Cabin Business

Local accountants recently shared how small businesses can save money on business taxes and use good accounting practices.
Michelle Phillips, CPA, said a good place to start is keeping organized records.
“The majority of businesses in Conway are small businesses,” she said. “They may not even know where they are (financially). They may think ‘If I still have money in the bank, I’m OK.’”
Phillips suggested having an accountant do quarterly or year-end planning. Many business owners do not see their CPA until tax time, she said.
“Year-end planning must be done before year-end. I think people get so busy and caught up in their life, they don’t think about it in October, November, December. They think about it when it’s time to bring us their records. All I can do about it then is try to do some planning throughout the year,” she said.
Phillips said business owners can save money with year-end planning.
“If they come to me in October and they have a big profit, let’s say it’s a construction company and there’s a big piece of equipment they need. I may say let’s go ahead and buy this, because we have the option of immediately writing it off.”
A CPA can also advise business owners on using a combination of options for deduction from fixed assets to maximize savings, she added.
Retirement plans are also deductible from business taxes if the employer matches part of the employee’s contribution, she said.
“If they want to do a retirement plan, even if they only have two employees, it’s something their employees are going to be grateful for and want to participate in, and it helps them from a tax perspective because it’s another expense for them if they match their employees’ contribution,” she said.
Phillips said businesses can also contact their CPA to make sure they are getting the benefit from their charitable contributions.
She added, “A lot of times, people are almost afraid to contact their CPA, because they’re afraid of the cost, but they can end up spending as much or more because of penalties and interest if the reports are incorrect or not timely. I hate penalties and interest, because it’s throwing good money away.”
Barbara Money, CPA, discussed changes in business taxes.
The taxable wage base for each employee is increasing in 2010 from $10,000 to $12,000, she said. The last increase was in 2004.
“For most employers, this means an additional state unemployment tax. As far as having employees, it will cost the employer more. The federal unemployment tax remains the same,” she said.
The American Recovery and Reinvestment Act, passed in February, created, extended or expanded a variety of business tax deductions and credits, Money said.
A health insurance credit is included. If an employer provides 65 percent of COBRA premium subsidies to eligible former employees, they can claim a credit for the subsidy on their quarterly employment tax returns, Money said.
The AARA also includes incentives for individuals who invest in small business. Investors in a qualified small business stock can exclude 75 percent of the gain upon the sale of the stock, she said. The incentive applies to stock purchased after Feb. 17 of this year and before Jan. 1, 2011, and the stock must be held for more than five years.
“If you already owned small business stock that qualifies, the exclusion rate remains at 50 percent,” Money said.
Theresa Clark, director of internal audit at Home BancShares, discussed using internal audits and dealing with external audits.
“An internal audit is part of an organization’s risk management program,” she said. “For a publicly held corporation that their stock is traded on the New York Stock Exchange, the NYSE requires you to have someone who evaluates your controls. A private company may not be required but could benefit from the evaluation, implementation, testing and monitoring of internal controls. Internal controls are there to make sure your business is able to achieve its goals and objectives, so it would be a benefit to know that is working appropriately.”
She noted some companies have an internal audit department on their payroll, while others outsource it.
“If you don’t think you can justify employing someone year-round, you can go to an accounting firm. It’s a lot like outsourcing payroll,” she said.
External auditors, on the other hand, focus on financial statements and issue an opinion.
“Typically an external firm will provide a list of what they need, including financial statements, account reconciliations ... Make sure you have someone to gather it in a format they can easily access. They get paid by the hour, so be organized,” Clark said. “Documentation of everything you do is key. Leave an audit trail. They may be looking at something from three months ago.”
External auditors can ask for documentation for up to 12 months prior, so having an appropriate record retention policy is important, she added. Invoices should be detailed enough to show what was purchased, she said.