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Tax scams always put taxpayers at risk, but this year taxpayers should pay special attention to schemes related to COVID-19 relief.

Here is what to look out for:

Phishing: The IRS will never contact taxpayers through email about a tax bill, refund or Economic Impact Payment. Taxpayers should be alert of potential fake emails or websites looking to steal personal information.

Fake charities: Criminals frequently target natural disasters such as COVID-19 to create fake charities, with the intention to steal from people trying to help in times of need. Fraudulent schemes like this can come from unsolicited phone calls, text messages, social media and email.

Threatening impersonator phone calls: Fake threatening phone calls from criminals claiming to be with the IRS is another common problem. The IRS will never threaten a taxpayer or include threat of arrest, deportation or license revocation for non-payment of a tax bill.

Social media scams: Social media enables anyone to share information on the Internet. Scammers use this information for a wide variety of scams including emails where scammers impersonate someone’s family, friends or co-workers.

Economic Impact Payment or refund theft: This year, criminals turned their attention to stealing Economic Impact Payments. Criminals file false tax returns or supply false information to the IRS to divert refunds to wrong addresses or bank accounts.

Senior fraud: Senior citizens, their friends and family need to be on alert for tax scams targeting older taxpayers. Look out for a continuing surge of fake emails, text messages, websites and social media attempts to steal personal information.

Attention Employers With Payroll!

The North Carolina Department of Employment Security in response to COVID-19 are offering employers a tax credit applicable toward their contribution to the Unemployment Insurance Fund. This credit will be equal to the amount of the employer’s contribution DUE to the fund for the first quarter of 2020. Note that any outstanding employer contributions for Q1 of 2020 are have been waived.

To receive this credit, employers simply need to file their Q1 2020 Tax and Wage Report. Employers must file the report to receive the credit.

Any payments already made for Q1 2020 will be applied to second quarter contributions. If the amount of the credit is higher than the contributions due, the difference will be refunded. 

If you need help filing deposits to the dES, contact us below!

Keeping up to date and accurate records is critical to business, but there is more to record keeping than just saving your receipts. It is advisable; at a minimum, to keep a journal or register of transactions as well as documents. We recommend using electronic documentation software, such as QuickBooks. No matter the size of your business, there is an electronic record keeping option for you. The advantage of using software to track records over paper is the insight that reports can provide.

Here is how proper record keeping can help your business:

• Monitor progress of business goals
• Identify sources of income
• Track deductible expenses
• Track property basis
• Prepare financial statements
• Prepare tax returns
• Document items reported on tax returns

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What Documents Do I Need to Keep?

Revenue: Any income that is received by your business needs to be documented. When recording income, be sure to document: the date of transaction, how much was received, whom the income came from and save any supporting documents such as deposit slips, sales receipts or invoices. 

Purchases: Items you buy for your business as a cost of goods sold needs to be documented. When recording purchases, be sure to document: the date of the transaction, how much was spent, who & what the product or service were for and save any supporting documents such as checks, bills and bank/credit card statements.  

Expenses: Item costs to conduct your business, other than purchases, need to be documented. Supporting documents should show: amount paid, description substantiating the amount was for a business expense and a date of transaction. This is particularly important for any deductible expenses such as: Travel, Transportation, Entertainment and Gifts. 

Assets: Items such as property, machinery and furniture that is owned and used in your business must be kept on record. You may be required to verify your business assets if applying for a loan or are part of an audit system. Also, you will need to compute depreciation annually to determine a gain or loss when an asset it sold. 

Records to keep per each asset:

• When and how you acquired the asset
• Purchase price
• Cost of any improvements
• Section 179 deduction taken
• Deductions taken for depreciation
• Deductions taken for casualty losses
• When and how you disposed of the asset
• Selling price
• Expenses of sale

Employment taxes: Records of employment tax records must be kept for at least four years after the 4th quarter of the final taxes are paid. Here are documents you need to hang on to:

• Your employer identification number filing
• Amounts/dates of all wages paid
• Any tips reported
• Name, address, social security number, dates of employment and occupation of all employees 
• Any employee copies of Form W-2 that were returned 
• Payments made to employees due to leave
• Copies of employees Forms W-4, W-4P, W-4S, and W-4V
• Dates and amounts of tax deposits you made
• Copies of returns filed
• Records of fringe benefits

How long should I keep records?

The IRS views records as a way to substantiate what is reported on your income tax returns. This is called the “Burden of Proof”. That being said, these rules are based on the period of limitations that apply to income tax returns. 

• Keep records for 7 years if you file a claim for a loss on worthless securities or bad debt 
• Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return
• Keep records indefinitely if you do not file a return or file a fraudulent return
• All other situations require you to keep records for 3 years after a return is filed

In the interest of professional and accurate record keeping, storing documents for a longer period of time is recommended. Most accountants recommend saving documents for at least 7 years,but it depends on the item. For instance, you will want to keep documents about an asset for the life of its ownership. There are many ways to keep organized either with paper filing or digital records. Being able to find records easily is not something to take for granted. Just keeping pieces of paper without any system of organization is not record keeping. It is highly advisable to have a professional accountant setup and/or maintain a record keeping system for your business.

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1. Vehicles not booked properly/Loan payments

• When a business purchases a vehicle, the total cost of the vehicle needs to be booked as a fixed asset, not just the money you put down. If you paid cash (no loan) then the total amount paid is the cost that gets booked as a “fixed asset” on the balance sheet.

• Problems occur when a business puts money down on a vehicle and fails to record the loan. (or maybe they don’t put any money down and the total vehicle cost is financed). If just the down payment is recorded, then the asset is understated on the books. The loan needs to be booked as a liability and the vehicle cost increases the fixed asset account to reflect the total cost. Normally you record the loan with a journal entry: debit the fixed asset account and credit the liability account.

• Sometimes another problem will occur with vehicle loan payments. Vehicle loan payments do not get posted to a vehicle expense account. The payments are booked against the loan account you set up when you purchased the vehicle. As you make the payments, the loan amount (liability) decreases.

2. Duplication of revenue

• There are several ways to record revenue in QuickBooks. Sales receipts, invoices and manual deposits. With sales receipts and manual deposits, it’s a one-step process and revenue is booked immediately.

• When you create invoices, there are several steps involved to record revenue. The first step is to create the invoice. The second step is to receive a payment against the invoice. The third step is to deposit the payment into the bank account. If all steps are not taken, you could wind up with duplicated revenue and overstated receivables.

Here’s how:

Let’s say you create an invoice. QuickBooks records a receivable and revenue is booked. Then you receive a payment against that invoice and the receivable is cleared. You then must record the deposit into the bank account. 

If you receive a payment, “forget” you had an outstanding invoice and instead of applying the payment against the invoice, you record a manual deposit in the system, you increase revenue and increase the bank account. The problem now is that you have recorded revenue/income twice, and left a receivable unpaid in QuickBooks. If revenue/income is duplicated then your profit is overstated. The profit & loss statement looks great but is inaccurate!

When you create invoices in QuickBooks, always apply any payments received against the invoice. Don’t try to make a manual deposit or your books will be wrong

3. Ignored uncleared transactions

• Sometimes checks, deposits and other expenses are accidentally duplicated in the bank or credit card register. If three or more months have passed without a transaction being cleared in a reconciliation, it’s worth taking some time to dig in to why the transaction hasn’t been realized. If you find the transactions are in error, make a journal entry to clear out the transactions to the appropriate accounts. If transactions are left uncleared you could be over or under stating your account balance and profit & loss statement. This can affect your decision-making process.

4. Failure to set up items correctly

• Item lists are a critical part of keeping track of what you are spending money on and where you are receiving money from. Keep in mind each service or product you create needs to be mapped to an income account or expense account. If you book a service to an asset or expense account, you may be under or overstating your income on financial reports.

5. Bonus mistake – Not backing up regularly

• Your company file is not easily replaced. If you were to lose your computer or server and didn’t have a backup file to restore, how many transactions might you have to replace? Once you start a company, those numbers are forever. Each year needs to tie back to the last. Backup your company file at least once a week. A small amount of time spent now, will avoid a lot of time spent later!

We gave you five mistakes QuickBooks users commonly make. Review your transactions from time to time to try and catch these errors. Better yet, get another set of eyes to look over your books. Over or under-stated accounts can be a disaster to your business. At the very least, your books are inaccurate and any projections that you (or your bank) make will also be inaccurate.

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Compass Consulting provides a service to review your transactions, as well as do any cleanup to keep your books in tip-top shape. Call or email today to set up a complimentary appointment to discuss how we can help your business start or maintain your books in good order!

info@compassconsulting.net

919-510-5105

Everyone this day in age has some knowledge of accounting. Like all human practices, accounting evolved over the course of time. Here is a brief history of accounting. Where it came from and why it was used.

The beginning

The first documented accounting records were found in the ruins of Mesopotamia. These ancient people used accounting techniques to record crop and herd growth to determine a surplus or shortage.

Evolution

Moving forward thousands of years, the Roman Empire evolved the practice of accounting to meet larger populations. Emperor Augustus had records of spending on citizens, land grants, money to military veterans, religious offerings, and spending on theatrical events. He used this data to plan and make decisions.

Double Entry Accounting

In the year 1494, a man named Luca Pacioli came out with a text book that framed the double-entry accounting standards we use today. He called it the “Details of Calculation & Recording”. This was the first known source to have plus and minus symbols along side debits and credits.

Today there are standards, audits & regulations in accounting. Every business and government use at minimum basic accounting principles. It’s an important element of business and over thousands of years has evolved into what we know as modern accounting today.

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The Families First Coronavirus Response Act (FFCRA) requires certain employers to provide employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19 until December 2020. In return, this act also offers a tax credit to employers who need to participate in paying sick leave

What Employees are entitled to

• Two weeks paid sick leave at your normal pay rate if you are quarantined
• Two weeks paid sick leave at 2/3 your regular pay rate if you need to care for an individual subject to quarantine or care for a child whose school or child care has closed down
• 10 weeks of paid extended family & medical leave at 2/3 your regular pay rate if you have been employed for at least 30 days at your current employer and you need to care for a child whose school or child care has closed down

Employers required to pay leave

• Private & public employers with less than 500 employees,
• Small Businesses with fewer than 50 employees may be exempt if these requirements would jeopardize the viability of the business

Eligible Employees

• All employees of required employers who have been affected by the COVID-19 and mandated by an authority or doctor to isolate themselves or someone they care for
• Employees employed for 30 days are eligible for an additional 10 weeks of paid family leave

Calculation of Pay

• Employees taking leave for personal reasons will receive pay at their regular rate or their states minimum wage, whichever is higher. Coverage up to $511 per day and $5,110 over a 2-week period
• Employees taking leave for care of another will receive pay at 2/3 their regular rate or 2/3 their states minimum wage, whichever is higher. Coverage up to $200 per day and $2500 over a 2-week period
• Employees taking extended leave for care of another will receive pay at 2/3 their regular rate or 2/3 their states minimum wage, whichever is higher. Coverage up to $200 per day and $12,000 over the 12-week period
• Part-Time Employee compensation will be determined by the average number of hours worked over a 2-week period

More information about the regulations for this act will be coming out soon!

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