One of the main advantages to having your business taxed as an S-Corporation is that you can potentially reduce self-employment tax.
For example you will end up paying self employment tax on 100% of what you make in a sole-proprietorship. Where as if you have an S-Corp you have the opportunity to pay yourself as the business owner and pay self-employment tax only on the income you allot for yourself.
In general it is safe to start your business as a sole-proprietorship. However, when your business reaches a point when you would like more control over your tax liability be sure to connect with your accountant to discuss options with your business titling.
It is helpful to understand the many factors that go into the selection process for IRS Audits. In general everyone can be audited - however some people are at greater risk.
Tax Return Selection Process for Purposes of IRS Agent Audit:
· Not necessarily available to the public
· Some tax returns are selected randomly
· Most audit cases: returns have line items that are “out of the norm”
Sorge CPA has several teams who put extra care into your tax return. Your personal team is devoted to eliminating mistakes and also being aware of current updated tax law involved with every new tax return.
· Answers the Question: How much money you will make this year
· Most familiar to people
· Explains: income - expenses = bottom line
· Answers the Question: Where did the money go?
· More in depth understanding of expenses
· Explains: dollars going into things like debt, inventory, or supporting the clients lifestyle.
There are many worthy accounting software programs available. We recommend Quickbooks for small to medium sized businesses. At Sorge CPA we will host your quickbooks file for you remotely this proves to be an advantage in the following ways:
1. Quickbook files are accessible anywhere through a secure icon.
2. Quickbook files are backed up off site continuously.
3. Paperless! There is no need of paper delivery of your documents.
4. Your team at Sorge CPA can efficiently complete your work in real time.
5. Payroll services can be added.
6. No ongoing fees for the routine hosting of your files.
Our accounting firm's main focus is to have strong communication with our clients. We accomplish this in two main ways:
1. Using Large Firm Resources + Cultivating Small Firm Attention
2. Taking Advantage of Technology
Sorge QuickBooks Online (SQBO) allows our firm to unite technology with our main objective of staying connected with you.
· Allows us to host clients QuickBooks file on our server.
· Allows for simultaneously access for both client and us.
· Client can access their file from anywhere in the world.
· We can access clients file for advisory and tax planning purposes.
SQBO becomes extremely valuable when their are questions or for an opportunity to educate a client for best practices.
It shows each category of the assets owned, such as:
· accounts receivable
It also shows each category of liabilities involved, such as:
· accounts payable
· payroll tax liabilities
· loans payable
The Balance Sheet can helps answer the questions:
· Where did the profit go?
· Did cash increase?
· Did loans decrease?
· Did the owner draw funds out of the business?
· Was cash used for fixed assets?
The balance sheet allows us to understand basic things about a business. Comparing balance sheet year-to-year shows the financial structure and stability of the business.
By analyzing an income statement, we can find answers to questions like:
· Is the % of Gross Profit compared to % Gross Income higher or lower than last year? Why?
· How do unique core differentiators impact the gross profit margin?
The analysis of each line item in the income statement compared to the prior year is important.
Ratios,help to compare each income and expense item to the total business income.
The relationship between the expense items and the revenue items is critical in helping businesses become more profitable.
For example: If we are able to increase revenue without increasing certain expenses the business will become more profitable.
Income statements are used to show the gross income, expenses, and net income. Depending the nature of the business the cost of sales (a subtotal of gross profit after direct expenses of sales) may be applicable. Through a careful analysis, they can help reveal ways to imporve your business.
Every business needs to be analyzed carefully in order to both grow and maintain growth successfully. Here at Sorge CPA we offer to help you plan in a way that allows you to expect greater profit margins and overall business health. The profit planning process should be done after tax season to allow for a clear understanding of what is happening within the business. Here is our process.
Review the income statement and balance sheet. This helps to determine the gross profit margin and overhead costs.
Calculate sales needed to reach net income goals. Using the historical information allows us to create appropriate sales goals for you.
State the sales goal. This can be in annual or monthly terms depending on the type of business and the seasonal sales that may occur.
Analyze the gross profit margin for potential improvement. Based on historical income and cost relationships we analyze the gross profit margin in terms of improvement. Profit margin improvement is possible when unique core differentiators are identified and communicated to your customers in a way that they will understand the value of your product or service.
Consider line by line potential improvements. This is done by going through your balance sheet and income statement to see what changes could be made to improve profitability.
We consider profit improvement strategies and the investment required in order to implement these strategies. Is there a better way of completing a task(s) within your business? We can go over potential investments for your business and how they could help you profit more in the future.
Tasks are then assigned with deadlines. Ideally, profit planning sessions will occur multiple times a year in order to assess your business.
We want your profit margins to continue to grow year-round.Planning for this allows it to be an expectation rather than a variable.