What If I Get An IRS Tax Audit And I Have No Receipts?

What If I Get An IRS Tax Audit And I Have No Receipts?

Receiving a notice of audit can inflict fear on any small business owner. It can be even worse if you receive an audit notice and do not have any receipts to support the deductions you have claimed for your business. If you are being audited and do not have receipts, there are some ways you can reconstruct your records to support your expense deductions. Here is what you need to know from our tax professionals at TMD Accounting.

 

 

What is an Audit?

Taxpayers have the responsibility to file returns and pay taxes to the IRS each year. They can also write off work-related expenses to offset a portion of their taxes. When the IRS reviews the deductions taxpayers have claimed and the taxes they have paid as a result, the agency sometimes finds some missing or unclear reporting of income or itemized deductions it believes warrant additional scrutiny. When the IRS follows up on these types of issues through a formal inquiry, the process is called an audit.

In most cases, the IRS will send an audit notice to the taxpayer within seven months of when the tax return was filed. However, the agency can send a notice within three years of the return’s filing date. The notice always comes in writing in a letter and not via a phone call. In the letter, the IRS will inform the taxpayer that it intends to conduct an audit and will ask for specific types of documentation for the taxpayer to provide within 30 days of the notice. If you have received an audit notice but need more time to organize your materials, you can request an extension of 30 days.

 

 

What To Do If You Don’t Have Receipts

Receiving an IRS notice that you have been chosen for an audit might be concerning especially if you have missing receipts. However, the IRS might allow you to substantiate some of your expenses in other ways. You will only need to present evidence that the business expense deductions you claimed were valid. If you do not have receipts, you will need to reconstruct a history of your expenses.

It is a better idea to recreate your business’s expenses at the time you are preparing your taxes when you do not have receipts than to wait until you receive an audit notice. Don’t base your deductions on an estimate to ensure that the expenses you deduct can be substantiated if you are chosen for an audit later.

 

 

How to Reconstruct Records For The IRS

It is important to get started immediately to reconstruct your expenses for the audited tax year when you receive an audit notice. It can take some time to recreate your expenses, and starting immediately can help you meet the response deadline.

You can reconstruct your records or provide a good explanation of your deductions. If the IRS rules against you, you can file an appeal. You might also have to argue against an assessment of penalties by presenting facts about how you tried to comply. In many cases, having no records can result in a 20% penalty for negligence.

Follow the tips below to reconstruct your business’s records in response to an audit:

  •  Review your credit card and bank statements – Checking your credit card and bank statements can help you identify different expenses you have paid. They can also be a substitute if you have lost your receipts.
  • Ask for copies from suppliers and vendors – Suppliers and vendors might have duplicate copies of your invoices and receipts. You can ask them if they can provide you with copies.
  • Review your appointment books – If you have claimed travel and meal expenses, you can look at your old appointment books to find relevant information about your travel, its frequency, and the number of clients for whom you provided services.
  • Look at your cell phone records – Your cell phone records might help you to establish your service dates and help to reconstruct your business expenses.
  • Use online map tools to reconstruct mileage – Use map tools online to substantiate your mileage claims. Do not estimate the number of miles traveled per week and multiply it by 52 to arrive at your mileage deduction. Instead, take into account holidays and other periods during which you did not travel for work.

If you estimate your expenses in a different way than the IRS, make sure to draft a declaration and sign it under oath.

 

 

About The Cohan Rule

Lost and missing receipts is a very common issue. The United States Court of Appeals for the Second Circuit created a rule in 1930 about how the IRS should move forward in those types of cases in its decision in Cohan v. Commissioner, 39 F.2d 540 (1930). In the case, George M. Cohan, a Broadway actor, claimed business deductions without documentation. He claimed that he didn’t have enough time to document all of his entertainment and travel expenses that he deducted on his income tax return. The IRS tried to disallow all of his deductions, but the court found that it was clear that he had incurred some expenses even if the exact amounts could not be substantiated. The court then outlined the Cohan rule through which taxpayers without receipts can still claim reasonable and credible expenses.

If you don’t have receipts, you will not be allowed to claim all of your expenses, however. Instead, the IRS will only allow you to deduct the minimum standard amount for the service or item based on its calculations. The U.S. Tax Court has limited the use of the Cohan rule in several decisions and has stated that taxpayers should supply information to support their expenses.

 

 

What Happens After The Audit?

After your audit, one of the following three things will occur:

  • Your audit ends with no changes if the IRS substantiates your return.
  • You agree to the IRS’s proposed changes and pay what you owe or set up an installment agreement.
  • You disagree with the IRS’s proposed changes and either appeal the decision or ask for a conference with a manager at the IRS.

Unless the IRS determines that you engaged in tax evasion or tax fraud, you don’t need to worry about going to jail. In most cases, you might owe some taxes and have to pay them.

 

 

Find an Accountant for Your Small Business

If you have received a notice of an audit, you should talk to TMD Accounting about our small business accounting services. Call us today at 1-856-228-2205 to request a consultation.

How to Manage Daily Restaurant Finances

How to Manage Daily Restaurant Finances

With fantastic staff members, world-class dishes, and acclaimed drinks, you can deliver an amazing dining experience to your customers. It might seem glamorous, but plenty of hard work goes on behind the scenes. The restaurant industry is challenging. Managing your finances is vital to running a successful business. If you don’t control that, it could spell disaster for your restaurant. Here are a few tips for managing the daily finances of your restaurant.

 

Understand Your Costs

Managing a restaurant is complex. The first thing you want to do is understand all of your costs. Those costs cover everything from labor to raw materials. You will also have to factor in additional expenses, such as utilities, rent, and equipment rental costs. With all of these expenses in mind, you can create a budget and effectively manage your finances.

Some costs are constantly changing. You need to be aware of variable and fixed costs. Variable costs can vary, but you can control them. For example, food is a variable cost. If the costs are too high, you can always go with another supplier or switch out menu items.

Fixed cost is a little different. These expenses will not change as you operate the business. Fixed costs include the payroll and overhead. Rent and your employees’ salaries will remain the same, whether there are customers or not.

With that in mind, you can start to budget your monthly costs. While these expenses can change over time, you have a basis to manage your finances.

 

 

How To Manage Daily Restaurant Expenses

Now that you have a basic understanding of your finances, you can do certain things to track those costs. Think about using small business accounting services to handle these tasks for you. With that, you can focus on other aspects of your business.

Whether you use a professional or not, here are some of the best ways to manage these finances.

 

1 – Budget Your Expenses

If you want to manage your finances, you need to budget them. Since you already know your fixed and variable costs, you can work around those figures to round out the budget. Make sure to budget all of your money and keep track of every expenditure. With a solid budget in place, you will know how much to spend on food, labor, and other essentials for your restaurant.

 

2 – Maintain a Cash Flow Statement

Along with a budget, a cash flow statement is equally important. With these statements, you can see how those daily activities impact the amount of cash for your business. A cash flow statement will tell you whether money is going out or coming into your business. Plus, a cash flow statement gives you the amount of cash on hand. Consider this statement to be a health checkup for your restaurant. A cash flow statement can give you an idea about where your business stands so that you can make plans for the future. Additionally, you will know where you can spend more money, such as hiring more employees. These statements are essential because cash flow will always affect the budget for your restaurant.

 

3 – Keep Payroll and Food Costs Under Control

Payroll and food costs can be hard for many business owners to control. Like cash flow, you need to be vigilant about these two parts of your expenses. Managing the staff’s schedules can be challenging. You need to have plenty of people on hand to make a memorable experience for your customers. However, you don’t want too many employees standing around with no business.

The same can be said for food costs. You want to have plenty of items to create your amazing dishes. Without customers, all of that food can go to waste. While it can be tricky for even seasoned owners to manage these costs, take a look at your daily reports. They can help you determine whether you need additional food or workers for the upcoming week.

 

4 – Check Your Reports Daily

Always be in the habit of managing all of your accounts on a daily basis. With that, you can clearly understand your expenses and sales. You will be able to track whether the restaurant is performing well or struggling for the day. If you notice a pattern in your sales, take a deeper look. You might be able to find a few areas to cut to help perform better with sales. You will not find these answers in a weekly or monthly report. You need to remain watchful and check those reports every single day.

In addition to that, you can plan and project your sales while cutting down on unnecessary expenses. Think of the daily sales report as a report card. It is not a final grade but a starting point where you can improve to help break even or turn a profit.

 

 

How To Break Even With Your Restaurant

When your expenses match the sales, that is known as the break-even point. At this stage, you are running a successful business. Before reaching the break-even point, you need to project all those costs in your restaurant’s budget. Since restaurants are all different, they will have different break-even points.

A quick-service restaurant will usually take three to six months to reach that level. Casual dining establishments can expect to reach the break-even point at 18 months. Finally, a fine dining restaurant breaks even at the two-year mark.

You can prepare for those expenses when you know the average break-even point. You never want to run out of money. When that happens, you cannot pay vendors, employees, or rent. By understanding the break-even point, you can plan for these slow times and keep track of your goals.

Managing a restaurant’s finances is tricky. With these tips, you can get a clearer view of your restaurant’s financial picture.

 

 

Need an Accountant for your Small Business?

At TMD Accounting, we have served the Gloucester County community for over 40 years. We are a flexible, affordable, and reliable solution to help manage your bookkeeping and payroll services. Schedule a consultation by calling 1-856-228-2205.

 

How Far Back Can You Get Audited?

How Far Back Can You Get Audited?

Many small business owners find tax season to be stressful. Filing taxes can be even more stressful when you consider the potential of an audit. The Internal Revenue Service (IRS) announced in late 2020 that it planned to increase the percentage of small business audits by 50%. While your chances of being audited are still relatively low, it is still a good idea to ensure that your books are in order to reduce your risks in case you are selected. Here is some information from TMD Accounting about how far back the IRS can go if it decides to audit your business.

 

 

How Far Back Can The IRS Audit You?

The general statute of limitations for an IRS audit is three years under 26 U.S. Code § 6501, which means that the IRS can audit your tax returns for the most recent three years. However, there are multiple exceptions to this general rule. For example, if an auditor determines that you have made substantial errors on your returns, they can add more years to the scope of the audit. According to the IRS, it will generally not go back more than six years unless the agency suspects that you might have committed fraud or have failed to file your required tax returns.

 

 

Statute of Limitations on IRS Tax Audits

As previously noted, the IRS generally has a three-year statute of limitations for tax audits from the date you file your return or the date that it is due, whichever is later. For example, if you file your tax return early, the statute of limitations will run from the due date rather than your filing date.

If you substantially understated your income, the statute of limitations for an audit is six years. A substantial understatement of income occurs when you omit 25% or more of your income. If you failed to file a tax return, the IRS will not have a statute of limitations to audit you since the time period will not start running until a return is filed. Similarly, if you filed a fraudulent return, the IRS can go back and audit it regardless of how long ago it was.

 

 

What Triggers an Audit?

In a majority of cases, the IRS chooses returns to audit randomly. However, the following red flags can increase the likelihood that you will be audited:

  • Failing to report all income
  • Being a high-income earner
  • Claiming a large charitable deduction
  • Making calculation errors
  • Claiming excessive deductions
  • Filing schedule C as a self-employed taxpayer
  • Claiming the home office deduction
  • Claiming deductions for business travel, meals, and entertainment
  • Claiming that a hobby is a business
  • Claiming you used a personal vehicle 100% for your business
  • Claiming the Earned Income Tax Credit (EITC)

The IRS distinguishes between businesses and hobbies by using a standard for profitability. If your business was profitable for three out of the past five years, the IRS will likely consider it to be legitimate. If your business claimed losses for three of those years, the IRS might consider your business a hobby and select you for an audit.

 

 

Tips For Avoiding Tax Audits

Here are some tips for avoiding a tax audit.

  1. Avoid Reporting Net Annual Losses

Reporting small net annual losses for your business can trigger an audit. While you have to report all of your income, you are not required to report all of your expenses. It might be a good idea to leave some of your expenses out if doing so will allow you to report a small net profit.

  1. Specify Your Expenses

As much as possible, avoid categorizing your expenses under “other expenses” on your return. Instead, explicitly list each expense by itemizing them.

  1. Provide Additional Detail as Needed

If you had a major drop or increase in a category of expenses, you should attach additional paperwork to your return to explain what happened in detail. This might help to answer questions an IRS agent might have about the sudden changes if your return is triggered.

  1. File Your Returns on Time

Filing your returns and paying your taxes on time shows a history of compliance. This might help to avoid a potential audit. You should also try to avoid amending your returns to help establish your history of compliance.

  1. Double-check Your Paperwork and Math

Make sure that the numbers on your forms match what you report on your return. You should also double-check your calculations to ensure that you have not made any math errors. The numbers you use for deductions should also vary from year to year. Don’t claim the same numbers for your deductions from year to year.

  1. Avoid Claiming Excessive Deductions

Don’t claim excessive deductions by overestimating your donations, meals, travel, or home office expenses. If you claim excessive amounts on your deductions, your return could be triggered for an audit. Similarly, claiming many deductions you haven’t claimed before can also make it likelier that your business return will be audited.

  1. Don’t Leave Blanks On Your Tax Form

You should answer every question on your tax form, including those for which your answer is $0. Leaving blanks could result in an oversight that triggers an audit.

 

 

How Do I Find an Accountant for My Small Business?

Working with a qualified accountant to prepare your business tax returns can reduce your chances of being audited since your returns should be fully accurate. While there will still be a chance that the IRS will select your business’s tax returns for an audit, having the help of the small business accounting services at TMD Accounting can help you to achieve a better outcome if you are audited. Call us today for a consultation at 1-856-228-2205.

 

Ultimate Guide to Car Tax Deductions and Mileage

Ultimate Guide to Car Tax Deductions and Mileage

If you use your vehicle for business purposes as a part of conducting your small business, you can claim vehicle-related tax deductions. While you might not give tax filing season much thought throughout the year, you can reduce your business’s tax liability and maximize the deductions you can claim by keeping accurate records year-round. Keeping records about your business’s use of your vehicle can help you potentially save hundreds of dollars through the mileage tax deduction. Here is some information about the mileage tax deduction, how to track mileage, and whether you might qualify to claim it.

 

What Is the Mileage Tax Deduction? How Does It Work?

The mileage tax deduction is a deduction that can be claimed on your tax return as long as you use your vehicle for business purposes and meet certain conditions. You can deduct your mileage if you drive your vehicle for qualified business purposes.

The Internal Revenue Service (IRS) sets the standard rate each year. In 2022, the mileage rate is $0.58 per mile. You calculate the deduction by multiplying the rate by the qualified miles you drove for business purposes. You can also choose to use your actual expenses instead of keeping logs of your mileage. We’ll discuss this more below.

 

Who Can Deduct Car Expenses?

You do not have to use your vehicle all of the time for your business to claim the mileage tax deduction. You can claim the deduction for trips you take to purchase supplies for your home office and other similar trips even if you primarily work from home. However, commuting to and from your home and a separate office does not count, and you can’t claim those miles. If you work from a home office, you can count the mileage between your home and any work-related errands or meetings.

 

Which Car Expenses Can You Write Off?

There are expenses you can deduct only when you use the actual expense method and some that you can deduct with either method. If you use the actual expense method, it will replace the mileage deduction you would claim if you used the standard mileage method. You can write off the following expenses with the actual expense method:

  • Fuel
  • Vehicle lease payments
  • Auto insurance
  • Vehicle maintenance costs
  • Depreciation

You can also write off the following expenses under either the standard mileage or the actual expense method:

  • Tolls
  • Fees from the Department of Motor Vehicles
  • Parking
  • Car washes

If you use the actual expense method, you will have to calculate the percentage that you used your car for business purposes. Estimate how much of your mileage on your vehicle is used for business purposes instead of commuting or personal tasks. You don’t have to be exact and can guesstimate.

 

How to Write Off Car Expenses: Actual Method vs Mileage Method

You can either use the standard mileage or the actual expense method. To use the standard mileage method, you can keep a vehicle mileage log in your vehicle or on your smartphone. With this method, track every mile you drive for business purposes and multiply the total by the standard IRS mileage rate.

With the actual expense record, you won’t have to track every mile you drive. You will instead just determine the business-use percentage of your vehicle and your vehicle-related expenses and write off the percentage you can allocate to your business use.

The actual expense method is simpler for most people since they don’t have to keep logs of their mileage. In most cases, the actual expense method will also result in a larger deduction. However, if the following situations apply to you, the standard mileage method might be a better option:

  • You drive more than 30,000 miles per year for work
  • You have a gas-efficient, older vehicle and won’t benefit from depreciation
  • You have an electric vehicle and do not have gasoline expenses

Even if you do have an electric car, you might still benefit from the actual expense method if your vehicle is fairly new since electric vehicles are generally expensive to purchase.

 

Find an Accountant for My Small Business

Calculating the mileage tax deduction can be complicated whether you are using the standard mileage method or the actual expense method. In addition to the mileage tax deduction, there are also other deductions you might be eligible to claim for your business. The small business accounting services from TMD Accounting can help you to reduce your tax liability while maximizing your deductions. Contact us for an appointment today by calling us at 1-856-228-2205.

What Information Does My Accountant Need To Prepare My Business Tax Return?

What Information Does My Accountant Need To Prepare My Business Tax Return?

As a small business owner, knowing what you need to gather to file your business tax returns can seem difficult. Keeping accurate records throughout the year can go a long way to helping your business at tax time. If you are a new small business owner, filing taxes for your business for the first time can be overwhelming. Changes in the state and federal tax laws can also make tax filing even more daunting for business owners who wait until the last minute to pay taxes and then have to scramble to gather all of their receipts, calculate business income and profit and loss statements, and figure out the transactions your business has conducted during the past year. Here is some information from our accounting professionals here at TMD Accounting about tax filing for small businesses and the documents your accountant will need.

 

Why You Should Work With an Accountant

Many small business owners don’t have a good understanding of business taxes and finances, making it likelier that they will make mistakes when they file their business tax returns. You might also miss some business tax deductions that could reduce the amount your business might have to pay. It will likely be in your interests to retain an accountant to help with your business taxes. An accountant can help you identify the documents and information you will need to file your return and pay your taxes so that you can focus your attention on your business’s day-to-day operations.

Working with an accountant will cost less if you gather as much information as you can before you meet with the accounting firm. Since businesses differ from each other, so will the information that you might need to bring with you to your accountant’s office. However, some general information your accountant will need includes information about your business’s profits and losses, gross income, records of goods your business sold, client invoices, sales records, salaries, receipts, and your business’s tax return from last year if applicable. While you can try to file your business taxes yourself, your business might end up paying significantly more than you should if you instead work with an accountant who can identify credits and deductions that your business can claim.

 

Tax Filing Dates For Businesses

Businesses have different tax filing deadlines based on how their businesses are structured. They also have to pay different taxes and file different forms based on their business entity whether their business is structured as a limited liability company, sole proprietorship, S corporation, partnership, or C corporation.

You might need to pay the following five types of taxes for small business owners:

  • Self-employment tax
  • Employment tax
  • Excise tax
  • Estimated tax
  • Income tax

Once you have calculated your earnings, deductions, and credits, the following forms and dates apply to the different business structures:

  • Sole proprietorship or single-member LLC- Report business profits and losses on Schedule C filed with the business owner’s personal income tax return on April 15 of each year
  • Multi-member LLC- Use Form 1065 and Schedule K-1 for each member and file by March 15 each year
  • Partnership – Form 1065 and Schedule K-1 for each partner due either on March 15 or on the 15th of the third month following the end of the business’s tax year
  • C corporation – Form 1120 due on April 15 or four months following the end of the corporation’s tax year
  • S corporation – Form 1120 S and Schedule K-1 for all shareholders due by March 15 or three months following the end of the company’s tax year
  • Self-employed – Form 1040-ES each quarter to pay quarterly taxes

 

What Documents Do I Need to File Business Taxes?

Instead of waiting until the last minute and feeling stressed out, you should gather the documents your accountant will need well in advance. With some basic organization and preparation, you can make filing your business taxes less of a hassle. Gather the following documents for your accountant:

  • Identification information – Social Security number and identification card (driver’s license, state-issued ID, military ID, green card, passport, or etc.)
  • Past year’s tax return if applicable
  • Profit and loss statements
  • Gross receipts from services or sales
  • Accounts receivable if using the accrual accounting method
  • 1099-INT for business accounts or business bank statements
  • Information about business assets
  • Receipts
  • Beginning and ending inventory amounts
  • Inventory purchases
  • Advertising expenses
  • Phone, computer, and internet expenses
  • Travel expenses for business travel, including mileage logs and maintenance records for business use of a vehicle locally and airfare and hotel expenses for travel out of the area
  • Contract labor expenses for amounts paid to subcontractors
  • Fees and commissions
  • Business insurance
  • Office lease expenses
  • 1098-T to calculate home office deduction
  • Payroll expenses
  • Employee benefits paid for employees
  • Estimated taxes paid

 

Additional Tips About Filing Taxes

If you work with your accountant throughout the year, filing your business taxes will be much easier. You can send your accountant your business’s bookkeeping records for reconciliation throughout the year so that you will have a better idea of where your business’s finances stand. Your accountant can also advise you about the types of records to keep and ways you can claim deductions you might not be aware of. The key is to keep accurate records, save receipts, and keep your business’s financial records organized.

 

Get Help From an Accountant for Your Small Business

When you are trying to run your business, thinking about filing business taxes might seem overwhelming. TMD Accounting’s small business accounting services can help your business to file accurate and on-time business tax returns. To learn more, contact us today at 1-856-228-2205.

10 Steps To Effective Restaurant Accounting

10 Steps To Effective Restaurant Accounting

A successful restaurant business needs up-to-date accounting records. These records can help you assess the state of your restaurant’s finances and ensure profitability for years to come. Tracking your finances can be challenging, especially if you are not diligent about keeping records. If you are a restaurant owner, here are 10 tips to be more efficient with your accounting.

 

Create an Effective Accounting Strategy

As you already know, accounting is complicated for many business owners. You have plenty of work on your plate. Adding in accounting responsibilities can be a hassle. You might want to consider hiring small business accounting services for your restaurant. However, you don’t need an accountant to implement these tips into your financial strategy.

 

10 – Make a List of Your Expenses

You will want to perform a general accounting analysis of your finances. Take an in-depth look at your business. Make sure to list all of your suppliers and any other expenses you may have for the month. You always want to examine your restaurant’s profits and losses. With those numbers, you can create an effective strategy for your accounting.

 

9 – Look at Daily Sales and Costs

Restaurants can lose money when they don’t track daily sales and expenses. You need to have control of everything that leaves and enters your business. It can be easy to skip a day and forget to enter something in the books, but that is a big mistake. You don’t want to have any big surprises at the end of the month. By working with a reliable point of sale (POS) system, you can access all of those variable and fixed expenses. Many of these systems filter the information by date, time, and items. Plus, you can often analyze that data from a mobile device or computer.

 

8 – Keep the Payroll Updated

Payroll is more than handing out checks at the end of the week. You will have to deal with all of the legal responsibilities of paying employees. Make sure to prepare your payroll before the pay period. Being organized can help prevent any issues. You want to ensure that deductions, hours, and payment dates are all correct in your system. While you could handle this task on your own, some programs will take those numbers and plug them into the right spots. With that, you can be sure that all of the information is correct for your restaurant.

 

7- Set a Schedule

It is essential to keep a schedule. You never want to wait until the end of the month to review your finances and run those reports. Every week, take some time to schedule payments, evaluate your restaurant’s performance, and review any accounting tasks. As a business owner, you always want to respect this schedule. Letting anything slip through the cracks can lead to a financial headache.

 

6 – Digitize Your Invoices

In a restaurant, you are working with fresh ingredients. Unfortunately, the costs of raw materials can change throughout the year. Keep in mind that there will constantly be fluctuating prices. Digitizing your invoices can help you track those costs, especially when you work with several suppliers. If you already have a POS, the process is as simple as taking a photo and uploading it to the system. With that, you will know whether your food costs are rising throughout the month.

 

5 – Choose the Best Accounting Program

All restaurants are not the same. For that reason, you want to choose an accounting system that works for your business. There are several accounting programs on the market. Find one that can adapt to the size and needs of your restaurant. At the minimum, choose one that can assist with invoicing and payroll. If you need help selecting the right system, reach out to your accountant for some suggestions.

 

4 – Outsource the Accounting

While accounting software and POS can help you, it might be time to outsource those responsibilities. An accounting expert will be able to analyze the restaurant’s financial health. With their assistance, payroll, taxes, and even financial management will be in the hands of a professional. When it comes time to choose someone, make sure that they have experience with businesses in your industry.

 

3 – Don’t Wait Until the Last Minute

As you already know, you need to have constant control over your restaurant’s finances. Constantly monitor your expenses and costs throughout the week. With that information, you can compare your sales against other periods in the month or year. Waiting at the last minute to analyze data can hurt your finances. You don’t want to discover a mistake that could cost hundreds of dollars to fix.

 

2 – Review Accounting on an Accrual Basis

You never want anything to get lost. For that reason, stick to accrual-based accounting. Evaluate the data when you receive or spend income. Accrual accounting gives you a more accurate picture of your actual expenses and income.

 

1 – Always Avoid Cash Accounting

While cash accounting is the simplest form of accounting, it is not an accurate method to keep track of your financial activities. Cash accounting does not cover any of those delays involving payment plans or credit accounts. With that, you never have a complete picture of your expenses and income. Cash accounting is easier to manage, but you should avoid it at all costs.

 

 

The Bottom Line

If you want to grow your restaurant, you need to create the right accounting strategy for your business. By understanding your financial picture, you can make decisions for your business. The proper accounting methods allow you to analyze your current sales trends and track all of that valuable data for your restaurant. With these tips, you can efficiently manage all aspects of your restaurant’s accounting.

 

 

Need an Accountant for My Small Business?

If you are ready to take control of your restaurant’s finances, reach out to an experienced accountant. At TMD Accounting, our team has over 40 years of experience helping small businesses in the Gloucester County area. We can assist with taxes, payroll, and other financial management matters. Schedule an appointment by calling 1-856-228-2205.

 

What Is The Biggest Expense For A Restaurant In South Jersey?

What Is The Biggest Expense For A Restaurant In South Jersey?

When it comes time to budget for your new restaurant, you need to understand those expenses. Some of the apparent expenses are labor and food costs. Plus, there are other expenses that you need to consider, such as utilities, equipment upgrades, capital improvements, and supplies. If you want to know the biggest expense for a restaurant in South Jersey, keep reading this article.

 

Several Expenses To Consider

Once you open your restaurant, there will be no shortage of expenses. The mortgage, leases, and insurance costs are often fixed. However, others can fluctuate, like utility bills, food costs, and hourly wages. Along with that, you need to think about those unanticipated expenses. A clogged pipe, food spoilage, and broken equipment will cause a well-planned budget to go off track. When it comes time to create a restaurant’s budget, consider all of those costs to avoid future financial trouble and help better manage your expenses.

 

Determine the Fixed Expenses

When you list your fixed expenses, you know they fluctuate from month to month. These expenses include loan payments, mortgages, and rent costs. Salaried labor can even fall into this category. Other fixed expenses include membership fees, license fees, and insurance premiums. In many situations, fixed expenses are only paid once per year, but you need to keep them in the budget to account for those costs.

 

Note the Fluctuating Costs

There are many fluctuating costs in the restaurant industry, including hourly wages, utilities, and food prices. With the start-up of a new restaurant, it can be challenging to predict fluctuating costs accurately. After a few weeks or months, you will be able to better budget for all of those costs, based on the sales in your restaurant.

 

The Biggest Expense for South Jersey Restaurants

For any restaurant, food and labor are the most significant expenses. You don’t want to focus on the hard number but look at the percentage. For example, you might want to keep your food costs to less than $5,000 per week. You can reframe that by focusing on the percentage. Create a goal that food supply orders shouldn’t be more than 30 percent of your weekly sales. You want to do the same for your labor costs. Make sure to keep that labor at less than 30 percent of your restaurant’s total revenue. Keep in mind that there will be some weeks when your costs and sales could dip or rise. With that, your percentage might not exactly match up with the 30 percent goal.

If your labor and food costs are more than 30 percent of your sales, it is more than likely that the restaurant will remain profitable. It can take a few weeks or months for those new restaurants to see a trend develop for their weekly sales. New restaurant owners need to track their spending during those first few months after opening. When you need a bit of assistance, small business accounting services can help you track all of those expenses.

 

Keeping All Costs in Check

Unfortunately, you might find out that your costs are rising, but there is no corresponding boost in your profits. When this happens, it can be concerning, and you need to make a few changes. You might want to cut back on your food orders or reduce payroll expenses. While you need staff members and supplies to keep the doors open, trimming down those expenses can help lower your costs below that 30 percent mark.

There are a few ways to make those cuts. You will want to review the food order before submitting it. Some items might not be needed for the kitchen. Take time to check those schedules for the staff. Some weeks might be oversaturated with crew members. Your managers are often not prudent with money. For that reason, you need to have a handle on your expenses. If you want to outsource the job, make sure to connect with an experienced accountant or bookkeeper.

You should also check out those other areas in your restaurant. Make sure that supplies are being used and not wasted. When you reduce spoilage in the kitchen, it can also help to save money. You can outsource some jobs for your restaurant. For example, if you are paying staff to do the laundry, consider looking into a cheaper alternative by outsourcing the work.

Costs will vary depending on the type of restaurant. Food trucks have fewer labor costs than a traditional family-style eatery. Those food costs will be higher for a fine-dining restaurant than a hot dog joint. For that reason, you want to focus on the percentages rather than a dollar amount when you need to plan a budget.

 

Issues for South Jersey Restaurants

New Jersey is not known for being friendly to businesses. Remember to budget the fees and other costs for municipal licenses. If you don’t plan for these expenses, you could be blindsided when going through the proper regulatory procedures.

Many restaurants in New Jersey have opened as bring your own bottle (BYOB) establishments. With that, you can avoid the liability and expenses of a liquor license. If you want to serve alcohol in the restaurant, you will need to obtain a permit, which is another expense. Plus, you may want to pay for your employees to get a certificate to serve alcohol to the customers.

Along with these costs, think about hiring an attorney and accountant. These professionals should be familiar with the hospitality industry. They can help educate you on food costs and liquor distributors to save on expenses. You want to ensure that you join the New Jersey Restaurant and Hospitality Association to connect with other professionals in the industry.

 

Need an Accountant for Your Small Business?

If you are opening a new restaurant in South Jersey, you need to find an experienced accountant. At TMD Accounting, we have over 40 years of experience helping small business owners with financial management, tax services, and payroll. You can schedule a consultation by calling 1-856-228-2205.

Does Every Small Business Need an Accountant in New Jersey?

Does Every Small Business Need an Accountant in New Jersey?

If you have started your business in New Jersey, you might want to hire an accountant. Many successful companies work closely with an accountant. While there are helpful accounting software platforms, you need to understand how to work with these packages. An accountant gives you a personalized touch that you cannot find within the software. Let’s look at a few reasons why you need an accountant for your small business in New Jersey.

 

Do You Need To Hire an Accountant?

When you hire an accountant, it can save your small business a lot of money and time. Don’t forget an accountant can prevent any financial headaches. There are several times when you need an accountant for your business.

One necessary time is at the formation of your business. An accountant can help you write a business plan. Yes, you need a business plan, even if you are not looking at funding. If your business plans to rent out manufacturing, retail, or office space, the landlord could require you to have this plan. All successful businesses have a predetermined plan in place. With this plan, you can reach those goals rather than trying to wing it.

All businesses need to determine their entity structures. Many companies start out as sole proprietorships, but certain financial situations require creating an LLC for financial and legal protection. Plus, your business needs all of the appropriate licenses, including business licenses, sales tax permits, and employment accounts. Every state and city has different requirements for business. An accountant can cut through all of that red tape and make sure your business starts out on the right foot.

Remember that accounting software? While you can go it alone, an accountant can help you choose the right software for your business. These software packages are easy to set up, and they can keep track of your financial records. You will still need to delegate some of those financial responsibilities to your accountant, but the software can help you keep track of paperwork and other receipts for your business. You don’t want to set up your business accounting software by yourself. An accountant can establish your charts of accounts, and they might even be able to train you on how to use the software correctly. If your accountant doesn’t offer this service, they might recommend an experienced bookkeeper to help with the initial setup.

 

Help With Tax and Compliance Issues

Now you have a written business plan and gathered all the required licenses and permits. Even your bookkeeping software is ready to go, but you still need the help of an accountant. Unfortunately, there are plenty of stumbling blocks along the way for new businesses. You should never try to figure out these issues by yourself.

Small business accounting services can assist with these complex sales tax issues. In the United States, sales tax compliance can become a headache, especially if you plan to ship products out of your home state. You want to make sure that your business complies with all applicable tax laws. While you can find software to help with these issues, you still want an experienced accountant to keep your small business on the right and legal path.

Payroll is another complex issue that you will not want to handle without a bit of assistance. Labor and wage compliance issues can cause problems for the most profitable businesses. Like sales taxes, you can use a variety of programs and apps to help your business remain compliant. However, a trusted accountant will be able to look over your records and make sure that everything is obliging with the local and state laws.

There are other reporting requirements to consider for your business. Some licensing agencies and creditors will require that you meet specific criteria. In some states, there are tax liabilities that you must meet. If you do business in more than one state, an accountant can determine if you have other financial responsibilities and liabilities.

 

How Accountants Can Help Every Small Business

With an accountant, you have someone who will review your financial situation every year. You don’t want to plan for tax time right before those quarterly taxes are due. Along with that, there are certain compliance issues, like payroll tax underpayments, that you can quickly fix throughout the year. If you wait until the end of the year, you might face penalties and other issues with these reports.

Meeting with an accountant can keep your business on the right track. With a quarterly meeting, your accountant can make sure your business grows in the right way. Too much growth can actually hurt your bottom line. With the assistance of an accountant, you can ensure that your business is on the right path.

Throughout the year, you will need to pay quarterly taxes. When your income for the business increases, your tax liabilities will increase as well. Those initially estimated tax payments might not cover all of your liabilities, especially if you have a surge in business. A regular meeting with your accountant can prevent any unexpected underpayments during tax time.

Finally, an accountant can guide your small business. While you might understand your business, it is hard to look to the future. An accountant will look at that big picture for your business so that you can focus on continuing its growth.

 

Find an Accountant for My Small Business

Every small business could use the help of an experienced accountant. Even if you want to figure out your financial picture by yourself, you need an accountant in New Jersey to provide you with the right advice for your business. Think of an accountant as a small investment to ensure healthy growth in your company’s future.

With over 40 years of experience in Gloucester County, TMD Accounting has been helping individuals and small businesses with their financial needs. Our team can assist with tax services, payroll, and other financial matters. If you would like to schedule an appointment, please give us a call at 1-856-228-2205.

What Are the Different Ways to Calculate Depreciation?

Over the useful life of an asset, there will be some depreciation in its value. Due to wear and tear, the asset value of an item will decrease. There are many ways to determine the depreciation value of an asset. Some of these depreciation values are only applicable to specific industries. With these depreciation methods, you want to make sure to choose the one that offers the best economic benefits for your company. Here are a few tips that you need to know about calculating the depreciation value of your assets.

 

Five Types of Depreciation

Before you can calculate depreciation, you should know about the various types. There are five types of depreciation, including:

  • Units of productions
  • Straight-line
  • Sum of the years’ digits
  • Declining balance
  • Double-declining balance

 

Let’s look at how to determine these values.

 

Units of Production Depreciation Method

This depreciation method uses the expected number of units produced as the basis for your calculation. With units of production depreciation, the more units made, the more depreciation expenses can be charged. The depreciation expenses are calculated using the total number of units produced in a certain period of time compared to the expected number of units that the asset will produce over its useful life. You can use that rate to multiply with the asset net cost. Make sure to use the following formula:

Depreciation expense = unit production rate / units produced x cost + residual value

Between all of the depreciation methods, the units of production depreciation model are the most difficult to determine because the company must decide how many units the asset can produce over a specific period. For example, if your company purchased a machine for $40,000 and was expected to produce 1,000 units over its lifespan, it has a residual value of $2,000.

 

Straight-Line Depreciation Method

Straight-line depreciation is a little easier to determine for your business. This method spreads the costs of assets evenly over the asset’s useful life. The depreciation expenses are fixed for every year. With that, the depreciation expenses are the same from the first year to the end of its lifespan. Straight-line depreciation is the most common depreciation method used by companies and accountants. You can determine straight-line depreciation by using this formula:

Depreciation expenses = fixed asset cost – residual value / useful life

For example, a company bought a delivery truck for $45,000 and planned to use it for five years. When the company is ready to sell after the period, they list it for $1,000. The straight-line depreciation would determine the depreciation as $45,000 minus $1,000 and multiply by 5 (years). The depreciation value would be $8,800.

 

Sum of the Years’ Digits Depreciation Method

The sum of the years’ digits method for depreciation focuses on the fact that the fixed asset’s productivity will decrease over time. The depreciation amount of the fixed asset is higher in the early years, and depreciation will reduce as time passes. The type of depreciation sums up each digit of the year, from the ending years to the first year. For example, if your asset has a useful life of five years, the sum of the year’s digits depreciation would amount to 15, which comes from 5 + 4 + 3 + 2 + 1 = 15.

 

Declining Balance Depreciation Method

The declining balance depreciation method reduces the net book value of the fixed asset by a fixed percentage rate. With these methods, the depreciation amounts tend to be higher in the early years of the asset. The amount of the depreciation will decline or reduce as time passes. The method assumes that the fixed asset is more beneficial to a company when it is new. Declining balance depreciation uses the following method:

Net book value = cost – accumulated depreciation

For example, if a company bought a machine for $25,000 for production, they can expect the device to last for eight years with a residual value of $800. The company estimates that this machine will depreciate at a rate of 35% on an annual basis. The depreciation value will stop when the net book value is less than the residual value. In this case, the net book value would occur after the eighth year, when the depreciation value is $797. If the asset does not have a residual value, the depreciation will stop when the net book value is insignificant.

 

Double-Declining Balance Depreciation Method

As the name suggests, double-declining balance depreciation reduces the net book value of the fixed asset by a fixed percentage rate. The fixed depreciation rate for this method is double the amount of a straight-line depreciation rate. Along with that, the double-declining balance depreciation method also charges a higher depreciation amount in the first years. The formula to determine double-declining balance depreciation is as follows:

Depreciation expenses + net book value + depreciation value

For example, when a company purchases a computer, they expect to use it for about four years. By the time the company sells the computer, the company expects the sale price to be $150. Before you can determine the double depreciation rate, you need to figure out the initial depreciation rate, which would be four years = 1/4 = 25%. After that, you can determine the double depreciation rate at 25% x 2 = 50%.

 

Why You Need an Accountant for Determining Depreciation

As you can already tell, determining the depreciation value for your asset can be a challenge. While some formulas are easy to calculate, others can be highly complicated. An accountant knows which formula to use for your business. Plus, these professionals have experience calculating these numbers to get the correct amounts for your depreciating values. If you want a reliable way to calculate deprecations, make sure to use small business accounting services.

 

Need an Accountant for Your Small Business?

Depreciation can be tricky to calculate for your business. For that reason, you will want to speak to an experienced accountant. At TMD Accounting, we have over 40 years of experience in Gloucester County. Our team has helped individuals and small businesses manage their financial books. You can schedule a consultation by calling 1-856-228-2205.

How is the Depreciation of Construction Equipment Calculated?

How is the Depreciation of Construction Equipment Calculated?

When you think about depreciation, it sounds like a complicated business term. Once you understand how this term is essential for your construction company, you will come to appreciate depreciation. Construction equipment costs money. When equipment is sold, the price diminishes. Depreciation is the value deducted from the initial costs over the lifespan of the equipment. If you want to calibrate your equipment’s depreciation accurately, make sure to keep reading this article.

 

What Is Equipment Depreciation?

Equipment depreciation shows how much value your equipment loses on a yearly basis. Unfortunately, your equipment is worth less than when you first purchased it, no matter how much you maintain the asset.

With depreciation, you can tell how much value your asset loses over a period of time. Depreciation allows you to plan for maintenance. In some cases, it might not be a financially feasible decision to maintain the equipment when the asset loses much of its value. As the older equipment breaks down, it is often a wiser choice to purchase a newer model.

Along with that, depreciation can help with your taxes. You may be able to write off the equipment as a company expense, saving your business money. In some situations, you can choose to spread the costs over several years instead of making a one-time payment. With depreciation, you will need to determine the exact costs of your construction equipment to figure out its value.

 

What Information Is Needed To Calculate Depreciation?

Calculating depreciation is a straightforward process if you have all the required information. However, there are some criteria. You can only depreciate construction equipment that is expected to last for more than a year. Plus, this equipment must have a useful lifespan that you can put into a number. You must own these assets. Along with that, these assets must be used to help your construction company earn revenue. Any equipment that doesn’t meet all of those criteria cannot have its depreciation calculated. There are several methods to determine your construction depreciation.

 

Cost Value

If you want to know the value of your construction equipment, you need to know its purchasing price. The cost value is the value of the initial purchase price, including transportation, taxes, and set-up fees. Anything that your company purchases can be considered an asset of the business.

Before you can start depreciating equipment, you need to know how much you paid for it. You want to make sure you have receipts and other proof of purchases for your equipment. For example, if your construction equipment has a purchase price of $5,000, and there were additional costs, such as $400 in taxes and $400 in transportation costs, the total cost of the asset is now $5,800.

 

Salvage Value

With salvage value, that is an estimated sale amount for your asset. Mostly this value is calculated at the end of its useful life. In construction accounting, you can receive the amount after the typical useful life period of the equipment. If you want to calculate this value, you will need to use this formula:

Salvage value = cost value – (annual depreciation x useful life)

If you have construction equipment that you bought for $200,000, you can use the depreciated value at $18,000 for every year, adding up to a total of $180,000. According to the formula, you should be able to sell the equipment for $20,000 after 10 years. Remember that salvage value is just an estimate.

 

Book Value

Finally, the book value is the value of the construction equipment used for tax purposes and not the resale value. This value is determined by small business accounting services to find out the amount to write off for depreciation. You cannot calculate the book value of items that do not depreciate, such as money. If you want to calculate book value, use this formula:

Book value = cost value – (annual depreciation x age)

For example, if five years ago, you purchased construction equipment for $20,000, it will depreciate about $2,000 every year. With that, the book value would be $10,000. When you purchase the equipment, the book value is also known as the cost value. After a certain period of time, the book value might only equal the salvage value.

 

How To Calculate Depreciation for Construction Equipment

Now that you know about values, you can start to calculate depreciation. One accounting term is called “useful life” depreciation. This is how long the piece of equipment is expected to last before you need to replace it. You can measure the useful life in years. Even the IRS uses useful life values to determine how long the asset can be depreciated. The age of the equipment at the time of purchase, equipment usage patterns, and technological advances can affect the useful life of an asset.

Straight-line depreciation is calculated by dividing the cost of the construction equipment by the number of years for its estimated life. The construction equipment will depreciate equally over its useful lifespan with the straight-line depreciation model.

Finally, the declining balance depreciation method is based on an accelerated depreciation calculation. The cost of the equipment is not distributed over a period of time. Instead, the depreciation is determined early in the life of the equipment. The rate of depreciation will decrease over time. Equipment that is used more heavily during the early years of its lifespan will use the declining balance depreciation method.

 

Determining Depreciation Is Important

With equipment depreciation, you can write off the cost of the equipment over several years. Some methods allow you to determine depreciation at various rates. Figuring out depreciation can be challenging for many construction companies. With that in mind, you might want to let a small business accountant determine those sales for your construction company.

 

Let Us Help With Depreciation

At TMD Accounting, we have served the Gloucester County area for over 40 years. Our team has helped small businesses and individuals with their payroll, taxes, and other financial matters.

Need an accountant for my small business? Make sure to schedule a consultation by calling 1-856-228-2205.

1 2 3 4 5