1. Don't panic- if you get a letter from the IRS or California Franchise Tax Board- it may not be an audit- it may be something specific they're asking for that can easily be provided to settle the issue quickly. Call us, send us the letter and we'll let you know.
2. Figure out what they want- Sometimes it's just some of your tax payments that have been misposted on their computer- if you didn't write your Social Security number, the year and the form number, i.e. "1040" on your check then your payments may have been recorded incorrectly. (See next page for solutions)
3. Get help- Sometimes the issues can be resolved with a letter. Sometimes it calls for a field audit (at your place of business) or an office audit (the IRS office). In any case you don't have to talk to the IRS by yourself. Actually you don't have to talk to them at all. You can get someone to represent you. Then the IRS must talk to your representative. Our clients never talk to the IRS. As with any adverse legal proceeding- you might say something that can be used against you. For a client who admitted to the IRS, before coming to us, that he shouldn't have deducted travel expense to his job, we presented evidence that he was on a temporary assignment and therefore, could deduct it.
4. Gather your records- Look at the notice and see what year it's for. Then get your records that you used to prepare that year's tax returns. Work with us or another tax professional to determine exactly what information you will give the IRS and how it will be presented. Start early in case you have to request copies of bank or investment account statements.
5. Don't Ignore the IRS- It is never a good idea to ignore the IRS or other taxing authority. You or your representative should contact them as soon as possible and notify them that you are gathering your information. Usually you will be able to get a "hold on collection efforts" while you obtain your records and prepare your response. Again- it's better to have a tax professional contact them for you.
6. Present As Much Information As You Can- Even if you're missing some of your records present what you have to the auditor. Oftentimes he or she will let it slide that you are missing some of your documentation, especially if it appears that you have the majority of your records to support your deductions.
Showing posts with label audit. Show all posts
Showing posts with label audit. Show all posts
Monday, October 4, 2010
Monday, September 7, 2009
7 Tips To Reduce Corporate Taxes (Way After Year End)
The final extended due date for the 2008 corporate tax returns for calendar year corporations is September 15th. You finally looked at your profit and loss statement and it shows too much net taxable income. Your CPA says you’re going to owe a lot of tax, but you don’t know how you’re going to pay for it because your corporation doesn’t have any cash. You don’t know how the corporation could have ended up with net income because there’s no money in the bank.
What can you do now to reduce your corporation’s taxes now that you’re finally doing the returns?
1. Review Your Cash Expenditures- Go through your receipts (if you don’t have any- here’s the reason why you must save every receipt for anything spent during the year- start now!) pick out the ones for which you paid cash. Add the business-related expenses to the corporate books as “loan from shareholder.” That is debit expense, credit loan from shareholder.
2. Look Through Your Personal Checkbook- Look through your personal checkbook for any business-related expenses. Even if you don't have a receipt- you have a cancelled check or entry on your bank statement. (If you don't receive bank statements in the mail make sure you print out statements from online banking and keep them in your file for each month.) Add the business expenses you paid for the corporation to the corporate books as "loan from shareholder." That is, debit expense, credit loan from shareholder.
3. Review Your Credit Card Charges- Go through your credit card bills for your personal credit cards. (You should have a corporate credit card, but those expenses should already be recorded on the books.) Pick out any business-related expenditures and record them on the corporate books. Again, record as “loan from shareholder.” That is debit expense, credit loan from shareholder.
4. Think of Furniture or Equipment You Use in Your Business- Depreciation! Depreciation! Depreciation! Think of furniture or equipment you use for your business that is not recorded on the corporate books. If you have an office at home you have a desk, chair, computer, printer and maybe other equipment there that has never been recorded on the books. You have cell phones, iphones, cameras, camcorders, bookcases, shelving, storage boxes, file cabinets, etc. If anything can be remotely related to your business put it on the corporate books and depreciate it. It must be recorded at lower of cost or fair market value at the date you placed it in service, which is probably January 1.
5. Pay Yourself Rent for Storage or Office Space- You may be using parts of your house or garage for office or storage space for your business. You can have the corporation pay you the fair rental value of that space per month. Think what you would charge an unrelated party to rent such space. Even though you are way past the end of the corporate year, look to see if you have any outstanding loans you owe the corporation. An amount for rent can be transferred on the books from loan receivable shareholder to rent expense. Remember- you should have a written lease agreement between you and the corporation. In the current year start paying yourself monthly by writing checks from the corporation to you.
6. Pay Yourself A Year End Bonus- Again, you are way past the corporation's year end. But if you are desperate you can do this, although it's risky. If you have an outstanding loan receivable from shareholder you can pay yourself a year end bonus by recording an adjustment from loan receivable shareholder to officer salaries. The problem is you'll have to file amended payroll tax returns and this could cause you to be audited by federal or state taxing authorities. It's best if you have amounts that were paid to you by the corporation at the end of the year. You will still have to pay interest and penalties on the payroll taxes, but this may be worth it if you owe alot of corporate tax.
7. Pay Your Spouse for Outside Services- If you can say your spouse or children performed any kind of services for the corporation, such as, bookkeeping, telephone calls, sales meetings, interior decorating service, filing, modeling for advertisements or brochures, etc. pay him or her as an independent contractor. Again you'll have to have an outstanding loan receivable from shareholder balance. But this will avoid having to amend payroll tax returns. Again make the adjustment from the loan receivable shareholder account to the expense account.
If you are not sure how to do any of these adjustments yourself you can just list the items and give them to your CPA to make the adjustments. If your CPA doesn't know how or doesn't want to do these adjustments, or if you don't have a CPA- call Law Offices of Patricia Rowe at 925-256-1000. We can help! See our website at PatriciaRowe.com.
The final extended due date for the 2008 corporate tax returns for calendar year corporations is September 15th. You finally looked at your profit and loss statement and it shows too much net taxable income. Your CPA says you’re going to owe a lot of tax, but you don’t know how you’re going to pay for it because your corporation doesn’t have any cash. You don’t know how the corporation could have ended up with net income because there’s no money in the bank.
What can you do now to reduce your corporation’s taxes now that you’re finally doing the returns?
1. Review Your Cash Expenditures- Go through your receipts (if you don’t have any- here’s the reason why you must save every receipt for anything spent during the year- start now!) pick out the ones for which you paid cash. Add the business-related expenses to the corporate books as “loan from shareholder.” That is debit expense, credit loan from shareholder.
2. Look Through Your Personal Checkbook- Look through your personal checkbook for any business-related expenses. Even if you don't have a receipt- you have a cancelled check or entry on your bank statement. (If you don't receive bank statements in the mail make sure you print out statements from online banking and keep them in your file for each month.) Add the business expenses you paid for the corporation to the corporate books as "loan from shareholder." That is, debit expense, credit loan from shareholder.
3. Review Your Credit Card Charges- Go through your credit card bills for your personal credit cards. (You should have a corporate credit card, but those expenses should already be recorded on the books.) Pick out any business-related expenditures and record them on the corporate books. Again, record as “loan from shareholder.” That is debit expense, credit loan from shareholder.
4. Think of Furniture or Equipment You Use in Your Business- Depreciation! Depreciation! Depreciation! Think of furniture or equipment you use for your business that is not recorded on the corporate books. If you have an office at home you have a desk, chair, computer, printer and maybe other equipment there that has never been recorded on the books. You have cell phones, iphones, cameras, camcorders, bookcases, shelving, storage boxes, file cabinets, etc. If anything can be remotely related to your business put it on the corporate books and depreciate it. It must be recorded at lower of cost or fair market value at the date you placed it in service, which is probably January 1.
5. Pay Yourself Rent for Storage or Office Space- You may be using parts of your house or garage for office or storage space for your business. You can have the corporation pay you the fair rental value of that space per month. Think what you would charge an unrelated party to rent such space. Even though you are way past the end of the corporate year, look to see if you have any outstanding loans you owe the corporation. An amount for rent can be transferred on the books from loan receivable shareholder to rent expense. Remember- you should have a written lease agreement between you and the corporation. In the current year start paying yourself monthly by writing checks from the corporation to you.
6. Pay Yourself A Year End Bonus- Again, you are way past the corporation's year end. But if you are desperate you can do this, although it's risky. If you have an outstanding loan receivable from shareholder you can pay yourself a year end bonus by recording an adjustment from loan receivable shareholder to officer salaries. The problem is you'll have to file amended payroll tax returns and this could cause you to be audited by federal or state taxing authorities. It's best if you have amounts that were paid to you by the corporation at the end of the year. You will still have to pay interest and penalties on the payroll taxes, but this may be worth it if you owe alot of corporate tax.
7. Pay Your Spouse for Outside Services- If you can say your spouse or children performed any kind of services for the corporation, such as, bookkeeping, telephone calls, sales meetings, interior decorating service, filing, modeling for advertisements or brochures, etc. pay him or her as an independent contractor. Again you'll have to have an outstanding loan receivable from shareholder balance. But this will avoid having to amend payroll tax returns. Again make the adjustment from the loan receivable shareholder account to the expense account.
If you are not sure how to do any of these adjustments yourself you can just list the items and give them to your CPA to make the adjustments. If your CPA doesn't know how or doesn't want to do these adjustments, or if you don't have a CPA- call Law Offices of Patricia Rowe at 925-256-1000. We can help! See our website at PatriciaRowe.com.
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