Business Bookkeeping Best Practices for Your Tax Documents

Whether you’re just starting to launch a small business or have been at it for years, bookkeeping is an essential component. But for many, numbers and finances are daunting, and relying solely on software could leave gaps where you’ll want to know what’s entirely there. This past year, questions about taxes have been on the rise. There’s been a 140% increase in Google searches for business tax preparation and a 50% increase in small business bookkeeping. As a result, businesses are looking for answers to bookkeeping questions. 

 

So we’re delving into the top questions about bookkeeping for getting your tax documents in order this year. 

 

Are Bookkeeping and Accounting the Same Thing?

Not exactly, but they do work with one another. Bookkeeping records and tracks business financials for all transactions, operations, and other events relating to the business. Accounting is the measurement, processing, and communications about bookkeeping. Think of it this way – Bookkeeping looks back on the business specifics and accounting looks forward to projecting trends and other financials from bookkeeping records. 

 

Why is Bookkeeping Important for a Small Business?

It’s well-known that bookkeeping is essential if your business gets audited. But keeping up with your books can also help with analyzing and planning for the months and years ahead, streamlining and minimizing accounting costs, and saving countless hours during tax season. You’ll be able to get a snapshot of how your business is performing overall but also get to deep dive into specific analytics of sales, costs, and much more.

 

What Are the Most Common Business Records?

Some business records will be needed often and should be kept on hand for easy access. Whether it’s journals, ledgers, or digital recordkeeping, you’ll want to find an organization method that works best for your business. Generally, it’s best to track transactions daily for easier long-term recordkeeping. 

  • Employee names, addresses, and contact information
  • Employee timesheets
  • Employee pay stubs
  • All tax forms submitted to the IRS
  • Bank statements
  • Insurance documents
  • Contracts, including loans and mortgages
  • Purchase receipts
  • Customer invoices
  • Tax returns
  • Financial statements
  • Depreciation schedules
  • Business registration documents
  • Employer Identification Number
  • Board of Directors meeting minutes
  • Legal files
  • Emails

Whether it’s journals, ledgers, or digital recordkeeping, you’ll want to find an organization method that works best for your business.

 

How Long Should I Keep Records?

The length of time for keeping records varies but the general rule of thumb is to keep records for a minimum of seven years for IRS reporting. Of course, your insurance or creditors may require you to keep records for longer. You can see a full breakdown of the recordkeeping timelines in this IRS article. 

 

How Do I Pull Payroll?

Depending on how you’re keeping bookkeeping records, the method may look a bit different. But generally, you’ll want to go to your reports menu, find the payroll section, and go to payroll summary. While there, you’ll want to narrow your date range and employee search. Lastly, you’ll want to run the report.

 

How Can I Improve My Tax Position to Reduce My Payout?

The quickest and most reliable way to improve your tax position is to work with top-quality compliance and specialized accountancy services, like 3Sixty Advisors. 

 

Contact us to learn how we help small businesses like yours with Employee Retention Credits, Research & Development tax credits, and Work Opportunity tax credits.

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Why Form 8821 Matters Now More Than Ever

Tax Compliance

This year’s tax season is well underway and the IRS is in full swing of processing returns. In fact, this year, they’re working through 8.1 million unprocessed returns, and the tax season is only half over. For businesses filing with an authorized accounting service, including 3Sixty Advisors, one of the easiest ways to streamline returns is by filling out tax information authorization Form 8821. 

What Exactly is Form 8821?

In short, Form 8821 is a one-page tax document that is necessary for accounting services, including 3Sixty Advisors, to be able to file your business tax returns and track your payment status. 

According to the IRS, “Form 8821 authorizes any individual, corporation, firm, organization, or partnership you designate to inspect and/or receive your confidential information verbally or in writing for the type of tax and the years or periods you list on Form 8821.” 

Of note: Form 8821 does not grant power of attorney rights including speaking to the IRS on your behalf, executing waivers or closing agreements, or any other representative matters. For those additional allowances, you’ll want to talk with the 3Sixty Advisors team and consider filing Form 2848. 

Why File Form 8821?

Form 8821 helps 3Sixty Advisors in a multitude of ways including:

  • Receiving your transcripts, account information, and payments made to an account. As a tax credit partner, this allows us to get a full picture of your tax information. We’ll be able to review your transcripts, account information, payments made to an account and work with you for the best solutions and next steps.
  • Receiving copies of IRS notices before they’re sent to you. This lets us get a jumpstart for resolving any issues one or more days before you receive those same IRS notices in the mail.
  • Save time with team collaboration. This lets our team work together without requiring individual allowances. You’ll be able to save time by filling out one form and we’ll be ready to collaborate to deliver optimal results with minimal disruption for you or your business.
  • Peace of mind. Unlike Power of Attorney Form 2848, Tax Information Authorization Form 8821 automatically expires. This allows 3Sixty Advisors to work with you on your taxes while not requiring specific revoking actions.

Form 8821 gives 3Sixty Advisors the ability to complete your IRS tax paperwork and track your payment status. 

How Do I Get Started?

Form 8821 and instructions can be found on the IRS website, but the 3Sixty Advisors team goes a step further. We take the guesswork out of deciphering tax form instructions and ready forms for clients. Operations Manager Brittany Perez says, “We actually fill out the whole form, their EIN, address, business name, etc. All our clients need to do is print, sign, and mail it back into our firm.”

Once 3Sixty Advisors receives the completed form, we file it directly with the IRS and get to work delivering human resources and technology-enabled services for our clients.

How 3Sixty Advisors Can Help

At 3Sixty Advisors, we’ve helped thousands of customers file. We know how to get things rolling quickly without adding more to your business tasks. Uncover answers to your most pressing questions on our homepage, 3Sixty Advisors.

Take the Next Step

Ready to get started? Contact a 3Sixty Advisors professional today to take the next step. Our done-for-you model means we submit the application with you to the bank.

Research & Development Tax Credit: The Basics for Employers

There are a lot of questions surrounding the Research & Development (R&D) tax credit. What is it? How did R&D credits get started? Which research and development projects qualify? If I have employees who handle specific related tasks, could I qualify? How do I get started? Is there a way I can be sure I’m filing for R&D credits correctly? But for most small business owners, the time it takes to research each of these questions can be daunting. So today, we’re tackling each of these questions and getting you the answers you need.

What is the R&D Tax Credit? 

The R&D tax credit, also known as Research and Experimentation (R&E) tax credit, is a United States government-sponsored tax initiative. It results in a dollar-for-dollar reduction in a company’s tax liabilities and is one of the best things American businesses can do to reduce their liability tax. 

The research and experimentation tax credit was essentially designed as an incentive to make research activities more affordable for businesses, strengthening American innovation.

The History Behind the R&D Tax Credit

Initially, the R&D tax credit was created in 1981 by U.S. Representative Jack Kemp and U.S. Senator William Roth. It has since expired eight times and been extended 15 times. It was made during a perceived economic slowdown and job outsourcing to protect Americans, encourage investment in development, and increase research activities and basic research payments. 

When the credit first rolled out, to qualify, a company had to design or produce a novel product or technique according to what was referred to as the “Discovery Rule.” Unfortunately, this meant that only a few cutting-edge businesses were eligible.

In 2003, regulations were added to eliminate the “Discovery Rule” and expand which activities could qualify for small businesses to claim the R&D credit. Instead of being “new to the world,” activities could now be “new to the taxpayer,” increasing the number of small businesses that could qualify.

Three years later, the Alternative Simplified Credit (ASC) was instituted and provided added flexibility with updated baseline calculations for the credit. In 2013, provisions were added to allow ASC for amended returns for years that a taxpayer did not previously claim the credit. 

Thirty-four years after the R&D credit was created, the Protecting Americans from Tax Hikes Act (PATH Act) was passed. This milestone document officially made the Research & Development tax credit a permanent addition to the U.S. tax code. Also, in 2015, new regulations were added to allow businesses grossing less than $50 million in tax receipts to claim the credit.

During the latest batch of updates, in 2018, Alternative Minimum Tax (AMT) restrictions were loosened to allow S-corps and C-corps to apply for the R&D credit. Today, Research & Development tax credits remain one of the most remunerative tax incentives for small businesses.

Who is Eligible for the R&D Tax Credit?

Many businesses are not aware if they actually meet eligibility qualifications. Some believe there are special rules needed to qualify. While the correct documentation is required, in reality, over 60 industries can qualify for R&D credit in over 30 states to offset tax liabilities. Some businesses’ daily operations can be eligible for them, allowing them to receive basic research credit if it puts them over a certain base amount. Even startups can use this to their advantage.

If your company spends money on improving or developing processes that apply to a field of science, you may be eligible to claim the Research & Development tax credit. This can be as simple as dedicating money to refining your company’s manufacturing process, hiring someone to increase efficiency within your company, etc.

Your small business could qualify for R&D tax credits if you manage the following types of employees:

  • Engineers, including manufacturing, product, process, software, design, and test
  • Technicians, including assembly, CAD, and engineer
  • Operators, including CNC and plant
  • Designers
  • Drafters
  • Fabricators
  • Machinists

Additionally, if your small business is handling these types of projects, you too may qualify:

  • Creating new or innovative products
  • Updating existing products
  • Building new processes, techniques, or prototypes
  • Developing more efficient software
  • Hiring contractual engineers or designers to research or complete research projects

But what about sole proprietor small businesses? A recent Statista Research Department report shows over 27.1 million non-employers (sole proprietors). And what’s still, the number of non-employers has been demonstrated in this research report to be growing more rapidly than employer firms. While many entrepreneurs launch their businesses as sole proprietorships, they may think they’re not eligible to apply for an R&D credit. But non-employers can still qualify to take the credit at the federal level. The limits are the same no matter the number of employees, but as a qualified startup, you can take the credit to offset payroll taxes instead of income taxes.

Are you still unsure if you qualify for the R&D credit? The IRS has outlined a four-part test to determine eligibility for your small business. If you can checkmark the below tasks and aren’t taking advantage, you could miss out on thousands to reduce your tax liabilities.

Can You Pass the Four-part Qualification Test for R&D Credits?

The IRS has outlined a four-part test to determine eligibility for your small business. If you pass these tests and aren’t taking advantage, you could be missing out on thousands to reduce your tax liabilities.

Close-up of male hands using modern digital tablet, businessman working on tablet pc at his office, flare light, white bokeh

According to the IRS, creating or innovative new products or processes are known as qualified research activities. The amounts incurred or paid during the research activities, such as employee wages and supply costs, are known as qualified research expenses. 

Incorporating basic research activities in your small business strengthens American innovation and makes them more affordable. What’s more, you’ll be maximizing available tax credits while prioritizing compliance.

How to Take Advantage of the R&D Tax Credit

You’re ready to lace up your track shoes to hit the ground running to take advantage of the R&D credit, but then this thought occurs. “How on earth do I get started?” We hear you. This section outlines the first steps you’ll need to begin filing for a Research & Development tax credit. So get ready: You’re about to take steps toward attaining a dollar-for-dollar reduction in your company’s tax liabilities.

Step 1: Find out if you could be eligible. Did you pass the IRS four-part test, or could you relate to any of the instances in that same section above? If so, there’s a great chance you could already be qualified. So move right on to step 2! Still not sure? Connect with one of our tax specialists, and they’ll be able to work with you to see if you may be eligible.

Step 2: Gather necessary documentation. The IRS requires ample documentation to prove the qualified activities were performed and support the attached expenses claimed for the Research & Development credit.

Examples of these R&D documents could include:

  • Payroll records (especially wages paid specifically for R&D projects)
  • Chart of accounts for the general ledger
  • Lists of all supplies used in Qualified Restoration Expenses (QREs)
  • Organizational charts
  • Contract copies with contractual work and vendors related to QREs

Namely, you’ll want to be sure to retain all records that relate to and track the research and development projects, especially the calculations of the credit eligibility.

Step 3: Fill out a quick 7-question form to get started filing. When filing for a Research & Development credit, it’s normal to have questions, especially when tax hikes are in full swing. But if you’re ready to start the process right the first time, we’re here to help. At Stenson Tamaddon, we’re a compliance-driven, technology-enabled, and customer-first company. We believe in a professional, compliant approach to tax credit services and provide a hassle-free promise to customers that their R&D Tax Credit filing will always be accurate, compliant-focused, and secure. 

Step 4: Use our proprietary technology to securely upload all your R&D documents and information to our tax credit team. Our unique tax credit-focused technology supports your success by maximizing ROI, prioritizing compliance, and offering audit ready solutions. With offices from New York to Arizona, we exist to deliver optimal results for your R&D Tax Credit filing with minimal disruption to your business.

Step 5: We’ll take your information, prepare it and submit it for filing with the IRS with our 100% secure and compliance-focused technology. Our tax specialists guarantee ‌that your experience will be professional, timely, and compliance-driven, saving you time, money, and resources. The best part? We’ll ensure that while you’re filling for the R&D Tax Credit, you’re not missing out on other tax credit filings you may be eligible for.

Partnering with Stenson Tamaddon is the best thing you can do when filing for an R&D tax credit to ensure all is done to keep you in compliance and maximize your overall return – and that’s why we’re here! We’ll look at your expenditures, base amount, tax rate, contract research, and gross receipts in all open tax years to determine how much R&D credit you qualify for so your small business can receive its basic research credit. 

Apply to file for your Research & Development tax credit today. Set your business up for success with 3Sixty Advisors.