(as submitted by Dave on the March 12 edition of TAE)

1. Deadlines - Before you do anything, be aware that many corporations miss the March 15 deadline for filing their taxes. Those corporations are advised to consult their accountant to file an extension (Form 7004).

2. Submitting an incorrect Tax I.D. Number – Much like individuals do with their Social Security numbers, sometimes, corporations accidentally transpose two digits in the tax I.D. number, creating a mess for the I.R.S., who use those numbers as the primary reference point for an corporation's tax history. If you’re using an accountant to prepare these taxes, be sure to double and triple check the work involved.

3. Submitting a name that doesn't match the tax I.D. number – This can happen on two fronts: if there is an incorrect name submitted on the return itself, or if there is an error in the listing of the company’s officers on the tax return.

4. Misrepresentation of the business activity code – The business activity code is an essential piece of information, as the I.R.S. uses that code to build an expectation of the company’s tax return. Any discrepancy in this code, when compared to the actual activity of the business in question, could lead to an audit of the entire return.

5. Initial Year Tax Return – If 2004 is the first year for which your company is filing taxes, be sure to check the box on the form that says “Initial Tax Return.”
   (On a related note, be sure to look for any “Short year” tax issues that come up as well.)

6. Accounting Method – This is often a troublesome spot for companies to get caught in, as sometimes, accountants will note that the company’s accounting method is a cash method when it is actually an accrual-based method, or vice versa. Getting this straight is especially critical during the company’s first year, when this method of accounting is generally selected.
   More often than not, businesses that are just starting out use a cash-based method, where income is determined by what a company takes in when a company takes it in, with expenses determined by what a company spends when it spends it. This is due to the fact that, in the early stages of a business, that business needs as much money as possible up front, to cover startup expenses. As the business grows and expands, it may be more advantageous to go with an accrual-based method, when accounts receivable and accounts payable are factored in to the income statement.

7. Failure to properly note the owner’s salary – This comes up quite often in S-corps, where the owner will not denote the salary he or she takes home as “officer’s compensation”, as listed on page 1 of the return. Failure to properly note this salary will likely increase that company’s chance of an audit.

8. Misclassifications – Often, there are misclassifications within the details in the category of Cost of Goods Sold (COGS). Primarily, this is a result of classifying many of the costs that should be considered COGS (basically, any cost that goes into the production of the final product or service) under the vast category of “other” or “general” deductions, leaving the COGS amount at a very low level, sometimes zero. The implied indication that a company has no Cost of Goods Sold could very well lead to an audit.

9. Tax Credits – Often, corporations, especially S-corporations may unknowingly become eligible for a variety of credits that aren’t factored in come tax time. One such credit applies to companies that incur any fees in the process of setting up a company retirement plan. Credits such as these should be noted on forms that are filed as attachments to the overall return.

10. Depreciation – In general, accountants maintain depreciation schedules for all of the depreciable assets a company possesses. It is a good idea to make sure that your company is on the same page with your accountant in terms of all the different methods and areas for which depreciation can be calculated.

Dave suggests that you go over these areas with your accountant so that your accountant is on the same page when it comes to properly handling these critical areas.

For more information on these issues, contact Wilke and Associates at (412) 278-2200 or on the web at www.wilkecpa.com.