Outsourcing accounting and bookkeeping services has never been more relevant. Recently, an article was released in Bloomberg News on June 28, 2021, titled “The IRS is Hiring Thousands of New Tax Auditors.” The news article states that “The IRS small business and criminal investigations divisions are adding thousands of new tax enforcement employees as the agency seeks to rebuild the roughly 17,000 audit staff lost in the past decade…”
This is no surprise, especially because the audit rates have dropped the past few years. The table below tells the story.
|FY 2016||FY 2017||FY 2018||FY 2019|
|Total Returns Filed Prior Calendar Year||147,964,324||149,919,416||150,043,227||152,624,939|
|Total Audits Conducted||1,034,955||933,785||892,817||680,543|
The IRS has simply not had the funding to hire replacements to keep the audit staff needed to complete the audits that it wants. As a comparison, in 2010 the IRS had a percentage audited of 1.11%. The audit change rate is between 81% and 89% of all audits. The average amount owed in a field audit was $85,400. The Treasury estimates that there is $1 trillion of revenue that is not being captured and they want that money.
Have you asked yourself how your business would fare in an audit? Well, you may have to soon enough. Businesses have been able to be lackadaisical about their financial records, but they may need to assign more importance to outsourcing accounting and bookkeeping services to get back on track.
You may ask what Outsourced Accounting has to do with this audit stuff. Well, the key is to make sure that your accounting is solid and that you have all the receipts needed to substantiate the expenses are “ordinary and necessary” to be deductible expenses.
The problem with most internal accounting staff and bookkeepers is that they may not be aware of changes to the tax code, and this lack of knowledge impacts the tax preparer’s ability to properly do their job. Well, for an outsourced accounting firm like Unalp CPA Group, Inc., it is our responsibility to stay current with these changes in order to protect your company and ensure the best results. For many clients, we do both the outsourced accounting and the tax return for the company. That means that we understand that we need to have costs going to the right accounts, all the costs have to be substantiated, and we need to be able to do tax planning in order to allow shareholders or members to keep more of their money legally.
This all starts with ensuring that we have the accounts to capture the appropriate information for the return. For instance, in 2021 certain meals are at 100% deductibility and some are at 50% deductibility. Most restaurant meals are 100% deductible. However, your accounting staff may be putting them in the 50% deductible category and you may be losing 50% of the deductions for your meals.
Another example is entertainment. It could be either 100% deductible or 0% deductible depending on the type of entertainment and who is attending. Imagine finding out during an audit that it is 0% deductible, but you have it in the 100% deductible category.
Many tax preparers will not take the time to sort out whether something is 100%, 50% or 0% deductible. This is especially true when there are many transactions. They expect you to represent to them that your purported deductions are correct. In addition, going back through to make certain all the expenses were properly categorized can be time-consuming and expensive.
How can you make sure you get the correct deductions when it is time to prepare the tax return. You have to have the right people, processes and systems. Most companies today are 0 for 3 on this matter. The people they have on their internal staff are accountants or a bookkeeper and they may not have visibility or understand the tax issues. The processes are likely designed for financial accounting and not tax accounting. Finally, their systems are inefficient and outdated (think Quickbooks).
An outsourced accounting firm like Unalp CPA Group, Inc. has a playbook to make sure that we get the people, processes, and systems correct from the beginning. How do we do that?
We make sure that all of our people get the correct training so we can identify important areas in your books that need to be adjusted so we can get the right kind of output. That means training our people to ensure that they understand the differences in these seemingly small tax issues.
We then make sure our processes are correct. We know our processes are effective because we have not had an adverse audit comment from any auditor. We look at the financial and tax internal controls to make sure that our processes are yielding the correct data.
Finally, we ensure that we have the correct systems. We use Xero, Intacct and Quickbooks. Most CPA firms use only Quickbooks because that is all they know. Each system has its strengths and weaknesses. It is important to know what those are so you can fit the client in the right system. We also use a bill payment system (Bill.com) and an expense system (Expensify) so you can substantiate all your expenses properly in case of an audit. We have been working with cloud accounting systems for 15 years.
Don’t put your company in a poor audit position. Instead, become audit proof and improve your accounting and tax planning in the process. It is likely that improving your audit defense and your accounting will help save money for your company.
Outsourcing Accounting and Bookkeeping Services
Want to know more about how outsourcing accounting and bookkeeping services can save you money? Contact us at Unalp CPA – we’ll be happy to answer any of your questions. You can contact us by calling (925) 574-8855.