Author: Anna Faulk

I am the owner of Incline Business Essentials, a full service bookkeeping and virtual administrative business.

A Bookkeeper’s Guide to Closing Out the Books for the CPA

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If you own a small business, you might find yourself asking the age-old question: How does a bookkeeper close out the books for the CPA? It’s an important question—after all, your accountant can’t prepare your taxes without accurate and up-to-date financial statements. Fortunately, we have an answer. Let’s dive into how a bookkeeper closes out the books for the CPA.

Organizing Financial Records

The most important step in closing out the books is making sure that all financial records are organized and up-to-date. This means that all transactions must be recorded accurately, either in a physical ledger or in accounting software. It’s also important to make sure that all accounts are reconciled and any discrepancies are resolved before sending them off to your accountant. Doing this will help you avoid any potential headaches down the line when it comes time to prepare your taxes. As bookkeepers, we handle this on a regular basis throughout the year.  At year-end, we complete extensive reviews to ensure accuracy.

Recording Adjusting Entries

Once bookkeepers have ensured that all of your financial records are in order, it’s time to record any necessary adjusting entries in order to ensure accuracy. This includes recording accruals such as unpaid wages, prepaid expenses, and accrued income. Interest on loans must be recorded and reconciled.  Payroll reconciliations involve ensuring that the payroll recorded in the books matches the quarterly and annual reports provided to the state and IRS. Double-checking that the Accounts Receivable and Accounts Payable are accurate is another step to confirming that the books can be closed out accurately. These entries must be made prior to closing out the period so that they can be accurately reflected on the financial statements sent to the accountant.

Closing Out Accounts

The final step is closing out any accounts that need to be closed for tax purposes or other reasons. This involves transferring any balance from one account to another (e.g., from a current asset account such as Cash to an income account such as Revenue). This ensures that all accounts reflect their correct balances as of the end of the fiscal year or period being closed out for review by your accountant or auditor.

Closing out books for a CPA can seem daunting at first glance but it doesn’t have to be! With careful organization and attention to detail, we can close out your books before sending them off for review by their CPAs or auditors. By following these steps—organizing financial records, recording adjusting entries, and closing out accounts—you can rest assured knowing we are well on our way towards preparing accurate financial statements for review by your CPAs.

Tips for Avoiding an Audit

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No one wants to go through an audit. Just the word “audit” forms a pit in your stomach and causes you to cringe. Audits are time-consuming and costly.

Avoiding an audit should be a concern of any business owner. While there’s no way to guarantee you won’t be audited, there are steps you can take to avoid triggering an audit.

9 Things to Do to Avoid an Audit

1. First and foremost, PAY YOUR TAXES!

Make quarterly estimated tax payments and always be sure to pay your payroll taxes. File your annual taxes on time and make your tax payments.

2. Issue 1099s and W2s on time.

These are both required to be filed and remitted to employees/contractors no later than January 31. Filing these late is a red flag to the IRS.

3. Don’t mix business and personal.

Many small business owners try to deduct travel, vehicles, cell phones, etc that are not truly business. While some of these might be legitimate business deductions, be sure you understand the rules surrounding these “fuzzy” deductions.  

4. Pay officers/owners a reasonable salary.

Do not inflate salaries for officers or owners of small businesses. Inflated salaries will trigger the IRS to take a closer look. On the flip side, low salaries for business owners are also a red flag. The IRS requires that business owners pay themselves a “reasonable” salary for their work in the business. Your CPA should help you decide what “reasonable” looks like for your business. 

5. Be very careful of travel and meals.

Only true business travel and meals should be deducted.  This is a hot topic for the IRS. Excessiveness in this area will trigger an audit.

6. Only deduct your home office if you meet the criteria.

This is a particular topic that the IRS will focus on. Remember that your home office must be a dedicated space that is used exclusively for business. A dining room table does not qualify. 

7. Do not show a loss year after year. 

This becomes a yellow flag if you continue to show a loss for multiple years in a row.

8. Be very careful of treating labor as a contractor vs. an employee.

If you are paying people with 1099 wages as a contractor but they should be considered an employee, you are sending flags to the IRS and to your State tax agencies.

9. Keep a clear, accurate, and timely set of books.

Use bookkeeping software and ideally, a professional bookkeeping and financial services provider.

While there is NO guarantee that you will not be audited, following the above guidelines will help. Keep your business running smoothly by taking steps to avoid the disruption of an audit.

New Colorado Employer Requirements: Colorado Secure Savings and Family and Medical Leave

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There are two very important Colorado requirements that will be affecting EVERY business owner with payroll. Please note, we are NOT HR experts. The purpose of this article is to give you a brief overview of these requirements and how it will affect your business.

Colorado Secure Savings Program:  

  1. This program was voted into legislation in 2020. This is a way for employers to provide a platform for employees to save for their future. Employers will be required to provide a savings program such as an IRA OR employers will be required to offer the savings program through the state run Colorado SecureSavings platform. This particular program is for companies with five or more employees. As of Jan 1, 2022, you will be required to comply.
  2. Colorado has very few details available for this program as they are in the process of working out the fine print. We DO know that this will be an “Opt Out” program meaning employees will be AUTOMATICALLY signed up and will need to “Opt Out” if they do not wish to participate.  
  3. From our understanding, Employers will not need to match the savings. However, employers are REQUIRED to facilitate the operations. Employers will withhold funds from the employee paycheck and will remit those funds to the Colorado SecureSavings account or IRA/retirement account.

If you prefer to set up an IRA or 401K plan for your employees (rather than using the state run Colorado SecureSavings program), we recommend that you do so VERY SOON. We have relationships with several brokers who can help you with this. Contact us if you are interested.

Family and Medical Leave Insurance Program:

  1. This program applies to ALL employers regardless of the amount of employees you have. If you have employees, you need to understand these requirements.
  2. This is designed to help you employees receive pay when sick or other medically allowed life events as defined by the state of Colorado.
  3. Employers and their employees are both responsible for funding the program and may split the cost 50/50. The premiums are set to 0.9% of the employee’s wage, with 0.45% paid by the employer and 0.45% paid by the employee. Employers may also elect to pay the full amount if they choose to offer this as an added perk for their employees.
  4. Businesses with nine or fewer employees do not have to contribute to the program but do need to remit their employees’ share (0.45%) of the premium on behalf of employees each quarter. This can be done through a simple payroll deduction. Employers are required to begin these premium deductions on January 1, 2023. All employers, regardless of size, will be required to register with the FAMLI Division before the first premium payment is due at the end of the first quarter of 2023. Benefits will become available to workers starting in January 2024.

The team at Incline Business Essentials is becoming familiar with the requirements and will help you facilitate through your payroll process. We will help you every step of the way BUT you will have to be involved as the owner of the business. Please note that this will be additional work on our end and we will be billing accordingly. As the State requires additional layers to your responsibilities, it is our goal to assist you in every way possible.

Be Ready for Q4 2022

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Can it truly be?  It is almost the final quarter of 2022.  Wow. 

As we approach this quarter, please be aware of the bookkeeping and financial items that will need to be completed:

  1. We will be meeting with you to get through any questions we have about your books.
  2. If you are a business owner who needs to run payroll for yourself, this will need to happen in the next couple of months.  If you haven’t been running a regular payroll, you may need to pay a chunk of change to the IRS/State before the middle of December. Start saving!
  3. We will be gathering W9s to be prepared to issue 1099s in January. We will reach out as needed.
  4. If you need to do some financial planning with your CPA, this should be done October/November.  We can provide your CPA with current financials so that your CPA can: recommend payroll, recommend tax payments that need to be completed before the end of the year, make recommendations for large purchases such as a new vehicle, etc.  

Be ready as we start reaching out to fine tune the books and be as prepared as possible to close your books early in 2022.

Why You Need Bookkeeping

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If you run a business, the act of bookkeeping is essential. Let’s start by defining bookkeeping. What exactly is “Bookkeeping?”

Bookkeeping is the process of recording the financial transactions of your company. Bookkeeping categorizes the money coming into your business as income. Expenses refer to money that your business spends in order to operate. The act of bookkeeping organizes your expenses into categories that are used to file your taxes.

Now let’s talk about why this matters.  

File Your Taxes

As a business owner, you will likely hire a CPA to file your taxes. You will need to provide the CPA with your income and your expenses. Your taxes cannot be filed without this information. This leads to the next important reason for keeping an accurate set of books.  

Pay Fewer Taxes

This is probably the most attractive reason to have a bookkeeping system in place. Bookkeeping identifies all of your transactions so that nothing slips through the cracks. You must categorize each and every transaction that goes through your bank account. By keeping an accurate set of books, you will know exactly what you spend on gas or office supplies, or advertising. When you are gathering your data at the end of the year, you aren’t trying to remember how much you spent on that new computer or which client you took to lunch in May. Without a clear bookkeeping system, you will invariably miss out on deductions. You must have a plan and a process to ensure that deductions are captured.

Your expenses must be organized into categories approved by the IRS in order to be considered “deductions”. Without deductions, you will pay taxes on the entire income of your business. With deductions, you will rightfully cut this tax bill thereby saving you and your business money. For example, if your business brings in $100,000 without deductions, you might pay the IRS upwards of $25,000. But, if you can clearly show business expenses of $60,000, you might pay $10,000. This is a tax savings of $15K — not just nickels and dimes!

Track Your Profit

Profit is a key indicator of your business’s success. You can only determine your profitability if you are tracking your income and expenses.

Make Decisions About Your Business

Bookkeeping can help you make decisions about your business. Is it a good time to hire? Should you be increasing your prices? Are you spending too much on utilities? These decisions are guided by your business’s financial health.

Financing

In order to get financing for your business, you will need to provide the lender a set of books showing your income and expenses. Banks will require you to show your expenses vs. your revenue, otherwise known as your Income Statement or Profit and Loss. Bookkeeping will provide this report.

Catch Mistakes

Were you overcharged or charged twice for a service? Are you paying for a subscription that you are no longer using? You will catch these transactions through your bookkeeping because you are looking closely at every transaction.

Where Is Your Money Going?

Through bookkeeping, you will understand where your money is going.  This will help you budget and plan cash flow for the development of your business.

Bookkeeping will save you money by saving on taxes, cutting down on mistakes, guiding you through financial decisions, and improving your cash flow.  Business owners often want to do this on their own. Sometimes this works. But often the books are the piece of the business that well-intentioned owners plan to do and just don’t have enough time in the day.  

Bookkeeping is essential but it does take time, pulling you away from your actual business and preventing you from focusing on your clients.  As a business owner, you wear so many hats.  This is one that you can easily outsource with confidence. Reach out for a complementary consultation to see if our services would be a good fit for your business.

Subcontractor Compliance and 1099s

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This is the time of year that we start preparing for 1099s and Insurance Audits.1099s must be issued in January for all appropriate subcontractors. Insurance Audits apply only to those of you whose insurance companies require the annual audit. You know who you are!

Our Incline Team will be working together to facilitate this process. You may be hearing from an unfamiliar team member. Please know that this is our team collaborating and assisting one another to efficiently handle this process.  

Subcontractors and 1099s

As a business, you are required to issue 1099s to any individual OR unincorporated business that you pay more than $600 for a service within the fiscal year. For example, if you pay someone $800 to install shelving in your office, you must issue a 1099 to that individual. If you pay a web design company $3000 to update your website, you must issue a 1099 to that company if they are not a corporation. If you pay rent over $600 each year, you must issue a 1099 to your landlord. There are additional nuances but you get the picture. We will be running vendor reports to determine who needs to be issued a 1099 and will be helping to collect the required W9 from the individual or company. This means we will be contacting your vendors on your behalf.  

Subcontractors and Insurance Audits

Depending on your industry, you may have an annual insurance audit. Typically, this is your insurance company wanting proof that your subcontractors have their own insurance. This is very common in the construction industry although we are seeing this branch out into a variety of industries. We will determine who should be providing proof of insurance and will reach out to collect the insurance certificates. When you audit year cycles, will complete the audit paperwork on your behalf.  

Through all of these processes, we do our best to handle as much as possible ourselves. That being said, we may need contact information from your vendors. We may need clarification about exactly what you are paying the vendors for. We may have a vendor who is not completing the necessary paperwork and will contact you to step in.  

We are starting this process now so that we will be prepared for the January deadline and for insurance audit deadlines. Just know that we are working behind the scenes to ensure that all necessary paperwork is collected to comply with these requirements.

Separate Business Finances from Personal Finances

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As a business owner, it is important that you follow basic business practices for the health, security and longevity of your business.  It is extremely important that business financials be separated from your personal finances. 

3 reasons to keep your business finances separate from your personal finances

1.     Avoid Audits

The IRS frown upon the co-mingling of business and personal funds.  You are expected to have a business account. Expenses related to the business should be made out of the business account. Income from your clients should be directly deposited into your business account. This creates a clean and clear money trail which is what the IRS would like to see. 

2.     Protect yourself from liability

If your business is ever in legal trouble or is sued, you want a clear distinction that separates you personally from your business. If you co-mingle funds, you are not “behaving” like a business should. This can lead to you personally being liable for legal issues that should be covered under your business.

3.     Efficient bookkeeping

Keeping your business and personal finances separate ensures that you capture all of your business expenses. Having a separate business bank account streamlines your bookkeeping thereby reducing your bookkeeping costs.

How can you accomplish separating business expenses from personal expenses?

The single most effective way to separate business from personal is to have a dedicated business bank account. Pay for your business expenses out of this account. Deposit money from your clients into this bank account. Contact your local banker to set up your business account. They can walk you through this process. And let us know if you have any questions or need any help.

Colorado Sales Tax – Oh boy, oh boy, oh boy.

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sales tax updates in colorado

Yes, we hear you. It’s always something in the State of Colorado. If you have sales tax, please read this!

First of all, this will affect ALL businesses who deliver taxable products in the State of Colorado. If you sell taxable products but DO NOT deliver the products, you can skip to the last section.

Retail Delivery Fee

If you deliver, you must now impose a $0.27 Retail Delivery Fee for every shipment. You will need to collect this $0.27 per delivery and remit this amount to the State of Colorado through your Revenue Online portal.  This fee must be listed on your invoice as a separate line item called “Retail Delivery Fees.”  

Incline Business Essentials is working with Quickbooks to determine how best to track this. If you are going to need to participate in this new requirement, it will complicate your sales tax, and we will be adjusting our prices accordingly. This is a new filing in addition to your current sales tax filing. Stay tuned for additional information.

For additional information, click here or contact the state of Colorado at (303) 238-7378. 

Retailers Who Do Not Deliver

The State is going to automatically sign ALL retailers up for this new Retail Delivery Fee. They have announced that you will have to manually “Opt Out”. If you do not “opt out”, you will receive notices from the State reminding you to remit IF you are required to.  

New Management Software

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We’ve come a long way! Your Incline Business Essentials team is committed to providing you with the most excellent service possible. We are continually increasing our knowledge and use of technology to provide efficient services. We are excited to be launching a new software tool, Karbon, that will help us collect information from you and send financial reports to you in a timely manner. 

Karbon helps us track important deadlines and ensures that we complete thorough book reviews on a regular basis. Quality control is essential, and we firmly believe that Karbon will elevate our level of quality and service.

What this means to you: NOT MUCH! 

The change you will see is that when we request information, we will send you a checklist. You can upload documents easily through this request.  Then, you should check-off your task. Checking off your task, notifies us that your task is complete. 

We have tested this with several clients, and so far, so good!  The system is easy to use. Please be aware that when you reply and/or upload documents, this is a fully encrypted and secure system.  

We know that change is hard.  Thank you for your willingness to use this system. Rest assured that it is easy. We appreciate you so much and sincerely thank you for your business!

Contact us if you have any questions about Karbon!

What Is Bookkeeping?

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In the simplest terms, bookkeeping is the act of recording every single financial transaction related to a business. This is the bare bones necessity to having financial records prepared for tax filing purposes. Bookkeeping organizes your expenses into categories that are needed for tax filing. For example, all purchases related to office supplies are categorized so that a total spent on these items can be recorded as business deductions on the tax return.

In real business, bookkeeping is so much more than described above.  Bookkeeping services will vary depending on the nature of your business.  Here are some of the primary services that a bookkeeper might handle.

Primary Bookkeeping Services

  1. Track the bank accounts and credit card accounts to ensure that every transaction is captured accurately.  
  2. Track payables and might be responsible for ensuring that bills are paid
  3. Invoice your customers and track receivables
  4. Payroll
  5. Sales Tax
  6. Collecting W-9s from vendors
  7. Provide cash flow reporting
  8. Assist with budget creation
  9. Quarterly tax coordination with CPA
  10. Receipt Management
  11. Act as a liaison between you and your CPA

Bookkeeping is essential in the overall health of your business. Bookkeeping services ensure that you have the information needed to make decisions about your business. Your books are maintained properly to avoid mistakes and missed deadlines. Proper bookkeeping will help you understand your cash flow. Financial reports will be ready for your CPA.  

In summary, a bookkeeper will save you time and money while reducing stress on business owners. The success of your business depends on high quality bookkeeping.

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