You Are Being Audited: Now What?
Jun 03, 2016
Here is the situation: you have received a letter from the IRS; they are reviewing a previous tax year and you must provide support for your tax position(s). Hence, you are being audited.
Don’t panic! Numerous taxpayers are audited on a yearly basis. You won’t be the first or the last. Since the IRS is such a large government institution, the process will be slow. The best thing you can do is remain calm and begin to make a plan.
Read the Audit Letter. Once you have taken the time to thoroughly examine the letter and its contents, determine what they looking for? Audits vary in length and scope. Pay attention to the time frame the IRS has provided for you to compile the requested documents.
Gather all information requested. Begin gathering the info requested. If you maintain good records, the process may be easier. If you are having difficulty locating certain documents, you may call and request an extension . If necessary, you may send the information piecemeal as some auditors appreciate some information rather than none. It is important to send only those items requested. Obviously, the IRS has the power to open additional audits of anything/anyone they feel is questionable or suspicious. So while you may think offering additional supporting information would be helpful, it may in the end cause additional issues. Rule of thumb is to stick to their list, The IRS will notify you if additional information is necessary.
Work with the auditor. Auditors are people too! More often than not, auditors are willing to work with you. Being upfront and honest can go a long way. If you are unable to locate a receipt, tell them. They may allow a credit card invoice or some other proof of payment as alternative substantiation.
Talk through the results and ask questions. Once the auditor has reviewed your paperwork, they will inform you of any issues. In some cases, you may be asked to provide more substantive evidence for expenses. In other cases, the auditor may try to assess penalties. In all of these instances, make sure you ask questions to understand why such circumstances are occurring. Many times, penalties are negotiable and occasionally even completely abatable. Make sure you take the time to understand what’s happening and go from there.
Pay the tax. Once you’ve gone through the process and settle on what you believe to be the final tax owed, make sure you pay it! This sounds straight-forward, taxpayers often think they can deal with the balance at a later time. The IRS will assess additional penalties and interest on any outstanding amounts due. If needed, payment plans are available.
If you are the subject of an audit and are unsure of the actions being taken, or have questions about the process, feel free to contact a William Vaughan Company audit representative.
Courtney Elgin, CPA
Categories: Audit & Accounting, Tax Compliance
Is Your Business Plagued By Payment Issues?
May 31, 2016
Most small business owners love what they do. However, finances can become limited when customers don’t pay their bills on time. One or two delayed payments or a non paying customers can be enough to negatively affect your business operations. Understanding what may be occurring and being proactive may help you maintain steady ground with your accounts receivable.
Purchase Order Predicaments
Not all customers use purchase orders, but those which do rely on them to coordinate ordering and accounts payable functions. If there’s a mix-up involving a purchase order and your invoice doesn’t match up with the customer’s purchase order, your invoice could end up on the “problem” pile instead of the “pay” pile. Be proactive by verifying that the purchase order numbers on your invoices are correct before they are sent.
Strapped for Cash
Lack of money is a common excuse for not paying. One reason your customer may not be able to pay you is because your customer’s customers haven’t paid their bills. Regardless of the reason, be the squeaky wheel and keep communicating with your past due customers.
You can help reduce your exposure to customer cash shortfalls by tightening your credit requirements.
Disputes, Dilemmas, and Other Disappointments
Misships, damaged goods, late deliveries. Plenty of things can go wrong during the fulfillment process. Rather than make a phone call, customers may just “file” your invoice at the bottom of the pile.
Follow-up e-mails or phone calls to find out if your customers are satisfied will help smooth any ruffled feathers and could improve how quickly you get paid.
Vanishing Invoices
“We never received your invoice” is a weak excuse, but you still have to find a way around it. Once again, early follow-up is key. Paperless billing and the potential to monitor whether e-mailed invoices have been opened can also help eradicate this excuse.
Categories: Other Resources
Laying the Groundwork for a Business Sale
May 26, 2016
Are you considering selling your small business? To ensure a successful and profitable outcome, now may be the right time to prepare for such transaction in advance.
After you’ve built your business from the ground up, being objective about its value can be difficult. Knowing what similar businesses have sold for recently can provide significant guidance. If you require a clear idea, you may consider having a certified accountant complete a business valuation.
Next, it is important to give some thought to an appropriate type of buyer – your ideal candidate. Is it a key person who currently works for your company? A competitor? Someone who just wants to buy a good business and run it but isn’t a current employee or competitor? An investor who wants to make a profit but isn’t interested in the day-to-day operations of the company? The sales price you desire will be dependent on the type of buyer being targeted.
At this point, you will also want to think about your future participation in the business after it is sold. Consider the role you’d be willing and able to play, if any, during the transition to new ownership.
Make It Attractive Before putting your company on the market, you’ll want to focus on its profitability. Taking steps to enhance the bottom line — even if it means paying more income taxes — may allow you to command a higher price for the business.
On the asset side, now is the time to identify any equipment, furniture, fixtures, or machinery that is no longer useful and consider selling or otherwise disposing of these items. That way, you’ll be able to present a leaner business to potential buyers.
It’s What You Keep Selling your company for a fair price is important, but so is securing all available tax advantages. Will you be structuring the sale as an asset sale or will you be selling your company stock? Each has different tax implications. With smart planning, you’ll be in a better position not only to command top dollar for your company, but also to minimize taxes on the sale.
Categories: Other Resources
Taking A Step In The Right Costing Direction
May 25, 2016
I few weeks ago, I spoke at a breakout session at the G400 accounting seminar in Denver. The G400 is the American Institute of CPAs’ annual conference offering a unique opportunity to network with peer firms and gain greater insight into the opportunities, concerns, and challenges of running a certified public accounting practice. I was honored to engage with a group of partners to discuss possibilities for growing a firm through specializations and niches. I focused much of my presentation on my personal experience working at William Vaughan Company where we offer a diverse array of services, specifically costing.
For me, it was very interesting to hear what other accounting have been doing. I was very surprised to discover how some firms are reluctant to explore services in which they are not experienced. Obviously, it would not be recommended to offer a service without any sort of formal training or experience. However, growing firms understand the importance of analyzing the market to determine a void. Firm specialization is extremely valuable when it comes to serving large clients with a variety of needs beyond traditional tax. Being fearful of an unknown may result in a loss.
Cost accounting is a very specialized service involving a unique set of skills. Many firms are not comfortable offering this service. However, I would argue the benefits of knowing your costs and serving your clients in a way that provides clarity far outweighs the work involved in establishing a new niche.
Educate your office, take a CPE course or hire a consultant. As a CPA firm, it is essential to remain competitive and know you can service your client no matter what their need may be. As a client, quality costing information can provide clarity and direction for the future. Whatever side you may be on, don’t let fear hold you back – take a step in the right direction!
Categories: Cost Accounting
Donating Excess Inventory to Charity
May 24, 2016
Getting rid of excess or obsolete inventory can provide much needed warehouse space. Some businesses may choose to donate excess inventory to charity. However, it is important to be aware of the tax regulations involved in this type of charitable giving.
A donation of inventory to a qualified organization is potentially tax deductible as a charitable contribution. The amount that is deductible is the smaller of the donated inventory’s fair market value on the day it is contributed or its basis.
The basis of contributed inventory is any cost incurred for the inventory in an earlier year the business would otherwise include in its opening inventory for the year of the contribution. The business must remove the amount of the charitable deduction from its opening inventory. It is not part of the cost of goods sold.
If the donated inventory’s cost is not included in opening inventory, the inventory’s basis is zero and the business may not claim a charitable contribution deduction. In this scenario, the business treats the inventory’s cost as it would ordinarily be treated under its method of accounting.
Under a special rule, a C corporation that donates inventory to a qualified charity that will use the donated items for the care of the ill, the needy, or infants may qualify for an enhanced (above-basis) deduction. Similarly, any trade or business that donates food inventory meeting certain standards may qualify for an enhanced deduction.
Categories: Non-Profit, Tax Compliance, Tax Planning