Saturday, 19 November 2011

Budgeting for a small business

Budgeting might seem an overtly complex exercise for some business owners. However, there are no hidden demons in budgeting if a realistic estimate of spending is made possible and priorities clearly established.

A few common budgeting pitfalls to avoid are listed below for a better understanding and utilization of the budgeting process:

Underestimating the costs:

Almost all businesses have a set of supplementary or ancillary costs that often go unnoticed and do not always make it to the budget. For instance, every time you purchase a new software or equipment, although the cost of equipment might figure in your purchase, the associated costs such as training, time and maintenance costs involved in the process might have missed the bus, thus resulting in an underestimation of the actual costs involved.

No Budgeting:

The biggest mistake of all budgeting short sights is to go about your business with no idea about the profitability in the future with no quantified predictions. Bills come in, checks go out – yet, it is a monotonous process with no order to the exercise.

Non Prioritization / Non-objective planning:

The business will go to waste if there is no concrete business plan attached to it. Without clear goal setting, priorities cannot be set on your spending / purchasing. Setting goals and not tying your expenditures to them is an exercise with even lesser value.

Scrutinize all expenses, make the best choice:

As a small business owner, you can least afford to lose money. Budgeting is the best time to compare estimates to actual pay-outs, and adjust the figures accordingly. For instance, if a website maintenance service is costing you $1,000 a year, and a similar service is offered at $500, you can take time to scrutinize the individual service offerings, and decide to eliminate on the additional costs incurred.

Monitor your cash flow:

Keep a close watch on your inflows and outflows, and ensure your budgeting helps focus on projecting future cash flows too. A budget with emphasis only on expenses and ignorance towards revenues will fail miserably in projecting cash flows. Keep having periodic checks to ensure your revenues match your expenses – else, it is a disaster-in-waiting for your small business.

Focus on what really matters:

Ensure you do not spend similar amounts of time on each item on your budget. Rather, spend the maximum time on those items that drive your profitability and business viability.

Bring in a flexible approach:

A good business is one which is flexible. For instance, if the actual revenue is not as expected, be prepared to trim down on your expenses. Here, it is crucial to follow a strategy where you overstate your expenses and understate your expected revenues. While a no-frills-attached approach to expense planning is a good idea, also set aside income wherever possible. In most unimaginable ways, such money set aside can bail out your business in the future. It can also serve as a contingency fund to dip into in case of budget overruns. 

Use your budget as a limiting exercise, not as the LIMIT:

Sticking sincerely to your budget is fine, but do not it act as a constraint. It should act to restrain your spending, but do not get too stiffened up on it. An unplanned trip to a trade conference or a valuable seminar will fetch you precious contacts although the expenses may be unbudgeted. Be prepared to go beyond your budget when a valuable investment comes knocking.

Get in touch with us at GKM for discussions on setting up a budget for your business requirements. We are here to help you grow your business.

Friday, 18 November 2011

IRS tips for employers outsourcing payroll

Outsourcing payroll duties to third-party service providers can streamline business operations, but the IRS reminds employers that they are ultimately responsible for paying federal tax liabilities.
Recent prosecutions of individuals and companies who - acting under the guise of a payroll service provider - have stolen funds intended for payment of employment taxes makes it important that employers who outsource payroll are aware of the following three tips from the IRS:
  1. Employer Responsibility The employer is ultimately responsible for the deposit and payment of federal tax liabilities. Even though you forward the tax payments to the third party to make the tax deposits, you - the employer - are the responsible party.

    If the third party fails to make the federal tax payments, the IRS may assess penalties and interest. The employer is liable for all taxes, penalties and interest due. The IRS can also hold you personally liable for certain unpaid federal taxes.
  2. Correspondence If there are any issues with an account, the IRS will send correspondence to the address of record. The IRS strongly suggests you do not change the address of record to that of the payroll service provider. That could limit your ability to stay informed of tax matters involving your business.
  3. EFTPS Choose a payroll service provider that uses the Electronic Federal Tax Payment System. You can register on the EFTPS system to get your own PIN to verify the payments.

Thursday, 17 November 2011

How to get through an IRS audit?

A majority of us manage to get through the tax season with only the refund check from the IRS. A few not-so-lucky ones end up getting audited – nothing is more alarming for taxpayers than a letter from the IRS asking for more information on their tax returns, asking for proof of income or deductions. In some cases, a meeting with an IRS agent is required, and most taxpayers just press the ‘panic’ button then.

What are the odds of you getting picked for a tax audit? Factors such as your earnings, your profession, the type of return filed, nature of transactions reported are a few specific triggers contributing to an audit. Here are a few reasons why the IRS will want to audit you:

  • Huge business expenses (Travel & Entertainment for instance)
  • High deductions for employee business expenses
  • Large deductions under charity
  • Erroneous representation while reporting on your tax forms
  • Covering up of cash receipts
  • Complex business / investment dealings
  • Prior history of tax issues / audits
  • Informants
  • Your relationship to a taxpayer who is under audit

What do you need to do incase you are singled out for a tax audit?

Have a long hard look at your return, understand all its contents, and then collate the records of items in question.

To stay afloat on tax matters, here are tips best cultivated into a year-long habit:

1. Collect and organize your records through at least three years – it will make tax return preparation easier, and will greatly reduce the probability of errors.

2. Maintain and sort out all your purchase receipts through the year.

3. Retain your checkbook stubs.

4. Organize all bills, and keep track of all reportable and deductible items on your tax return.

5. If you have invested in real estate, keep all documentation such as cost basis, settlement / sale statements handy.

  1. First and foremost, do not ignore the IRS letter – respond to it at the earliest, requesting for reasonable time to get back after collecting the necessary paperwork.
  2. Most times, the letter from the IRS simply requests for more information / clarity on an item on your return – say, it wants you to send in receipts for the entertainment expenses you deducted. Then, just mailing across the required receipts will suffice, there is no need for bringing in a professional, say your lawyer or your accountant.
  3. In case you are unable to locate the information asked for and a meeting with an IRS agent has been scheduled, you are best equipped with professional help at hand. Bringing in an expert to represent you does not necessarily mean you are guilty, rather, it will be mutually beneficial as the agent will prefer to deal with the organized and detached ways of an accountant than an emotionally charged individual.
  4. On most instances, the IRS will have very explicit questions for you to answer with necessary document back-up. So, the best approach would be to hand over all necessary forms / receipts as required, and use the opportunity to convince the agent that there is no case of understating income earned. The IRS has kind of decided on your case, and you need to satisfactorily explain why the decision to audit is off beam. Do not volunteer to share additional records / overshare – you will only be subjecting yourself to a fresh audit then. It will only go on to cost you. If the agent happens to question you on an off-the-record item, refuse in a firm but polite manner to answer until a formal request on the specific information is filed. Do not give the agent additional or lesser information than that is requested for.

  1. At the end of the meeting, the examiner will present a reassessment in case of underpayment of taxes. Then, you can either pay the additional tax or fight it out in a tax court in case you feel it is unjustified. However, bear in mind that the IRS will usually conduct a tax audit only if it is confident of invalid deductions / expenses thus resulting in a tax bill. 

Whether your tax return was self-prepared, or by a paid preparer, you are finally responsible for its contents as you sign on the dotted line. Hence, review the items on the tax return to your complete satisfaction and check out any unclear items with the preparer thoroughly before signing it.

Around 2% of filed tax returns are picked for IRS audits. In case yours is one, do not panic, de-stress and bear in mind that an organized tax portfolio and a clear, uncluttered communication protocol will get you through the audit with ease.

Loans between you and your small business

A loan between you and your small business (shareholder / member of corporation & LLC) is subject to special scrutiny. 

If your loan is not documented correctly, the IRS will treat it in ways that may result in unfavorable tax consequences.  The loan must meet certain minimum standards that include:
  • A written unconditional promise to pay (promissory note).
  • The loan must be due on demand or on a stated due date.
  • A reasonable rate of interest must be stated or be determinable by reference to a published rate.
  • The borrower must be creditworthy.
  • Payments, including principal and interest, must be reasonable.   At least the interest must be paid on an annual basis.

If the above provisions are not in place, now is a good time to have your legal representative prepare the appropriate documentation.

Embrace accounting to ride out the recession!

Due to the global economic turmoil, individuals and businesses need highly reliable information that takes all of the latest data and trends into account. CPAs are increasingly required to assist in meeting the ever evolving global financial challenges. With a fast-changing environment contributing to a complex reporting & record-keeping requirement, capable accountants with up-to-date knowledge of laws & regulations & high technological acumen are in high demand.

The Securities and Exchange Commission (SEC) has charted out a plan to gradually incorporate International Financial Reporting Standards (IFRS). This will allow for preparation of financial statements using IFRS, rather than GAAP (Generally Accepted Accounting Principles). CPA firms with such accountants in their fold continue to thrive amid the growing challenges of the recession. According to a recent survey of the USA’s most profitable industries, the unsurprising runner-up was the Accounting, Tax Preparation and Payroll Services sector.

Managing intricate accounting decisions such as challenges relating to US GAAP, IFRS implementation and others is a must in the competitive professional environment. With up-to-date insights into the accounting & taxation rules and regulations, highly qualified resources are a necessity.

As almost every passing day brings with it a fresh fraud / scandal, it is imperative to have by our sides the critical thinking & able professional accountants to help out from their skills inventory. In the face of crises, accountants have to be equipped in a way that goes beyond a conventional understanding of accounting.

An accountant with the following skills in his inventory will endure and come out successfully as a recession-proof professional:

  • Continued Professional Education to sustain
  • Aptitude to adapt to a global environment
  • Strong basics in accounting packages and real-time delivery of accounting output
  • Internet domain knowledge with added emphasis on Accounting / Management Information Systems
  • A proactive approach with regulatory bodies, shareholders and other stakeholders
  • People oriented with critical thinking capabilities
  • Good networking skills to connect with the latest information
  • A progressive mind open to change while treading the middle ground

The role of the accountant is ever changing, and a knowledgeable insight into the challenging landscapes of accounting will transition your profession. Assistance for a business owner with technical accounting issues he is confronted with will go a long way in improving the business’ productivity.

As a new age accountant, look out for your opportunities in on-demand turfs, meet the market, usher in a new-fangled mindset, and you are all set to grow globally!

Choose the right professional for your tax preparation!

Tax laws keep changing every year, and they are so complex that the process of claiming any savings on offer is itself more trouble than its worth. You have decided on hired help for tax filing. The helping hand is required to be professionally trained and accredited, and trust worthy. You are ultimately responsible for your tax return although someone else may have prepared it. You sign on the dotted line on the 1040, and so the responsibility to find an ethical and well-informed preparer lies solely with you. A good tax preparer will provide strategic services with speed, precision with an in-depth knowledge of managing multifarious tax situations.

Here are a few pointers to keep in mind while choosing your tax preparer so that you do not end up with an error-ridden tax return:

  1. Check on the IRS certification

Always check out the short listed tax preparer’s qualifications, prior history and professional affiliations. Ensure the preparer has the IRS accredited Preparer Tax Identification Number (PTIN). Check out your state accountancy board, CPA council or your local IRS office to ensure there are no grievances against the person you are planning to hire.

  1. Check out the fee charged

Ideally, the service charges should not be a percentage of your supposed refund. This is usually an indicator that tax boundaries will be pushed that much more, and unlawful practices adopted to get you more money than you are legally entitled to just because your preparer can get more out of your return.

Preparers who promise to obtain large refunds are best avoided – any tax return properly prepared will have all preparers come up with essentially similar numbers on tax & refunds.

  1. Ensure accessibility of tax preparer

Make sure you hire a preparer who is around even after the tax filing season ends so that you can have help at hand in case of any possible questions from the IRS.

  1. Always review your tax return

Read through your prepared tax return thoroughly and attempt to understand the entries made. If you are uncertain about any entry, have it clarified with your preparer. In case a satisfactory answer is not forthcoming, do not approve the return. Any preparer who is unable / unwilling to explain entries made on your 1040 and other schedules is inept and unworthy of hiring.

Surely, checking out the credentials of your tax preparer is time-consuming. However, it is time well used up considering the potential advantages on offer.

Outsource accounting for lesser costs and improved efficiency!

Make this year your most successful yet with GKM’s Universal Accountant.

There has been incredible development in the field of information technology, opening up immense potential for business functionality in a manner only dreamt of before.

In today’s competitive business environment, outsourcing of accounting services is sure to make account handling simpler.

A near perfect blend of fast internet connections and strong security / encryption policies have made the outsourcing of significant functions such as accounting & tax preparation.

To make it better still, outsourcing your accounting work to a virtual accountant is practical and cost-saving. There are businessmen who need the comfort of a full-time accountant, but are unwilling to go through the recruitment hassles or part with the necessary office space or expenses. A virtual accountant / outsourced accounting services is a perfect fit for the above category of businesses.

GKM Universal Accountant can be hired by:

  1. Entrepreneurs
  2. Small & Medium Business Groups
  3. Non-profit organizations

among others.

GKM’s Universal Accounting Department provides your company with expert professional bookkeeping services, presenting an opportunity for your top managers to plan for the future with confidence.

Advantages of hiring GKM’s virtual accounting services:

  1. Quality assurance – a ISO 9001:2008 certified company
  2. Freedom from varied hassles of recruiting and training accountants
  3. Savings on office space & expenses for internal accountants
  4. Freed up time to focus on core strategic aspects of business
  5. Availability of class services of experienced, dedicated and well trained, tested and specialized team of CPAs and CAs who speak your language.
  6. Space to manage your business accounts on a real-time basis with regular updates on latest regulations.
  7. Data confidentiality – balanced security architecture at all levels.