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If you have a taxable business organization, it is very important to include all your income and expenses so you will get all the deductions that your business is entitled to.  If you fail to include all your expenses, then you will end up paying tax that you do not owe.  If you do not report all your income, then you are guilty of tax fraud!  Also, if you do not report all your income and later you go to refinance your home or get an auto loan you may not qualify because it will look like you don’t have enough income.  This is not in your best interest! 

I have seen many cases where a person did not file taxes for several years because they did not want to pay for the bookkeeping to get the numbers to do the tax return.  Then the IRS filed for them and picked up all bank deposits and all the 1099 amounts as income.  If this business made many transfers between bank accounts that looks like a LOT of deposits! The IRS would call that INCOME. IRS gave them NO DEDUCTIONS because they did not file a tax return.  Then,  they sent a copy of this tax return (that they prepared for FREE) to the last known address (that IRS had) and that person either did not live there any-more or ignored it.  That is never a good idea!

In the end the taxpayer ended up owing the IRS about $350,000 per year just for not filing a tax return!  They had the opportunity to show the IRS that all those bank transfers were not income. They had the opportunity to take deductions for all their business expenses that ate up most of their profit each year by filing a tax return also , but they did not file!  Filing a tax return is the opportunity to show IRS what your real NET PROFIT is. You still have three years AFTER IRS files for you to amend that FREE tax return that IRS did for you and claim your business deductions. However, many people do not know that IRS has filed for them until they get a lien on their home, or a levy on their bank account!  Then it is too late!  I cannot even change the IRS filed tax return after the three-year statute of limitations has run out! 

In the end this taxpayer may have avoided paying $3,500 each year for accounting and/or bookkeeping services by NOT filing a tax return at all, but look at what it cost them!  Now they have a lien on their home, a levy on their bank accounts and maybe even a garnishment on their payroll for the $350,000 per year, for all the years that IRS filed for them that they never actually owed to begin with!  Also, can you imagine how much interest and penalty that amount of tax can accumulate every year?? 

The IRS debt will not go away either for ten years!  That will be a very long 10 years!  You cannot file bankruptcy to get out of it.  You probably cannot do an offer in compromise to get out of it.  You are stuck!!  All because you did not want to be bothered with hiring someone to do your accounting and/or bookkeeping and tax preparation.

This is why so many small businesses fail!  It is not because they could not get enough customers or even because they did not have a business plan! It is because they did not keep up with the accounting and tax requirements.   Or because they failed to put accounting and tax in their budget.  If you are earning a profit you will have to pay tax!  You will probably have to pay for accounting service to calculate that profit also.  That is a cost of doing business.  

Accountants see this all the time, but it is frequently too late for us to help them by the time they come to us.   If we could just get people to come to us sooner!  

If you have a nonprofit organization and you do not file tax returns for three years you will lose your nonprofit status that you worked so hard to obtain. Then it will be listed on the IRS website for the entire world to see because nonprofit organizations are required to share their financial information with the public.

Don’t be stupid! Keep up with your accounting and file your tax returns timely and save what you have worked so hard for!

August 11, 2021

Because you will need to file a Form 990 or 990EZ and it needs to balance just like a balance sheet and income statement for a business or corporation. 

Therefore, if your only asset is cash, the simple formula is as follows: beginning cash balance, PLUS total revenue received for the year, MINUS total expenses paid during the year must EQUAL the ending cash balance. If it does not, then something is missing.

If you have assets and liabilities other than just cash, then your debits need to equal your credits to get the tax return to balance. 

If you do not understand what this means, or you do not know what an ASSET or BANK balance is, then you need to hire an accountant and/ or bookkeeper who does understand this to prepare your financial statements before you can file a tax return. You will never be able to just GUESS at the amounts and get it to balance. It just doesn’t work that way. 

Unfortunately, there are unlicensed people out there that will put ANY numbers on a tax form and file it for you, for a fee.  This is illegal but somehow these people get PTIN numbers allowing them to do this.  These people are subject to fines and penalties if they get caught but they do not have to worry about losing their license because they NEVER HAD ONE to begin with!  Most of them have never even read the instructions for the tax forms they are preparing and they probably do not even know about the fines they are subject to!

Filing a bogus tax return to avoid doing your accounting/ bookkeeping is NOT in your best interest!! It is not a good idea to send false information that is obviously incorrect and does not make any sense at all to the IRS!!  That is like ASKING for an audit.  If that happens you will get the accounting service for FREE from IRS, but you will not like it!  

Also, if you are showing this bogus/ incorrect tax return to potential donors or lenders this does not say much about your organization that you are trying to promote!  Don't make stupid choices, the person you show this tax return to might know that your organization has no financial records or organization.  This is no way to impress them!  Do yourself a favor and hire a professional, licensed tax accountant.