Hans Kasper, MS-CPA, PS

Business Tax Organizer
 

YOU ARE REQUIRED TO READ AND COMPLETE THIS TAX ORGANIZER

 YOU MUST FILL IN THE DATA REQUESTED IN THIS ORGANIZER AND PROVIDE THE REQUESTED DOCUMENTS TO US.

 IF YOU ARE USING QuickBooks, PLEASE PROVIDE US WITH A QBW FILE AND UPLOAD IT USING THIS LINK: CLIENT PORTAL

We presume that you are correctly entering and reconciling your QuickBooks file data.  If you need help or training, please go to our web site at Recommended Bookkeepers for a listing of people to call and for our QuickBooks checklist.

Please provide perform and/or provide all of the following that apply to your business.

1. Reconcile all bank accounts using the QuickBooks feature that reconciles the accounts.
2. Make sure that all outstanding items older than 90 days are either voided or determined to be correct.
    

1. Print the accounts receivable aging from the Reports/Customers menu for the year-end.
2. Review all invoices that are over 90 days old.
   1. If the invoice has already been paid by the customer and the check was deposited to the business checking account, then you either

                                                    i.     have to correct the customer payment and apply it to the invoices, or

                                                   ii.     you have entered the invoice twice and need to delete the unpaid invoice.

2. If the invoice has already been paid by the customer and the check was NOT deposited to a business checking account, then make a journal entry (Company menu/Make Journal Entry) as follows.
    

3. If they have not been paid by the customer, then collect them.
    
4. Review all negative (credit) balances.
   1. If the balance is a payment from the customer where the product or services have already been delivered, then create an invoice in the year the work was completed and apply the payment to the invoice.
   2. If the balance is a payment from the customer where the product or services have not already been delivered, then leave it as is.

5. Write the total of customer deposits listed in the accounts receivable below.

1. At year end, take a physical count of the inventory, value it at actual cost (including materials, labor, and overhead if you are a contractor or a manufacturer), and write the amount in the box below.

1. Enclosed is last year’s depreciation schedule.
2. Please write “Sold” next to any assets that have been sold and provide us with a copy of the sales receipt.
   1. Was the cash/check from the above sale deposited in the business checking account? 
      
      Yes         No
      
       
3. Please write “Trade-In” next to any assets that have been traded-in and provide us with a copy of the new purchase receipt that shows the trade-in.
4. Please write “Disposed” next to any assets that have been scrapped.

1. Please provide copies of purchase receipts for new equipment, vehicles, and computers purchased for the current tax year.

1. Please provide copies of purchase receipt that shows the trade-in and the purchase.

1. Please provide copies of the franchise or purchase contract stating the amount paid.

1. Print the accounts payable aging from the Reports/Vendors menu.
2. Review all invoices that are over 90 days old.
   1. If they have already been paid then you need to figure out why the invoice is still on the AP aging list and fix it.  It is most likely that you paid it with a check that you did not offset against the balance on the AP aging.
   2. If they have not been paid and are correct, then leave them alone.
3. Review all negative (debit) balances
4. Make sure that all negative balances are correct or have been corrected.

1. Reconcile all line of credit accounts using the QuickBooks feature that reconciles the accounts [bank menu / reconcile].
2. Make sure that it balances to the year-end statement.
3. Please provide us a copy of the year-end statement.

1. Reconcile all credit card accounts using the QuickBooks feature that reconciles the accounts [bank menu / reconcile].
2. Make sure that it balances to the year-end statement.
3. Make sure that all outstanding items older than 30 days are either voided or determined to be correct.

1. Form 941 Federal income tax withholding, FICA tax, and Medicare Tax payable.
2. Suta tax payable (Employment Security.)
3. Form 940 Futa tax payable.
4. Labor and Industries tax payable (Washington workmen’s compensation.)
5. The payable amount  for the above four taxes should equal
   1. The amount paid in January that is attributable to 2010 payrolls PLUS
   2. Any amount still due and not paid prior to the end of the year.
6. If the amount payable does not equal the above calculated amounts, then a payroll tax liability adjustment and a journal entry needs to be made to correct this balance.
7. Please go to www.hkmscpa.com for a listing of our Recommended Bookkeepers to teach you how to make these entries correctly.

In the event that you own a business where employees receive tips that have been included in their W-2, please write the total for the current tax year in the box below.

1. The payable amount  for the above taxes should equal
1. The amount paid in January that is attributable to 2010 cash receipts from sales collected PLUS
2. Any amount still due and not paid prior to the end of the year from prior periods / quarters.

If your business files its tax return on an accrual basis instead of a cash basis, then please provide us with the following items.

1. Dollar amount of vacation payable to non-owner employees at the end of the year that were taken by the employees within 2-1/2 months after the year-end.
2. Dollar amount of wages payable to non-owner employees at the end of the year where the pay period ended before year-end and the payroll was paid after year-end.
3. Bonuses paid to 50% or less owners of “C” corporations that were paid within 2-1/2 months after the year-end.

Retirement Plan Contributions

1. If the loan payments have been entered in QuickBooks, write the amounts in the boxes below.

2. If the loan payments have NOT been entered in QuickBooks, write the amounts in the boxes below.
    

1. Remember, if it is a loan, then it has to look like, taste like, feel like, smell like, and act like a loan.
2. “C” corporations
   1. Loans TO owners—if interest is not paid by the owner to the corporation and a note is not prepared for the loan, then the IRS may recharacterize the loan as a dividend and tax the owner on the loan on their personal income tax return.
   2. Loans FROM owners—if interest is not paid by the corporation to the owner and a note is not prepared for the loan, then the IRS may recharacterize the loan as a contribution to capital and recharacterize all repayments of the loan as a dividend and tax the owner on the loan on their personal income tax return.
3. “S” corporations
   1. Loans TO owners—if interest is not paid by the owner to the corporation and a note is not prepared for the loan, then the IRS may recharacterize the loan as a reduction in basis whereby the amount in excess of basis would be taxable to the owner on their personal income tax return as capital gains or dividends.
   2. Loans FROM owners—there are cases whereby these loans have been utilized as basis thereby allowing additional corporation loss deductions by the owners on their personal returns.  When the corporation subsequently repays those loans, the repayment can be treated as income to the owners because the loans were previously used to take the loss deductions.
4. Partnerships
   1. Loans TO owners—if interest is not paid by the owner to the partnership and a note is not prepared for the loan, then the IRS may recharacterize the loan as a reduction in basis whereby the amount in excess of basis would be taxable to the owner on their personal income tax return as capital gains.
   2. Loans FROM owners—there are cases whereby these loans have been utilized as basis thereby allowing additional partnership loss deductions by the owners on their personal returns.  When the partnership subsequently repays those loans, the repayment can be treated as income to the owners because the loans were previously used to take the loss deductions.
5. The creation of notes payable and receivable loan documents and the payment of interest is essential for prevention of these issues.  If you want us to provide you with assistance in this matter, please ask us to do so.

1. For each entry in the account
2. If the entry amount is small, edit the entry and change the expense account to “Bank Charges.”
3. If the entry amount is large, then leave it alone and we will look at it or have a bookkeeper fix it.

1. Close the balance at the beginning of the 2009 year-end.  To make a journal entry, go to Company/Make Journal Entries.  The date should be the date at the beginning of the 2010 year.  The entry number should be CLOSE DRAW.  The entry should be:

1. Close the balance at the beginning of the 2009 year-end.  To make a journal entry, go to Company/Make Journal Entries.  The date should be the date at the beginning of the 2010 year.  The entry number should be CLOSE S-DIST.  The entry should be:

1. If the lease payments have been entered in QuickBooks, write the amounts in the boxes below.

2. If the lease payments have NOT been entered in QuickBooks, write the amounts in the boxes below.
    

1. You are required to have a mileage log for any vehicle that can be used for personal and business use.  Without this log, it is highly likely that the IRS auditor will disallow all of your vehicle expenses for the year.  You must have this log if you deduct actual expenses or take a deduction for mileage.  You do not need a mileage log if your vehicle is a service vehicle such as an electrician’s or plumber’s van—in all other cases, you need the log.  This mileage log should report:
   1. The beginning and ending miles for the year.
   2. Each business trip location, company or client visited, business purpose, and round trip miles.
       
2. If these vehicle expenses have been entered in QuickBooks, write the amounts in the boxes below.

3. If these vehicle expenses have NOT been entered in QuickBooks, write the amounts in the boxes below.
    

If your business uses fuel off-the-road (boats and airplanes are excluded from this), please provide the number of gallons used off-the-road below.  For example: a generator in a truck that is used to power a machine for on site work, or a piece of machinery such as a wood chipper.

Please provide copies of the W-3 and the owner’s W-2s for the current tax year.

If there was a change in the ownership of your business during the year, please fill in the data below.

The IRS has begun to audit “S” Corporations where the owners’ salaries (those owners that work in the business as compared to passive owners) are less than (<) the remaining profit in the business after the owners’ salaries have been deducted.  The IRS code requires that owners have a reasonable compensation taken from their business.  Generally, a rule of thumb (this is not in the law) is that where the “S” corporation has a profit, the owners’ salaries should equal 50% or more of the profit before the salaries have been deducted.  HOWEVER, in a one person/one owner “S” corporation, since all of the profit is attributable to the owner, then it would appear that the IRS could rule that the salary should equal 100% of the profit.

If your salary does not equal these amounts, then you need to increase them to those amounts.  What happens if you do not do so?  Then the IRS can come in and re-characterize your “S” Distributions to salary and make you pay FICA and Medicare taxes going back three years if you have filed the payroll tax returns—six years or more if you have not filed the payroll tax returns plus penalties and interest amounting to more than the taxes that are due—YES 100% or more.

There are cases where a low salary is acceptable in the event that the company has significant machinery and equipment that creates the profit or managers and employees that create the profit and the owner spends little time running the business AND logs that time.  However, a low salary means a low retirement plan contribution.

Examples

Basis is defined as common stock + paid in capital +(-) retained earnings + loan from shareholders – loans to shareholders.  The IRS has begun to audit “S” Corporations where the owners’ have taken out excess “S” Distributions.  This can occur in several separate situations where the owner’s basis in the company is negative. 

• When the business borrows money from a bank and the owner takes more money (S-distributions) out of the business than the company has profits.
• When the company purchases equipment and depreciates it all in one year but has a loan on the equipment thereby reducing profits below the amount of money (S-distributions) that the owner has taken out of the business.
• The company does not pay its accounts payable or payroll taxes or any other liabilities and the owner takes the money out of the company as “S” distributions.

These excess distributions can be re-characterized as a “loan to shareholder” on which the shareholder must pay interest payments and make principle repayments to the corporation.  If this is not done, then the loans could be characterized by the IRS as an “S” distribution.

You will be taxed on this excess distribution in two different ways if the loan to stockholders does not hold up under audit.

• If you were previously a “C” corporation and there were retained earnings left over when you switched to an “S” corporation, then those amounts will be taxed to you as dividends.
• Any excess over the amount of “C” corporation dividends above will be taxed to you as capital gains.

When dividends are paid to the owners of “C” corporations, it is important to remember that the Form 1099Div and the Form 1096 must be filed with the IRS each January for the prior year.

Dividends should not be paid to owners of “C” corporations who are personal service corporations (accountants, lawyers, doctors, engineers, architects, and other professionals.)

1. DO NOT pay the owner’s estimated tax payments in a “C” corporation.
2. “S” Corporation Owners’ estimated tax payments should be recorded in QuickBooks in an equity account titled “S-Distributions – Owners’ Estimated Tax Payments”
3. Partnership Owners’ estimated tax payments should be recorded in QuickBooks in an equity account titled “Partners’ Draw – Estimated Tax Payments”
4. Sole Proprietor Owner’s estimated tax payments should be recorded in QuickBooks in an equity account titled “Owner’s Draw – Estimated Tax Payments”

Please list the estimated tax payments recorded in QuickBooks for the current tax year below.

Please list the estimated tax payments recorded in QuickBooks for the current tax year below.

1. If these expenses have been deducted in QuickBooks, write the amounts in the boxes below.

2. If these expenses have NOT been deducted in QuickBooks, write the amounts in the boxes below.
    

1. In a separate sub-account under the main account of Travel and Entertainment, create an account titled Meals and Entertainment to which all business meals are entered.  The reason for the separation of travel vs. meals and entertainment is that business meals and business entertainment is only 50% tax deductible.  You ARE NOT to record only 50% of the amount of the expense; you are to enter 100% of the meal expense; we will handle the 50% reduction at the time we prepare the tax return.
2. Meals can be 100% deductible in the following circumstances.  These meals should be recorded in QuickBooks to an expense account titled as “Meals 100% deductible.”
   1. Meals for travel to a customer’s location that are billed to the customer on a separate line item on the invoice and copies of the receipts for the meals are provided to the customer with the invoice.
   2. Meals provided for a company wide party (Holiday party) where all employees (not just the owners and their spouses) are invited.
   3. Meals provided to employees that allow them to not leave the workplace and to continue working overtime.  For example: a dinner meal for employees who work overtime at a tax preparation firm.  These meals must be provided to all employees—not just the owners.
3. Make sure that you keep all of the receipts for these expenses.  The IRS requires that you document on each receipt the following.
   1. Who—the name of the business associate that you are with for the meal or entertainment
   2. When—the date is on the receipt
   3. Where—the name of the place where the meal or entertainment took place is on the receipt.
   4. Why—the business purpose of the meal or entertainment; “sales call about new product line.”
   5. How much—the price of the business meal or entertainment as recorded on the receipt.
   6. If you do not have these items recorded, the IRS will disallow the deduction even though you have the receipt.

1. Please enter these items on the books.  We will presume that you have entered them even if you have not done so.
2. If you are a sole proprietorship, then open the DRAW account and enter the items in the increase column and put them to the correct expense account.
3. If you are an “S” corporation, then open the S-DISTRIBUTION (Equity Account Type) account and enter the items in the increase column and put them to the correct expense account.
4. If you are a “C” corporation, then open the LOAN FROM SHAREHOLDERS (Liability Account Type) account and enter the items in the increase column and put them to the correct expense account.

1. Sole Proprietorships—all personal expense paid in the business checkbook or on business credit cards should be booked to the DRAW account.
2. Partnerships—all personal expense paid in the business checkbook or on business credit cards should be booked to the DRAW account.
3. S Corporations—all personal expense paid in the business checkbook or on business credit cards should be booked to the S-DISTRIBUTIONS account.
4. C Corporations—all personal expense paid in the business checkbook or on business credit cards should be booked to the LOAN FROM SHAREHOLDERS account.
5. NOTE: you should never pay personal expenses inside of partnerships and S or C corporations or an LLC.  IT WILL CAUSE A SIGNIFICANT TAX OR LEGAL PROBLEM IN THE EVENT OF A TAX AUDIT OR A LAW SUIT AND MAY CREATE SIGNIFICANT PERSONAL LIABILITY.
    

Please provide the items below for the year if you have an office in the home that is used exclusively for business. 

You are responsible for the following as it is a part of owning and managing your business.  It is important that you go to the home page of our web site at www.hkmscpa.com and click on the links to the Corporations Division (if you are a corporation or an LLC) and the Department of Revenue (all businesses) to make sure that your business licenses are current.