treasury inspector general for tax administration, said last month.

The IRS recently issued a fresh warning, saying the scams may come in various forms.  In recent months people have reported “a particularly aggressive phone scam,” the IRS said.  Targets often include immigrants.  “Potential victims are threatened with deportation, arrest, having their utilities shut off, or having their driver’s licenses revoked,” the IRS said.

In some cases, callers tell victims they  are “entitled to big refunds, or that they owe money that must be paid immediately to the IRS,” the IRS said.

What to do?  Keep in mind that the IRS says it “will always send taxpayers a written notification of any tax due via the U. S. mail.”  The IRS “never asks for credit card, debit-card or prepaid-card information over the telephone.” (For more details, go to irs.gov and type “scam” in the search box.)

If you get such a call, just hang up – and consider the following advise from the IRS:

  • Call the IRS at 800-829-1040 if you know you owe taxes, or think you might owe taxes, or think you might.
  • If you are sure you don’t owe taxes, or have no reason to think you might, report suspicious calls to the Treasury inspector general for tax administration at 800-366-4484.
  • Contact the Federal Trade Commission (ftc.gov) and use its “FTC Complaint Assistant” on that site.  “Please add ‘IRS Telephone Scam’ to the comments of your complaint,” the IRS Says.

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Four Steps to Take if Your Business is Audited

By 2014, Tax Tips

How to Handle an Impending Audit

No matter how carefully you prepare and file your taxes, the IRS may still choose to audit your company. This can be due to a taxesdiscrepancy that their computer noted, unfiled tax returns, or you may have simply been selected randomly. You will always receive a letter in the mail informing you of the impending audit. What should you do?

  1. Call your trusted financial advisor immediately. Your advisor can help you find out why the IRS is choosing to audit your company and therefore narrow down the documentation you will need to have prepared for the day of the audit. ATS is able to represent you during the audit, once a power of attorney is executed with the taxing agency.
  2. Start pulling your documents. Remember that the IRS can audit you any time within three years of a tax return so while it’s 2014 you could receive a notice for a 2011 filing. Make it a practice before you ever receive an audit notice to always keep and file documentation and receipts. This will ease the process of compiling your information and allow you to prepare quickly for your audit.
  3. Remain calm. An IRS audit is no reason to panic, and much of the time is due to random selection or a relatively minor error. If you feel like you do have a cause for concern take it up with your trusted financial advisor long before the audit begins and ensure that you are protected. You will want to be honest about any concerns you have with your advisor so they can be prepared for what’s to come and can intervene on your behalf.
  4. Don’t sign anything! Never sign any decisions or documents until your trusted advisor has had the chance to review them. You are well within your rights to insist that your representation review a document before you put pen to paper. If the decision made is negative you will want your financial advisor to review the document and the appeals process to ensure you are able to file a timely appeal to protect your business.

When those unwanted letters arrive in the mail, ATS should be your first call. Our highly trained and experienced accounting management solutions advisors can help guide you through the process from beginning to end. Call us today at 303-232-8300 – you don’t want to wait until after you’ve received an audit notice to start taking control of your finances and your tax filings.