Frequently Asked Questions*
1) Why do I need someone specialized in accounting/tax preparation?
There are many different ways a self-employed person's income is reflected on a tax return, based on their specialty and business type. Many self-employed people with small businesses do not keep adequate records, use separate bank accounts or use accounting software to track income and expenses. This could leave them in a bind during tax time, by over guessing expenses which is a slippery slope or be too conservative by playing it safe. Utilizing the accounting and tax preparation services together, customized for your specific business, you will maximize both your personal and business deductions. The education and tax planning you will receive will also be instrumental in the future growth of your business.
2) What is an Enrolled Agent?
An enrolled agent is a federally authorized tax practitioner empowered by the U.S. Department of the Treasury to represent taxpayers before the Internal Revenue Service. Enrolled Agents are allowed to represent taxpayers (both foreign and domestic) in all proceedings before the Internal Revenue Service including tax return audits, collection actions, filing documents, refund matters, and appeals. Enrolled agents are subject to a set of procedures and regulations described in Treasury Department Circular No. 230.
3) What is the importance of being “AUDIT READY”?
The IRS has a three year window to audit a return. If the IRS feels that income was under-reported or reported incorrectly, they can audit ANY of the previous returns. It is incumbent of the IRS to prove your income, while it is the taxpayer’s duty to prove all of their deductions. If audited the IRS WILL require an exorbitant amount of paperwork and records.
An audit can be as simple as mailing in a few back-up documents to a line-by-line check of every check stub and receipt. Most self-employed people understand the need to keep records in case of an audit but few have the discipline to do it well. If an individual is not prepared, it can be very difficult finding or recreating paperwork. If a person cannot supply the correct documentation, many of their deductions could be overturned, causing hefty fines and penalties as well as additional income tax.
Having someone represent them in an audit can also be very expensive and is stressful for the taxpayer. Being “Audit Ready” means having all of the required paperwork back-up by tax time. It may not be submitted with the tax return, but saved “just in case”, therefore eliminating future hardships, expenses and stress. Having "books" that match the tax returns are also beneficial for tax planning, business building and banking purposes.
*The above resources is limited information only and is not meant as tax advice. Each individual's financial situation is unique, please contact your tax advisor.