Money Management Is Possible – Even in Today’s Economy

by | Accounting News, CPA, IRS, Tax, Tax Planning, Tax Planning - Individual, Uncategorized

Most businesses these days are looking to cut spending. Accounting firms are in a unique position to not only help their small business clients trim the fat and manage their money, but to do the same for themselves.

Before any company can delve into strategic ways to save money, it must first set aside time to devote to money management. Even if a company is small, this step is crucial to a company’s success – no other advice is more important.

“You have to be focused enough to dedicate the necessary time weekly, if not more frequently,” said Robin Bell, CPA, member in Brown Smith Wallace (BSM) Tax Services group. “Bill frequently, collect often, and stay on top of billing and receivables. Pay attention to it.”

Set up a budget, then each month, compare the actual to the budget to see where improvements need to be made, suggests Patricia Schreiber, a New Orleans-based CPA.

And if you don’t have the time, delegate.

Look at what you need to have versus what you want to have when determining cash outflow, whether for your clients or your own firm. Once you have what you need, don’t pay more for it than is necessary to effectively operate your business.

“Segregation of duties: Learn it love it. Otherwise, stuff walks out the door,” says Chris Spivey, who has worked as a consultant to the accounting profession for several years.

If you’re an entrepreneur with tons of action items on your plate and collections isn’t your competency, refer it to someone else.

Bell’s longtime retail clients, who are used to bulk-buying seasonal products, have recently experienced difficulties managing their cash flow. Instead of stocking up on the “hot trends” for the season, Bell teaches its retail clients not to purchase more than they need. That way, they don’t have spend money to house products in a warehouse. However, when retail companies do this, they also must pay attention to what their customers might need in the near future. This ensures the retailers’ customers won’t have to wait too long if a product is out of stock.

According to Bell, some retail companies survey their clients to gauge what they’ll want to buy, or they beef up their marketing campaigns. This could put them at an advantage because most companies tend to trim their advertising and marketing dollars when times are tough. It’s not a matter of spending more, it’s just reallocating dollars to draw in more prospects, she said.

Do You Really Need That?

Look at what you need to have versus what you want to have when determining cash outflow, whether for your clients or your own firm, Bell said.

For example, look at telephone costs. If you’ve been using the same telephone provider for years, you might not think about changing vendors. But what about calling your provider to talk about your plan and whether it still makes sense given your current needs. You could also contact other providers to see what they offer.

Ask, “Do I have what I need, and am I paying for what I need versus paying more than what I need to operate my business,” Bell says.

Other potential areas to trim include:

Employee benefits. Can you save money without raising premiums if you have a group of employees who are healthy? “Especially in really small companies, it’s very easy to assess your pool and ask, ‘If I raise my deductible, how much can I save on my premium?’,” Bell said.

Mileage reimbursement. Encourage employees to travel less by visiting several clients on the same day who are based in the same area. Ask employees if they really need to fly nonstop or if they can fly on off hours or off days, Bell added.

While discussing money management is clearly a way to help your clients better manage their money, if they don’t ask you about it, how can you broach the subject?

BSW took a proactive approach by offering its clients a “health checkup,” which included a five-page questionnaire that asked some thought-provoking questions. It also provided BSW financial data that allowed the firm to see client trends and to learn what keeps business owners up at night, Bell said.

“Most clients were interested in seeing what we can do for them,” she said.

Clients want the help, so why not broach the subject?

Full Article: http://www.accountingweb.com/topic/accounting-auditing/money-management-possible-even-todays-economy

Making Taxes Less Taxing

by | Accounting News, Audit and Accounting, CPA, IRS, QuickBooks, Tax Consulting, Uncategorized

Gina Noy offers her clients stress-free tax preparation.

It’s not often you find “stress-free” and “tax” in the same sentence, especially during busy season, but for Noy, it’s a philosophy that carries through her Manhattan-based CPA firm.

Noy, who offers tax planning, budget advice, and bookkeeping services, works with a variety of different clients – from individuals and small businesses to start-ups and medium-sized companies. However, she said her sweet spot tends to be start-ups and companies in their second or third year of business – those moving toward a big growth stage.

According to Noy, many new businesses will experience a net loss in their first year – especially in the start-up phase – and she said that’s not necessarily a bad thing.

“If you have other income (such as W2), losses from your business can offset it, reducing your overall tax burden,” she said. “In other words, losses don’t have to be a total loss. However, they can impact your cash flow, your ability to grow your business, and attract investors and financing.”

She said many of her clients – especially those just starting a business – have to deal with correctly identifying whether they’ve hired an employee or a contractor. In the case of an employee, the business owner will be responsible for self-employment tax and keeping and filing additional documentation. Incorrectly identifying an employee’s status may expose the business owner to potential audits and penalties.

“My role in my clients’ business is to educate them,” Noy said. “Spending extra time, especially with new clients . . . educating them, helps them to succeed. I give my clients baby steps in tax, finance, and budgeting.”

It may only be a part, but for Noy, if her clients don’t understand the importance of tax in their business, they’re most likely not going to understand the importance of other financial matters.

“Especially with people who make a transition from working with a company and being self-employed, you feel like you’re floundering in the ocean. The income you earn isn’t always yours to keep, and you have to be responsible enough and realize that with the freedom of being a freelancer, you get a lot of responsibility.”

Noy recommends individuals just starting out to wait on incorporating and operate as a sole proprietor. She suggests saving the money on those start-up fees by purchasing insurance instead, and perhaps incorporating later on.

Many small business owners underestimate the responsibilities of running their business, and simply providing good service isn’t enough, Noy said.

“It’s very important to bill your clients, it’s very important to collect money from those clients and pay your bills on time. One thing leads to another. I find a lot of business owners will work extremely hard but will take a back seat to the financial part.”

And often, entrepreneurs and those just starting out will listen to advice from their friends and family rather than a professional, and they start making decisions, such as forming an LLC, without really having the information they need.

In January, Noy was a presenter at the Reboot Workshop in New York City, a networking event and “unconference” for freelancers and entrepreneurs. She said 90 percent of attendees’ questions were about incorporation and how entrepreneurs should move forward – “Should I incorporate, what type of incorporation should I be, when should I incorporate,” she recalled. “A lot of people incorporated but didn’t know what to do with it.”

Most new business owners are misinformed about write-offs as well. Noy said there are several that aren’t taken advantage of, including setting up a business retirement plan.

“Many clients don’t realize that they can put away as much as $49,000 for 2011 or $50,000 in 2012. Instead of looking for small deductions, business owners should start thinking big. By putting away money for retirement, they can save on taxes and provide for their future.”

Noy also added that many freelancers and entrepreneurs think health insurance is unapproachable and too expensive; therefore, they just put it to the side.

“There’s a way to offset a high deductible – put away pretax money into a Health Savings Account (HSA),” she said. “Tax savings are there. A little planning can go a long way.”

Cash flow management is vital to the successful operation of a small business. Noy says that once she walks her clients through their financial records, figures out how the money is flowing in and out, helps them value their business, and discusses how to price their services, the stress for the client goes away.

For many small business owners, especially freelancers, coming up with rates for services is often a trying and daunting process. Noy said she doesn’t figure out the rates for them, but she does walk them through their expenses and overhead to do some budgeting.

“A lot of people ask me what they should be charging. Of course, it really depends on what the industry expectations are, but it also depends on what their costs are,” she said.

If business owners’ costs are high due to their industry or overhead, then they may need to target corporate clients or more high net worth individuals. On the flip side, if business owners or entrepreneurs have low overhead and work out of a coffee shop on a laptop for the first two years, they can keep their pricing low and target a higher volume of clients – as many as they can service – and grow their business. They can raise their rates later.

The other piece, Noy points out, is knowing your market and pricing competitively. A business or entrepreneur charging too little, say $75 an hour for a service where everybody else is charging $125, could actually deter potential clients.

“I’m going to think something is wrong with your service because it’s too cheap,” she said. “I advise clients that you might want to offer $125, but offer a discount and say ‘I love your business, I really want to do work with you and I can give you a 20 percent discount.'”

Noy stresses that the most important thing for a small business owner or freelancer to remember is to learn how to budget and realize that money management is the key to their success.

“Without managing what’s coming into their business and what expenses have to be paid to come out of their business, it will be harder for them to grow.”

Full Article: http://www.accountingweb.com/topic/tax/making-taxes-less-taxing

IRS Discourages Tax Return Drop-offs at Taxpayer Assistance Centers

by | Accounting News, Audit and Accounting, CPA, IRS, QuickBooks, Tax Consulting, Uncategorized

Beginning this year, IRS Taxpayer Assistance Centers (TAC) generally will not accept bulk returns for processing and mailing, particularly when it affects taxpayer services. The IRS hopes to eliminate the practice of taxpayer representatives dropping off completed returns for processing, especially during peak operating periods.

The intent of this policy change is not to limit assistance to taxpayers or their authorized representatives. Nor is it intended to limit taxpayer representatives’ visits to support their clients, particularly in situations where the taxpayer is facing financial harm or undue hardship, such as delinquent returns or to start or stop an installment agreement. It is designed, primarily, to stop the practice of dropping off returns solely for processing and mailing when the returns can be mailed directly to the IRS processing center. The TACs will accept returns with imminent statute implications, with remittances or other situations where it’s in the best interest of the taxpayer and the Service to accept them.

Local TAC managers have the authority to make exceptions to this policy and will accept drop-off returns if, in their opinion, tax preparation and other customer account services are not impacted.

The IRS encourages all tax preparers to take advantage of available e-file options to file returns electronically to avoid the need to have returns accepted and mailed at the local Taxpayer Assistance Center.

Full Article: http://www.accountingweb.com/topic/tax/irs-discourages-tax-return-drop-offs-taxpayer-assistance-centers

IRS Discloses Favorite Tax Scams of 2012

by | Accounting News, CPA, IRS, Tax, Tax Planning, Tax Planning - Individual, Uncategorized

The IRS has issued its annual Dirty Dozen ranking of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a wide range of schemes ranging from identity theft to return preparer fraud.

The Dirty Dozen listing, compiled by the IRS each year, lists a variety of common scams taxpayers can encounter at any point during the year. But many of these schemes peak during filing season as people prepare their tax returns.

“Taxpayers should be careful and avoid falling into a trap with the Dirty Dozen,” said IRS Commissioner Doug Shulman. “Scam artists will tempt people in-person, on-line and by e-mail with misleading promises about lost refunds and free money. Don’t be fooled by these scams.”

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. The IRS Criminal Investigation Division works closely with the Department of Justice to shutdown scams and prosecute the criminals behind them.

The following is the Dirty Dozen tax scams for 2012:

1. Identity Theft

Topping this year’s Dirty Dozen list is identity theft. In response to growing identity theft concerns, the IRS has embarked on a comprehensive strategy that is focused on preventing, detecting, and resolving identity theft cases as soon as possible. In addition to the law-enforcement crackdown, the IRS has stepped up its internal reviews to spot false tax returns before tax refunds are issued as well as working to help victims of the identity theft refund schemes.

Identity theft cases are among the most complex ones the IRS handles, but the agency is committed to working with taxpayers who have become victims of identity theft.

The IRS is increasingly seeing identity thieves looking for ways to use a legitimate taxpayer’s identity and personal information to file a tax return and claim a fraudulent refund.

An IRS notice informing a taxpayer that more than one return was filed in the taxpayer’s name or that the taxpayer received wages from an unknown employer may be the first tip off the individual receives that he or she has been victimized.

The IRS has a robust screening process with measures in place to stop fraudulent returns. While the IRS is continuing to address tax-related identity theft aggressively, the agency is also seeing an increase in identity crimes, including more complex schemes. In 2011, the IRS protected more than $1.4 billion of taxpayer funds from getting into the wrong hands due to identity theft.

In January, the IRS announced the results of a massive, national sweep cracking down on suspected identity theft perpetrators as part of a stepped-up effort against refund fraud and identity theft. Working with the Justice Department’s Tax Division and local U.S. Attorneys’ offices, the nationwide effort targeted 105 people in 23 states.

Anyone who believes his or her personal information has been stolen and used for tax purposes should immediately contact the IRS Identity Protection Specialized Unit. For more information, visit the special identity theft page at www.IRS.gov/identitytheft.

2. Phishing

Phishing is a scam typically carried out with the help of unsolicited e-mail or a fake website that poses as a legitimate site to lure in potential victims and prompt them to provide valuable personal and financial information. Armed with this information, a criminal can commit identity theft or financial theft.

If you receive an unsolicited e-mail message that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report the message by sending it to phishing@irs.gov.

The IRS wants to remind people that it does not initiate contact with taxpayers by e-mail to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The IRS has information that can help you protect yourself from e-mail scams.

3. Return Preparer Fraud

About 60 percent of taxpayers will use tax professionals this year to prepare and file their tax returns. Most return preparers provide honest service to their clients. But as in any other business, there are also some who prey on unsuspecting taxpayers.

Questionable return preparers have been known to skim off their clients’ refunds, charge inflated fees for return preparation services and attract new clients by promising guaranteed or inflated refunds. Taxpayers should choose carefully when hiring a tax preparer. Federal courts have issued hundreds of injunctions ordering individuals to cease preparing returns, and the Department of Justice has pending complaints against many others.

In 2012, every paid preparer needs to have a Preparer Tax Identification Number (PTIN) and enter it on the returns he or she prepares.

Signals to watch for when you are dealing with an unscrupulous return preparer would include that they:

Do not sign the return or place a Preparer Tax identification Number on it.
Do not give you a copy of your tax return.
Promise larger than normal tax refunds.
Charge a percentage of the refund amount as preparation fee.
Require you to split the refund to pay the preparation fee.
Add forms to the return you have never filed before.
Encourage you to place false information on your return, such as false income, expenses and/or credits.
For advice on how to find a competent tax professional, see Tips for Choosing a Tax Preparer.

4. Hiding Income Offshore

Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities, using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice to prosecute tax evasion cases.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. US taxpayers who maintain such accounts and who do not comply with reporting and disclosure requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.

Since 2009, 30,000 individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to bring their money back into the US tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore will become increasingly more difficult.

At the beginning of this year, the IRS reopened the Offshore Voluntary Disclosure Program (OVDP) following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. The IRS continues working on a wide range of international tax issues and follows ongoing efforts with the Justice Department to pursue criminal prosecution of international tax evasion. This program will be open for an indefinite period until otherwise announced.

The IRS has collected $3.4 billion so far from people who participated in the 2009 offshore program, reflecting closures of about 95 percent of the cases from the 2009 program. On top of that, the IRS has collected an additional $1 billion from up front payments required under the 2011 program. That number will grow as the IRS processes the 2011 cases.

5. “Free Money” from the IRS & Tax Scams Involving Social Security

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file a tax return with little or no documentation, have been appearing in community churches around the country. These schemes are also often spread by word of mouth as unsuspecting and well-intentioned people tell their friends and relatives.

Scammers prey on low income individuals and the elderly. They build false hopes and charge people good money for bad advice. In the end, the victims discover their claims are rejected. Meanwhile, the promoters are long gone. The IRS warns all taxpayers to remain vigilant.

There are a number of tax scams involving Social Security. For example, scammers have been known to lure the unsuspecting with promises of non-existent Social Security refunds or rebates. In another situation, a taxpayer may really be due a credit or refund but uses inflated information to complete the return.

Beware. Intentional mistakes of this kind can result in a $5,000 penalty.

6. False/Inflated Income and Expenses

Including income that was never earned, either as wages or as self-employment income in order to maximize refundable credits, is another popular scam. The IRS warns that claiming income you did not earn or expenses you did not pay in order to secure larger refundable credits such as the Earned Income Tax Credit could have serious repercussions. This could result in repaying the erroneous refunds, including interest and penalties, and in some cases, even prosecution.

Additionally, some taxpayers are filing excessive claims for the fuel tax credit. Farmers and other taxpayers who use fuel for off-highway business purposes may be eligible for the fuel tax credit. But other individuals have claimed the tax credit when their occupations or income levels make the claims unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

7. False Form 1099 Refund Claims

In this ongoing scam, the perpetrator files a fake information return, such as a Form 1099 Original Issue Discount (OID), to justify a false refund claim on a corresponding tax return. In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID forms to the IRS.

Don’t fall prey to people who encourage you to claim deductions or credits to which you are not entitled or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

8. Frivolous Arguments

Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous tax arguments that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

9. Falsely Claiming Zero Wages

Filing a phony information return is an illegal way to lower the amount of taxes an individual owes. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.

Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any variations of this scheme. Filing this type of return may result in a $5,000 penalty.

10. Abuse of Charitable Organizations and Deductions

IRS examiners continue to uncover the intentional abuse of 501(c)(3) organizations, including arrangements that improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or the income from donated property. The IRS is investigating schemes that involve the donation of non-cash assets — including situations in which several organizations claim the full value of the same non-cash contribution. Often these donations are highly overvalued or the organization receiving the donation promises that the donor can repurchase the items later at a price set by the donor. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and set new standards for qualified appraisals.

11. Disguised Corporate Ownership

In this scam, third parties are improperly used to request employer identification numbers and form corporations that obscure the true ownership of the business.

These entities can be used to underreport income, claim fictitious deductions, avoid filing tax returns, participate in listed transactions and facilitate money laundering, and financial crimes. The IRS is working with state authorities to identify these entities and bring the owners into compliance with the law.

12. Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are legitimate uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means of avoiding income tax liability and hiding assets from creditors, including the IRS.

IRS personnel have seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.

Full Article:  http://www.accountingweb.com/topic/tax/irs-discloses-favorite-tax-scams-2012

Is the IRS Being Mean to Lindsay Lohan?

by | Accounting News, CPA, IRS, Tax, Tax Planning, Tax Planning - Individual, Uncategorized

Lindsay Lohan has found herself in compromising positions before, and now she’s landed in another one. A report has surfaced that the twenty-five-year-old actress, who rocketed to fame in the 2004 film Mean Girls, is on the hook for almost $100,000 in back taxes owed to the Internal Revenue Service (IRS).

According to entertainment outlet TMZ, the IRS just filed a lien against Lohan for $93,701.57 because she never paid her income taxes for 2009. If Lohan fails to clean up this latest mess, the IRS could go after her worldly possessions – including bank accounts, real estate, and any other personal property – in its efforts to collect the debt.

Lohan has been in the news recently for all the wrong reasons. She pleaded guilty last May to stealing a $2,500 necklace from a Venice, California, jewelry store at a time when she was already on probation stemming from two drunk driving convictions in 2007. As per a judge’s order, Lohan is currently performing community service and attending therapy sessions after violating her probation. Prosecutors said that she missed twelve of twenty scheduled community service days, and cancelled fourteen of nineteen of her therapy appointments.

In addition, a member of the paparazzi is now suing Lohan, alleging that he was severely injured in 2010 when the vehicle she was riding in crashed into his car. The vehicle was being driven by Lohan’s assistant.

Ironically, the tax lien dates back to 2009, a year in which Lohan’s only cinema work was her appearance in Labor Pains. The movie, which was originally intended for theatrical release, went straight to TV, although it did run in theaters in a few foreign countries.

A representative for Lohan told TMZ that she was completely unaware of the tax problem, but she expects to resolve it quickly. The IRS hasn’t issued any official comment on the matter.

At least there’s some good news for Lohan: Thanks to posing in a popular men’s magazine for the January/February 2012 issue, she recently received a payday of close to $1 million. The cash might be used to pay off her tax debt. She is also in talks to portray Elizabeth Taylor in a new movie.

Full Article: http://www.accountingweb.com/topic/bad-guys-news/irs-being-mean-lindsay-lohan