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Consultant's Corner: Irs Schedule C Audit..

Posted on March 26, 2014 at 1:06 PM Comments comments (186)
Question: I have just received my first notice from the IRS indicating that there will be a Schedule C Audit. What should I expect?
 
The IRS should have provided you with an Information Document Request that will tell you specifically what they want to review in this first meeting. Review this document request with your accountant as a first step. The time spent gathering and organizing the required supporting records is often more than the time that will be spent in the meeting with the IRS. The more of the prep work that you can handle, the more you control your costs related to the audit. You will, of course, want to review the documents with your accountant and then get your accountant’s thinking about the advisability of handling the meeting on your own.
 
One of the keys to your initial meeting is to only respond to the questions that have been asked. Don’t take more into the meeting than is needed to be responsive. Your accountant will be useful in helping you to determine what to take. Your accountant can also help you understand the need to keep your comments limited to only what is required to be responsive. We’re assuming that your accountant prepared the returns and is familiar with your Schedule C and with your knowledge of the Schedule C. Your accountant can help you do a self-audit ahead of the IRS meeting. The results of the self-audit may point out gaps in the documentation or gray areas that are best communicated by a tax professional. If that is the case, you will likely want to have your accountant handle the meeting. You may even decide not to attend the meeting at all and have your accountant work on your behalf with a Power of Attorney.
The following tips and information may be useful as perspective on the audit process:
 
  • Don’t wait until the meeting to look over the documentation. Know what information the IRS will be looking at and anticipate questions that might be asked about it. Have backup materials ready to answer those questions.
  • Let the IRS lead the meeting. Don’t bring up anything the IRS agent does not. Answer only the questions you’re asked. Even an innocent statement made by you could lead an IRS agent to expand the investigation into your finances.
  • Don’t be defensive. The meeting is unlikely to be pleasant, and you may feel emotional about having someone question your finances. Don’t allow those feelings to take control of the situation. Remain calm and pleasant. If you feel you are unable to remain calm, it might be a good idea to have a tax professional handle the meeting without you.
When faced with an audit, it’s easy to conjure up visions of all the things that can go wrong as a result of the investigation, but by being prepared, you can walk away from the experience having lost only a minimal amount of time in the process.

Starting a Business?

Posted on November 22, 2013 at 12:53 PM Comments comments (27)
Starting a new business on your own can be both intimidating and rewarding at the same time. Hopefully; with a solid business plan and proper guidance those stepping-out on their own will be successful. To make this process a little easier, here are some basic tax considerations a new business owner should take into account.
Choosing Your Type of Business Entity
One of the first decisions that you will have to make is to choose the type of entity that you wish your business to operate as. Your choice plays a factor in your personal liability for the business’ activities and how taxes are imposed on the business and yourself as the owner. The most common forms of business are the
  • Sole Proprietorship – subject to income tax at the individual level, subject to the self-employment tax
  • Partnership – subject to income tax at the individual level, subject to the self-employment tax
  • Corporation – income earned by a corporation that has not elected to be an S corporation is taxed at the corporate level; with shareholders of the corporation being treated as employees subject to payroll taxes on their wages.
  • S corporation- subject to income tax at the individual level, shareholders treated as employees subject to payroll taxes
 
Each form of business has its own advantages and drawbacks; so consulting a tax professional as to which is best for you is always advisable.
Many individuals choose to operate their businesses as a limited liability company (LLC). The IRS will by default treat an LLC as either a sole-proprietorship or partnership, depending upon the number owners of the business. Alternatively, an LLC can elect to be taxed as a corporation or S corporation.
 
 
Obtain an EIN
If you form a partnership or corporation, or plan on having employees, you will be required to obtain an employer identification number (EIN) from the IRS. Applying for an EIN is free and easily done via the IRS website. The IRS also provides an interactive tool that can help you determine whether your business will be required to obtain an EIN. Even if you are not required to have an EIN, getting one may be advantageous for your business if you would prefer to not give out your personal social security number to customers or vendors.
 
 
Keep Good Records
One of the most important steps in starting a business is to establish a solid recordkeeping policy. Not only is good record keeping required in order to prove items of income and expense reported on your business’ tax return, but they also are crucial for monitoring the progress of your business.
Quality records can show whether your business is improving, which items are selling, or what changes you need to make.  With any business, quality records can increase the likelihood of business success.
 
 
Deductible Costs of Starting Your Business
With most new businesses the old saying “you gotta spend money, to make money” will apply, and how expenses you incur before bringing in revenue is treated depends upon the type of expense.
  • Currently, the IRS allows businesses to deduct up to $5,000 of certain start-up expenses in the year the business begins (subject to limitations), even if the expenses were incurred in a prior year.
  • Expenses that qualify are those that would be deductible if they were paid after the business actually began.
  • Amounts paid to acquire capital and intangible assets, such as equipment or franchise fees that a business would have to depreciate over a period of years, do not qualify for this deduction.
  • If your eligible start-up costs exceed the amount allowed for deduction, you will have to “capitalize” the excess expenses and will recover those costs via an amortization deduction ratable over a period of 15-years.
 
In addition to eligible start-up costs, corporations and partnerships are allowed to deduct up to $5,000 of organizational costs in their first year of activity. These include legal fees, filing fees, and other costs directly related to the formation of partnership or corporation business entity.

How to File Your Taxes if You Are Self Employed

Posted on December 16, 2011 at 11:53 PM Comments comments (244)
Georgia tax servicesIf you are self-employed, it is important to understand how to properly file your taxes. The self-employed do not have tax money automatically taken out of each check and pay their own expenses, so there are extra considerations to take into account other than the standard dependents, deductions and so on. Self-employment tax rate is currently 13.3 percent, which must be paid on earnings of $400 or more. Self-employed individuals can take deductions for work expenses and health insurance, but to make sure that you are getting the proper deductions and amounts, consult a trusted tax preparation company for assistance.
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