Tips for Avoiding an Audit

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. 

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

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.

Why You Need Bookkeeping

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

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.

Real Time Bookeeping

Photo by Alena Darmel on Pexels.com

Bookkeeping has historically been completed as an after the fact necessity that is required by your CPA.  Small business owners are busy and overwhelmed with the day to day operations and bookkeeping becomes an afterthought.  By completing your books quarterly or even worse, annually, you are not able to use the information to help you run your business. Do you want to make more money? Do you want to work less and sleep more? Do you want to think about selling your business for a profit? Do you want to provide an excellent environment for your employees?

The power of Real Time bookkeeping means that businesses owners sleep at night.  You will have the tools to increase cash flow.  You will be able to focus time and energy where it counts: on your business, your clients, and in harmonizing your business and personal life.

What is Real Time Bookkeeping?  Real Time Bookkeeping is the act of completing the books within 36-72 business hours of actual events.  Real Time Bookkeeping means that ALL financial transactions and data are recorded including accounts receivable, accounts payable, all banking and credit card transactions, payroll, tax payments, etc.  

Do you need to increase sales?  Do you need to increase your inventory?  Is now a good time to purchase a new piece of equipment?  Do you need to cut costs?  Should you hire a new employee?  Is now a good time to add benefits to your payroll packages?  Real time books will provide you with the power to make effective decisions about all arenas of your business.

When these transactions are up to date, you can: 

  1. See your true Profit and Loss 
  2. Determine cash flow projections
  3. Create meaningful budgets
  4. Make real time corrections to pricing 
  5. Lower bookkeeping costs by catching nuances fast
  6. Stay current and relevant with market trends

All of these items will increase your cash flow and help you feel empowered.  Real Time bookkeeping puts your business in a better resale position.  Real Time bookkeeping will save you time and money and will allow you to effectively scale your business.  Financial security is only available if you understand the information gleaned from Real Time Bookkeeping.  

Afraid of the cost?  We understand.  It’s scary to invest.  But the return will outweigh the cost.  Your bottom line will improve and you will have peace of mind.  Consider the value.  Consider moving to Real Time bookkeeping.

Payroll Onboarding

Do you need to hire an employee? Here are the absolute basics.

Photo by RODNAE Productions on Pexels.com

First, you must be set up for payroll. Your company must have an EIN, a Wage Withholding Account and a Unemployment Account at the very least. This will vary from state to state.

When you have these pieces set up and are ready to hire, you must collect: W-4, I-9, Acceptable Identification. Depending on your state/local requirements, you may also need to collect emergency contacts and report the new hire to your state.

Questions? Give us a call. We can help with the entire process.

This is a guideline only, please know that requirements are constantly being revised.

Bookkeeping Basics For Business Owners

bookkeeping basics

You hire us to manage your books, invoices, receivables, payables, and store necessary paperwork.

But as a business owner, it’s best to have a big picture overview of what is most important for tracking your spending and income. 

Here is what is important to know:

  • Pick a software system like QuickBooks Online that you and your team can access online and commit to it.
  • Link all of your business accounts, including credit cards to the software
  • Based on the structure of your business, choose appropriate categories to allocate all expenses and automate these designations
  • Keep your business and personal expenses separate
  • Look at your dashboard weekly and monthly to get a big picture overview of your financials
  • If you have employees or are set-up as an S-Corp, run payroll and taxes monthly
  • Set a quarterly review with your board, bookkeeper, accountant or CPA to make sure you are on track with taxes for the year.

The success of your business is dependent upon understanding and managing your finances.  Bookkeeping will help you analyze and make informed decisions about the direction and growth of your  business. We will help you make sense of your finances so that you can focus your time in developing your craft.

%d bloggers like this: