Monthly Archives: September 2016

All About Accounting

Accounting is vital to a strong company, keeping track of the business’s finances and its continued profitability. Without accounting, a business owner would not know what money was coming in or going out, or how to plan for the future. The actions taken by accounting professionals — from bookkeepers to certified public accountants (CPAs) — make it possible to monitor the company’s financial status and provide reports and projections that affect the organization’s decisions.

What do accountants do?
The American Accounting Association defines accounting as “the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.” This is often done by logging a business’s accounts payable, accounts receivable and other financial transactions, typically using accounting software.

While bookkeepers tend to focus on the details, recording transactions in an efficient and organized manner, they may or may not see the overall picture like accountants do, said CPA Stan Snyder.

“Accountants use the work done by bookkeepers to produce and analyze financial reports,” Snyder said. “Although accounting follows the same principles and rules as bookkeeping, an accountant can design a system that will capture all of the details necessary to satisfy the needs of the business — managerial, financial reporting, projection, analysis and tax reporting.”

One part of accounting focuses on presenting the company’s financial information in the required ways to those outside of the company. In order to present this information in a format everyone can understand, accountants follow a set of guidelines. In the United States, most accountants abide by the Generally Accepted Accounting Principles. There are different sets of accounting standards for companies that operate overseas, as well as for local and state government entities.

CPA Harold Averkamp said accounts also provide a company’s internal management team with the information it needs to keep the business financially healthy. Some of the information will originate from the recorded transactions, while some will consist of estimates and projections based on various assumptions, he said.

To come up with a company’s status and projections, accountants rely on various formulas. Accounting ratios help uncover conditions and trends that are difficult to find by inspecting individual components that make up the ratio. Accounting ratios are divided into five main categories:

Liquidity ratios measure the liquid assets of the company versus its liabilities.

Profitability ratios measure the organization’s ability to turn a profit after paying expenses.
Leverage ratios measure total debt versus total assets, and gauge equity.

Turnover ratios measure efficiency by comparing the cost of goods sold over a period of time against the amount of inventory that was on hand during that same time.
Market-value ratios measure the company’s economic status compared with others in the industry.

Accounting careers
Many accountants within the industry choose to become CPAs, a title they achieve by passing an exam and getting work experience. According to the Pennsylvania Institute of Certified Public Accountants, CPAs audit financial statements of public and private companies; serve as consultants in many areas, including tax, accounting and financial planning; and are well-respected strategic business advisors and decision-makers. Their roles range from accountants to controllers and from chief financial officers of Fortune 500 companies to advisors for small neighborhood businesses.

According to the University of North Carolina at Wilmington’s Career Center, there are countless other jobs that require accounting proficiency, including auditor, financial investment analyst, claims adjustor, loan administrator, tax lawyer, underwriter and stockbroker.

Best Tax Apps for Small Businesses

Although you know when tax season is coming, you may not always be prepared for it. If you’re a brand new business or have a limited budget, you may not be able to afford accountant, which means you may be stuck doing your taxes on your own.

Thankfully, with your smart phone or tablet — and the right apps — tax season doesn’t have to be a headache. Here are seven free mobile apps to help you stop stressing and start filing.

1. IRS2Go (iOS, Android)
This is the official mobile app of the IRS and is great for new business owners who want verified and expert tax advice right from the source. With IRS2Go, you can check the status of your federal income tax refund, make a payment on any taxes that you end up owing, and get free tax preparation assistance from an IRS Volunteer Income Tax Assistant in your area. You can also request tax return information and account transcripts through the app.

2. H&R Block Mobile (iOS, Android)
The H&R Block mobile app connects you directly to tax professionals to make the filing process easier. You can take a picture of your W-2 and the app will instantly import your information. You can upload any other documents and send them to a tax pro. The app can also created a personalized checklist of required documents, and lets you view tax returns from previous years. In addition, the app lets you check the status of your federal tax return, and estimate the amount of your return with a built-in calculator. If you are constantly switching between devices throughout your day, this app lets you go from your phone or tablet to your computer and back again with ease.

3. TurboTax (iOS, Android)
Intuit’s TurboTax walks you through the process of filing your taxes. You snap a photo of your tax documents and the app coaches you through every step of the filing process, double-checking to ensure that you have entered all information correctly. You can be connected with an expert live and on-screen to get answers as soon as you need them and when you input all of your information, it is saved with secure encryption and always password protected. TurboTax also checks for deductions and credits, and once your return arrives, it gets stored in the TurboTax Cloud. TurboTax is free to download, but there are costs for federal and state filing.

4. TaxCaster (iOS, Android, Windows Phone)
This income tax calculator by Intuit allows you to accurately forecast your federal income taxes before you file to see how much you may get back, or how much you may owe. Just enter the basic information about your lifestyle and business, and TaxCaster will make the estimations based on that information. Since this is an Intuit product, the app uses the same tax calculator you’ll find in the desktop version of TurboTax to provide the estimates. Based on the information you provide, it can also recommend a product to help you complete the filing process.

5. Shoeboxed (iOS, Android)
With Shoeboxed, keeping your receipts, bills, and other financial documents organized is as easy as taking a picture. Once you upload your document in the app, it automatically spots the important information, such as vendor, date, total and payment type. This then creates a fully searchable digital database of your transactions. For small business owners, Shoeboxed will pay off at tax time. The app can save you time and money by managing your paper documents for you, as opposed to needing to hire someone else to do it.

6. Evernote (iOS, Android, Windows Phone)
Evernote is more than just your run-of-the-mill note-taking tool. It also offers a way to manage the documents you’ll need to file your taxes. Because Evernote lets you easily store and organize images, you can scan in your receipts and then trash them, and since the app can read printed text, it’s easy to search for a specific receipt. To get your receipts into Evernote, there are two options: The ScanSnap scanner is the pricier option, but it is made by the Evernote developer, so it will directly scan high-quality images and automatically uploads them to your Evernote account. For a cheaper option, there is the DocScanner app for iOS and Android, which you can use to “scan” in receipts by snapping a photo with your smartphone or tablet.

7. iDonatedIt (iOS)
Charitable donations are tax-deductible expenses and can reduce your taxable income to ultimately lower your tax bill. Tracking your donations throughout the year can be a hassle, but apps like iDonatedIt are there to help. The app streamlines the process by helping you document your donations quickly and easily. Whenever you donate a non-cash item to charity, use the app to track the donation date, the charity you donated to and the fair-market value of the item. By tax day, you will have a complete and permanent record of donated items that meets IRS compliance requirements. You can also attach photos of donated items and email the detailed donation report to yourself, or an accountant.

Know More About Audited

For many businesses, the end of the calendar year means the beginning of tax season. As you prepare your receipts, invoices and other financial documents from the past 12 months, you may be concerned about the possibility of a dreaded tax audit.

As stressful and overwhelming as an audit may seem, there’s no need to panic. It does need to be taken seriously, but audits often deal with simple data or reporting errors that the IRS suspects may have occurred, said Frank Pohl, an attorney at Gunster law firm. He reminded business owners that not all tax audits end adversely for taxpayers.

If you do receive an audit notice, here’s what to do to make the process go as smoothly as possible, and to minimize any negative impact on your business. [See Related Story: 5 Tax Deductions That Could Get You Audited]

1. Review the audit letter carefully.
Open the letter promptly, and understand what information the IRS needs from you, Pohl said. If you don’t have a designated financial adviser, hire an accountant or tax attorney to help you go through the audit letter and identify the issues the IRS has flagged. Pohl also warned not to delay action or ignore the letter.

“The IRS will not go away, and not acting promptly may only make the auditor suspicious or antagonistic,” he said.

For security purposes, if you are being audited, you will receive a mailed letter, Pohl said. Scammers will often masquerade as the IRS by sending emails or leaving phone messages in an attempt to get your personal data, but the real IRS does not communicate with taxpayers in these ways, Pohl said.

2. Get your records organized.
Before you and your tax professional respond to the IRS and/or meet with an auditor, take the time to dig up and organize all of your business records from the past tax year, said Kimberly Foss, a certified financial planner (CFP) and author of “Wealthy by Design” (Greenleaf Book Group Press, 2013). This includes receipts and invoices for income and expenses, bank statements and canceled checks, accounting books and ledgers, hard copies of tax-prep data, and leases or titles for business property, she said. If the IRS has requested specific documents to review, be sure you have those readily accessible as well.

3. Answer the auditor’s questions (and that’s it).
When you sit down with the auditor, you’ll be asked numerous questions about the information reported on your tax return. Our expert sources agreed that you should not volunteer any information you are not required to give.

“Just respond with the information [that is] requested,” Pohl told Business News Daily. “Providing unneeded or unasked-for information may lead to more questions … and additional issues.”

“Be straightforward in responding to questions, but don’t manufacture excuses,” Foss added.

Similarly, an article on NOLO.com advises not to bring or discuss any documents from previous tax years unless asked: “Don’t give copies of other years’ tax returns to the auditor. In fact, don’t bring … any documents that do not pertain to the year under audit or were not specifically requested by the audit notice,” said the article.

Keeping your tax professional involved
Dealing with the IRS can be stressful, and if you’re concerned about what you might say, it’s wise to let your tax professional do the talking for you. Sandy Gohlke, a CPA, chartered global management accountant and principal at Rehmann financial services company, advised giving the IRS a signed power-of-attorney agreement that will allow the IRS to deal directly with your tax professional. That takes you out of the loop and puts them in, she said.

Pohl agreed, and said that even if your tax professional doesn’t have power of attorney, you should still have him or her present when you meet with an IRS auditor. He also advised business owners not to get defensive or hostile during the interview.

“The auditor … cannot and will not forgive and tax debt or mistakes, and any admissions you make can be used against you,” Pohl said. “Adopting an antagonistic attitude risks alienating the auditor, [which] will not be in your best interest.”

Avoiding future audits
Gohlke reminded business owners that audits are generally random, and you can’t prevent them entirely. However, some companies are selected because of certain “red flag” expenses — either amounts or types — that are out of the ordinary and would cause a second look, she said.

Foss noted that bank transfers and other financial records beyond your receipts should be tracked, and anything that can’t be explained on the standard IRS form should be explained on paper. She also advised double-checking all of your math before filing.

“Keep proper documentation, and only deduct ordinary and necessary business expenses that are allowed by the IRS,” Gohlke added. “Even if you are selected for an audit, you will know you have nothing to worry about.”