Archive for October, 2013

Are You Ready?

October 23, 2013

Selected for AuditOur tax software vendor just let us know that “According to IRS tax gap studies, small businesses account for 40% of the $450 billion annual loss in tax revenue to the US Treasury, largely due to the under-reporting of income and overstating of credits and deductions. As a result, the IRS focuses much of its audit activity on small businesses, especially in field audit examinations.”  Let’s see, 40% of $450 billion (with a “B”)…that is not pocket change.

However, this is really not surprising.   Small business has always been a prime target for the IRS.  Many times the business owner is good at creating and delivering their product or service but not quite as good at the administrative side.  So if you were the IRS, would you audit a well-prepared business that  has their records in perfect shape and understands the tax law or would you go after the under-prepared small business owner.  Hmmmm.  Let me think.

The IRS will tell you that their goal is to determine the correct tax liability (whatever that means).   However, if they can disallow a deduction because of bad records or no records, it is much easier and faster than spending hours going through records and arguing tax law with a Taxpayer or their representative.

I had an IRS Appeals Officer once tell me that more deductions were disallowed because of inadequate records than for tax law interpretations.  This has been the case since I was an IRS Agent and will probably continue until people learn to keep better records.  The most frequently disallowed deductions are vehicle expenses, meals & entertainment and travel simply because the required documentation is clearly defined in the Internal Revenue Code (The Law).

Are you ready for an IRS Audit?  You only have one chance with the Auditor to show the credibility of your records.  If you fail that first impression, you should prepare to spend a lot of time with the Auditor and write a sizable check at the end .

Records don’t have to be complicated to be credible.  Ask yourself “Am I willing to spend a little time on keeping records NOW that will save me considerable money and time in the future?” Good records can also  significantly add to your peace of mind.  Priceless.

MyTaxBuddy is a simple-to-use system that you use from your smartphone, tablet and computer and provides complete, IRS-credible records for all your income, activity and expenses, all in one place.  Having all the pieces required for travel, meals & entertainment and vehicle mileage documentation is not difficult if you can remember it all.  We provide the structure. MyTaxBuddy is as simple as using an online calendar.   If you start today it could save your bacon when the IRS comes calling.  That is why we are your Buddy!

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The Times They Are A-Changin’

October 14, 2013

trs80-spacersWhen I got my first hard drive, it was a massive 10 Mb.  Why would I need one that large?    I would never be able to fill it up.   And it was a huge price tag also (understanding that my first system, a Radio Shack TRS80 Model II, cost over $4,000 with 64K of memory, 2-500K 8 inch floppy drives and no hard drive.)

Last week, I purchased  a portable drive that is over 100,000 times larger than that first hard drive for less than $40 after rebate.  Boy have things changed in what seems like only a few years.

Then, of course, our “high tech games” consisted of Pong, Space Invaders and Star Trek.  It will be exciting to see what is in store for our tech future.

But no matter how advanced we get, the old computer adage will still apply.  GIGO.  Garbage In, Garbage Out.

And the other adage that junk will expand to fill the space available also applies.

Some things never change regardless of the technology.

So They Paid You In Cash

October 10, 2013

Pay in CashSo your customer paid you in cash.  For some businesses that is a time to celebrate because they feel that they don’t have to report cash.  Notice we said “feel” and not “THINK”.  Let’s look at the bigger picture here and really THINK this through.

Section 61 of the Internal Revenue Code (yawn) clearly states that “… gross income means all income from whatever source derived”.  That is the law.  If it comes through your business, chances are it is gross income and should be reported.

Well, you say, I like to push the limits.  I drive over the speed limit, but not a lot.  A few bucks never hurt anyone.  That is what you tell yourself.  Rational Lies.

Consider this.  If your internal controls (or lack of them) are so loose that it is easy for you to take out cash without running it through your books, then perhaps your employees feel that they can do the same.  I mean, if you skim cash from the business then it must be OK for them to do it.  Is that really OK with you. I seriously doubt it.

Then let’s go to the extreme.  You get comfortable not reporting income and  the numbers start getting bigger and bigger.  Then the IRS comes in and they decide that they are going to make an example out of your case and prosecute you criminally for income tax evasion.  First, you will incur lots of attorney and accountants fees because, as the old adage goes, “the lawyer that represents himself has a fool for a client”.

Then you will probably go in front of a jury of your peers.  Now most of these “peers” on the jury are probably  W-2 employees and not in a position to omit any income from their tax return. They will NOT understand nor appreciate that you are trying to get away with it.  They can’t so why should you.  Guilty.

There is nothing wrong in being aggressive with your taxes.  But ask yourself, is it really worth the risk.  If you are going to take a risk, at least look at the downsides.

And also remember – Pigs get fat.  Hogs get slaughtered.

Nobody Home at the IRS

October 1, 2013

Govt ShutdownWell the Government has closed its doors for who knows how long.  That means the IRS is also closed.  That’s the good news and that’s the bad news.

The good news is that there is nobody home in the audit and collections departments.  Which means there will be a temporarily halt to phone calls and letters telling you “I’m with the IRS and I’m here to help you.”

The bad news is that there will be no refunds issued while the lights are off.  Also the clock marches onward toward the October 15 due date.  And there is nobody at the IRS to answer your questions. So, we recommend that, if you do have a question, go to Google or Bing or your favorite search engine or even IRS.gov if you want to get advice with an IRS slant.  You can also call your tax professional.

We are not certain what to tell you if the IRS has given you a deadline to take some sort of action.  If they want a payment by October 5, then I would do my best to make that payment even if the government’s doors are closed.  Most times, ties go in favor of the government so be certain that you know the risks you might be taking.

As we understand it, the IRS computers will still be functioning so you can still e-file.  We hope.

So until the IRS opens its doors again, enjoy a little peace and quiet.  But remember, they are not going away forever.


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