How to Correct them Before Year-End
Ready or not, the fiscal year-end for many small to mid-sized businesses is looming.
The last few remaining weeks of the quarter and fiscal year typically culminate with a
concerted push towards maximizing revenue to finish on a financially strong note.
However, just as impactful to company financials as a strong finish are clean and
orderly financial records. The weeks leading to a company’s fiscal year end are also a
good time to review financial practices and records in order to correct any accounting
mishaps that could impact the integrity of your company’s financials. Following are
several areas to revisit in preparation for year-end:
1. Receivables: Before pursuing new prospects, small to mid-sized businesses
should attempt to fully saturate their existing client base and narrow, targeted
audience. Have you pursued all possible sales options for upselling or cross selling
your services to your existing clients? Client retention and repeat sales are less
expensive growth strategies than driving new business and pursuing new leads. New
leads need to be educated on the value your company delivers to them.
2. Expense Recording: Diligently tracking and recording expenses is essential to
small to mid-sized companies, as expenses have a direct impact on both profitability
and cost containment. Businesses need to track and record expenses so that they can
accurately classify the expense. In addition, the expenses should be applied to the
timeframe in which they were incurred. Timely tracking and recording of receipts and
expenses can be a tedious task for business owners, but matching.
3. Reconciliations: Account reconciliations can be tedious and easily put aside,
especially for business owners who have numerous other responsibilities to juggle.
However, allowing a backlog of account reconciliations is detrimental in the long run.
If accounts have gone unreconciled for some time, start scheduling time for regularly
performing this function in preparation for year-end so that you still have time to
resolve any outstanding issues that may arise.
4. Accounting System Back-up: The Accounting system exists as the financial
backbone in a small to mid-sized company. Implementing a system of regularly
scheduled back-ups to the accounting system is critical for business continuity in the
event of a system failure. Some small to mid-sized businesses may never recover
from a crash in their accounting system. As year-end approaches, make certain that
this is a routine practice and not one which has fallen by the wayside.
We are currently offering a free analysis of your business processes and accounting system.
If you would like to learn more on how Virtual Bookkeepers USA can help move your business forward, please call us today at 251.216.7911 or email us at BestVirtualBookkeepers@gmail.com
TAX YEAR 2014. There are a few common tax forms you can expect to get in the mail, like your W-2 or 1099, which you’ll need to file your taxes.
When you file your 2014 taxes in 2015, you may notice a couple new tax forms to help you verify your health coverage as part of provisions of the Affordable Care Act (ACA).
Here’s an explanation of the new tax forms you may see at tax-time:
Form 1095-A: If you purchase health insurance through the Health insurance Marketplace, you will receive Form 1095-A, which will show details of your insurance coverage such as the effective date, amount of the premium, and the advance premium tax credit or subsidy.
Form 1095-B or 1095-C: Although not required for 2014 taxes, you may also receive one of these forms to report insurance coverage from agencies outside the Marketplace and from your employer. The IRS has provided a transition period for Form 1095-B and 1095-C, so these will not be required for tax year 2014.
Forms 1095-A, 1095-B, and 1095-C are source documents you will use to report your insurance coverage on your tax return to comply with the Affordable Care Act.
Form 8965: Starting in 2015 (for your 2014 tax return), if you didn’t have health insurance coverage in 2014 and qualify for an exemption from purchasing health insurance and a tax penalty, your tax return will include — Reporting of Exemptions From Coverage — to report the exemption certificate number you received from the Marketplace.
There are a few exemptions, like your income does not meet the IRS filing requirement that can be applied for at the time you are filing your taxes, however most exemptions should be applied for in the Marketplace before 2015 since you have to receive approval and report the exemption certificate number on your taxes.
Form 8962: If you purchased health insurance in the Health Insurance Marketplace and received a premium tax credit in 2014, information about your advance premium tax credit will be reported and the actual premium tax credit will be determined on form 8962.
Both Form 8965 and Form 8962 will be generated and attached to your tax return.
You were eligible for the premium tax credit if you met all the following criteria:
• You must get health insurance through the Health Insurance Marketplace;
• Are ineligible for coverage through an employer or government plan;
• Are within certain income limits;
• Do not file a Married Filing Separately tax return (unless you meet a specific criteria, which allows certain victims of domestic abuse to claim the premium tax credit using the Married Filing Separately filing status for the 2014 calendar year);
• Cannot be claimed as a dependent by another person.
If you were eligible for the premium tax credit, you could have chosen to:
• Get It Now: have some or all of the estimated credit paid in advance directly to your insurance company to lower what you pay out-of-pocket for your monthly premiums; or
• Get It Later: wait to get all of the credit when you file your tax return. This may either increase your tax refund or lower your balance due.
As with all tax laws, Virtual Bookkeepers USA is up-to-date with the latest tax law changes. If you have more questions about the Affordable Care Act and how it impacts you and your taxes, you can visit www.VirtualBookkeepersUSA.com to get answers.
VIRTUAL BOOKKEEPERS U.S.A. PLATFORM AIMS TO PROVIDE A BETTER WAY FOR SMALL BUSINESS OWNERS TO COLLABORATE WITH THEIR BOOKKEEPERS, USING WEB AND MOBILE APPS TO STREAMLINE TASKS LIKE SENDING DOCUMENTS AND VIEWING REPORTS. BY LEVERAGING EMERGING TECHNOLOGIES AND MOVING THE SERVICE ONLINE, VIRTUAL BOOKKEEPERS U.S. IS CHANGING THE TRADITIONAL BRICK AND MORTAR SERVICE MODEL OF BOOKKEEPING AND AUTOMATING ITS LABOR INTENSIVE PROCESSES. THIS ENABLES A
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Most small-business owners would say one thing they would meticulously avoid if given the chance is a tax audit. But rather than living in fear of the unknown, let’s take a look at some of the most common triggers for a small-business tax audit. The IRS uses a computer program called the Discriminate Function System (DIF) that analyzes returns and flags them if they are outside statistical norms. When a return receives a high DIF score, an agent reviews it to determine if it should undergo an audit. Luckily, there are some common areas known to trigger flags and audits on small-business tax returns — and if you avoid them on your returns, your odds of an audit will likely be reduced. Here are eight areas you should pay special attention to when filing your small business taxes.
1. Having a Higher Than Average Income According to an AP story, just 0.9 percent of people who make less than $200,000 were audited last year, compared to 10.9 percent of those who made $1 million or more. With the substantially increased odds of an audit for higher income brackets, you’ll need to keep meticulous financial records in case y¬¬¬ou get the call.
2. Out of Proportion Deductions
Large deductions that reduce the amount of your taxable income may raise a flag if they are out of proportion with your income. The IRS uses tables to determine how much is too much for different income brackets when it comes to deductions, although the tables are not made public. For example, an IRS agent will want to know more if you claim charitable deductions that are not in line with your income. In addition, a small business that has a low income will create a flag if its deductions are larger than normal for that income range. Sometimes those lopsided deductions are legitimate — such as when first starting a business or during lean years. You should absolutely take the deductions that you’re entitled to, but be sure you have detailed records to back them up.
3. Numbers That Have Been Rounded or Averaged
Rounding up or averaging numbers in everyday life might be acceptable, but when it comes to your tax return, it can trigger an audit. If you made $60,002.36 last year, don’t report your income as $60,000 or you may find yourself sitting across the desk from an IRS agent. They tend to believe that if you’re sloppy in this area, the rest of your return may not be entirely accurate.
4. Home Office Deductions
Last year, the IRS simplified the home office deduction method, but the requirements necessary to take it have not relaxed. You can still only claim a portion of your home if it is exclusively dedicated to your business. For instance, if you use a corner of your bedroom, it won’t qualify for the deduction because the room is used for personal use as well.
5. Claiming Business Losses Year After Year
The IRS will take notice if you claim that your business is taking a loss year after year, and may initiate an audit. They know some people claim hobby expenses as business losses, and under the tax code, that’s illegal. If you run a legitimate business that continuously reports a loss, the IRS may assume you are taking deductions you’re not entitled to in order to avoid paying taxes. But some business owners do experience a few bad years, and can clear up the matter by first proving that their business is legitimate, and then justifying the deductions with their records.
6. Filing a Schedule C
The schedule C is where small-business owners can take the deductions that will lower their taxable income, and many people believe that filing one will increase the chances of an audit. The IRS does scrutinize these types of returns more closely. Don’t let fear of an audit keep you from claiming legal deductions. Just make sure that you have careful documentation to justify all of them. If you don’t want to file a schedule C, you can set up your business as a separate entity and run all of the business expenses through it.
7. Excessive Deductions for Business Entertainment
Everyone has heard stories about business owners taking a family trip to Hawaii, and then writing it off as a business expense. Or about the business owner who continually takes friends out to eat, and then writes off the expense on their taxes. Unfortunately for those people, the IRS has heard the same stories. If a tax return includes higher-than-average entertainment expenses, it will set off an alarm with the IRS and increase the chances of an audit. If you’re going to deduct these types of expenses, you must keep records for each write-off that includes when and where it occurred, who was in attendance, the purpose as it relates to your business, and a record of what was talked about. You’ll also need to keep receipts for expenses greater than $75 when you’re traveling for business.
8. Claiming Your Vehicle As 100 Percent Business Use
When deducting for business use of a car, you’ll have to choose between the IRS standard mileage rate and actual expenses. Deducting both of these on your tax return will bring the IRS knocking. In addition, if you claim 100 percent business use on the depreciation form for your vehicle, you’ll need precise records that include mileage logs, dates, and the purpose of every trip.
Now for the good news. In the same AP story mentioned above, the new IRS Commissioner John Koskinen said that last year less than 1 percent of all returns underwent an audit, and he predicts that with the recent budget cuts, this year could be even fewer. (Only 0.6 percent of business returns were audited.) Still, it’s a good idea to take heed of the common audit triggers listed here, and if you want to put your mind more at ease, head on over to Kiplinger, which offers a free tax audit risk calculator.
Mike McVay, Tax Accountant Blog
Certified QuickBooks ProAdvisor & Licensed Tax Accountant Pensacola, FL
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