Wednesday, July 5, 2017

The Value of A Small Business - Part 1

         There are many factors that all businesses have in common, however when looking at the details, there are usually more differences. One area is determining the value of a business. Large corporations can use their publicly traded stock to make that determination. That is not an option for a small business. There are a number of unique inputs that must be considered in order to accurately state what a business is worth. This is an area that Anthony Sykes & Co Accounting is more than qualified to provide excellent results. That is true because of following some simple principles.
          Know what the business earns. That might seem a little obvious, but this really is the first step. Different industries may emphasize other points and certain accounting practices can make giving an answer a little difficult. The proof of a business valuation starts here. Our next post will go into more detail of this process.

Friday, June 30, 2017

From An Audit, To a Crime Part 2

          IRS audits are the largest source of Criminal Tax cases. This is a part of the IRS that most people are unfamiliar with, and never want to see. The IRS Criminal Investigation Division handles these cases. If ever visited by one of these Special Agents (yes, that is their title), keep in mind that lying to them can result in a Felony. Always ask to see identification, ask for a business card, and consider what to say, if anything.
          Often they may approach a person and say they are not the target of an investigation, just a witness. That might be true at the time. There is nothing to keep the answers given at the time, to be used against a person if/when the investigation changes. This is a situation when a Taxpayer needs to go find legal representation. It is their right to communicate with the Criminal Investigation Division through an attorney. Usually a qualified Tax Professional can keep finances from going in this direction in the first place.

Thursday, June 22, 2017

From An Audit, To a Crime Part 1

          It’s widely known that Federal Tax Law is complex. This is part of the reason for audits, the civil review of tax filings. How can those reviews turn into a criminal case? There is no simple answer.
          One common area is income. Always report all of your income. Numbers that don’t make sense can start audits, and upon further review, it’s up to the discretion of the IRS Auditor where to go. Another contributing factor is statements made during the auditing process. A false statement given is a great way to prolong an audit. This is another area where a qualified Tax Professional will help a Taxpayer. They are a great representative for the Taxpayer to the IRS, and will be able to provide the documents being reviewed.
          If the conduct displayed, or the information provided move past a certain threshold for the Auditor, the case may be passed on the IRS Criminal Investigation Division. There is no obligation to inform the Taxpayer of this change in investigation. The audit will probably just pause, and a different part of the IRS will appear.

Friday, June 9, 2017

Keep Up To Date On Employment Tax

           The IRS just updated the information on how auditors will handle employment Tax exams. The key points will stay the same. Audits usually start off because of a risk area, or because of previous history with the employer. When the examination starts, they will look at the internal controls. That means they are looking to determine if the business keeps good written records and are in compliance with all applicable laws or obligations. If this can be proven, the audit tends to be quick, if not, the search will expand. Here are the consistent problems that are found in many cases.
          Wrongly categorizing employees as independent contractors. When this is done, the proper taxes are not being paid. That will lead to the taxes, along with penalties being assessed. Our previous post described some of the points that the IRS uses to make this determination. Businesses need to use this to avoid making a costly mistake. Fringe benefits is another common issue. The business needs to properly code expenses, like meals, and know how the IRS views these expenses.
          While audits are usually generated at random by a computer, the IRS does watch TV. If certain activities are reported on, it will catch their attention and lead to a financial examination of what a business is doing. Please contact a qualified Tax Professional sooner, rather than later, if you have tax questions regarding your business.

Thursday, June 1, 2017

Employee Vs Independent Contractor

          The IRS wants all businesses and business owners to know the difference between an Employee and an Independent Contractor. One will have income tax, Social Security, and Medicare withheld from their pay, the other will not. This may seem like a small issue, but our next post will discuss why it matters.
          Here are a couple of points to keep in mind to help make the distinction. How the business exerts behavioral control, such as determining what work should be accomplished and directing how it is done, that matters to the IRS. Financial control such as how the worker is paid and the extent they can make their services available to the market are also taken into consideration.
          Apart from the aspect of control, how the relationship is defined plays a key role. This will include written contracts, the provision of a pension, insurance plan vacation or sick days, or the extent the worker has unreimbursed business expenses. These all matter to the IRS and are something they will focus on in the event of, an audit.

Tuesday, May 23, 2017

The Fraud of Business Identity Theft

One of the biggest problems in the area of Taxes and Accounting is business identity theft. This dishonesty is when a person or group creates, uses, or tries to use a business’s information to try and get tax benefits. The IRS is trying to deal with this growing problem, but they have a long way to go. In 2013, there were 133 tax returns that were suspected of having a share in business identity theft. From that group, 97 claimed refunds of over $2 million.

The IRS is establishing procedures to look for patterns that come up in business tax filings that are based on fraudulent claims. They are also going to be proactive in reaching out to businesses that may have had their identities stolen. These patterns keep changing, so will their detection process. These stolen refunds end up effecting every taxpayer. This program would seem to be a step in the right direction to stop this problem. What do you think?

Friday, May 19, 2017

Willful or Non-Willful, A Label With A Big Difference

          When Tax Law is applied, there is a difference between Willful and Non-Willful conduct. To be considered Willful, a Taxpayer must choose to break the law or avoid a legal duty. This intent can lead to Criminal prosecutions and large Civil judgements. Some may try to claim that they had no prior knowledge that what they were involved in was illegal, and it was all just a simple mistake. However, the IRS often looks at a Taxpayer’s actions to determine intent.
          There was a Taxpayer who opened 2 Swiss bank accounts in the early 1970’s and never reported them on his Tax Return. He first mentioned them to his accountant in this 1990’s. The accountant said that they should have been reported since they were opened, but not to do anything now. It would all be settled when the Taxpayer died. About 20 years later that accountant died. The new accountant prepared documents to report the smaller of the 2 Swiss accounts. In time, an amended Tax Return needed to be filed to report both accounts. Upon seeing how large the difference in income was, the IRS penalized the Taxpayer, but was going to treat him as Non-Willful. Before that could be finalized, his case was transferred to another agent, who classified him as Willful.
          Here is the distinction between these 2 labels. In a Civil proceeding, a Non-Willful violation can be up to $10,000 per account per year for up to 6 years. That is painful, but not as much as a Willful violation. A penalty in that situation can be up to $100,000 or 50% of what is in the account. A Criminal case can lead to a $500,000 fine and/or 10 years in prison. These are situations that can be avoided by seeking the help of a qualified Tax Professional. Click here to read about this example: The Case in Question