Archive for June, 2012

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Jun

How to Select a CPA Firm

Categories: Point of View

Tags: choosing Accountant, choosing CPA, cpa firm selection, selecting accountant, selecting CPA

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Written by: Gene G. Smith, CPA

There are several factors that need to be considered when choosing a professional to give you business and tax advice.

What type of business do you have and what type of services are required? CPA’s have by necessity become more and more specialized. Small CPA firms typically provide general services, however some have developed niche practices. Larger firms may have a broader range of expertise. Some CPA firms do not offer audit services, so if you have a bank or investors that require audited financial statements that is going to be a factor as you look for a CPA firm. Make a list of services you currently are in need of, and also what potential services may be required in the next three to five years. Choose a firm that can grow with your business so you are not going through this process again in five years.
Look for a firm that demonstrates a commitment to their staff through training, flexible schedules, work-life balance and a basic culture of valuing employees. Will the work be done by a CPA, an employee with a college degree, or other level staff? What is the average tenure of the staff? A firm with high turnover is not in your best interest.
Will the CPA that you choose be genuinely interested in your business, or are they going to be a number cruncher? This will come out in the interview process right away as they ask questions. A person who gets to know you and your business will be a better advisor to you in areas you may not have even considered. A CPA can be involved with bank financing, risk management, joint venture considerations and many other non-traditional roles.
Ask your business friends and competitors who they are using for a CPA firm. For example, if you are a car dealership and your competition is using Smith & Smith, CPA’s, chances are pretty good that firm has some degree of expertise with car dealerships.
Compose a list of questions to be used during the interview. Some key questions to consider: Can you trust them? Can they provide business advice that would reduce your taxes or increase your bottom line? What type of clients do they currently serve? Do they ask questions indicating a genuine interest in what you do? Does the firm have specialist outside of what you may need currently (estate planning, business valuations, litigation support, strategic planning, to name a few)? What is the fee structure? Who will be assigned to do the actual work? How long will it take to receive the finished product? How long have they been in business? Do they provide the services I require?

Once you pull all your information together contact no more than three firms and begin your due diligence. Armed with a few proposals and evaluations, your informed decision should be an easy one. Best of luck, and above all call us first!

Jun

Identity Theft and Fraudulent Tax Returns

Categories: In The News

Comments: No

The IRS took a little longer to get refunds processed this year, especially if you filed early in the reporting season. This is because of the new steps that the IRS took to weed out fraudulent refund claims, many of which were processed very early, when electronic filing first opened up in January. For the 2010 tax year/2011 filing season, the IRS identified 2.2 million fraudulent returns, including 940,000 involving identity theft, on which $6.5 billion in fraudulent refunds were claimed. The IRS has been developing new processes and filters for returns, especially early filed returns, in an attempt to identify questionable refund claims.

Jun

95S Corporation Shareholders – Are you taking a reasonable salary?

Categories: Business, Planning & Strategies

Tags: Compensation, reasonable salary, S Corporation, shareholder

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Written by: Tina Powell, CPA

As a shareholder of an S Corporation, you may think that you can just take the money you need as dividends. That is somewhat true, but like all tax laws, there is a gray fuzzy line that shouldn’t be crossed.

The advantage of an S corporation over an LLC or sole proprietorship is that a shareholder’s share of the company’s net income is not considered self-employment earnings and therefore is not subject to payroll taxes or self-employment tax. However, if a shareholder provides services to the S Corporation, they must receive an adequate or reasonable amount of compensation. The compensation is deductible, but is subject to Social Security Tax, Medicare Tax and Federal and State Unemployment Taxes. So in an effort to minimize these taxes, owners tend to minimize compensation. The IRS has been pursuing and winning cases of perceived abuse of inadequate compensation in favor of dividend distributions to shareholder-employees, so it is important to ensure that you can substantiate “reasonable compensation.”

The IRS looks at many factors in determining reasonable compensation including the following:

Training and Experience
Duties and Responsibilities
Dividend History
Time and Effort Devoted to the Business
Timing of Bonuses
Payments to Non-Shareholder Employees
Comparable Compensation Similar
Use of a Formula to Determine Compensation
Businesses Pay for Similar Services
Compensation Agreements

The key to defending your claim to reasonable compensation is to document all research to support the amount of compensation. The IRS has the authority to reclassify dividends, distributions or payments to the shareholder-employee, including loan repayments, as compensation if it deems compensation is inadequate or unreasonable. The courts have held that reasonable compensation is one of fact, determined on a case-by-case basis. So if you have your support or documentation, you are in a better position to avoid reclassification.

The S corporation entity form provides planning opportunities to avoid payroll taxes or self-employment taxes. With the increase in Medicare tax as a result of Obama Care scheduled to begin in 2013, this may represent a larger opportunity.

Jun

Is it Easier to Understand Tax Than How to Eat Healthy?

Categories: Point of View

Comments: No

The 2012 Food & Health Survey: Consumer Attitudes toward Food Safety, Nutrion and Health found some interesting facts. More than half of americans (52%) believe it is easier to figure out their taxes than to figure out what they should and shouldn’t eat to be healthier. And even through nearly 1 in 3 adults are considered obese, the survey showed that a majority of adults consider their health either excellent or very good.

The good thing about taxes is that it is easy to hire a tax professional to take care of these items. Unfortunately, trying to read and figure out nutrition labels can be more complicated than the Tax Code.

Just some food for thought!

Jun

Credit Cards in QuickBooks

Categories: Business

Tags: quickbooks credit card transactions, quickbooks tips

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Chances are your business has at least one credit card. In our experience, the proper credit card balance is rarely displayed in QuickBooks.

We recommend that you record credit card charges similarly to how you record checks in your checking account. Each charge would be entered separately. To do this, go to the banking menu -> enter credit card charges. Payments would be posted directly to your credit card payable account.

Each month, you would reconcile this account when you get your credit card statement. You would reconcile this account in the same manner that you reconcile your checking account.

Remember that charges made on your credit card, but not yet paid, at year-end are deductible. Your CPA must be aware of your proper year-end credit card balance so that you can take advantage of this deduction.

Jun

Handling Unusual Transactions in Quickbooks

Categories: Business

Tags: quick books tips, quickbooks tips, unusual quickbooks transactions

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Most QuickBooks users do a wonderful job of recording day-to-day transactions in QuickBooks. However, when unusual situations happen, transactions are frequently recorded incorrectly. Here are some examples of unusual situations and how to record them properly:

Refund or rebate from a vendor
On occasion, you will get a refund or rebate from a vendor. It may be for product purchased, overpaid workers compensation insurance, or even utilities. These refunds should be posted to the same account that the original expense was posted to.

Large Purchase
When a large equipment, furniture or vehicle purchase is made, it needs to be recorded in a fixed asset account instead of in an expense account. Although account names will vary, simply choose the “fixed asset” account that best describes your purchase.

Paying personal bills
It is generally recommended to pay all personal bills out of your personal account, instead of through the business. If you require additional funds in order to pay these bills, I recommend that you instead transfer the needed funds (in $100 or $1000 increments) to your personal bank account and pay the bills from your personal account.

In the case that a personal bill was paid from the business, it needs to be posted to one of these accounts:
- Shareholder loan/Note Payable-Shareholder
- Owners Draw/Shareholder Distributions/Member Distributions

Transfer of money from the business to a personal account
When money is transferred from a business account into a personal account, it needs to be recorded appropriately.
- Shareholder loan/Note Payable-Shareholder
- Owners Draw/Shareholder Distributions/Member Distributions (for transfers out of company)

Transfer of money from a personal account into the business
When you invest money into the business, it is important that the accountant recognizes that you are putting in an additional investment. If it is improperly recorded, it might appear to be sales or a reduction of expenses.
- Shareholder loan/Note Payable-Shareholder (for a corporation)
- Owners Contributions/Member Contributions (for unincorporated entities)

New Loan
When a new loan is made, it needs to be set up on the books. If it is a loan with cash received, you can simply record the loan as you record the deposit. However, if the loan is used to make a purchase, then it should be entered as a journal entry. (Debit to Fixed Asset account, credit to New Loan account.)

After the loan is set up in QuickBooks, it is time to determine how to record the payments. Since payments typically include both principal and interest, each payment should record both of these transactions. This can be automatically done through the QuickBooks loan manager. Go to the “Banking” menu and choose “Loan Manager.”

Please keep in mind that your accounts will likely be named slightly differently than my examples. If you have questions about how to record a particular transaction, please contact your CPA.

Archive for June, 2012

Now Available Online – Social Security Benefit Statements

How to Select a CPA Firm

Identity Theft and Fraudulent Tax Returns

95S Corporation Shareholders – Are you taking a reasonable salary?

Is it Easier to Understand Tax Than How to Eat Healthy?

Credit Cards in QuickBooks

Handling Unusual Transactions in Quickbooks