Tax Prepares Required to be Registered with the IRS

Anyone who prepares tax returns and charges a fee will be required to register with the Internal Revenue Service (IRS). Tax attorneys, certified public accountants, and enrolled agents are exempt because they are already registered with the IRS.

What will be required for a tax preparer to sign a federal tax return:

• Register and obtain a preparer tax identification number (PTIN)
• Required competency tests except for certified public accountants, enrolled agents, and attorneys.
• Continuing education except for certified public accountants, enrolled agents, and attorneys
• Extending the ethical rules in the Treasury Department Circular 230 to apply to tax preparers.

These rules are meant to help tax preparers become more competent in preparing tax returns and reduce the amounts of errors on tax returns. The IRS will start implementing this plan sometime in 2011. Make sure your tax preparer is registered with the IRS.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon's offices located in Southern California or email us here.

December means tax planning!

This time of year, the masses are making last minute arrangements, running around the malls to get the best possible priced gifts for the holiday season. For CPA’s, December is not just the holiday season, it’s the time when we do final tax planning with our clients. Just like you shop for the best priced gifts for the holidays, so too, should you put effort into saving money on taxes. Year end tax planning can reduce tax liability while benefiting your personal finances or business.

How you ask?

Many profitable businesses that buy equipment at year end when they can better predict their year end profit. For instance, certain equipment purchase can be expensed in full to reduce the profitability of the Company and the tax burden. This deduction is predicated on the circumstance that the business NEEDS the requisite equipment. In addition, items such  401K’s, SEP IRA’s and other investment vehicles to shield income from taxes while benefiting your retirement are available. These and other tools are great ways to minimize your tax burden.

Individuals should consider such items as donating clothes and other household items for charitable donation deductions,  paying your entire real estate taxes prior to year end, etc. Timing of payments effect the deductions you take. Thus, on the flip-side making certain payments (such a s real estate taxes) after year end may be more beneficial in the long term if your income is going up in the following year. This is a great discussion point to have with a CPA.

If you are worried what your tax bill might look like come April 15, 2012, consider being proactive and call or email dbbmckennon today to inquire about year end tax planning. Being proactive is your single most advantage when it comes to taxes.

Ten Questions to ask a Tax Preparer

There are approximately 100,000 paid tax preparers in the US, but not all are equal. With so many individuals and firms providing these services, it’s not necessarily hard to find a preparer, but it is to find a good preparer who is appropriate for your business and/or personal return. Because everyone’s situation is different, here are the top 10 questions to assess the quality of a prospective tax preparer.

1. Do you specialize in the type of tax returns I require?  Why – Don’t hire a preparer with no experience in the tax returns you require. For example not many preparers specialize in non-profit returns. Find someone who specializes in what you need.
2. How many years of experience do you have preparing returns?  Why – Make sure the person signing off on your return has at least five years experience.
3. Are you a CPA or Enrolled Agent (EA) and are you registered to practice with the IRS under their new regulations? Why – CPA’s and EA’s are completely different. EA’s are licensed to practice in front of the IRS which can be valuable. CPA’s generally have a greater understanding of accounting and business as a whole. Make sure anyone you chose is registered with the IRS to be a paid tax preparer which is required starting in 2012. If a preparer brushes this issue off, keep looking.
4. Do you have experience in IRS audit representation should one of my tax returns get audited? Why – If your return gets chosen for audit, you want to make sure the same person that prepares your taxes can handle your audit. This allows for efficiencies.
5. What are the benefits of using your services rather than a self-preparer service such as TurboTax or a low-end service such as H&R Block. Why – TurboTax and H&R Block are great when you are lower income levels and have an otherwise easy return. But if you own your own business, have income from multiple sources, or have life changing financial events, the expertise of a CPA is advantageous. Most CPA’s can be a value added individual rather than just a simple service provider. CPA’s can also offer planning which will help to minimize your tax burden over the long-term. Lastly, remember that most big-name tax preparation services use seasonal employees. Thus year-to-year, you never see the same preparer which creates a lack of continuity.
6. How will you make sure I get every tax benefit available for me?  Why – Make sure they have a system to catch as many benefits as possible.
7. Does your company offer tax planning and will that be a benefit to me?  Why – Tax planning is a great way to minimize your tax burden through structured and planned actions. However, tax planning is not always necessary. Most companies and individuals don’t need quarterly tax planning but would benefit from tax planning once or twice a year. Unless you are a relatively large company or high-net worth individual, avoid firms that recommend tax planning quarterly as often times they just want to collect more fees than are necessary.
8. Does your firm offer e-filing and how do you ensure the security and retention of my information?  Why – You want to ensure that you use a firm that is up to date with technological advances, which includes the latest in security protection. Firms that take this seriously are serious about keeping your business for the long-term. Investing in technology generally means they are investing in both your future and theirs.
9. How responsive can I expect you to be if I have questions or require tax documents during the year?  Why – Look for preparers that will respond within 24 hours. However, be realistic; good preparers are usually flush with work during tax filing deadlines and often require a little extra time to respond. Be careful about a preparer that overpromises their responsiveness.
10. Will my taxes be filed on time if I am able to provide you with my information in a timely manner before the applicable deadline?  Why – Make sure the preparer is committed to getting your taxes filed on time. However, remember that in order for the preparer to do their job, you need to get you information to them in a timely manner.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon's offices located in Southern California or email us here.

Ten Questions on Auditor/Accountant Selection

There are various reasons to retain and auditor: required under SEC regulations, for a potential merger or acquisition, sale of the Company, bank loan, etc. Often times executives find themselves having to engage an auditor for the first time, but don’t know how exactly to qualify the quality of auditor being interviewed. Here are 10 questions to ask an audit firm before you engage them.

1. Does your firm have significant experience in my industry?  Why – you always want to engage an auditor that is familiar with your industry.
2. Have you ever been sanctioned by the SEC/PCAOB/AICPA and are you in good standing with all regulatory entities?  Why – Being sanctioned by a governing body is a red flag for poor work quality or unethical behavior.
3. What type of staff should I expect to be assigned to my engagement and what are their experience levels?  Why – Big firms who have significant turnover often send inexperienced staff to the client unsupervised. This creates a situation in which a Controller or CFO end up teaching the staff how to audit. Most Controllers and CFO’s appreciate more seasoned staff that know what they are doing.
4. What differentiates you from other firms?  Why – Most audit firms are similar in nature at their core, but they do have defining characteristics. Look for a firm that line up with your needs and wants. Be cautious of firms that have prices well below market norms.
5. Do you believe the size of your audit firm can accommodate the scope of the work? Alternatively, is your audit firm too large or small for the scope of work needed?  Why – You want to engage an audit firm appropriate to the size of your Company in order to gain the most value. You wouldn’t want to engage a Big 4 firm for a small private company needing an audit for a bank loan, just like you wouldn’t engage a local audit firm if you are an international conglomerate.
6. How does your firm add value to your audit services?  Why – Auditors cannot take the role of management or act in a consulting manner. Thus, it becomes difficult to provide additional value beyond the audit services. However audit firms can and should make recommendations on internal controls, review fraud risk areas and report on finding if issues arise, and be responsive. These are just a few ways auditors can add value to their audit.
7. Do you conduct risk based audits and how can that help to achieve a competitive engagement fee?  Why – If they don’t they are not within professional standards nor providing services that are in your best interest. You will likely end up overpaying for the services.
8. Do you have a PCAOB report that can be viewed online?  Why – CPA firms who work on publically traded companies have their own watchdog, the Public Company Accounting Oversight Board ("PCAOB"). Depending on the size of the CPA firm, the PCAOB reviews the quality of the firm's workpapers every 1-3 years. The PCAOB makes comments on the quality of the audit firm’s work. The fewer comments the better. For example dbbmckennon received no comments on our most recent PCAOB report.
9. What kind of reputation does your firm have around the community and can you provide references?  Why – References are a good way to determine if the audit firm can back up what they say.
10. How responsive can I expect your firm to be?  Why – If you are a small company engaging a large audit firm, you may not be as important to them as their bigger clients. Look for a firm that will respond to you within 24 hours of any issue arising, can adhere to reasonable timetables, and will give you the attention you deserve no matter the size of your company.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon's offices located in Southern California or email us here.

dbbmckennon Takes to the Air

On Tuesday October 18^th, David Gosselin, a director with dbbmckennon, was interviewed on Critical Mass: The Radio Show hosted by Ric Franzi. Topics included future financial concerns of CEO’s, fraud, mitigation of risk through internal controls, and dbbmckennon’s market advantages compared to other CPA firms. dbbmckennon was thrilled to provide our time to contribute to the Orange County business community and get our message to the airwaves. If you didn’t get to listen live, the podcast can be accessed through iTunes podcast. Tune into Ric’s radio show each Tuesday from 4-5pm on www.octalkradio.net.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon's offices located in Southern California or email us here.

dbbmckennon Invests in the Future

Albert Einstein once said “I never think of the future - it comes soon enough.”  But here at dbbmckennon, we are always focused on the future.  Whether it’s our clients, our practice, or technology, it is our business to help make the future as bright as possible. On the technology front, we are pleased to announce that we have invested in an upgraded and cutting edge, back-of-the-house cloud based system.   Not only will this system allow us to work more efficiently on our clients, but it will grant clients the access to information they desire. 

With the new cloud based system, each tax and audit client may elect to have access to our cloud portal with their own unique username and password.  This will grant tax clients access to all their files that dbbmckennon has received or generated on their behalf; including completed and filed tax returns; and allow for audit clients to transfer files seamlessly without using email.   Here is a little more information about the system to answer questions and concerns:

Q:  On the cloud platform, will other clients have access to my information?

A:  No.  Each user will have access to their files only through a unique username and password.  Think of the cloud as a commercial storage center.   All clients have access to the security gate but each client has their own lock and key to their individual storage unit.  No one, other than yourself and your CPA can access your information.

Q:   Does dbbmckennon know my username and password?

A:  No.  The username and password you choose are yours and yours alone and administered by the cloud provider.

Q:  Is the cloud secure?

A:  Yes. Our cloud is run by a highly regarded national organization. Please contact us for the link to our providers security measures.

Q:  How can this benefit me as a client?

A:  Unprecedented access and reliability!  Having access to your tax returns anytime and anywhere will give you the freedom of mobility.  Often times clients need two years of tax returns for home loans.  In the past, if you lost or misplaced those returns, you would have to call your CPA and have the returns faxed over.  With the cloud platform, you can access up to three years of tax returns at any given time without waiting.  In addition, in preparation for tax season, you can upload pertinent information such as W-2’s, 1099’s, and other forms which we will need for tax preparation.  Thus you can build the file as you go instead of trying to find all documents at the last minute.  Audit clients can also build their audit file electronically on the cloud instead of sending documents via multiple emails (which are restricted by size) or snail mail.

Q:  What else will change once dbbmckennon switches over to the cloud platform?

A:  Not much else will change.  dbbmckennon is still committed to the highest quality of service.  As we implement the cloud platform, you will notice that paper will become less prevalent.  Tax clients will be allowed to upload information onto the cloud for tax preparation and download returns when complete.  This is good for everyone and good for the environment.

Q:  Can I still opt for paper returns and/or provide tax or audit information in paper form?

A:  Absolutely.  We can print and provide you with returns, financial statements, etc, or you can access them through the cloud portal and print/download them anywhere you have an internet connection and a printer.  You can also provide all your tax and audit documents to us in paper form.  We will create an electronic copy for our electronic system and return the paper documents to you.  All electronic documents are stored on the cloud for a period of time that meets or exceeds state and federal mandated retention requirements for CPA’s.

If you have more questions about our system and how it will benefit you as a client, don’t hesitate to contact us today.

IRS to Eliminate High-Low Per Diem Reimbursement Method

In July 2011, the IRS announced that the substantiation policy for reimbursements of out of town business travel will change.   Currently, individuals who travel overnight for their employer or business can use the high-low method to substantiate their expenses rather than providing proof of actual costs. Under current IRS regulations, a business can provide per diems to their employees and deduct said per diems for tax purposes without substantiation of cost, so long as the per diem provided is less than the federal reimbursement rate for the specific locality.  However, because many businesses have employees traveling across the country and the tracking of reimbursement rates for each locality can become cumbersome, the IRS provided for a simplified high-low method whereby certain cities (i.e. New York, L.A, etc.) had a predefined higher per diem rate and all other localities had a lower rate.  Having only two federal rates under this high-low method was meant to simplify the process.

The change to discontinue the high-low method is not yet in effect.  Thus, businesses using the high-low method can continue to do so until a formal announcement is made by the IRS.  To get information on per diem rates provided by the government, follow this link to the U.S. General Services administration (GSA). 

dbbmckennon is a full-service, Certified Public Accounting firm, established to provide tax, attestation and consulting services to individuals and businesses through our offices located in Southern California.

Shell Companies

Shell companies in the past have been abused by promoters as a method to pump and dump penny stocks and reap illicit profits. As a result, the Securities and Exchange Commission (the “SEC”) has issued various regulations under the Securities Act of 1934. These provisions prohibit the use of short form registration of securities on Form S-8 generally used for registering securities for officers, directors, employees and consultants until after 60 days from the date the company ceases to be a shell company. In addition, expanded reporting on Form 8-K, commonly referred to a “Super 8-K”, for reverse mergers (or “back-door registrations”) involving a private operating company and a shell company in the US. The term shell company means a registrant, other than an asset-backed issuer as defined in Item 1101(b) of Regulation AB, that has:

  1. No or nominal operations; and

  2. Either:

    i. No or nominal assets;

    ii. Assets consisting solely of cash and cash equivalents; or

    iii. Assets consisting of any amount of cash and cash equivalents and nominal other assets.

How is nominal measured? The SEC purposely did not define nominal since they wish to retain some level of judgment to managements and the SEC staff. Often times, it is not easy to determine whether a company with assets is a shell company or deemed an operating company.

A company with a business plan and qualified management team, which has not commenced operations, may be deemed to be a shell company until operations and assets become significant. Additionally, a company which has exited a business, and temporarily has no significant operations or revenue generating assets, would likely fall into classification as a shell company until operating assets are acquired. A company with a royalty stream from licensing may be considered a shell company if revenues and operating activities are nominal, even though investing activities in new products may be significant.

The facts and circumstances need to be addressed with each company that gives the appearance of a shell company, and the related impact on use of Form S-8 and reporting requirements of Form 8-K for US domiciled companies.

dbbmckennon is a registered firm of the Public Company Accounting Oversight Board, performing financial statement audits for public companies, and providing consultations to management teams involving complex accounting and reporting matters before the SEC.

How Many Years of Financial Information are Required for SEC Filers

As small businesses grow, so do opportunities.  Those opportunities often times allow for a private company to go public or for a public company to significantly increase operations.  So when do companies need to disclose two years of financial information as opposed to three on their annual financial statements on Form 10-K? Public companies whose equity is traded on a public exchange base their reporting requirements off of public float.  If the public float (total market value of common stock held by non-affiliates – affiliates generally defined as directors, officers and management, as well as 10% shareholders) is less than $75M as of the last day of the most recent second fiscal quarter, then only two years need be presented.  Public float over that amount requires three years of financial presentation for all statements except for the balance sheet, which only requires two.

For private or non-reporting companies who have no equity in the public market and are registering shares with the SEC, the benchmark is revenue.  If a Company has less than $50M in annual revenue as reported in its most recent fiscal year (12-month period) based on audited financial information, then only two years of financial statements are required.  If revenue is over that amount, three years of financial statement presentation is required for all statements except the balance sheet, which only requires two.

During reverse acquisitions, the SEC rules state that the operating company merging into the shell needs to assess requirements as if it had been a reporting company.  This assessment must be done on the date of reverse acquisition.  Accordingly, if revenues in the most recent audited fiscal year were over $50M, three years of financial statement presentation would be required as specified above.

dbbmckennon is a registered firm of the Public Company Accounting Oversight Board, performing financial statement audits for public companies, and providing consultations to management teams involving complex accounting and reporting matters before the SEC.

2011 Federal Tax Credits for Consumer Energy Efficiency

In December 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This law extended the tax credits for energy efficiency into 2011. For 2011, the tax credit available represents 10% of the cost of the improvement, up to $500, with a $200 max for windows, and several other set maximums. The maximum tax credit available is $1,500. In addition, there are no upper or lower limits on income to receive the tax credit. Thus, making the credit virtually available to anyone who files a federal tax return. The tax credit must be claimed on 2011 IRS Form 5695 and submitted with you 2011 taxes to be filed by April 15, 2012. In 2010, the tax credit represented 30% of eligible purchase up to a maximum credit of $1,500. In order to qualify for the 2010 tax credit the 2010 IRS Form 5695 should have been filed with your 2010 taxes prior to April 18, 2011. However, if you failed to file for this credit all is not lost. If you think the credit is significant enough it might be worth filing an amendment to your tax return.

For additional information see the Energy Star website or contact us for your specific item.

dbbmckennon Sponsor's The Elite OC Charity Golf Tournament

With our commitment to the betterment of the Southern California communities, dbbmckennon was elated to help sponsor the first annual The Elite OC Charity Golf Tournament held at the Aliso Viejo Country Club on April 25, 2011.   The Elite OC was able to bring together the some of the best and brightest professionals from our community to raise thousands of dollars for the Never Forgotten Foundation.   We were also glad to place two of our own team members in the tournament to further help the cause.  We look forward to our continued partnership with The Elite OC and assisting them in their future endeavors. 

 

1099 Requirements Repealed and Explained

It’s no surprise that so many people were confused about the proposed changes to 1099 reporting requirements.   Prior to the Healthcare Reform bill being passed in 2010, businesses had to issue 1099’s to any non-corporations for services provided over $600.  Upon the Healthcare Reform bill being passed, new regulations required that businesses issue 1099’s to ANY person OR corporation that provided ANY good or service individually or in aggregate over $600.  As you can imagine, the new regulations created quite a stir with the additional work that would be required.  These changes were to go into effect at the start of 2012. In April 2011, the new requirements were repealed; much to the pleasure of many small businesses that were deterred by the now former increased reporting measures.   So as we stride ahead in 2011 and march toward 2012, fear not, as the infamous 1099 requirement will not be looming and the old requirements are new again.

XBRL for Small Businesses is Coming!!

XBRL (Extensive Business Reporting Language) has been around for quite a few years but is just now hitting the forefront for small businesses. Effective for periods ending after June 15, 2011, all small business filers will be required to file, commonly referred to as tagging, the basic financial statements (balance sheet, statement of operations, cash flows and equity statement) using XBRL. After the first year, small business filers will be required to tag the details of disclosures within the footnotes which can be a bigger challenge than the basic financial statements. For more information regarding XBRL view this video titled XBRL Explained

The deadline for XBRL is approaching fast and thus small business filers should be preparing now. Feel free to give dbbmckennon a call or email to discuss your current situation.

The 1099 drama to continue?

As previously discussed there are some big changes scheduled to take effect in January 2012 related to Form 1099 reporting. However, based on the Presidents State of the Union address on January 25, 2010, it appears the President has indicated the willingness to potentially repeal the additional Form 1099 reporting requirements. “Now, I've heard rumors that a few of you have some concerns about the new health care law,” stated the President. “So let me be the first to say that anything can be improved. If you have ideas about how to improve this law by making care better or more affordable, I am eager to work with you. We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses.”

Based on recent legislation introduced by the Senate Finance Committee Chairmand Max Baucus and the Senate Majority Leader Harry Reid, the new legislation would repeal the requirement for all goods and services to be reported by small businesses on Form 1099 beginning in January 2012. As of right now, the reporting requirement still stands so stay tuned.

Additional Amnesty for Offshore Accounts?

Based on the IRS' announcement on Monday, it appears that there is a 2nd amnesty program in the works for undisclosed offshore bank accounts. The previous amnesty program, which ended on October 15, 2009, was established to encourage individuals/entities in which held offshore bank accounts to come forward and disclose the account. The previous program reduced the penalty for non-disclosure of the bank account. In addition, the tax payer was only charged the penalty for one year. The penalty for non-disclosure can be 20% for each of the six years preceding the account being discovered. Thus, penalties at times can be in excess of the value of the account. See our initial comments on the program here. The IRS requires any U.S. citizen or resident who owns a foreign financial account with a fair market value in excess of $10,000 to be reported annually on Form TDF 90-22.1. If you find that you have a foreign bank account in which has not been reported please contact us so that we may discuss the options in which you have. Over the past couple of years, dbbmckennon has represented various individuals in declaring foreign investment accounts and assisted in the preparation of the required forms.

New IRS Reporting Requirements for Brokers and Transfer Agents

Effective January 1, 2011, brokers and transfer agents will be required to report the costs basis of a security in which was sold during the reporting year on Form 1099-B. Previously, only the sales proceeds received in connection with the sale of a security was included on Form 1099-B. The new requirement is intended to ease the burden on the investor and result in more accurate reporting to the IRS. However, the potential for confusion exists. For instance, assume an individual receives a compensatory grant of stock from an employer. On the date of issuance, the fair market value of the stock is $100 resulting in taxable income to the employee of the same amount. Assuming the individual sells the stock for $200, the broker or transfer agent would most likely report the transaction at a sales price of $200 and a $0 basis. The broker or transfer agent did not take into account the taxable income of $100 already recognized by the individual. Thus, individuals will have to critically review their copy of the 1099-B to ensure completeness.

The IRS has the opinion that the institutions tracking this information are more sophisticated than most investors and thus, the reporting should be more accurate. The IRS has noted in the past, since the investor was responsible for the reporting, there was room for error and interpretation. Accordingly, the IRS believes that they lose out on billions in tax revenue annually due to misreporting.

dbbmckennon's PCAOB Report

On December 23, 2010, dbbmckennon received its Public Company Accounting Oversight Board's (PCAOB) inspection report. “We are proud to announce that the PCAOB’s report did not cite any audit or internal control deficiency comments in connection with our audits of public-company clients”, said Michael McKennon, “audit deficiencies are fairly common, and if serious, may result in sanctions by the PCAOB and/or SEC. There have been recent sanctions to Orange County firms in connection with audit failures. We will continue to strive for the highest level of audit quality to serve the public’s interest.” A copy of the PCAOB inspection report can be found here: dbbmckennon's PCAOB Inspection Report

How the 2010 tax law affects your taxes

With all the uncertainty in Washington, you may have wondering and/or worrying what is going on with taxes in the next few years. Now that the 2010 tax relief act has been passed the picture is a bit clearer. Here are a few highlights of the extension:

1. The current income tax rates in which start at 10 percent and top out at 35 percent will be in place for two more years. The rates were previously schedule to rise in 2011.

2. The rate for which an employee pays into social security has been reduced from 6.2% to 4.2%. This basically means for ever $1,000 of earnings; an individual will take home an additional $20. This is only for 2011 and the employer still pays the full 6.2% employer portion.

3. Patches for Alternative Minimum Tax (“AMT”) were included for 2010 and 2011. In 2010 AMT exemptions will be $47,450 for unmarried individuals and $72,450 for married individuals filing jointly. In 2011, these amounts are set to be $48,450 and $74,450, respectively.

4. Extension of 100% bonus depreciation for business property acquired between September 8, 2010 and January 1, 2012, subject with certain limitations.

5. Important to the elderly, temporary reinstatement of the estate tax of 35% with $5 million exemption.

6. Certain credits and deduction extensions including but not limited to: increased standard deductions for those married and filing jointly, child tax credits, earned income credits, and child dependency credits.

Although there is approximately only one week until the end of the year, there is still plenty of time to make some tax saving moves prior to then. To determine how the new tax law affects your particular situation, contact dbbmckennon today.

Five Tips for Year-End Close

Many small businesses lack formal procedures to properly close their books. Here are five tips that can help streamline the process this year. 1. Make a list and check it twice – The most effective way to close a period correctly and accurately is to make sure everything is complete. Before the year-end, make a checklist of accounts to close, schedules to prepare, tasks to complete, and timeline for each. Keep track of what has been done, and what needs to be done. Identify who needs to prepare the work and who will review it. Then have each of those individuals sign-off on the checklist along the way. Preparing ahead of time and using a checklist will ensure completeness and timeliness.

2. Know your entries – Along with the checklist you make above, create a list of standard journal entries that are required to be made monthly, quarterly, and annually. Compare the list to your current close to make sure everything is properly booked.

3. Use Technology – Along with a listing of standard journal entries, try to use the power of your accounting system (i.e. QuickBooks, PeachTree, etc). Whatever entries can be automated should be set up to do so (i.e. monthly fixed asset depreciation, etc). Also try to use Excel to create dynamic workpapers that create journal entries for you each period to better automate the process. A little work ahead of time will save you time down the road.

4. Analyze variances – Compare each account in your current trial balance against the prior year(s). Set expectations of what you should see based on known activities, economic factors, and recent transactions. Look for accounts that vary outside of those expectations. This simple task will help you determine if something is misstated.

5. Have a tax plan – Develop a plan with your CPA regarding taxes and tax payments. Pro-active planning will help minimize tax burdens, increase cash management effectiveness, and ease your worries about the unknown.

Don’t hesitate to give dbbmckennon a call or email today, to ask us about how these tips can be integrated to your specific situation. We would be happy to help answer your questions or assist you in compliance in order to put your company on a path to success.

What to do if you receive a tax audit notice.

If you have received a letter from the Internal Revenue Service (“IRS”), Franchise Tax Board, or other tax agency, informing you that your tax return is subject to audit, don’t panic. Having a tax return audited does not always suggest that the taxpayer has made an error or has been dishonest. In fact, some audits result in a refund to the taxpayer or acceptance of the return without change. Even if you have made a mistake, the key is understanding how the IRS works and what you can expect from the audit process. The number one rule is not to ignore the IRS! The following are a few tips to guide you through the audit process.

• Hire professional help. Your best bet if you're audited is to retain the services of a qualified and experienced tax accountant who can argue your case without passion or prejudice. These professionals already know the most effective ways to help you quickly resolve a conflict with the taxing agency. In addition, the tax code has become so complicated that you're unlikely to know the law as it applies to your tax return and your rights as a taxpayer.

• Respond to the notice. You generally will have 10 days to respond to the initial notice requesting a meeting. You will normally have 30 days to obtain all the information requested by the agent. The audit notice will give you information as to what items are being examined. Knowing what's being scrutinized will help you determine what you need to bring to the audit, so you can substantiate the items in question. Be aware that the agent upon setting the initial meeting will send a more comprehensive list of items to be audited.

• Get your records organized and complete. Make the auditor's job easier by having organized and complete records. Organized records generally indicate to the auditor that that all of your items are documented and justified. Group each of the items in question, or attach an adding-machine tape that matches the tax return, and any other organization methods that will make it easily identifiable by the auditor for quick review of the important issues. You cannot simply throw your records in a bag, drop it on the auditor's desk, and think that they will figure it out. It is the tax payer’s legal obligation to be able to support all items on their tax return.

• Provide only records that are requested. Leave at home any additional records and items not requested in the original audit notice. Also do not bring original documents to the audit. If you do bring originals, have the agent copy immediately and return the original. There is a high probability that the documents could get lost. The taxing agency isn't responsible for documents lost in its possession.

In recent years, certain tax agencies have been increasing the amount of audits. If you get a notice from a tax agency notifying you that you have been selected for audit, your best bet is to seek out a qualified tax professional. Don’t hesitate to give dbbmckennon a call or email today. We have a significant amount of experience in handling IRS, Franchise Tax Board, State Board of Equalization (sales taxes), etc. We would be happy to help answer your questions or assist you with your needs.