Skip to main content Skip to search

Archives for Accounting

small business owner wondering 'should i hire a cpa for my small business?'

Should I Hire a CPA for my Small Business?

When running a small business, every dollar counts. Because of that, many small business owners simply use an accountant or try to navigate as much as possible out on their own. The problem with that idea? It often ends up being more costly, as business owners are not always knowledgeable of all of the potential write-offs, they risk potential audits, and representation, if necessary, is harder to find. 

A CPA, on the other hand, is a professional accountant who is licensed by their state. Their skill set and expertise, along with the capabilities the license allows, is essential for every small business owner, no matter the size of the actual business. 

1. CPAs must have up-to-date knowledge to hold their license

Unlike an accountant, a CPA is required to keep current with tax laws in order to maintain licensure. In addition, CPAs are mandated to fulfill continuing education requirements. This means, when working with a CPA, you know your business will be taking advantage of and in accordance with all laws and regulations. 

Accountants are able to perform audits, prepare financial statements, help with bookkeeping, complete business tax preparation, and advise on accounting systems. However, there are some audits, such as mandatory audits for publicly traded companies, that only a CPA can complete 

2. CPAs can represent their clients

Accountants have specific but limited representation rights. They are only able to represent a client if they have prepared and signed that client’s tax returns. CPAs, however, have the ability to represent clients in a number of cases, including those involving payments and collections, audits, and appeals

3. CPAs represent clients before the IRS in audits

The primary benefit to working with a CPA over an accountant is that a CPA has the ability to represent you if you receive an IRS audit. Following an audit, an appeals process may be the next step, and if violations are found, you will likely need representation. A CPA, with expertise in all tax laws, would play a pivotal role in helping your company should this occur.

Hiring a CPA can save your business time, money, and a wealth of anxiety. By contacting a local CPA firm in Charlotte, you are ensuring everything is done correctly the first time and avoiding the headache of an audit or potential penalties in the future.

Resources:

https://www.thebalancesmb.com/small-business-cpa-versus-accountant-397384

Read more
customer working with a business cpa on a 401k audit

Everything You Need to Know about a 401k Audit

If your business includes a retirement plan with 100 or more participants, you can expect to work with a CPA (certified public accountant) who will perform an audit. Essentially, the government wants to be sure the retirement plans provided are managed correctly, carried out according to the plan’s documents, and fairly given to all participants.

The results of the audit will be included with Form 5500, filed with the Department of Labor, and then shared with the IRS and, in some cases, the Pension Benefit Guaranty Corporation.

To file the required information properly, and to avoid further audits, you need to know the steps to take, and what the process looks like as a whole. 

What To Expect From the 401k Audit 

When preparing for a 401k audit, there are two possible types: a limited-scope audit and a full-scope audit. A limited-scope audit simply ensures all calculations and information is correct. A full-scope audit, however, takes a deeper look and conducts more testing overall. Both types focus on the following:

  • Contributions, from both employees and employer
  • Distributions
  • Participant eligibility testing
  • Investment income allocation to accounts of the participants

When conducting the audit, the auditor will select participants and perform tests. Primarily, they will be ensuring the participant is being allocated the correct amount and that deferral percentages are accurate. They do this by recalculating contributions.

The auditor will also be making sure contributions are made in a timely manner so that no employee loses out on what the plan documents ensured. All related tasks will be checked to make certain they were completed correctly, and that any issues have been resolved. If the auditor learns that plan documents are not being adhered to, that contributions are not made in a timely manner, that Form 5500 is not filed at the right time, or that any participants are missing, further IRS audits are likely.

The end result is an audited financial statement package that includes the auditor opinion letter, in which the CPA explains the completed work, and the financial statements. Most financial statements will look similar, and include:

  • employee and employer contributions
  • expenses
  • distributions

Those that include illiquid assets, though, will require more information in order to gauge a true valuation.

How The Information Is Used

From the information received from both the audit and Form 5500, the Department of Labor is more able to monitor trends and patterns. They are able to see which plans seem to be consistently non-compliant with the regulations. In addition, it gives the Department of Labor a greater idea of the variety of plans offered in certain locations and in different sized companies, as well as among various industries.

Using a Business CPA is a Must

Because these audits must adhere to GAAP (Generally Accepted Accounting Principles) and the complexity of the process, a highly qualified CPA is essential. A 2015 assessment found that 39% of audited retirement plans had major deficiencies, or were altogether unacceptable. For that reason, it is imperative to work with an experienced and specialized CPA firm.

At Scharf Pera, our CPA firm in Charlotte with decades of experience, we have the knowledge and expertise to ensure your business meets all of the standards and requirements and to make this complex process stress-free.

Resources:

https://www.plansponsor.com/in-depth/know-financial-audits-filed-form-5500s/

Read more
accounting help - how to apply for ppp loan forgiveness

How to Apply for PPP Loan Forgiveness

When the CARES Act became law in March of 2020, one of the most in demand offerings was the Paycheck Protection Program (PPP), which offered loans to businesses facing hardship as a result of the pandemic, and offered a path to full forgiveness of that loan. Businesses could receive these loans for up to 2.5 times their monthly payroll. Since then, there was an additional round of which millions of businesses took advantage.

In order to qualify for forgiveness of the loan, businesses now have to prove that they:

  • spent the loan in the approved ways, towards the payroll of employees and other additional related expenses.
  • spent the amount of the loan within the “covered period”, which falls between 8 and 24 weeks after the loan was issued.

Following that covered period, borrowers may apply for forgiveness of the loan with the lender that gave or serviced the loan. This application requires documentation of how the loan was used, any potential reductions, and the time period in which it was applied. This application may be completed by the borrower itself or with the guidance of a small business tax accountant due to the regulations attached.

How To Begin Applying for PPP Loan Forgiveness

To apply, the borrower may use one of three forgiveness forms: Form 3508, the standard form, Form 3508EZ, or the most recent, Form 3508S, which is available for loans less than 150,000 dollars. 

The most simple way to complete the application is to start with the PPP Schedule A Worksheet, found on page 4. The results of the calculations found here will be useful for the remainder of the application. This table will request information such as:

  • Employee Information (name, last for digits of Social Security number). 
  • Sum of all compensation, including salary, tips, commissions, and paid leave.
  • Average FTE (full-time equivalents)

Safe harbors were built into the program in order for companies to avoid reduction in unforeseen circumstances. If a business, for instance, was unable to operate during the covered period due to lockdown restrictions, the borrower is considered exempt from reduction. A borrower may also be exempt if, after reducing its employee levels in the covered period, it then restores them.

What To Expect

Upon completion of the PPP Schedule A Worksheet, move onto the PPP Schedule A section of the application. Because you already calculated the sums required, the remainder of the application will be that much easier.

The PPP Schedule A section will request information about what your costs were during the covered period, to employees’ salary, towards benefits and retirement, and to business owners. Much of this, again, you already would have figured out by starting with the worksheet.

Your next step is to complete the PPP Loan Forgiveness Calculation Form, followed by the Forgiveness Amounts Calculation. These sections will ask for specifics: the dates of the covered period, the date the loan was deposited into your account, total payroll costs, business mortgage interest costs, property costs, etc. 

Following this, the borrower must also certify that all stipulations of the loan were adhered to, and that all information provided is accurate.

Be sure to hold onto records of this information for at least six years after forgiveness of the loan.

This process is complex, and you, as the borrower, may not be comfortable filing the information on your own. In that case, do not hesitate to reach out to your local small business CPA in Charlotte for guidance or assistance.

Resources:

https://www.nav.com/blog/ppp-loan-forgiveness-625378/

Read more

Tax Cuts and Jobs Act – Changes for Businesses

On Friday, December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The following tax law changes are effective for tax years beginning after December 31, 2017, unless otherwise noted.

INCOME TAX FOR BUSINESSES

There are several provisions pertaining to businesses that we believe will be of interest to you as follows.

  • The corporate tax rate has been reduced to a flat 21% and the corporate alternative minimum tax has been repealed;
  • The maximum amount a taxpayer can immediately expense for qualified property (Sec. 179) has been increased to $1,000,000 and the phase-out threshold amount is increased to $2.5 million;
  • A 100% first-year deduction for qualified property (increased from 50% deduction) for property placed in service after September 27, 2017 and before January 1, 2023;
  • The deduction for domestic production activities has been repealed ;
  • The deduction of 50% of expenses relating to entertainment has been repealed;
  • Net operating losses can no longer be carried back but can be carried forward indefinitely and the deduction is limited to 80% of taxable income.

 

While this summary is not comprehensive, we hope it will help you understand upcoming changes to your tax liability. As always, we are available to discuss your circumstances and how this new law may affect you.

Read more