Header Right

When the IRS Wants to Audit Your Business

by

worried business ownerNothing can frighten a business owner like an audit notification. Is it the first step toward arrest and trial? No need to panic. Find out what a tax audit actually is and how to get through it with minimal fuss.

You may be surprised to learn that not every audit notification you receive will be legitimate. So, first, make sure you received an official audit notification. The Internal Revenue Service (IRS) will notify you either by letter or by a phone call followed by a letter. The IRS does not notify taxpayers about audits through email, so if you do get an email saying you’ve been selected for an audit, it’s probably fraudulent. If you’ve determined that you’re definitely getting audited, your next step is to learn what’s involved.

What Exactly Is an Audit?

According to the IRS, an audit is “a review/examination of an organization’s or individual’s accounts and financial information to ensure information is being reported correctly, according to the tax laws, to verify the amount of tax reported is substantially correct.”

That’s it. It’s an audit – not an arrest and not a trial – so don’t panic. Contrary to popular belief, an audit doesn’t automatically mean you made a mistake. Yes, an inconsistency can trigger an audit if there’s a discrepancy between what’s on a tax form and what you actually reported. But the IRS may choose to audit a taxpayer based on random selection or a statistical formula. Also, an audit may be less intrusive than you feared. For example, it may be entirely through the mail, although in some cases, it may be at an office or the taxpayer’s home or place of business. And not all audits result in your owing money. In fact, your audit may lead to no changes at all.

Both businesses and individuals may be audited (even sole proprietorships), and there may be some differences in how they are handled. One thing that virtually all audits have in common, however, is access to records. The IRS is going to want to check some of your records, and maybe a lot of them. Did you deduct business expenses? Make some substantial charitable contributions? You’ll need to show the IRS some receipts. The good news is that in many cases the IRS accepts electronic records.

What Happens Next?

There is no typical length of time for an IRS audit, but if you have your records handy and cooperate fully and quickly, you increase your chances that it will be as brief and painless as possible. Ultimately, the IRS may determine that you owe more money. At this point, you can pay it or you can appeal. The audit doesn’t have to be the end of the road. There is a substantial appeal process and a long and expensive court trial may not even be necessary.

The important thing to remember is that you don’t have to go it alone! Your accountant can work with you throughout the audit process, including any appeals. The key factor is to call us as soon as you receive the notification about your audit. We’re ready to work through the details and help you gather any records you may need.

Stop worrying about your tax problems and find solution! Call us to get started now at 847-982-1040 or request your free consultation online.

Do You Have a Business Continuity Plan? You Should

by

Woman Working From Home Using Laptop On Dining TableWhat if disaster strikes your business? An estimated 25% of businesses don’t reopen after a major disaster strikes.1 Having a business continuity plan can help improve your odds of recovering.

The Basic Plan

The strategy behind a business continuity (or disaster recovery) plan is straightforward: Identify the various risks that could disrupt your business, look at how each operation could be affected, and identify appropriate recovery actions.

Make sure you have a list of employees ready with phone numbers, email addresses, and emergency family contacts for communication purposes. If any of your employees can work from home, include that information in your personnel list. You’ll need a similar list of customers, suppliers, and other vendors. Social networking tools may be especially helpful for keeping in touch during and after a disaster.

Risk Protection

Having the proper insurance is key to protecting your business — at all times. In addition to property and casualty insurance, most small businesses carry disability, key-person life insurance, and business interruption insurance. And make sure your buy-sell agreement is up to date, including the life insurance policies that fund it. Meet with your financial professional for a complete review.

Maintaining Operations

If your building has to be evacuated, you’ll need an alternative site. Talk with other business owners in your vicinity about locating and equipping a facility that can be shared in case of an emergency. You may be able to limit physical damage by taking some preemptive steps (e.g., having a generator and a pump on hand).

Protecting Data

A disaster could damage or destroy your computer equipment and wipe out your data, so take precautions. Invest in surge protectors and arrange for secure storage by transmitting data to a remote server or backing up daily to storage media that can be kept off site.

Protecting Your Business

If you think your business is too small to need a plan or that it will take too long to create one, just think about how much you stand to lose by not having one. Meet with your financial professional for a full review.

Our Northbrook, IL tax and accounting firm provides accounting services and bookkeeping for all types of small businesses. Call us at 847-982-1040 now and tell us about your business or request a free consultation online.

Source/Disclaimer:

1Source: U.S. Small Business Administration, www.sba.gov/content/disaster-planning.

 

Be Proactive when it Comes to Business Issues

by

Handwriting Old Way or New Way with marker on visual screenYour manager breaks her leg playing softball and will be out for a month. Or your receptionist’s husband lands his dream job, but it’s out of state so they’ll be moving. When you own a small business, learning to expect the unexpected comes with the territory. Yet, you don’t have to stand idly by and wait for something to disrupt your finances and send you down a path of trouble. Consider being proactive with these troubleshooting tips.

Watch Your Numbers

You can monitor your company’s financial health, spot developing problems, and improve performance by reviewing key ratios derived from the numbers on your financial statements. Taken together, these ratios help paint a picture of your company’s financial well-being.

At times, you might dwell on problems in one particular aspect of your business. But don’t ignore the rest. If you’re not seeing the big picture, you might not spot trouble in other areas. For example, if your profit margin is falling, you could become so focused on trying to find a solution that you fail to notice that several of your biggest customers haven’t sent a payment lately and a cash flow problem is brewing.

Watch Your Assets

Always try to make the most of your assets. If you carry inventory, keep your eye on turnover rates. Slow inventory turnover can strain your cash flow. Figure out how many days’ worth of product you’d ideally like to have on hand, and adapt your purchasing to meet that goal. Also, check your fixed assets. If you have equipment that’s not being fully utilized, you may be able to repurpose it. If not, it may be time to sell or donate it.

Watch Your Debt

It’s practically impossible to operate a business without taking on at least some debt. Debt itself isn’t a problem, as long as you keep it under control. A high level of debt can eat up your cash, cut into your profits, and reduce the return you’re getting on your investment in the company — and that’s definitely trouble.

Our Northbrook, IL tax and accounting firm provides accounting services and bookkeeping for all types of small businesses. Call us at 847-982-1040 now and tell us about your business or request a free consultation online.

5 Things You Need to Know About Sales Taxes in QuickBooks Online

by

Close-up side view part of young man using laptop while sitting at his working placeThe most important thing you need to know about sales tax is that administering it correctly can be challenging.

If you sold only one type of product to customers in one city, collecting and paying sales tax would be easy. But most businesses have a wider reach than that.

QuickBooks Online offers tools that allow you to set up sales tax rates and include sales tax on sales forms. Further, it calculates how much you must pay to state and local taxing agencies.

This is one of the most complicated areas in QuickBooks Online because you may have to deal with numerous taxing agencies. If you’re not already working with sales taxes, we strongly recommend you let us help you get everything set up correctly from the start. Taxing agencies can audit your recordkeeping and you want to make sure it is set up correctly.

That said, here are five things we think you should know.

QuickBooks Online calculates sales tax rates based on:

  • Where you sell. Every state is different. If your business is located in Florida and you sell to a customer in Minnesota, you’ll be charging any sales tax levied by the state of Minnesota and possibly the city and county and other taxing authorities – if you have a connection, a “nexus” in that state (a physical location, active salesperson, etc.).
  • What you sell.
  • To whom you sell. Some customers (like nonprofit organizations) do not have to pay sales tax. You’ll need to edit their customer records to reflect this in QBO. Open a customer record and click the Edit link in the upper right. Click the Tax info tab and make sure there’s no checkmark in the box that says This customer is taxable. The Default tax code will be grayed out, and you can enter Exemption details in that field.

QuickBooks tips

Customer records for exempt organizations should contain details for that exemption. You’ll need to see their exemption certificate or at least know its official number.

Intuit now offers a revamped version of QuickBooks Online’s sales tax features.

At some point, you’ll be asked if you want to switch to the new, more automated system. The actual mechanics of the process are simple, but you’ll be moving historical and in-process data to a new structure. If you have sales tax set up right now and your situation is at all complicated, you’re going to want our help with the transition.

This enhanced feature only supports accrual accounting.

You can combine individual tax rates.

If you are required to pay city, county, and state sales tax rates for a particular customer, for example, you can create a Combined tax rate that contains all of the individual components. The customer will only see the total on an invoice or sales receipt, but QuickBooks Online will track each one accordingly for payment and reporting purposes.

QuickBooks tips

You can combine sales tax rates in QuickBooks Online (image above from current Sales Tax Center in QuickBooks Online, not the enhanced one).

Product and service records should contain sales tax information.

This is another area that will require some research. Just as some services are subject to tax, some products are not (like groceries in Arizona). So, you’ll need to find out what the rules are for what you sell. You can find this information on the website of the state’s Department of Revenue (sometimes called the Department of Taxation).

Once you know, you can record that status in QuickBooks Online. Open a product record by going to Sales | Products and Services and clicking Edit in the Action column or create a new one by clicking New in the upper right. Scroll down to Sales tax category in the record. You can choose between Taxable – standard rate and Nontaxable.

There’s a third option here: special category. This gets complicated. We can help you determine whether it applies to you.

QuickBooks Online tracks the sales tax you owe.

You can see what you owe to each agency by running the Sales Tax Liability Report, and record payments when you’ve made them. Summary and detail versions of the Taxable Sales report are also available.

Once you get sales taxes set up in QuickBooks Online, it’s easy to add them to the relevant sales forms. Getting to that point, though, takes time, study, and careful attention to detail. If you’re getting ready to sell, or you’re already selling and struggling with sales taxes, let us know. We can schedule an initial consultation to see how we can be of assistance.

SOCIAL MEDIA POSTS

Did you know that QuickBooks Online can calculate and apply sales taxes to transactions? However, setup requires some upfront research. Here are a few things to get started.

Does your business have to charge multiple levels of sales taxes? QuickBooks Online allows you to combine them. Here’s how.

QuickBooks Online calculates sales taxes based on where and what you sell, and to whom. It’s a bit complicated and here is why. We can help you get through setup.

Did you know that Intuit has released an enhanced version of QuickBooks Online’s Sales Tax Center? Here are the details and we can help you make the transition

General Overview of Business Deductions

by

Robert H Lewin LtdBusiness expenses are the cost of carrying on a trade or business, and there may be some tax breaks there. But a lot has changed in recent months, and the rules can be complicated.

Are there business deductions you can take advantage of? Yes, but first you have to make sure your expenses are truly business-related. The lines can blur, especially with a small business, because you generally cannot deduct personal, living or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts, and then deduct the business part.

An example: You borrow money and use 70% of it for business and the other 30% for a family vacation. You can deduct 70% of the interest as a business expense. The remaining 30% is personal interest and isn’t deductible.

Let’s look at business use of your car and your home:

  • Business use of your car: If you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage.
  • Business use of your home: If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses include mortgage interest, insurance, utilities, repairs and depreciation.

Other types of business expenses? Let’s take a closer look:

  • Employees’ pay: You can generally deduct the pay you give your employees for the services they perform for your business.
  • Retirement plans: These are savings plans that offer you tax advantages to set aside money for your own, and your employees’, retirements.
  • Rent expense: Rent is any amount you pay for the use of property you don’t own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. If you have or will receive equity in or title to the property, the rent is not deductible.
  • Interest: Business interest expense is an amount charged for the use of money you borrowed for business activities.
  • Taxes: You can deduct various federal, state, local and foreign taxes directly attributable to your trade or business as business expenses.
  • Insurance: Generally, you can deduct the ordinary and necessary cost of insurance as a business expense, if it is for your trade, business or profession.

This list is not inclusive but endeavors to offer some common business expenses and explains what is and isn’t deductible. Of course, in some cases, expenses might need to be amortized — deducted over a period of several years — if they are startup costs or if they’re related to the purchase of business equipment.

You must capitalize, rather than deduct, some costs that are part of your investment in your business — these are called capital expenses. Capital expenses are considered assets in your business.

Of course, some business deductions can be very complex, so professional advice is necessary to make sure you’re getting what you’re owed without raising any red flags with the IRS. We’re here to help you with your business tax needs.

4 Areas to Consider When Transitioning Employees to Working From Home

by

For businesses that haven’t traditionally embraced remote employees, it may be difficult to get up to full speed with the current turn of events.  To make the inevitable transition less overwhelming, we assembled a handy checklist of actions to consider while adjusting to the new workplace reality.

Organization

  • Access your staff members and/or roles that are able to work remotely, those that can’t work remotely, and those where remote work may be possible with some modifications.
  • Conduct an employee survey to determine the availability of computers that can be used for working remotely, as well as availability to high-speed internet access.
  • Create company guidelines covering remote employees, including inappropriate use of company assets and security guidelines.
  • Develop and conduct work-at-home- training for using remote access, remote tools, and best practices.
  • Select a video-conferencing platform for services, such as Zoom, Cisco WebEx, or Go To Meeting.
  • Develop a communications plan to involve remote employees in the daily activities of the organization.

 Security

  • Create and implement a company security policy that applies to remote employees, including actions such as locking computers when not in use.
  • Implement two-factor authentication for highly-sensitive portals.
  • If needed, confirm all remote employees have access to and can use a business-grade VPN, and that you have enough licenses for all employees working remotely.

Staff

  • Institute a transparency policy with your staff and communicate frequently.
  • Check in on your staff, daily if possible, to confirm they are comfortable with working from home. Find and address any problems they may be experiencing.
  • Make certain each staff member has reliable voice communications, even if this results in adding a business-quality voice over IP service.
  • Don’t attempt to micro-manage your staff. Remember their working conditions at home won’t be ideal, and they will need to work out their own work patterns and schedules.
  • Create a phone number and email address where staff members can communicate their concerns about the firm, working at home, or even the status of COVID-19.

Infrastructure

  • Ensure that you have ample bandwidth coming in to your company to handle all of the new remote traffic.
  • Make sure you have backups of your services so your staff is able to keep working in the event extra traffic causes your primary service to go down.

You may need to adjust or expand this list to match the specific needs of your firm and the conditions affecting your organization.  Use this list to get you started and to help guide you through the process.

You can count on us to count for you! Call Robert H. Lewin, Ltd now at 847-982-1040 to learn more about our accounting and bookkeeping services for small businesses. You can also request a request a free consultation online.