Do you know what the IRS is looking for? Advice for Business Owners

Tax planning

It is not too late to reduce your 2013 income taxes

The IRS continues to focus their audit activities in key small business areas. The wize small  business owner is well advised to be able to defend the following five areas to keep the IRS at a comfortable distance:

Business or hobby? Be ready to provide proof your business is truly a business and not a hobby. Those who fail in the eyes of the IRS can have their expense deductions severely limited, while still required to report the income. Make sure you can answer and provide documentation for these four questions:
a. What is your profit motive?
b. Are you an active participant in the business?
c. Are you conducting the activity in a business-like manner?
d. What expertise do you have in the service or products your business provides?

Reasonable shareholder salary. S corporations are in the unique situation where some compensation is excluded from payroll taxes. Many businesses take this too far. The IRS is looking closely at businesses who avoid paying a reasonable salary in order to lower their Social Security and Medicare bills. When determining salaries for shareholders, consider their experience, duties, responsibilities and time devoted to the business. Once you have a picture of their ongoing contributions to the business, research comparable positions and salary ranges to pinpoint a fair salary. Save your findings and calculations as backup to provide in the event of an audit.

Contractors or employees? Make sure consultants and other suppliers are not employees in disguise. The IRS looks at how much control you have over the work being done – the more control you exert the higher likelihood you may have an employee versus a contractor. Penalties can be very steep if the IRS decides your consultant is really your employee. If in doubt, ask for a review.

Expenses for meals and entertainment. The IRS is now disallowing any entertainment deductions, even if there is business conducted before or after the event. That means business meal documentation is now more important than ever and should include receipts, who attended the meal, and the business purpose of the meal. Bringing food in for business lunches rather than going out is a safe way to show business intent. If you have an event with both entertainment and food included, get two receipts – one for the entertainment and one for the food.

File your Forms W-2 and Forms 1099. Don’t forget to file all required 1099s and W-2s. Most of them are due on or before Jan. 31. The IRS is penalty crazy in this area with up to $270 per missing or incorrect form.

Knowing what the IRS is looking for helps you prepare should it turn its focus to your business.

Worried about the Cyber-Safety of your Business? How you can avoid E-mail Scams.

A common belief of identity theft is that it occurs mostly to individuals, for example when social security numbers and other personal information are obtained. Businesses are also subject to identity impersonation. The remainder of this article discusses business e-mail scams, and the best practices for minimizing their likelihood as suggested by the Federal Bureau of Investigation (“FBI”).

Regardless of the nature of your business, anyone opening e-mail is a potential target for hackers. These illegitimate e-mails or “phishing e-mails” imitate e-mail addresses you would commonly send mail to or receive mail from.

Keith Kelly of the New York Post reported that Bonnier Publications was defrauded of $1.5 million in May of 2015. Bonnier is a leading magazine publisher with offices in New York City and Winter Park Florida. According to Kelly, the cyber hackers breached the e-mail of then CEO David Freygang – who weeks after the scam stepped down from his position. An e-mail hacker impersonating Freygang instructed a Bonnier accounting department employee to wire transfer $1.5 million to China. Days after their first scam, cyber hackers made a second attempt at defrauding the media company. This time employees of Bonnier Publications were successful in thwarting off the thievery of the hackers, and saved the firm from another $1.5 million scam. Kelly reports that the Chinese international authorities have been “uncooperative” and have “not been helpful in identifying the owner of the account that was receiving the stolen money”. Frequently once the funds are out of the United States they are gone. It is difficult for firms and individuals to ever recoup their funds.

In 2014 American businesses were robbed for over $200 million. The average amount lost in a case of this nature was $150,000. Approximately 2,000 American businesses have been negatively affected, and the number of victims is expected to grow rapidly as computer hackers increase in their ability and popularity. We are all potential victims for attacks, but most likely to be preyed upon are companies that send wire transfers and do not have proper internal controls. It is for this reason that the FBI has issued a fraud alert on wire transfers in an effort to vigilantly prevent and monitor any potential cybercrime. The FBI has a name for cyber scams such as the one Bonnier suffered, business e-mail compromise scams (BEC). In response to the rise of recent cyber attacks, the FBI has released guidelines and measures to prevent loss and repeat attacks on innocent U.S businesses. The IC3 Public Service Announcement does just that.


The IC3 suggests the following measures to help protect you and your business from becoming victims of the BEC scam:

  • Avoid Free Web-Based E-mail: establish a company website domain and use it to establish company e-mail accounts in lieu of free web-based accounts.
  • Be careful what is posted to social media and company websites: job duties/descriptions, hierarchal information, and out of office details.
  • Be suspicious of requests for secrecy or pressure to take action quickly.

Consider additional IT and financial security procedures and 2-step verification processes:

  • Out of Band Communication: establish other communication channels, such as telephone calls to verify significant transactions. Arrange this second-factor authentication early in the relationship and outside the e-mail environment to avoid interception by a hacker.
  • Digital Signatures: both entities on either side of transactions should use digital signatures. However, this will not work with web-based e-mail accounts. Additionally, some countries ban or limit the use of encryption.
  • Delete Spam: immediately delete unsolicited e-mail (spam) from unknown parties. Do NOT open spam e-mail, click on links in the e-mail, or open attachments. These often contain malware that will give subjects access to your computer system.
  • Forward vs. Reply: do not use the “Reply” option to respond to any business e-mails. Instead, use the “Forward” option and either type in the correct e-mail address or select it from the e-mail address book to ensure the intended recipient’s correct e-mail address is used.
  • Significant Changes: beware of sudden changes in business practices. For example, if a current business contact suddenly asks to be contacted via their personal e-mail address when all previous official correspondence has been on a company e-mail, the request could be fraudulent.
  • Always verify via other channels that you are still communicating with your legitimate business partner.

Our firm strongly suggests that you take the time to click and read the following link to a FBI Public Service Announcement provided by their internet cybercrime specialists. If you believe that your business may have received a fraud email or is victim to BEC, we recommend that you immediately file a complaint with the IC3 at . Remember to protect business information because the business saved could be your own. We would be glad to help you to review your internal controls over wire transfers. Please call us at 516-208-8363 if you have questions or would like additional information.

Summer Time Tax Tips

It’s getting hot outside, and you probably don’t want to think about tax planning.  But we have put together some summer tax tips so that you can get the most out of your 2015 return.31741510_s

Before you head off to the beach, please take a look below at what we have prepared.

  • Take a credit for summer day care. If you have one or more children under the age of 13, your costs of in-home childcare, a day care facility, or sending the kids to day camp may qualify for the Child and Dependent Care Tax Credit. The costs must be incurred to enable you (and your spouse, if you file jointly) to work or look for work and you generally must report some earned income. Payments to your spouse, your dependent, or your child who is under age 19 at the end of the year aren’t eligible. Overnight camps and summer school tutoring won’t qualify either.

The credit can equal up to 35% of qualifying expenses, depending on your income. Total expenses are limited to $3,000 for one child and $6,000 for two or more.

  • Combine business with pleasure. Add vacation days to your summer business trip, and bring the family along. You can deduct most of your own (but not your family’s) unreimbursed costs, such as airfare, meals and lodging during the business portion of your trip.
  • Put your kids to work. If you own a business, give your children a summer job. You can deduct their wages, and if you’re a sole proprietor, you don’t have to withhold social security or Medicare taxes as long as your kids are under 18. They can even use their earnings to set up an IRA.
  • Clean out your garage and take a deduction. Donate your unwanted property to a qualifying charity and deduct the fair market value. Make sure to get a receipt and check the documentation rules for high-value items.

Understanding the Breakeven Point

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The breakeven point in your business is where all direct and indirect costs have been met. You are neither making nor losing any money. The breakeven point can be measured in number of units sold, dollars of total sales, or possibly hours billed out.break-even-point

The calculation of the breakeven point is an iatrical component of the cost volume profit analysis for any business.  We’ll explain more about this below.

  • To calculate your breakeven point, you must first determine your direct (variable) and your indirect (fixed) costs. Direct costs vary with the number of units sold. For every unit you sell, you must buy another set of the components. Your indirect costs don’t normally vary for a given volume of business. Your gross profit per unit (sales less direct costs, known as the contribution margin) goes toward paying for these indirect costs. Once the indirect costs have been paid, you have reached the breakeven point. The gross profit from every unit sold over the breakeven point goes to the bottom line as profit.

Please check out our guide under the “Services” tab of our website, and give us a call if you have any questions about Understanding the Breakeven Point.

Preventing Employee Fraud

As an entrepreneur, you work hard for your money. There is almost nothing worse than experiencing pilferage, embezzlement, and other types of misappropriation. Internal controls are extremely important to the entrepreneurial company.fraud image

We have put together a guide that contains 10 steps to help you protect the earnings and assets of your company such as:

  • Using Cash Wisely
  • Managing Cash Outflows
  • Practicing Cost Control
  • Analyzing and Planning
  • Monitoring Inventory

Please check out our guide under the “Services” tab of our website, and give us a call if you have any questions about Preventing Employee Fraud.

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