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How Does the “2017 Tax Cut and Jobs Act” Affect YOU in 2020?

Posted on October 30th, 2020

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

So first, how does the The 2017 “Tax Cut and Jobs Act” affect small businesses?  Let’s take a look.  Assume the following:

  • You and your spouse are 50% owners in your Sub-Chapter S (1120S) business.
  • Each of you takes a $25,000 annual salary
  • The Net Income of the business is $50,000, so each of you reports 50% of the business Net Income on your K-1 on your personal (1040) tax return.
  • You do not have enough deductions to itemize on your tax return, so can take only the standard deduction.

Based on the above assumptions, here is what your tax liability would have been in 2017:

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Based on your total gross income of $100,000 (salaries plus net income), and the standard deduction in 2017 of $12,700 and 2 exemptions of $4,050 (total of $20,800) for a married couple filing jointly, your taxable income becomes $79,200, resulting in taxes due of $11,278.

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Now, in 2020, not only were tax rates reduced in all tax brackets, but the standard deduction was increased to $24,800 for a married couple filing jointly, while the exemptions were eliminated.  Also, for small businesses, an additional credit is available based on of 20% of business net income.  In this case based on the above assumptions, this credit would amount to $10,000, resulting in Taxable Income of $65,200, and taxes due of $7,429, or a decrease in taxes of $3,849 from 2018.

But what if you don’t own a business, how would the tax cuts affect you?  Assume now that you each have an annual salary of $50,000, so total gross income of $100,000:

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Your taxable income is now $75,200, resulting in taxes due of $8,629, or a decrease of $2,649 from 2017 (that’s nearly $8,000 over 3 years, 2018 through 2020!).

Clearly, this tax cut act does benefit both small businesses and individuals, just something to consider as we approach the mid-term elections.  As to how tax cuts affect the economy, obviously, it depends on who you ask.  But below are some charts created from historical government statistical data.

Related Articles and Statistical Data:

Whose Income is K-1 Income Anyway, Mine or My Business’?

The Effect of Business Taxes on Job Growth

The Effect of Taxes on Businesses and the Economy

 


The Effect of Business Taxes on Job Growth

Posted on October 19th, 2020

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

As most are aware, presidential candidate Joe Biden has proposed raising individual income tax back up from 37% to 39.6% for individuals with income above $400,000, plus increases in capital gains, and payroll taxes. He is also proposing increasing the corporate income tax rate from the 21% established under the 2017 Tax Cuts and Jobs Act, to 28%. For purposes of this article, I will focus on the income tax component only.

The question is, what effect do such tax increases have on businesses, and in turn, job growth? As I have discussed in numerous articles, profit is a component of cash flow which is required to support sales growth, fund capital expenditures for plant and equipment, repay debt, and many other “after-tax” expenditures. Thus, it is also a determinant of a company’s ability to raise capital and obtain bank and other types of loans.

So what happens to profit and cash flow as a result of paying income tax?  Let’s take a look.  Say a company, in this case a C-Corporation, has the ability increase sales by a whopping 153% in one year (it happens), and the business is taxed at the current 21% rate:

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Note that its tax liability in the above example is around $246,000. Now assume that the corporate tax rate is increased to 28%:

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The company’s tax liability has now increased by $81,000 to around $327,000. To put this into perspective, now say it typically hires direct labor employees at an hourly rate of $15.00, times 40 hours a week, times 52 weeks = $31,200 per year. So (at the risk of over-simplification) that $81,000 is equivalent to approximately 3 employees who will either not be hired or may be laid off.

Of course, businesses will always have to pay taxes, the point of the above being that when the government is fooling around with corporate tax rates, it’s tampering with people’s jobs as well.  So it’s not “free” money just because a business is paying it rather than an individual.

Now with the respect to the tax increase to individuals, one major item that Biden’s tax plan does not really explain is whether that $400,000 also includes “pass-through” taxes on the net income from a small business owned by that individual. This is how most small businesses are taxed, at the personal income tax level of the owner.  Again, that money is needed by the business to operate and grow, so in most cases, the profit never even leaves the business. It’s just taxed on the individual’s 1040 tax return and included in his or her Adjusted Gross Income. If it is included in Biden’s tax plan, then these business profits would be taxed at the higher 39.6% rate (ignoring the effect of the 20% Qualified Business Deduction that was also part of the 2017 Tax Cut and Jobs Act).

To sum up, according to the The Tax Foundation’s article, Joe Biden – 2020 Tax Plan, “Biden’s tax plan would reduce the economy’s size by 1.47 percent in the long run. The plan would shrink the capital stock by just over 2.5 percent, and reduce the overall wage rate by a little over 1 percent, leading to about 518,000 fewer full-time equivalent jobs.”

Related Articles:

The Effect of Taxes on Businesses and the Economy

How Does the 2017 Tax Cut and Jobs Act Affect YOU?

Which Type of Business Entity Should I Choose? 

Whose Income is K-1 Income Anyway, Mine or My Businesses’?


The Effect of Taxes on Businesses and the Economy

Posted on October 18th, 2020

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

Do tax cuts work?  Critics say no, it only increases the deficit.  Proponents say yes, lower taxes enable individuals and businesses to spend more money which, in turn, also increases tax revenues and, therefore, reduces, not increases, the deficit.  To find out who is (more or less) right, let’s take a look at some historical government statistics.

First to be clear, the tax rates I am referring to in this article are the individual tax rates charged on the 1040 tax return. This is because, as I have discussed in previous articles, most small businesses are set up as either an LLC (i.e., sole proprietorship or partnership) or S-Corporation for tax purposes, both of whose taxes are “passed through” to the owner’s personal tax return at individual tax rates. (I will discuss corporate (C-Corporation) tax rates in a subsequent article.)

Of course there are a multitude of factors that affect the economy and deficit. But in terms of the government’s role, there are two primary policies it has at its disposal to affect the rate of economic growth, and in turn, unemployment and inflation: Fiscal Policy which is controlled by Congress and the President, and deals with tax rates, government regulation, and government spending; and, Monetary Policy which is managed by the Federal Reserve, and deals with interest rates and the supply and demand for credit through the banking system.

The Kennedy Administration was one of the first to advocate tax cuts as a means of stimulating the economy (chart-Kennedy)). Later during the Carter Administration, the economy was plagued both double digit inflation and unemployment, which President Carter described as “the misery index” and blamed it on a “malaise” on the part of the American people (chart-Carter). Doubting this, the Reagan Administration subsequently used tax cuts again to stimulate the economy, this time significant cuts, as well as reduced government regulations, which became known as “Supply-Side Economics” (dubbed by critics as “Trickle Down Economics”) (chart-Reagan).

Note the pattern between lower taxes and the declining unemployment rate between these three charts. There certainly would appear to be a correlation between those two statistical trends.

But did the lower tax rates actually stimulate economic growth, or was the lower unemployment rate just a coincidence?  In other words, what was the effect on the Gross Domestic Product (or GDP, the measure of the U.S. economy)?  The next chart is a comparison of tax rates to the GDP during the Reagan Administration (chart-Reagan GDP). It indicates there does seem to be a direct relationship between the two, especially in 1984 when GDP jumped 7.9% shortly after the tax cuts, and averaged nearly 5% through the end of the Reagan term.

Now, let’s look at the Obama Administration. Ignoring where the unemployment rate started (which is the topic of a whole different discussion), the unemployment rate steadily declined over the eight-year period, and despite a tax increase in 2013 (chart-Obama).  But what about the GDP during the Obama Administration? A comparison of tax rates to GDP indicates that the GDP was barely increasing as compared to the Reagan era above, hovering around 2 percent throughout most of the eight-year period (chart-Obama GDP). So it would seem based on this chart that there is a strong correlation between tax rates and the GDP.

In contrast, the increase in tax revenues under the Reagan Administration (see again above chart) ranged from 4.8% to over 11%, averaging 6.8% following the earlier tax cuts. And this included another jump in tax revenues in 1987 after additional tax cuts were enacted, reducing the top tax rate from 50% to 38.5%. So this increase in tax revenues can only be explained by economic growth.  And sooner or later, this also has to produce jobs.

Related Articles:

Big Government or Free Markets – Which Works Best?

How Does the 2017 Tax Cut and Jobs Act Affect YOU?

Which Type of Business Entity Should I Choose? 

Whose Income is K-1 Income Anyway, Mine or My Businesses’?

 


Selling Your Small Business: Winging It In QuickBooks

Posted on September 5th, 2020

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

As I tell prospective clients for our services, “QuickBooks has done a remarkable job of marketing its product as ‘easy to use’ — but that is also what makes QuickBooks easy to abuse.”  The truth is, QuickBooks will allow you to do just about anything you want, whether is it is correct from an accounting standpoint or not.  So you can be going along thinking everything is working just fine, when the reality is your financial statements are a total mess.  And your tax accountant is not going to clean all of this up at the end of the year either.  That’s too much work to do during tax season.  Instead, they’re going to extrapolate from QuickBooks only what they need for tax purposes, and instead rely more heavily on your reconciled bank statements.

As a QuickBooks ProAdvisor, we are often contacted to clean up a client’s QuickBooks file, and for the above reasons, their books are a total disaster.  Then one day the small business owner wishes to sell his business, and all of a sudden, the historical accuracy of his or her books has become urgent.

As a case in point, our firm was recently engaged by a small business owner’s CPA to clean up his books, as she had reached a point where she was no longer able to “work around” his massive mistakes.  Just about everything he was doing in QuickBooks was the wrong way to do things, and his financial statements and reports reflected this. Normally when we receive an engagement like this, our approach is to tie the client’s books to the CPA’s most recent tax return, usually the previous year, and then start the QuickBooks clean-up from there. In this case, however, after only a short period of time working on his books, the owner informed me that he had a prospective buyer for his business who needed certain information as soon as possible.  The information they requested, after their preliminary view of his file that he had sent them, is shown here in their Due Diligence List.

Since the inception of the business, this client had been using QuickBooks mainly to enter supplier invoices and record inventory purchases, and to create customer invoices to send to his customers for payment.  He knew nothing else about QuickBooks, leaving everything else to his CPA who, as described above, was mainly concerned with reconciling the bank accounts to prepare his tax return on a cash basis.  This ignores most of the accrual accounting information requested in the due diligence list.

Selling a small to medium-sized business is a complex venture, and many business owners are not aware of the the things prospective buyers look at.  So if you’re thinking about selling your business, the first step is to be able to provide accurate financial statements going back three or more years.  That is what will be needed to prepare an accurate business valuation to determine how much your business is worth.  And rest assured, potential buyers will scrutinize every aspect of your business.  Not being able to quickly produce financial statements, current, and prior years’ balance sheets, profit and loss statements, tax returns, equipment lists, product inventories, and property appraisals and lease agreements, may lead to loss of the sale.

Suffice it to say in this situation, the clean-up process suddenly turned in a whole new direction, the timing was critical, and much of it could not be recreated at this late stage.  Even if the sale goes through, you may not be able to get the price that the business would otherwise be worth if you had been able to produce an accurate financial history as requested by the buyer.  Thus, it’s important to maintain your books properly from the start, as someday you’re going to be asked to produce that information, whether it be to sell your business, or simply to obtain a bank loan.  And if you’re not comfortable with doing this yourself, then outsource it to someone who does have the expertise.

Related Articles:

Profit vs. Taxable Income

Winging It in QuickBooks

Larry’s Exit Strategies, Inc.

The Difference Between Your CPA and a Controller: M-1

Securing a Small Business Loan – Part III: The Application

 

 


QuickBooks Desktop vs. QuickBooks Online – Which is Better?

Posted on May 22nd, 2020

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

I am a Certified QuickBooks ProAdvisor and have been using the original Desktop version since 1996.  In recent years, QuickBooks has been heavily promoting its Online version, and because of that, a lot of new QuickBooks users are jumping on board.  First, let me come right out and say this:   We frequently receive inquiries for consulting with QuickBooks Online by people who are trying to use it and most likely, making a total mess out of it.  It functions completely different than the original Desktop version, and in our opinion, it is inferior in many respects, and calls things differently in the Online version which makes it that much harder and time consuming to correct things.

Now, after that, if you are still considering doing your bookkeeping yourself and trying to decide between QuickBooks Desktop and QuickBooks Online, here are some things to consider:

  • Navigation: If you are used to using the Desktop version, as mentioned above, QuickBooks Online functions completely different. Various things are called and located differently almost, it seems, for the sake of calling and locating them differently.
  • Reporting Capability: In my experience, the reporting capability in the Online version is not nearly as robust as the Desktop version.
  • Support: For the above reasons, I’ve found that to do just about anything in the Online version, I had to call Online support, a monumental waste of time!

The reporting capability in particular in the Desktop version is one of its major benefits.  This is extremely useful not only for researching accounting issues, but the ability to create and memorize numerous customized reports for the client for managing their business.  And as a former CFO /controller, I believe that the most important thing to come out of an accounting software are meaningful financial reports.

Now, what many people are not aware of (because QuickBooks doesn’t promote this service for themselves), is that there are companies that also provide access to the traditional Desktop version via the “cloud,” and have the Intuit certification of “Authorized Commercial Host – QuickBooks.”  In our business, we use Ace Cloud Hosting to support the Desktop version.

In the past when I’ve tried to use the Online version, I found myself spending most of my time “re-learning”QuickBooks, sometimes only to find out in the end that what I want to accomplish isn’t available in the Online version.  I’ve also read that many Online users are complaining about both software glitches, and issues with Online support.  I’ve rarely ever experienced software issues with the Desktop version.  But if I do, I have access to both Ace support staff, and as a QuickBooks ProAdvisor, unlimited access to QuickBooks ProAdvisor Support – and at no cost to my clients.

And I am not alone in my views of QuickBooks Online. I’ve been told on more than one occasion by ProAdvisor Support staff that they hear the same frustrations from most CPAs and accountants regarding the Online version. When I asked one of them why it was designed differently, his response was, “Because the desktop version is too powerful to create online” (meaning without being hosted in its entirety on a remote server).

In the area of “pricing,” a QuickBooks comparison chart shows $70 per month for Online Plus (currently discounted to $35), or $840 per year ($420 as of the date of this writing).  According to the chart, Online Plus is (“theoretically”) the closest in capability to QuickBooks Pro, the latter of which is what we have most of our clients purchase, and currently sells for a one time purchase price of $299.95 (retail before our ProAdvisor discount which fluctuates).  However, with the Desktop version, it is NOT imperative that you upgrade to the newest release every year for at least three years, when QuickBooks stops supporting it with maintenance relaeases.  The improvements each year with the Desktop version are mostly cosmetic, and would be of interest primarily to the most advanced QuickBooks users (which most small business owners are not).

Finally, in our case, a monthly user fee of $44 is paid to Ace Cloud Hosting which includes unlimited 24/7 support by phone or email.  (And as mentioned above, as a ProAdvisor, I also have unlimited free access to QuickBooks ProAdvisor Support.)

Ace Cloud Hosting recently published an article in their blog comparing QuickBooks Online to QuickBooks Hosting.  This is part of what the article concludes:  “Hosting [QuickBooks] on the cloud can offer you the flexibility and mobility benefits of the cloud, along with all the features available in the desktop version.”

But that all said, regardless of which QuickBooks you use, let me now say this:  QuickBooks has done a great job of marketing its software as being “easy to use,”….. but, that’s also what makes it easy to abuse.  Most QuickBooks users we’ve worked with have no idea of the accounting mess they’re making, and that’s when they throw up their hands and turn to us to do a major clean up their books.  Our philosophy is to relieve the client from the bookkeeping headache as much as possible by doing most of the data entry ourselves, and WE use QuickBooks Desktop and we do not support the QuickBooks Online version.

So, with our firm, some clients have access to their QuickBooks file, others do not and don’t care.  But if they do need access to their file, we still try to make things as simple as possible for the client, and therefore, for us, which is to the benefit of the client in more ways than one.  In those situations where the client does not need access, we are paying for our own user fees, the client is paying nothing for QuickBooks hosting, not even for the purchase of QuickBooks.  Instead, our clients are paying us to do their monthly accounting and bookkeeping accurately, thus freeing themselves up to focus their full attention on their own business rather than “learning” QuickBooks.  Those business owners are, in effect, factoring in the “opportunity cost” of doing the bookkeeping themselves, or hiring a full-time bookkeeper at $25,000 to $35,000 a year, or even half of that for part-time.

So to summarize our position on all of the above, if you:

  • Are NOT interested in struggling with the bookkeeping (regardless of which version), or;
  • Are NOT interested in learning QuickBooks all over again if you’re accustomed to the Desktop version, and;
  • ARE more interested in managing your business, and letting someone else worry about which bookkeeping software they want to use, or;
  • Just want to perform minimal bookkeeping tasks yourself with someone overseeing and adjusting your work;

Then, consider a third alternative of outsourcing the bookkeeping to those who specialize in it.  In terms of the services we provide, as stated earlier, we do not encourage our clients to spend a lot of time “learning” QuickBooks, most of whom just end up making a mess out of it.  But rather, we encourage our clients to focus on their own business, and let us take care of the (tedious) bookkeeping and accounting tasks. Therefore, we do not wish to spend a lot of unproductive time ourselves, either, relearning QuickBooks for the sake of relearning it, and at our client’s expense.

In a nutshell, simply ask yourself, “How do I prefer to spend my time, learning QuickBooks, or running my own business?”

Related Articles:

4 Reasons Why You Should Consider Outsourcing Your Bookkeeping

The “Opportunity Cost” of Being Your Own Bookkeeper

Part-Time vs. Full-Time Accounting Staff

 


Some Banks Still Not Understanding Tax Returns

Posted on April 10th, 2020

Jack Kern
Owner/Pres.
Outsourced Accounting Department, Inc.

Marianne has been reading articles and comments by other CPA firms about what’s going on right now with these emergency SBA loan applications. One person said that the banker told their client “they should not have taken the 179 deduction because it reduced their income,” and there were other similar comments. This reminded me of several articles I wrote on this subject a while back about the difference between “book” and “tax” accounting, and the difference between “profit” and “taxable income:”

The Difference Between Your CPA and a Controller: M1

The Difference Between Your CPA and a Controller – Part 2

Profit vs. Taxable Income

The Risks of Misinterpreting Your Financial Statements 


Do What You Hate and the Losses Will Follow

Posted on September 5th, 2019

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

Several years ago I read an inspirational book, “Do What You Love and the Money Will Follow” which in part, led to a few career changes I made.  Of course, nothing in life is quite that simple, especially in a society where supply and demand rule, and economic change, or “creative destruction” (as described by Alan Greenspan in his book, “Capitalism In America“) is the norm.  But it does make a good point, that if your work is closely aligned with your inherent talents, or in other words, your “spiritual gifts,” you have a much better chance of succeeding.

But what if the opposite is true, and you spend most of your time performing tasks that you hate doing?  In a recent article, “4 Reasons Why You Should Consider Outsourcing Your Bookkeeping,” I listed some reasons why it is advantageous for small business owners to outsource their bookkeeping, such as accuracy and the lack of accounting knowledge, or in general, avoiding making a mess out of your books that someone else eventually has to clean-up at tax time, and at your expense.  But reason number 4 in this article may be the most important, and that is, the other, more profitable activities you could be doing with your time if you weren’t spending it trying to do your own books.

This article from Entrepreneur Magazine,The 80/20 Rule of Time Management: Stop Wasting Your Time,” hits that nail right on the head with this statement:

“Sometimes you have to do everything when you start out. But now you’re doing a $10 or $20 per hour fix-the-faucet job and you’re not doing your No. 1 job, which is getting and keeping customers. That job pays $100 to $1,000 per hour.”

The author’s example of how this particular business owner is spending his or her time is an example of the old cliché, “penny-wise and pound-foolish,” and his point is a perfect example of an “opportunity cost.”  So how may this concept also apply to doing your own bookkeeping?

To illustrate, assume your sales are currently running at $100,000 a year, and your gross margin after your direct cost of sales is 50%.  Now assume that by shifting your focus from “bookkeeping” to “marketing” you could increase sales by say 20% per year to start.  The increase in your available profit would then be $100,000 times 20% times 50% = $10,000 (which flows right to your bottom line).

Now, assume that you can outsource all or part of your bookkeeping at say $350 per month, or $4,200 per year.  Your “opportunity cost” in this example would then be $10,000 minus $4,200, or $5,800 per year!  In other words, that’s the profit you are forgoing by doing your books yourself in an effort to “save money.”

Of course, there may be other marketing costs you would incur depending on how you go about increasing your sales, but you get the general idea.  The ultimate question is, as a small business owner, how would you prefer to spend your time, and is that the most profitable use of your time?

Related Articles:

What’s the One Task Most Small-Business Owners Loathe?

Part-Time vs. Full-Time Bookkeeper, Controller, and CFO

The Difference Between Your CPA and a Controller: M-1

The Role of Cost Accounting in Planning Your Business’ Success


Two New Tax Scams to Watch Out For

Posted on August 13th, 2019

Marianne Kern, CPA
Owner, President
Kern & Associates CPA, P.A.

Although the April filing deadline has come and gone, scam artists remain hard at work. As such, taxpayers should be on the lookout for scams that reference taxes or mention the IRS, especially during the summer and fall as tax bills and refunds arrive.

The two new variations of tax-related scams that are currently making the rounds are what the IRS has dubbed the “SSN Hustle” and the “Fake Tax Agency.” The first involves Social Security numbers (SSNs) related to tax issues and the second threatens people with a tax bill from a fictional government agency. Both display classic signs of being scams.

The SSN Hustle

The latest twist includes scammers claiming to be able to suspend or cancel the victim’s Social Security number. In this variation, the Social Security cancellation threat scam is similar to and often associated with the IRS impersonation scam. It is yet another attempt by con artists to frighten people into returning “robocall” voicemails. Scammers may mention overdue taxes in addition to threatening to cancel the person’s SSN.

Fake Tax Agency

This scheme involves the mailing of a letter threatening an IRS lien or levy. The lien or levy is based on bogus delinquent taxes owed to a non-existent agency, “Bureau of Tax Enforcement.” There is no such agency. The lien notification scam also likely references the IRS to confuse potential victims into thinking the letter is from a legitimate organization.

A Reminder about Phone and Email Phishing Scams

The IRS does not leave prerecorded, urgent or threatening messages. In many variations of the phone scam, victims are told if they do not call back, a warrant will be issued for their arrest. Other verbal threats include law-enforcement agency intervention, deportation or revocation of licenses.

Criminals can fake or “spoof” caller ID numbers to appear to be from anywhere in the country, including an IRS office. This prevents taxpayers from being able to verify the true caller ID number. Fraudsters also have spoofed local sheriff’s offices, state departments of motor vehicles, federal agencies, and others to convince taxpayers the call is legitimate.

The IRS does not initiate contact with taxpayers by email to request personal or financial information. The IRS initiates most contacts through regular mail delivered by the United States Postal Service.

There are, however, special circumstances when the IRS will call or come to a home or business. Examples of when this might occur include times when a taxpayer has an overdue tax bill, a delinquent tax return or a delinquent employment tax payment, or the IRS needs to tour a business as part of a civil investigation (such as an audit or collection case) or during a criminal investigation.

If a taxpayer receives an unsolicited email that appears to be from either the IRS or a program closely linked to the IRS that is fraudulent, report it by sending it to phishing@irs.gov. The Report Phishing and Online Scams page provides additional details.

Taxpayers should also note that the IRS does not use text messages or social media to discuss personal tax issues, such as those involving bills or refunds.

Related Articles:

Indentity Theft and Your Taxes

Employers Beware: Identity Theft and W-2 Scam Alert

 

 


Three Tips for Getting an Accurate Business Valuation

Posted on August 8th, 2019

Jack Kern
Owner, President
Outsourced Accounting Department, Inc.

If you’re conscientious about financial reporting, you may already have a sense of your company’s worth, but in some instances, you might need a formal business valuation, such as:

  • Certain transactions: Are you selling your business? Planning an IPO? Need financing?
  • Tax purposes: This includes estate planning, stock option distribution, and S Corporation conversions.
  • Litigation: Often needed in cases like bankruptcy, divorce, and damage determinations.

There isn’t a single formula for valuing a business, but there are generally accepted measures that will give you a valid assessment of your company’s worth. Here are three tips that you can use to give your business a more accurate valuation.

  1. Take a close look at how your business operates.  Is your business profitable, and do your internal financial statements reflect that? Does it incorporate the most tax-efficient structure? Have sales been lagging or are you selling most of your merchandise to only a few customers? If so, then consider jump-starting your sales effort by bringing in an experienced consultant who can help.

Do you have several products that are not selling well? Maybe it’s time to remove them from your inventory. Redesign your catalog to give it a fresh new look and make a point of discussing any new and exciting product lines with your existing customer base.

It might also be time to give your physical properties a spring cleaning. Even minor upgrades such as a new coat of paint will increase your business valuation.

  1. Tangible and intangible assets.Keep in mind that business valuation is not just an exercise in numbers where you subtract your liabilities from your assets, it’s also based on the value of your intangible assets.

It’s easy to figure out the numbers for the value of your real estate and fixtures, but what is your intellectual property worth? Do you hold any patents or trademarks? And what about your business relationships or the reputation you’ve established with existing clients and in the community? Don’t forget about key long-term employees whose in-depth knowledge about your business also adds value to its net worth.

  1. Choose your appraisal team carefully.Don’t try to do it yourself by turning to the Internet or reading a few books. You may eventually need to bring in experts like a business broker and an attorney, but your first step should be to determine the level of business valuation certification that will be required.

Related Articles:

Profit vs. Taxable Income

The Difference Between Your CPA and a Controller: M-1 

The Difference Your Method of Accounting Can Make

Case Study: The Risk of Sales Concentrations

Larry’s Exit Strategies, Inc.

Selling Your Small Business

Securing a Small Business Loan Revisited

 

 

 

 


What to Do if You Receive an IRS CP2000 Notice

Posted on July 29th, 2019

Marianne Kern, CPA
Owner, President
Kern & Associates CPA, P.A.

An IRS CP2000 notice is mailed to a taxpayer when income reported from third-party sources such as an employer, bank, or mortgage company does not match the income reported on the tax return.

It is not a tax bill or a formal audit notification; it merely informs you about the information the IRS has received and how it affects your tax. It is, however, important to pay attention to what your CP2000 notice states because interest accrues on your unpaid balance until you pay it in full.

If you receive a CP2000 notice in the mail complete the response form. If your notice doesn’t have a response form, then follow the notice instructions. Generally, you must respond within 30 days of the date printed on the notice. You may request additional time to respond, and if you cannot pay the full amount that you owe, you can set up a payment plan with the IRS.

If the information on the CP2000 notice is not correct, then check the notice response form for instructions on what to do next. You also may want to contact whoever reported the information and ask them to correct it.

If the information is wrong because someone else is using your name and social security number please contact the IRS and let them know. You can also use the link on the IRS Identity theft information web page to find out more about what you can do.

If you do not respond, the IRS will send another notice. If the IRS does not accept the information provided, it will send IRS Notice CP3219A, Statutory Notice of Deficiency, and information about how to challenge the decision in Tax Court.

Do I Need to Amend my Return?

If the information displayed in the CP2000 notice is correct, you don’t need to amend your return unless you have additional income, credits or expenses to report. If you agree with the IRS notice, follow the instructions to sign the response page and return it to the IRS in the envelope provided.

If you have additional income, credits or expenses to report, complete and submit a Form 1040-X, Amended U.S. Individual Income Tax Return. If you need assistance with this, please call the office.

How to Avoid Receiving an IRS CP2000 notice:

  • Keep accurate and detailed records.
  • Wait until you receive all of your income statements before filing your tax return.
  • Check the records you receive from your employer, mortgage company, bank, or other sources of income (W-2s, 1098s, 1099s, etc.) to make sure they are correct.
  • Include all your income on your tax return including that from a second job or fees derived from the sharing economy (e.g. renting a spare room out on Airbnb).
  • Follow the instructions on how to report income, expenses and deductions.
  • File an amended tax return for any information you receive after you’ve filed your return.
  • Use a professional tax preparer who will help you avoid mistakes and find credits and deductions you may qualify for.

If you have any questions about IRS notices, help is just a phone call away.