• Social Security Number
• Filing Status
• Exact Refund Amount

While your return is being processed IRS telephone assistance cannot provide additional information so you should not call the IRS toll-free number unless “Where’s My Refund?” specifically indicates that you should.  Want to check on a state refund also?  Many state websites also provide this option.  For Minnesota go to http://taxes.state.mn.us and then to “Check your refund status”.

You can usually find the website for other states’ tax administration assistance by typing the state’s two letter abbreviation and the words “taxation”, “revenue”,  or something similar into any internet search engine.  Once you’ve found the website, then do a search for “refund”.

Your final individual income tax return will include income through the date of your death.  Post-death income from assets for which you haven’t named a designated beneficiary must be reported on what’s called a “fiduciary” income tax return filed by your estate, until those assets get distributed to your heirs.  Post-death income on assets for which you have named a designated beneficiary gets reported on the tax return of the designated beneficiary.  For example, if you have a brokerage account and you’ve named your daughter as beneficiary of the account upon your death (by filing the proper designated beneficiary forms with the broker), your daughter becomes the owner of that brokerage account upon your death, and all post-death income gets reported on your daughter’s income tax return.  If you don’t have a designated beneficiary named on the account, the account becomes the property of your estate, and the income gets reported on the “fiduciary” income tax return filed for your estate until the assets in the account are distributed to your heirs.

Proper planning can minimize the tax filings required upon your death.  It is not uncommon to have several tax returns required after death including; the final individual income tax returns, federal and state “estate” tax returns, a gift tax return, fiduciary income tax returns for the estate, and fiduciary income tax returns for any trusts you may have created.

We highly recommend you make your accountant and attorney part of your team when it comes to your estate planning.  The estate tax law is continually changing and can have a significant impact on how your assets are taxed and distributed to your heirs upon your death.

The two main methods of record keeping are either accounting for your income and expenses on a cash basis or on an accrual basis. Each method is uniquely different and each has its pros and cons.   You should understand each method in detail before deciding which to use.

The cash method is the most common used accounting method for tax purposes for small businesses with sales of less than $5 million a year.  Under this method you record income as your receive money and record expenses when you pay them.  The accrual method, on the other hand, accounts for income and expenses when the services are rendered, goods are received and actual sales occur.   This is typically the method that bankers, surety bonders and other regulatory agencies look for when requesting financial statements from you.

The cash method provides a better picture of how much actual cash your business has.  The accrual method shows the flow of business income and debts more accurately and therefore provides the most accurate picture of the financial state of your business. This method matches the revenue & expense in the same period that they occur.  As an example, you may have a stellar month/year of sales but your payment terms may not require payment until a later date.  In the cash method you would not show that income until it was actually received at that later date.  This would be beneficial for tax purposes to defer the income until you actually receive it, but it you are submitting financial statements to a financial lender it would not provide them useful information to provide you funding as they would see no sales during that period.

When determining which method is best for you, you should consider various factors with one of the most important being who is the intended user of the financial statements and financial data? Or who in the future could be an intended user?  When you start your business you may be just tracking items for tax purposes and not thinking of the larger picture of when your business grows.  Another important factor is what type of an accounting software package are you using?  Does it provide the flexibility to carry out your business and provide both accrual and cash basis reports?  A common small business software which provides the users this functionality is QuickBooks.

If you are considering implementing a method in your new business or switching to another method, you should consult your CPA and the intended users of your financial statements to understand what information they need and want.  If you are unable to meet with them and want a good starting point, you may want to start using software which will track it both ways for you.

]]> http://www.brunbergblatt.com/cash-vs-accrual/feed/ http://www.brunbergblatt.com/what-exactly-is-nexus-and-why-should-you-care/ http://www.brunbergblatt.com/what-exactly-is-nexus-and-why-should-you-care/#comments Thu, 12 Jan 2012 14:24:42 +0000 Sue Nash http://www.brunbergblatt.com/?p=953 In the context of business taxation, “Nexus“ is a term which describes a level of activity, connection, or “ties” to a state or locality, which would cause an entity to be subject to taxation by that state or locality.

One need only look at a current newspaper, magazine, or watch the evening news to realize the states are hurting for revenue. The recession and high unemployment of recent years has taken its toll on most state coffers and the states are looking for sources of revenue to refresh them. As a result, states are taking a hard look at business taxes.

Audits of businesses by state taxing agencies are up, and many states are hiring additional auditors and designing sophisticated computer programs to target specific potential non-compliance areas. If your business hasn’t been audited by a state agency recently for some type of business tax, it likely will be in the future.  We have seen a significant increase in sales, use, and income tax audits.

Generally if your business has a “physical presence” in a state, you will have established nexus and are likely subject to income tax in that state.  Physical presence can come from the obvious such as having employees, contractors, subcontractors, or sales personnel in a state or renting property.  However, physical presence can also come from the not-so-obvious such as warranty and repair services, or it can be attributed to your business from the activities of a related entity such as a parent company or holding company.

Due to changes in how businesses operate in what is now a global marketplace, many states are moving towards an “economic nexus” standard rather than the traditional “physical presence” standard.  This standard has been aimed at businesses that earn income in a state and enjoy benefits from doing business there such as income received from licensing a trademark, making loans, issuing credit cards, etc.  Some states are also moving away from a traditional state income tax and getting their state revenues by adopting a gross receipts tax or a net worth tax.

Why should you care? State and local tax laws are complex and continually evolving and because of the significant dollars involved, quite frequently state tax issues are resolved through the courts.  An audit can take months (and in some cases years) from the time you get the audit notice to when the audit is closed.  During the audit period you can expect to have your business records closely scrutinized by the auditor and you will likely need the services of a good CPA to get you through the process.  If you have your “ducks in a row” so to speak before you ever get an audit letter you can reduce the amount of penalties and interest assessed.  And remember, when a tax return was required, but never filed, the statute typically never starts running and therefore never closes.  This means you can be subject to audit for many past years.

What should you do? Talk to your tax adviser about your business activities and try to identify the states for which you have a filing requirement.  States frequently send out nexus questionnaires; if you receive one of these questionnaires, NEVER complete and return it without first discussing it with your tax adviser.  Many times states will send these out phishing for information about your business and one wrong answer can really get a state coming after you for taxes for which you may not even be liable for.  Be courteous and prompt with state auditors.  Having closed two state tax audits for clients this week, I can tell you a little courtesy can go a long way in building goodwill with an auditor.

1. Spending more time with family and friends
2. Losing weight
3. Exercising more often
4. Quitting smoking/drinking
5. Taking time to enjoy life
6. Getting out of debt
7. Learning something new
8. Getting organized
9. Helping others
10. Eating healthier
11. Saving money

These are great individual goals but have you ever thought of setting a New Year’s resolution for your business? These could include:

1. Increasing your social networking presence
2. Hiring a certain number of new employees
3. Refreshing your company website
4. Having the company books ready for tax time early
5. Setting a goal for increased revenues

Whether it be individual or business related, people set out determined every year to follow through with their resolutions; sadly however around 20% will revert to their old ways after just a month. With this in mind we want to know what your resolutions are and what could be more important how you plan to follow through with them and not become one of the 20%?

Ever wonder how the seemingly perfect company with great employees ends up finding fraud occurring within their organization?  There are 3 key items when investigating fraud that are common to all frauds:

• Pressure/Incentive
• Opportunity
• Rationalization

These three items are known in professional literature as the “Fraud Triangle”

Pressure or incentive for fraud is really the motivation for the employee, management, vendor, etc. to commit fraud.  These motivations can range from things such as:

• Loss of a spouses job
• Sick parent or loved one
• Gambling losses & drug addictions
• Financial struggles
• Debt covenants
• Bonus structure

Opportunity is the vulnerable areas that the fraudster finds in a Company where they could easily get past the controls that are in place or the lack of controls to misstate financial information, embezzle money or other company assets.  Some examples of vulnerable areas in Companies are as follows:

• Lack of oversight/supervision
• Too much trust in one individual
• No segregation of duties within cash (i.e., same person that makes deposits & signs checks, also reconciles the bank account)

Rationalization is the last common item found and is how the fraudster rationalizes what they have done which helps them justify their actions. Common comments for rationalizing are:

• “I will pay it back”
• “They owe me this”
• “I have been treated unfairly”
• “We will only falsify our financial statements until we get over this temporary hump”

No matter the perpetrator of fraud (employee, management, or outside party) these three items always exist.   When doing a fraud risk analysis on the Company, ownership/management should look at the fraud triangle see if they can put steps in place or change procedures to mitigate pressures, incentives or opportunity in their Companies.

]]> http://www.brunbergblatt.com/environment-for-fraud/feed/ http://www.brunbergblatt.com/irs-seeks-to-return-153-million-to-taxpayers/ http://www.brunbergblatt.com/irs-seeks-to-return-153-million-to-taxpayers/#comments Mon, 09 Jan 2012 14:56:50 +0000 Sue Nash http://www.brunbergblatt.com/?p=942 The IRS recently announced that it currently has $153.3 million in undelivered refund checks.  Over 99,000 taxpayers didn’t get their refund checks delivered due to mailing address errors.  The average refund for each check was $1,547.

If you think you may be due a refund, or just want to double check, go to www.irs.gov and select the “Where’s My Refund?” tool.  This tool will provide status of refunds, and in some cases, instructions on how to solve delivery problems.  If you don’t have access to email you can access the Internal Revenue Service refund hotline by calling 1-800-829-1954.

The best way to assure you receive all tax refunds is to file your tax return electronically and select direct deposit for refunds so they go directly into your bank account.  This is usually the fastest way to receive a refund as well.

Beware if you receive an email that appears to be from the IRS regarding a refund or other tax information.  Such emails are common phishing scams.  The IRS does not contact taxpayers by email regarding refunds or to request personal data.  I personally have received some of these phishing emails on a couple different occasions.

If your address has changed, there are several ways to notify the IRS to ensure you receive any refunds or correspondence including:

• Use the new address when filing your return -  when the return is processed, your address will be updated.
• Complete Form 8822 - this form can be used if you’ve already filed your return.  You can download the form from the IRS website www.irs.gov.
• Write to the IRS - send a letter notifying them of the new address.  Include yours (and your spouses if applicable) old and new addresses, social security numbers or Employer ID number.  Be sure the request is signed by you (and your spouse if applicable).  Send the request to the same service center where you filed your last return.

Tax forms, refunds, notices, etc. will be mailed to the last address provided by the taxpayer.

Be aware that if you are waiting for a refund from an amended return that was filed, it can take over 6 months for the IRS to process the amended return and send the refund!

• Random selection and computer screening based solely on statistical formula.
• Document matching.
• Related examinations (such as auditing the owners of a business that is also being audited).

The most common type of audit we see is the correspondence audit, which usually originates from a document matching error. If the IRS computer has a document stored in its database with your social security number, and isn’t able to match that document up with an entry on your tax return, you will most likely get a document matching notice in the mail.

Document matching notices can usually be resolved in short order, but sometimes an amended return must be filed. Many times the returns are correct as filed and the IRS  just needs to be given some additional information, or the IRS proposed adjustment is simply wrong.   It’s important that you forward a copy of all tax notices you receive to your tax advisor in a timely manner as there are certain time periods during which you must reply, file an appeal, etc.

Filing a complete and accurate return using a tax professional will help minimize your chances of being selected for audit.

As CPA tax professionals, we are subject to strict standards regarding our CPA credentials including licensing, continuing professional education, and ethics. Our doors are open and we do tax work year round; not just once a year, and we keep up with tax news, law, and legislation daily, not just when it’s time to file your return.

Do you have an IRS audit story to share?  We’ve seen some strange things over the years; if you’ve had an unusual experience, please share!

The Vikings have made it clear that they want a new stadium but where should that stadium be located?

• Hotels
• Shopping centers
• Restaurants
• Vikings hall of fame
• 21,000 parking spaces with improved tailgating options

On the other hand the city of Minneapolis representatives have offered three different sites in Minneapolis for the Vikings to consider which are: the Metrodome, the farmers market, and Linden Avenue. They contend building in Minneapolis would be cheaper and the potential for a stadium district would benefit the state. Any site in Minneapolis would also keep the 60,000 plus fans coming into the city and visiting the existing restaurants and shops each game.

There are many opinions on both sides of this debate but what we want to know is what do you think? What site makes the most sense to you and why?

In the past few years there have been constant stories in the news of frauds occurring in businesses.  I am sure many that come to your mind immediately are Enron, WorldCom, Tom Petters, Denny Hecker and many more.  What you often don’t see in the media are the frauds that are occurring in small businesses the United States.  These frauds are often not publicized as business owners react immediately and try to avoid any damage to their business name and reputation.  There is often a misperception that fraud only affects large companies, but in reality it is occurring in companies of all sizes. In the 2010 survey of its members conducted by the Association of Certified Fraud Examiners (ACFE), 31% of all occupational frauds were committed against small businesses and the median loss in those schemes was $155,000. Are you aware that Brunberg Blatt and Company, Inc. provides both proactive and reactive forensic accounting services?

Our expertise lies in preventing and investigating embezzlements and financial statement fraud, evaluating financial statement disclosures in matrimonial and probate concerns, as well as, other types of forensic accounting matters.  Our team of experienced professionals assist with our forensic account services that range from preventative to investigative.

Preventative forensic services assist companies and individual organizations in evaluating their accounting records and results, with the goal of identifying any potential programs or issues within the transactions.  While not able to provide absolute assurance that no fraud exists, these engagements help companies and individual organizations before a problem materializes by providing an objective outside review by accountants specializing in the field of fraud.  The outside review also acts as a deterrent which strengthens the company’s internal controls.  Preventative forensic accounting services are broken down into two separate categories (Prevention and Detection & Monitoring), which we will go into additional detail on a future post.

Investigative forensic services deal the with the business reality of fraud that has occurred.  Extensive accounting, auditing and investigative skills are used to gather and present the financial evidence needed to resolve or refute a case.  These types of engagements, work to control reputation damage, resolve adversarial proceedings, minimize business interruption and limit economic loss to the company.

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