Financial Statements

Are you sitting down?

Let's start by saying that no one likes getting audited. But the average income tax audit isn't the end of the world. For tax year 2012, the IRS audited just 1,481,966 returns out of over 143 million filed, or barely one in a hundred. And according to the IRS Databook, the average "deficiency notice" demanding more tax was just $10,331. That's nobody's idea of a party, of course. But it shouldn't bankrupt anyone who makes enough to owe that much extra tax.

Things are a little different when it comes to estate taxes. For starters, the tax applies to the value of your assets, not the income they produce. It doesn't kick in until your taxable estate after all deductions tops $5.25 million ($10.5 million per couple). But the tax itself is 40%, which is higher than the top income tax rate. With so much more at stake, the estate-tax audit percentage is naturally far higher than the percentage for income tax — for 2012, the IRS audited 3,762 out of 12,582 estate tax returns filed, or nearly one in three. As for the average deficiency, well, here's hoping you're sitting down — it's a whopping $305,529!

An Apple a Day

Back when you were a kid, your mom probably told you "an apple a day keeps the doctor away." Well here's something Mom didn't know — apparently, an apple a day keeps the tax man away, too. At least, that's the conclusion we might draw from recent Congressional hearings focused on Apple Incorporated and its strategies for avoiding taxes!

Last month, the Senate Permanent Committee on Investigations conducted a hearing compellingly titled "Offshore Profit Shifting and the U.S. Tax Code — Part 2 (Apple Inc.)." The Committee graciously invited Apple's CEO, Tim Cook, to share how Apple avoids U.S. tax. (We can only imagine how delighted Cook was to receive the Committee's "invitation" — no doubt delivered on the same sort of elegant stationery you might use to announce a spring cotillion or send a "thank you" note to Grandmother.)

Healthcare Reform To Cause Real Life Headaches

As all of use hurtle down the road toward the implementation of the 2010 health care legislation it sure does appear that the health care legislation will certainly create its own health problems... especially for your tax adviser! There is a lot to know about the 2010 health care legislation in order to take advantage of favorable provisions and to avoid or minimize penalties. 

The health care legislation enacted in March 2010—the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, as amended by the Health Care and Education Reconciliation Act, P.L.111-152—is almost 1,000 pages long. It involves numerous rules on employer-provided health care, insurance exchanges, insured rights, and the health care delivery system. There are numerous tax provisions. Guidance from the IRS and other government agencies has been emerging since 2010, and much of it is quite lengthy.

The Affordable Care Act includes a variety of measures specifically for small businesses that help lower premium cost growth and increase access to quality, affordable health insurance. Depending on whether

Keeping Your Business On The Right Track

A business plan is a roadmap that sets out your route for the development of your business. It doesn’t tell you just about the current state of the business, its strengths and its weaknesses, it will also show up the opportunities and what needs to be done to stay ahead of the competition.

You might think you know all this now and don’t have to write it down. But what if something happened to you and someone else had to take over the operation? What would they need to know so it was still there and profitable when you returned? This is the kind of information contained in your business plan and its good insurance against the unknown.

It clarifies your objectives

What are your goals? These will be in your business plan, the original goals you had plus any additional objectives that arise in the course of business. Your business plan spells out the goals and shows the milestones along the way that tell you how close you are to achieving them. Goals are flexible and can be as varied as achieving a certain level of turnover or simply acquiring new customers. It’s important, however, that each is presented in the same way – as a target with milestones or indicators that will let you measure how near you are to achieving it.

Ten Cash Flow Tips

1. Know your business’ balance sheet thoroughly.

This may sound obvious, but, as your accountant can confirm, many business people don’t know how cash flow works and its significance to keeping their operation afloat. Many owners focus on their business’ profit and loss statement alone. It’s a potentially fatal mistake because healthy profits can mask an impending cash flow crisis. Profit and loss statements don’t usually contain the information required to make an adequate cash flow projection. For that, you’re going to need a structured balance sheet that includes all the influencing factors including debts, interest payments, inventory and so on. This is the basis for your cash flow projection which represents an “educated guess” at the likely incomings and outgoings over the period of time you have selected to map out.

Being Smart About Business Loans

Most businesses operate to some extent on borrowed money, but borrowing too much means you’re paying more in interest than you need to. Borrowing too little means you’re under financed and won’t have enough capital to accomplish what you want to do. That’s why you have to work out, as near as possible, just how much money you will really need, and when you’ll need it, before you talk to anyone about borrowing funds for your business. And of course you’ll also have to work out how to repay what you’re borrowing. Here’s a process for estimating your borrowing requirements.

Check your business plan

Start by taking a good look at your business plan. It should be an overall guide to both the amount you need to borrow and to the times when funds will be needed. And if you don’t have a business plan that tells you this kind of information, create one before going any further.