Resources:

1How To Ace A Tax Audit

As a medical student, you didn't prepare for the boards the night before. Why do that when facing an IRS audit?

Although the chances of a line-by-line Internal Revenue Service (IRS) audit are slim, the pain and suffering of an audit is immense. The IRS 2010 Data Book reports that roughly 70% of all small (corporations with $10 million in assets or less) corporate returns that the IRS audited or examined were changed.

The average recommended additional tax per return for a small corporation was about $30,000, and 62% of all partnership (including limited liability corporation) and S corporation returns under audit were changed. Data do not exist for the change of tax for partnership and S corporation returns, because these information returns are reported on the individual shareholder or stockholder returns. How many practices can sustain a $30,000 reduction to cash flow without making employment changes or accessing a line of credit? Proper record keeping, therefore, is not just essential. It's critical.

Cost is a key component to recordkeeping for every medical practice, and you will need to consider numerous cost-related factors when preparing for an audit. For example, what are the costs associated with properly recording, organizing, and sorting your records now? On the other hand, what are the costs associated with gathering, recording, and organizing documentation that is several years old for the purpose of an audit?

Today, many records are readily available online. The trouble with online records, however, is that an item is usually posted only for a limited time. A gathering mission for old records in preparation for an audit can take hours or days, time that could be better used serving current patients and developing your practice.

Recently, a new client of ours received a letter informing him he would be audited by the IRS. To be thrifty, the practice owner thought he could handle the accounting and tax preparation function and audit defense alone. After the first meeting with the auditor, however, the doctor engaged our firm. He had not kept proper records for several years.

We were assigned the task of reconstructing the information and attempting to reconcile that information with the audited return. It cost $7,000 in accounting fees to reconstruct just 1 year of financial information, roughly $1,000 in check fees, and several hundred dollars for monthly credit card statements.

In all, we estimated it cost the practice $10,000 to reconstruct and gather that 1 year's worth of transactions. In addition, the physician was forced to use countless hours of his personal time acquiring the necessary information and reports. Not only that, he had to spend additional hours with us recalling the transactions that were not originally documented. In short, his "thrift" wound up costing him time and money.

Keeping records up to date always is less costly than having to scramble to pull records together at the last minute with the auditor standing on your doorstep. The necessary records often are inaccessible, if not nonexistent, making it much more difficult to retrieve them several years after transactions occurred.

Unorganized and/or improperly stored records and the delayed recording of transactions may cost a practice additional taxes, penalties, and interest, as well as increased professional fees. Trying to prepare for an audit at the last minute can get expensive surprisingly quickly.

2Where Is My Tax Refund?

Are you expecting a tax refund from the Internal Revenue Service this year? If you file a complete and accurate paper tax return, your refund should be issued in about six to eight weeks from the date IRS receives your return. If you file your return electronically, your refund should be issued in nearly half the time it would take to file a paper return — even faster when you choose direct deposit.

You can have a refund check mailed to you, buy up to $5,000 in U.S. Series I Savings Bonds with your refund, or you may be able to have your refund electronically deposited directly into your bank account (either in one account or in multiple accounts). Direct deposit into a bank account is more secure because there is no check to get lost. And it takes the U.S. Treasury less time than issuing a paper check. If you prepare a paper return, fill in the direct deposit information in the “Refund” section of the tax form, ensuring that the routing and account numbers are accurate. Incorrect numbers can cause your refund to be misdirected or delayed. Direct deposit is also available if you electronically file your return.

A few words of caution — some financial institutions do not allow a joint refund to be deposited into an individual account. Check with your bank or other financial institution to make sure your direct deposit will be accepted.

You may not receive your refund as quickly as you expected. A refund can be delayed for a variety of reasons. For example, a name and Social Security number listed on the tax return may not match the IRS records. You may have failed to sign the return or to include a necessary attachment, such as Form W-2, Wage, and Tax Statement. Or you may have made math errors that require extra time for the IRS to correct.

To check the status of an expected refund, go to https://www.irs.gov/refunds.

3Where Is My Business Refund?

Are you expecting a tax refund from the Internal Revenue Service this year? If you file a complete and accurate paper tax return, your refund should be issued in about six to eight weeks from the date IRS receives your return. If you file your return electronically, your refund should be issued in nearly half the time it would take if you filed a paper return — even faster when you choose direct deposit.

You can have a refund check mailed to you, or you may be able to have your refund electronically deposited directly into your bank account. Direct deposit into a bank account is more secure because there is no check to get lost. And it takes the U.S. Treasury less time than issuing a paper check. If you prepare a paper return, complete Form 8050, ensure that the routing and account numbers are accurate, and attach it to the corporation's tax return. Note that Form 8050 may only be filed with the original Form 1120 or 1120S, and the corporation is not eligible to receive direct deposit if the receiving financial institution is a foreign bank or foreign branch of a U.S. bank. Incorrect numbers can cause your refund to be misdirected or delayed. Direct deposit is also available if you electronically file your return.

You may not receive your refund as quickly as you expected. A refund can be delayed for a variety of reasons. For example, a name or identification number and Social Security number listed on the tax return may not match the IRS records. You may have failed to sign the return or to include a necessary attachment, such as Form W-2, Wage, and Tax Statement. Or you may have made math errors that require extra time for the IRS to correct.

4Capital Gains and Losses

Almost everything you own and use for personal purposes, pleasure, or investment is a capital asset. The IRS says when you sell a capital asset, such as stocks, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. While you must report all capital gains, you may deduct only your capital losses on investment property, not personal property. If you have a large capital gain this year from an investment, it may be advisable to hold onto the investment until next year to put the gain into next year's taxes. You may also want to sell off any investments that you have that are losing value at the moment to claim your losses.

While you must report all capital gains, you may deduct only your capital losses on investment property, not personal property. A "paper loss" — a drop in an investment's value below its purchase price — does not qualify for the deduction. The loss must be realized through the capital asset's sale or exchange.

Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it for more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. For more information on the tax rates, refer to IRS Publication 544, Sales and Other Dispositions of Assets. If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately). Unused capital losses can be carried over indefinitely to future years to net against capital gains; however, the annual limit still applies.

Capital gains and losses are reported on Form 8949, Sales and Other Dispositions of Capital Assets, summarized on Schedule D, Capital Gains, and Losses, and then transferred to line 13 of Form 1040, Schedule 1. Accounting and planning for the sale and purchase of capital assets is usually a very complicated matter, so please get in touch with us so that you may receive the professional advice you deserve.

5For Business Financing, What Kinds of Loans Exist?

You must know the exact amount of money that you need, what your purpose is and how you will repay it in order to be successful in getting a loan. You must convince the lender in a written proposal that you are a good credit risk.

There are two basic kinds of loans, although terms vary by lender:

Short-term and long-term maturity periods of up to one year are generally short-term, including accounts receivable loans, working capital loans, and lines of credit.

Maturities greater than a year and less than seven years is a typical long-term loan. Equipment and real estate loans can have a maturity of up to 25 years. Major business expenses such as purchasing real estate and facilities, durable equipment, construction, vehicles, furniture, and fixtures, etc., are a few purposes for long-term loans.

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