“The IRS has initiated a new examination program for small businesses in the past year. This is affecting all examinations of small businesses if they use any electronic accounting software.”

As a QuickBooks^®consultant, I am here to help you understand the issues and assist the small business client in preparing for the examination.

‘The typical [audit] begins with a letter from the IRS advising the business that it is being audited by the IRS. The letter will provide the IRS tax form and the period of the audit. The letter asks the taxpayer to call the IRS to make an appointment for the audit. When the taxpayer or the tax representative calls to get more details, the auditor will ask if the business is using any electronic accounting software. If the answer is “QuickBooks,” then the first IDR (information document request) includes a request of a backup of the QuickBooks data file, and the administrator user name and password to open the file. (Editor’s Note:the IRS implements similar processes for small businesses that use electronic accounting software other than QuickBooks…)

If the QuickBooks data file is provided to the IRS, it is important that it is trimmed to only provide information for the period of the audit. That is generally a calendar year, but for the IRS, the date range should cover 14 months, providing the IRS with the ability to test cutoffs at the year ends.

In 2010, the IRS asked for the QuickBooks files and generally would then produce only the schedules to support the audited items noted in the IDRs. For example, a business may have to provide support for cost of goods sold, travel and contract labor. The IRS would get the QuickBooks data file from the taxpayer, take it back to the IRS office and have a “trained” IRS employee prepare three schedules that could be uploaded into the IRS standard workpapers. That was it.

Since the middle of 2011, the IRS began requesting the data file to do some analytical review. The IRS wants to evaluate the internal control of the small business by reviewing the audit trail report, and look for who made changes to transactions and when. The IRS introduced the concept of looking for “metadata” within the data file, or additional information about the transactions.

A skilled QuickBooks ProAdvisor can prepare Detailed Transaction Reports that includes who the last user was to make a change in the transaction and when the change was made. Such a schedule is the bulk of the information that an Audit Trail Report provides, which is the report that the IRS calls out as a key report for its audit review procedures.

It is important to remember that the acquisition of the QuickBooks data file does not complete the audit. It is only a part of the audit. The taxpayer will still have to provide support in the form of original documents, such as supplier invoices and cancelled checks. Although the IRS states that it is attempting to evaluate internal control for a small business, it is doubtful that there is any material change in the manner in which the IRS will perform an audit engagement. For a small business, it is assumed by many accountants that there is little internal control due to the nature of small business. The owner makes the invoices, deposits cash in the bank and writes out the checks. Where is the internal control?”

If you subscribe to our Monthly Bookkeeping  or Annual “Clean up” services, your electronic file will always be ready with internal controls should you be audited by the IRS.

Source: Intuit Pro Line News Central

There are 3 common payroll mistakes small companies make. Each one is easy to avoid if you are aware of it.

1. Refusing a W-4 even if you happen to know it is inaccurate. Do not question a W-4 that has not been altered unless the employee tells you that it is false. But, you can advise someone who claimed too many exemptions (e.g., Joe is single but claimed 99 exemptions) that the IRS can issue a “lock-in letter” telling you how many exemptions he must use, and Joe will be stuck with these until the IRS notifies you otherwise.

2. Substituting paid time off (PTO) for work time with no written  policy. For exempt employees, you cannot substitute unworked time for PTO, vacation or sick time unless you have a company policy that states this. Say that an exempt worker requests a half day off. You cannot deduct a half-day from the exempt employee’s pay, but can apply 4 hours of PTO or vacation time from the individual’s accrual bank if your written policy permits this.

3. Including reimbursements on a paycheck without itemizing them. You can include expense reimbursements on an employee’s paycheck only if the amount appears on the pay stub as a separate item. Also, set up an earnings code for the amount so that it is not included in taxable wages.

As always, contact us if you have any questions.

Direct Deposit

If you process payroll using QuickBooks and are signed up to Direct Deposit, the fee has increased to $1.45  per paycheck. The fee is automatically deducted from your bank account and recorded in QuickBooks within the payroll tax liabilities transaction.

Check out our Payroll Services and contact us for pricing.

1099 & W2 Forms

We’re currently preparing 1099s and W2s for our clients. Bare with us as we prepare all forms and e-file them for you (if applicable). Thank you for your patience during this busy time.

Used to filing your own 1099s?

This year is the first the IRS is requiring us to separate payments made to our vendors by cash or check from payments made by credit/debit cards and third-party payment services like PayPal in the 1099-MISC form. Third-party payment processors like Paypal are now required to report all transactions to the IRS on our behalf on a new form 1099K.It is important that these electronic payments not be reported by us the way we used to to avoid duplicate reporting.

QuickBooks 2012 has the built-in feature to separate the payment methods and keep you from reporting electronic payments in 1099-MISC,  but previous versions don’t. If you’re like most of my clients, you’re still using 2009, 2010, and 2011 versions. There is a QuickBooks 1099 Assistant, a downloadable application designed specifically for QuickBooks 2009-2011 Windows and QuickBooks 2010 – 2011 Mac customers. You can get the QuickBooks 1099 Assistant for Windows here and for Mac here.

Even if you’re not our monthly, quarterly, or even an annual client, you might want to consider contracting us to prepare your 1099s this year.

Our household is totally self-employed. Both my husband and I work for ourselves. We love the freedom we have to make our own decisions and the time we have to spend as a family. We do follow some rules to control our cash flow, keep our house in order, and remember that life is good:

• Needs and Wants- Distinguish between “needs” and “wants.” Like everyone else we’re tempted to buy that fancy purse or those fancy jeans, but we have to ask ourselves, do we “want” it? or do we “need” it? Many times you’ll remember you have 1 or more of the same type of item at home. Most of the time the excitement of acquiring it wears off just after the first time you wear or use it. Do you REALLY NEED it? And, just stay away from the stores! Shop online to save. Try Craigslist.com or shop through group deal sites like livingsocial.com and groupon.com (add the apps to your phone so you know the daily postings). Only buy what you were going to buy anyway but can get at a better deal on these sites.
• Live on Less and Don’t Impress- Impressing those around you is expensive and can mean the difference between surviving the next dry season or not making it at all (like the recent economy downturn and what it did to a lot of people). It’s amazing to me the amount of money people will spend to IMPRESS others. What others think shouldn’t be what we base our purchases on.  I think of those other places where people don’t even have the opportunity to buy what they want and it makes me grateful for what I have.
• Simplify – Look at those bills you THINK you have to pay every month. For example, we love computers in our house and prefer them to cable. We choose to stream movies and shows through apps like Netflix.com to watch what we want to watch when we want to watch it instead of paying a huge cable bill every month. I’d rather spend those funds on going out and having fun. After all, you can’t spend that much time watching cable TV without it affecting your figure….lol. And whatever happened to reading? Join CBOMC.com club so your kids look forward to surprises in the mail.
• Take Turns on Fun – Choose which meals to eat out during a vacation. You might want to splurge on a big breakfast out and cook dinner in- or vice versa. At home, one week decide your family entertainment will be take-out food (try mealrunners.com or download app grubhub.com) and rented dvd’s (app redbox.com). The next week you may decide to go out to Shark Reef and Laser Tag, then go to a nice dinner (can you tell I have kids?). It’ll add variety to your life and it allows for spontaneity in your weekend plans.  Do “veg out” occassionally! Enjoy that big house with those comfortable couches and that wonderfully large TV once in a while (with Neflix). Nothing better than “bummin’ it” to remind us of why we work so hard in the first place.
• Track your money AND Budget – I put these 2 together because you cannot do 1 without the other. You need to track your money to know where it went, in order to plan ahead; and you need to plan ahead in order to stay on track. If you don’t know how much your family needs in groceries, how will you know how much to budget for it? Without budgeting, how will you know if you can splurge on your favorite indulgence (see below)? I like to update our household books weekly, impossible sometimes but I don’t let more than 2 weeks go by before I get to our finances. It helps us know where we are throughout the month and what’s coming up ahead. I can hear you saying “oh yeah, of course, you’re a bookkeeper.” No! Everyone CAN do it. We use mint.com to track our personal finances and manilla.com to stay on top of our bills. And as the tech-lover I am, not only do I have those apps in my Droid, I use many other apps to pay bills and simplify my life. Like “MyVerizon” app  and my car insurance app to pay my bill directly from my phone at the click of a button. Life doesn’t have to be complicated!
• Splurge! – Come on you have to treat yourself! Indulge in that fancy restaurant (see restaurant.com), or that massage (that you bought in groupon or livingsocial), or that sweater you’ve had your eye on (distinguish ). We’re here to live and enjoy the good things life has to offer. You can’t just work yourself to the ground. Celebrate with that good bottle of wine or that decadent slice of Ganache chocolate cake (obviously my favorite). If times are good, indulge to celebrate the good times. If times are bad, do it to remember what good times are like and that “this too shall pass.”

Good wishes from my family to yours.

The IRS is now accepting filing of tax returns through their E-File system. Keep in mind the deadline for your employer to issue W2s and 1099s is January 31st 2012. Don’t file until you have all tax forms on hand.

PAYROLL TAX CUT for employees extended through February
29, 2012. (Social security tax rate on wages up to
$110,100 will be 4.2% rather than 6.2%.)

ADOPTION TAX CREDIT decreases to $12,650 for adoption
of an eligible child.

SECTION 179 maximum deduction decreases to $139,000,
with a phase-out threshold of $560,000.

STANDARD MILEAGE RATE for business driving remains at
55.5¢ a mile. Rate for medical and moving mileage
decreases to 23¢ a mile. Rate for charitable driving
remains at 14¢ a mile.

ESTATE TAX top rate remains at 35%, and the exemption
amount increases to $5,120,000. The ANNUAL GIFT TAX
EXCLUSION remains at $13,000.

401(k) maximum salary deferral increases to $17,000
($22,500 for 50 and older).

SIMPLE maximum salary deferral remains at $11,500
($14,000 for 50 and older).

IRA contribution limit remains at $5,000 ($6,000 for
50 and older).

KIDDIE TAX threshold remains at $1,900 and applies up
to age 19 (up to age 24 for full-time students).

NANNY TAX threshold increases to $1,800.

TRANSPORTATION FRINGE BENEFIT limit decreases to $125
for vehicle/transit passes and increases to $240 for
qualified parking.

SOCIAL SECURITY taxable wage limit increases to
$110,100. Retirees under full retirement age can earn
up to $14,640 without losing benefits.

HSA CONTRIBUTION limit increases to $3,100 for
individuals and to $6,250 for families. An additional
$1,000 may be contributed by those 55 or older.

Six Year-End Tax-Saving Tips http://www.entrepreneur.com/article/222535

1.      Family firms need two checking accounts. Because the IRS closely scrutinizes transactions between family members in family businesses, it is highly advisable for a family business to keep a separate checking account for the business and pay all business expenses out of that account.

2.     Send ICs a 1099 . . . and a 4669. Companies with few or no employees that make payments to ICs risk having the IRS (and Tax Court) deny the deductions as phony. What to do: Send each IC a 1099-MISC and get from each IC signed Form4669, Statement of Payments Received.

3.     “The check is in the mail.” When a customer says the check is in the mail, politely ask for check number and date written. If the customer fumbles instead of agreeing to get the number or refer you to the bookkeeper, you should suspect that the check was never written or mailed.

4.     Put collections efforts where they count. Overdue receivables are usually just 10% uncollectable after 60 days. But after 6 months, they are 33%-67% uncollectable.

5.      Protect the firm against the IRS. If your firm is audited, the IRS will examine its electronic files. Some requested files may contain data outside the period under audit that the IRS could use for a “fishing expedition” or to access unrelated customer or private data outside the scope of the  information request or audit. Find a method for isolating all data for a given year that excludes data from other periods. If you cannot do this, at year-end back up that year separately.

There are many new business owners who are not only worried about the thoughts of setting up their own firm but are equally daunted by the mere idea of bookkeeping as well as accounting. Without effective bookkeeping strategies, your business can lose track in the tough competition and start incurring debts for which you may have to run to business debt consolidation firms. Though debt consolidation is a worthy alternative to bankruptcy, yet as a business owner, you should be aware of some basic accounting or bookkeeping principles that can assist you in keeping commercial debts at bay and protect the reputation of your business organization. Here are some things that you should educate yourself on if you’re a business owner who wants to stay miles away from unpaid debt obligations.

What is the similarity between bookkeeping and accounting?

Before setting up a business organization of your own, you should know the basic similarity between bookkeeping and accounting. Well, both the aforementioned things share the same goal of keeping track of your monthly income and the expenditure so that there are increased chances of your income. Another similar goal of both accounting and bookkeeping is to assemble all the financial information that is required to file all the tax returns. As long as the financial records perfectly reflect the income and expenses of your business, the IRS will not find it acceptable.

What are the smart steps for keeping your books?

Though there is a lot of hype regarding bookkeeping and accounting responsibilities of a business, the actual fact is far from being so tough. Depending on the size and transactions of your business, you can also keep your books with the help of the accounting software. Here are some basic steps that can ensure effective bookkeeping for your organization.

• Keep all the receipts in place: When you’re conducting a business, there must have been numerous sales and purchases but you have to make sure that all of them should be backed by some kind of document where the amount is mentioned so that you don’t lose track in the future. The method that you choose to gather all the receipts can range from slips kept in a cigarette box or may even be hooked into your laptop. The bigger is your business; the receipt filing system should also be stronger and firmer.
• Setting up and posting to the ledgers: A complete ledger is just a summary of the revenues and all the other things that you want to keep track of. This summary can be later on used to answer some vital financial questions about your business. On a regular basis, you need to transfer the amounts from the receipts for sales into the ledger and this is called posting. The more sales you do, the more often you should post to your ledger. If you think you can’t do this on your own, you can use the accounting software to make things easier and smoother.
• Create the financial reports: Whenever you’re the owner of a business, you have to make sure that you have all the financial reports set right so that you have a worthy document of everything at the tip of your fingers. If you want to avoid incurring commercial debt, you have to make sure that you have the financial reports at the right place and avoid any kind of future discrepancies.

If you stay current with bookkeeping, you’ll have updated information about whether you’re spending within your means or above your means. Set everything at its right place so that you can avert the risk of accumulating high interest debt and protect your business’ reputation. In spite of following the above mentioned bookkeeping tip, if you incur debt, you should get help from a debt consolidation firm.