Every year people and businesses file their tax returns…happy that the horrible task is over for another year. But sometimes, individuals or companies forget to report all income, or remember something that should have been deducted AFTER the return is filed. If that happens, you must file an amended tax return. Of course it’s scary to do that since you are obviously notifying the IRS that they should check your tax return very carefully because you made a mistake on it the first time. Don’t panic. Here are some tips on what to do if you must file an amended tax return:

There are several reasons why a small business or individual may have to file an amended tax return. Here are the four most common:

• You forgot to include all income
• You realized that you claimed deductions that are not valid
• You did not claim all of your deductions or credits that you are owed.
•  You claimed the wrong number of dependents.

It doesn’t matter whether the mistake is something that you will end up paying or the IRS will have to pay. Either way you should be filing an amendment. Download amendment form 1040X from the IRS Internet site: http://www.irs.gov/pub/irs-pdf/f1040x.pdf. It isn’t too difficult to complete. Use the numbers that you used in your original tax return and then enter the corrections. Adjust the tax you owe or are owed and that’s it! You must always mail an amended return; electronic filing is not allowed at this point for this return.

To avoid filing an amended return, of course you must check and re-check everything on your original tax return. However, everyone makes mistakes and the IRS understands that. Just file the amended return as soon as possible and be done with it.

It’s important to communicate effectively in all aspects of life: personal, political, business, etc. You can often measure the success of a small business by the way it conveys its mission and message to others. Whether talking to the public sector or letting your employees know that a policy change has been made, communicating well is key to having a thriving company. That is why it is critical to have a dynamic Public Relations arm as well as a dedicated Employee Communications rep. Communication takes many forms these days…..newspaper articles, press releases, blog posts, social media conversations, journalist outreach, company newsletters, etc. A good PR campaign is essential for a small business and should embody the following:

Identify your audience: You can’t be everything to everyone. Take some time to understand your audience and target those who will specifically respond to your product or service. Look at the demographics; you may have to stick with a certain age group, ethnic group, sub-culture, etc.

Target industry publications, local newspapers, etc. Many local publications are happy to print articles, announcements, ideas, etc. for free just to have the content to fill up their paper. What are you waiting for? Make a list of each local publication, what kind of information they like, and start writing, or get someone to do it for you. This is a great way to get free publicity.

Develop a plan. What do you want to accomplish with your PR plan? How can you generate press attention, whether in a newspaper, a TV or radio spot or a blog post? These vehicles are more important to people than paid advertising so it will serve you well to develop a media strategy.

Develop relationships with reporters. Another free way to get press and have people notice your company is to become friends with reporters and journalists. They often have deadlines and must come up with some interesting articles. Why not one on the interesting innovation you are implementing that has never been done before? Or a story on how your company helped build houses for homeless people in Nicaragua as part of your International Help Campaign?

Become an expert in your field on LinkedIn. People look to experts for information. Why not be the person/company to give it on LinkedIn? LinkedIn is the most professional of the social media sites. You get a lot of “street cred” if people realize that you know what you are talking about. Doing this also helps you get closer with your customers. When it comes time for them to purchase a service or product, they’ll be coming to you rather than an unknown competitor. Attend industry events and trade shows in your area. Go to all the trade shows, events, and parties in your field. Let people know who you are. Go back and talk about your experience on your social media sites. Engage people in conversation who attended the show. The more you get out there and show your stuff, the more people will come to you to get it.

Write articles for sites like www.Ezinearticles.com. This is another great way to establish yourself as an expert in your field. The more places your name/company shows up, the better off you are.

Issue press releases. Press releases always help, when written correctly. Give your point of view on a news development in your field. Remark about a new product or service. Have something better than the competition? You can say that too.

Prepare for a crisis. Don’t just react when it happens; have a plan in place to communicate with your key stakeholders, whether employees, customers or investors. Understand what you will do when something terrible happens (Remember when the bottom fell out of the real estate business back in 2007? Those real estate agencies who were ready with a crisis plan are the ones still in business. The others are gone.) Who is the representative of your company who will speak to the press during the crisis? Will you tell employees about an upcoming layoff? What will you say to your customers if you have to raise your prices 40%?

Connect with people on Social Media sites. Build a strong Twitter following and promote your company on LinkedIn and Facebook. Get people talking about you and your product or service.

Start writing a blog and do it at least once a week. The content doesn’t have to be the same every week…expand a little. You can write about things “outside your box.” For example, if you offer financial services, of course you should enlighten your clients about all things financial. But it’s also acceptable and even appreciated when you give your customers something “extra,” like how to organize their offices, how to be productive, how to deal with difficult employees, etc. The more personal and helpful you can be (rather than just spouting off on the specific info of your field), the more well received your blogs (and your business ) will be.

Build a community connection. Scout out ways to participate and help the community in which you live. You can volunteer, attend community clean-ups, or even sponsor your own idea to bring the community together (one woman we know started a crazy vehicle community race where the participants had to create something that would get you from the starting point to the end – about a mile – and after three years now, it is one of the highlights of the year for many. And guess what? The whole thing is attributed to her, which made her a very well-known and beloved part of the community).

These communication ideas will help you gain presence in your industry. You may come up with other ideas on your own or talk with others to see what’s working. Remember – communicating correctly is one of the most important accomplishments of a successful company!

To determine whether or not your small business is doing well financially, you must read and analyze particular reports frequently. In a typical small company, your focus may be on fulfilling customer requirements and meeting your deliverable promises. You may have a limited number of employees to do a lot of work, which increases the possibility for errors. Financial reports are vitally important to the future health of your small business. If you don’t know how to generate or read the reports, hire someone who can do that and report the results to you. Virtualis Bookkeeping (www.virtualisbookkeeping.com) is one such company that can take care of everything for you. If you decide to analyze the reports yourself, here are some important items to evaluate:

Income Statement. This statement states your profits and losses in column form with the headings revenue and expenses. A comparison of these two elements (subtract your expenses from your revenue) will tell you whether your small business is performing well or not. The income statement tells you if your assets are growing or shrinking over a specific time period chosen by you. It can be a month, a year, etc. Other factors listed on this statement include net sales, gross income, operating income, operating expenses, taxes, etc. Ideally you should review this information as often as possible. Once you have been in service for years, this statement helps you calculate the percentage change in your company’s net sales, operating expenses and operating income. With this, it is much easier to establish a budget, decide where you should reduce expenses, and where you might have to allocate more money.

Balance Sheet. This report lists the company’s assets, liabilities and your equity (the difference between your assets and liabilities and reflects your company’s financial health. By looking at this report, you can tell if your debt is under control. Here’s what you’ll find on a balance sheet:

• Assets: This is what the company owns, including furniture, machinery, computer equipment, etc. There are two types of assets, current and fixed. Current assets are converted into money within a year, while fixed assets refer to property that generates income and are not expected to be sold within a year.
• Liabilities: These are the debts that the company must pay and are divided into current liabilities, which must be paid off within a year, and long-term liabilities, which the company can pay out over more time.
• Owner’s Equity: Once you have invested funds into a business, you have a sum of assets and liabilities. Generally, a business must be funded to make it operational before it can start acquiring assets. The owner’s equity is the value that remains in a business after subtracting the liabilities from the assets.

Cash Flow Report. This report tells you how you use your cash. It is organized within a specific accounting period into three categories: operations, finance, and investments. These categories are added together to determine an amount of money that is tallied with the cash reserves at the beginning of an accounting period. Some items in a cash flow report include: cash given to employees (operating expense), cash you are going to use to buy machinery or computer equipment, etc. (investments) and cash provided by the owner (financing).

Each small business owner should have a complete understanding of these reports to accurately assess the success of his/her company. Go to http://www.virtualisbookkeeping.com and sign up for a free consultation on how to get your small business bookkeeping and accounting systems up and running at a fraction of the cost.

Starting a new business and you don’t know much about bookkeeping yet? Join the club…many small business owners don’t know the first thing about the subject. Here are some bookkeeping terms that may help you get started….

When you set up your bookkeeping practice, you need to keep supporting documents in case the IRS requests an audit. SUPPORTING DOCUMENTS can be sales slips, proof of bills you paid, invoices you’ve sent out, receipts from all purchases, bank deposit slips and cancelled checks (unless you can get these easily electronically from your bank). You should keep all of these supporting documents in clearly defined categories, whether in physical file folders, or scanned and kept in electronic archives. For example, if you buy computer paper, pens, envelopes, etc., you would put the receipt in a folder called “Office Supplies.” If you purchase a computer desk and chair, you can place that in a folder called “Furniture.”

The income you earn from you business are your GROSS RECEIPTS. All of this paperwork needs to be saved as well, and includes bank deposit slips, invoices, some email records, and cash register receipts, credit card receipts, etc.

PURCHASES are what you buy to manufacture your finished product to sell to customers. This can include the cost of raw materials, parts, etc. Your SUPPORTING DOCUMENTS for this category must show the amount you paid for each purchase. This may include cancelled checks, cash register receipts, credit card receipts, email records, invoices, etc. All of this information will help you determine your inventory value at the end of the year.

The costs you take on to maintain your business and keep it moving are your EXPENSES. Again, the SUPPORTING DOCUMENTS for this category must show how much you paid for each item. Examples of expense documents can be cancelled checks, cash register receipts, credit card receipts, invoices, account statements and the amount in your petty cash box for small purchases.

You should always have a PETTY CASH FUND to make small purchases without having to write a check. Don’t forget to complete a petty cash slip every time you remove money, and add the receipt as proof of purchase.

If you want to deduct TRAVEL, TRANSPORTATION, ENTERTAINMENT and GIFT expenses, you need to keep your records a little more detailed. For example, if you take a client to lunch, you should record the name of the client, why you went to lunch and what you discussed.

All the things you own to run your business, such as your computer, fax machine, office furniture, etc. are considered your ASSETS. You must keep records to compute the annual depreciation to determine if the sale of these assets (should you decide to sell them) constitute a gain or a loss. Your records must show when you purchased the item, how much it cost and where you bought it. Examples of SUPPORTING DOCUMENTS for this category may include sales invoices, real estate closing statements, cancelled checks, etc.

This is just a quick look at some basic bookkeeping vocabulary terms that you should know. The bottom line in bookkeeping is that you MUST keep good records, which means collecting everything, categorizing the items, and guarding them in a safe place.

Most entrepreneurs consider bookkeeping a necessary evil at best, or an unimportant part of the business at worst. This could not be further from the truth! Small business owners must embrace the bookkeeping and accounting tasks and keep perfect records, as they are essential to the company’s financial survival! If you keep good records, you will be able to…

Monitor how your business is doing. Determine if business in improving, which products are selling and what changes you may need to make.

Prepare accurate financial documents. You need certain statements if you want a loan, or you are looking for investors. These include: profit and loss report, balance sheet (assets, liabilities and business equity), income statement (income and expenses for a period of time), etc.

Identify the source of your receipts. Use this information to separate personal and business receipts and taxable/nontaxable income.

Examine your deductible expenses. If you don’t keep good records, you will forget many of your deductible expenses by the time you prepare your taxes. And of course you want as many legal deductions as possible!

Prepare your tax return. If you decide good record-keeping is not for you, how do you expect to complete your tax return accurately? How will you know which deductions you can subtract from your gross income? You may end up paying thousands of extra dollars per year in taxes if you don’t have good records. And what if the IRS requests an audit? Without the proper information, you’ll be out of luck and probably strapped with a big fine!

Okay. If you are now convinced that you should keep good financial records to maintain a successful business, here are some basic bookkeeping tips about keeping those records:

• Check your records (money coming in and going out) each day if possible.
• Make sure to identify all sources on your receipts.
• Record your expenses as soon as they occur.
• Maintain complete records for all assets.

Keeping records properly means that you will have to store all the records: receipts, bills of sale, invoices, deposit slips, canceled checks, etc. Some people have them scanned and then save them in an offsite area, but choose the method easiest for you. You may also need these documents and papers if the IRS requests an audit of your business. The bottom line? It’s in your best interest to maintain perfect financial records for your small business.

We can all look back and think of a time when we made a huge money error. Buying a house at top market price. Investing in a company IPO that went nowhere. Throwing money at a deal that sounded too good to be true. Taking out a second mortgage to take that big vacation you always wanted. Most financial advisors worth their salt will tell you to forget about these…everyone makes mistakes. But the biggest errors most people make – and these can be life altering – are overlooking some simple, yet important safeguards for your financial security. Are you guilty of avoiding the obvious?

You are not alone if you have failed to take the most basic, yet important steps toward securing your financial future. These steps take no investment knowledge and are simple to put in place, yet many (too many!) people neglect to see their importance. Here are four details you should not ignore:

Saving for retirement. Are you a small business owner? You should NOT miss the opportunity of making a contribution to an IRA, SEP or 401(k) plan! It is in your best interest to put in as much money as you can to these accounts each year. The benefit? These plans are tax-deferred and since they represent a tax deduction each year, you get to lower your adjusted gross income (paying lower taxes now) and you will also pay fewer taxes on the accounts when you retire and withdraw the money because your financial bracket will likely be different.

Being insured. Some people don’t realize just how important having insurance is in the U.S. There are countless stories of lives being ruined just because of an outdated or insufficient insurance policy. Review your current policies. You probably have opportunities to upgrade poor coverage or even to do away with a policy that no longer serves you. You should at least see what you actually have insured. Make sure you, your property (home, car, liability), and your small business have insurance policies. And shop around to upgrade what you have…there is quite a bit of competition out there and you shouldn’t have to pay outrageous prices for adequate coverage.

Paying taxes properly. Don’t complete your tax return at the last second. That is when you make major mistakes. Your CPA can only work with the information you provide, and if you work in a rush you can forget some major deductions and end up paying higher taxes. Call your CPA and ask if there is a worksheet you can use to identify all the items you can deduct. Or have a meeting to discuss your best options. Completing your tax return is not rocket science, but unfortunately with the countless tax laws and changes each year, it is wise for you to get some help and save some money!

Forgetting to update your beneficiaries. If you own property, a 401(k) or IRA (etc.), life insurance policies, bank accounts, and other items “of value,” you should always make sure that your beneficiaries for each are updated. There are so many stories of ex-spouses or disowned children getting the bulk of an estate simply because the owner of the account failed to change the beneficiary at the right time. We all have changes in our lives, relatives die, people move on…it’s your responsibility to see that the right people are listed as beneficiaries on your accounts.

Review these things today and you will immediately upgrade your personal financial health. Try to keep up with this each year and you won’t be affected by the bad money mistakes that many people make.

Computing “in the cloud” means that you run your computer applications over the Internet, saving you from having to buy specific programs for your computer and/or managing your own server. All you need is a browser and an Internet connection. This concept has changed how we do business. Will it be good for you? Read about what you can expect when “computing in the cloud.”

Lower overhead. Just think…you won’t have to maintain, upgrade or fix software anymore; that’s done by the cloud vendor.

24/7 access. All authorized people associated with your small business can have access to the same data 24/7. This helps you grow your business effectively and allows you to support a dynamic mobile sales force worldwide.

Higher availability. Cloud software must be competitive to get your business and as such, they must offer the highest availability possible. Cloud architectures must provide maximum performance and excellent data security, which is often cost prohibitive to small businesses.
Security. Most small business owners want total security for their data, including frequent backups and disaster recovery. While many cannot afford total and comprehensive security, cloud vendors must provide this as a competitive advantage.

Faster. Installing, troubleshooting, then maintaining servers and software within your own company takes months and causes many headaches. You’ll be up and running much faster with commercial applications by going with a cloud vendor.

Better cash flow. With cloud computing, you pay as you go so you are not putting up a great investment up front for large systems, hardware and software. This method is much more flexible and benefits you with a better cash flow.

Lower electric consumption. Cloud computing lowers the amount a small business spends on electricity by eliminating the need for hardware onsite. This can save thousands of dollars per year.

Business control. You don’t need to use your own costly IT services to keep your systems running. Leave the nitty-gritty system maintenance that often takes up too much time to the cloud computing guru. And now, you can focus on your most important task: running your business, initiating new plans, services and products. You will always be in better control of your business with cloud computing. Finally, you will never outgrow your cloud vendor, as “cloud” data centers are springing up everywhere.

Technology is always changing at a rapid pace. Take the time to sit down and determine if “cloud computing” is right for your small business.

Your business plan is just an idea until you start plugging in the numbers. The financial section of a business plan is extremely important since it’s the section that investors and bankers look at. But that does not mean that you should put in numbers to make your company look good; if you do it right, the financial section will tell you whether or not you should stay in business.

Even though you will include financial projections in the form of profit and loss statement, balance sheet and cash flow, this section of your business plan is not accounting. Accounting looks back at what you’ve done (e.g., for the past year) while business planning looks forward. The financial section of your marketing plan uses far fewer details than your accounting summaries and is your best educated guess of how your business will do, given the information you currently have.

General rules? Tell the truth. Companies have the tendency to want to look better than they really are. But if you manipulate the information it will just turn around and bite you. If it’s difficult to tackle all of the details, break the figures down into measurable components (by sales or target markets, etc.) and offer real estimates. Many people start in one place but then go back and forth depending on what numbers they discover. Others prefer to follow a methodical, in-sequence plan that they can easily follow. Here’s how you can start the financial section of your marketing plan.

Create a sales forecast. Use a spreadsheet to forecast your sales for three years. If possible, try to include the following in the chart: unit sales, pricing, calculated sales (units x price), unit costs, and calculated cost of sales (units x unit cost). You generally include cost of sales because eventually you will calculate gross margin, which is the result of sales – cost of sales.

Devise an expenses budget. You must understand what it will cost you to make the sales forecast that you did. You can list fixed costs (rent, payroll, etc.) and variable costs (promotion/marketing expenses, utilities, etc.). Lower fixed costs translate to less risk. Remember that this is still a forecast, and thus you are still making that educated guess about the future. Multiply estimated profits x your best guess tax percentage rate to land at a tax rate. Then multiply estimated debt balance x estimated interest rate to arrive at the interest you will have to pay.

Generate a cash flow statement. This is the famous statement that indicates how much cash is moving in and out of the business. Still making a good guess, you can base this data on sales forecasts, balance sheet items, and other assumptions you are making in your marketing plan. If you have been operating for awhile before you decided to do this work, you have some history and documentation from the past to help you determine the cash flow. If you are just starting out, you’ll want to project a cash flow statement out for 12 months. Remember to choose a ratio for how many of your invoices will be paid in 30 days, 60 days, etc. You don’t want to be surprised when you’ve estimated that 100% of your invoices will be paid in 30 days and you only collect 65% in that time period. How will you pay your bills? Be realistic.

Determine your net profit. Using sales forecast, expense projections, and your cash flow statement to determine your gross margin (sales – cost of sales). Then subtract your expenses, interest and tax from the gross margin. This is your net profit.

Create a projected balance sheet. You need to do this to take into account assets and liabilities that don’t fall within the profits or losses so you can project the net worth of your business at the end of each year. Start-up assets are more obvious than other costs, like repaying the principle on a loan. Inventory shows up as an “asset” until you have to pay for everything. Begin with your assets and estimate what you’ll have each month in cash, accounts receivable (money that people owe you), inventory, and other assets like land, buildings, equipment, etc. Then figure out your debts (accounts payable) or items that you owe because you haven’t paid your bills yet.

Make a break-even analysis. This is when your business expenses match your sales or service volume. Using the three-year income projection will allow you to make this analysis. If you are going to have a good run with your business, at a certain point your overall revenues should exceed your overall expenses, including interest. This is important information for potential investors who will want to know that they are investing in a viable business poised for growth.

Rather than creating this financial section of your business plan and then leaving it, we recommend that you look at it once a month. As you get some real data, fill in the numbers and use this information to make more valid projections for the future.

Enhance your financial plan. There are also other things you can do. Complete a financial statement analysis to make comparisons of your statements over time. You can even compare your business to other similar companies. Discover what the prevailing ratios are in your industry for liquidity, profitability and debt and compare them to your own. This will also help you determine how your business is doing from year to year, in regard to your own growth and to the industry’s growth.

Finally, you can do all of this manually, but it is tedious. There are several software packages on the market that will help you create these reports quickly if you are computer-savvy. Or you can outsource this part of your business and leave the headaches behind. Call Virtualis Bookkeeping services (800.459.1081) now for your free phone consultation or write us at info@virtualisbookkeeping.com. Let us save you time and money and allow us to streamline your bookkeeping, accounting and tax tasks. Contact us now – it might be the best thing you ever did!

We all know that we have to hang on to our financial documents for at least six years after the due date because that’s how long the IRS has to do an audit. And for assets such as stocks, a house, etc., you need to keep the records for as long as you own them and then an additional three years. When you are talking about financial documents, you should always be organized and keep them carefully filed. But what about the others that have nothing to do with your tax return?

But there are a number of other business records and financial statements that you don’t seem to need and don’t appear to have any connection to completing your tax return. What about those? Each type of document has its own specific time limit. Stock and bond reports, copyrights, patents, trademarks, contracts and any other legal documentation, and bylaws (etc.) should be kept forever. You can keep mortgage payments and note agreements for six years from the expiration date. If you run a small business, keep personnel files at least four years from the employee’s date of termination.

If you receive a pension or profit-sharing arrangement, those papers should be kept forever. The IRS could demand an audit and ask for these records so keep them in a safe place. You should keep life insurance policies for the life of the policy plus three years. For all other types of insurance, accident or incident reports, file the paperwork for six years. Settled legal claim documents should be kept for at least four years after the settlement date.

If you have any pension or profit-sharing records, you should keep these indefinitely, as these records may reflect taxable income. The IRS could initiate an audit and ask you to provide these records, so be sure to keep them organized and secure.

So what do you do with this mountain of paperwork? If you don’t have room to store all of your data every year, or you move often and might lose them, or you worry about theft or fire, there are offsite storage solutions and online storage solutions that you can look into. The bottom line is that if you are not sure how long to keep non-tax documents, either look up the answer or just hold on to all of your documentation!

Be prepared when you complete your 2011 tax return. Here are some tips that may help you.

If your company is a family business, make sure family members keep separate bank accounts. The IRS looks especially hard at businesses where employees are family. To make sure you never have a problem, each person should have a separate checking account and the business should have its own account. Never let family members pay for business items from their personal accounts. If you do things the right way, the IRS should never have to bother you about this.

If you have a tiny company, be careful making payments to independent contractors. The IRS is always looking for phony deductions. Make sure this doesn’t happen by sending each independent contractor a 1099 and make sure they validate the payment by sending back a signed form 4669. Always be sure you have documentation to back up your financial transactions.

Collect your money immediately, if possible. It’s not fun, but necessary. If you have outstanding invoices, it’s better to track them down sooner rather than later. Statistics show that after two months, you will not be able to collect on about 10% of these receivables. After six months, that goes up to 33-67% uncollectable. Start your collection campaign right after the first payment is missed.

Back up each year’s tax information to protect your financial files. If you are ever audited by the IRS, they will look at your tax returns, but they may ask you for additional information that may include data from outside the period they are auditing. Be aware that you can be penalized for information you supply that the IRS isn’t looking for! Make sure you have a way to isolate each year’s information in case it is requested.