If there’s one thing lawmakers agree on, it’s that they disagree on a lot of things. That includes the tax code. The popular belief is that Democrats want to raise taxes while Republicans want to lower them. But in reality, the issue is a lot more complicated, and it’s not always split along party lines.
The current discussion around the FairTax Act of 2023 has raised some questions for taxpayers. The idea behind this proposed legislation is a national sales tax that would be applied across the board on consumer goods and services. But what does that really mean for American taxpayers? And how would something like that impact them?
Here’s a quick overview of the FairTax Act of 2023.
It would take the place of current income taxes. The FairTax Act of 2023 proposes a national sales tax that would take the place of income taxes, payroll taxes, and estate or gift taxes. Instead, there would be a national sales tax levied on taxable goods and services. This legislation would repeal certain parts of the Internal Revenue Code of 1986 (Subtitles A, B, C, and H) and replace them with The Internal Revenue Code of 2023.
It’s steep. The bill outlines a 23% tax rate for 2025 on all taxable goods and services. When this rate is combined with federal taxes, though, it’s closer to 30%. This would apply to everyone, regardless of income level, and would adjust every year after 2025.
There are exceptions. Some goods and services would be exempt from the new tax, including used and intangible property; property or services purchased for business, export, or investment purposes; and property or services purchased for state government functions. Most individual taxpayers won’t benefit from these exceptions.
Taxpayers would receive a rebate. U.S. taxpayers would get a monthly rebate known as a Family Consumption Allowance. The amount of the allowance would be based on family size and income.
Here’s where the money goes. The revenues generated by the FairTax Act of 2023 would be allocated to five categories: general revenue, the old-age and survivors trust fund, the disability insurance trust fund, the hospital insurance trust fund, and the federal supplementary medical insurance trust fund.
It’s not law yet. Although the bill has plenty of GOP support, not all party members are on board, so it’s considered unlikely to pass. Before it can be signed into law, it needs to make it through the House and the Senate, which has a Democratic majority. If it does manage to complete that journey, President Biden has said he will veto it. But it still has taxpayers wringing their hands in concern.
At this point, you may be wondering what happens to the IRS if there are no more income tax returns to deal with. Essentially, the institution would go away. This bill also cuts off funding for the IRS after the 2027 fiscal year.
If you have questions about the FairTax Act of 2023 or any aspect of your income taxes, Adams Accounting Solutions is the one to call. We stay on top of potential new legislation as it rolls out, so you don’t have to worry about keeping up with it yourself.
At Adams Accounting Solutions, we handle all aspects of tax planning and preparation. We help you devise a plan for managing your accounting processes throughout the year so that at tax time, you have everything you need to make the tax preparation process quick and easy. Don’t worry — we’ll work with you every step of the way!
Give us a call or stop by the office to learn more about our tax preparation services. We look forward to working with you!
For years financially savvy parents and grandparents have been funneling savings into 529 plans, hoping their investment will appreciate enough to keep pace with rising college tuitions across the country. Many families use up what’s in the 529 plan — and then some. After all, in-state tuition and fees at public universities have increased an average of 175% over the past 20 years. Out-of-state tuition and fees for the same have increased by 141%.
In spite of the high price of higher education, there are some families that end up with leftover funds in 529 accounts. This happens for several reasons. Maybe one of the kids decided not to go to college. Perhaps grandparents, aunts, and uncles kicked in additional funds to ensure plenty of money was there when it was time to pack up for college. Some families are extra-disciplined and manage to save more money than needed for the kids’ education expenses. All that money is safely invested in a 529 account.
In the past, parents have watched their money languish in the account after the last child graduates from college and strikes out on their own. There was no way to retrieve the leftover money without incurring tax penalties for non-qualified withdrawals.
That’s changing, though. In December 2022, Congress passed the Secure Act 2.0, which includes a provision that allows investors to roll stranded 529 funds over into a Roth IRA free of income tax or tax penalties. This means parents who no longer need a 529 account can reclaim and reinvest their money. This provision won’t go into effect until the 2024 tax year, but it’s something to look forward to.
There are limitations to this provision, though. One of the most notable is that the rollover funds must be reinvested on behalf of the beneficiary of the 529 account. This means if a parent has a 529 account with their child named as the beneficiary, any leftover funds in that account must be rolled into a Roth IRA set up in that child’s name.
Other limitations to be aware of:
There are other ways to use up leftover money in a 529 account. You can change the beneficiary on the account to another qualifying family member with a need for educational funding. This includes yourself if you’re thinking of going back to school. You may also want to hang onto the funds in a 529 account and use them for grandchildren when they come along.
Again, this rollover provision doesn’t go into effect until 2024. And there may be other stipulations associated with rolling over 529 funds to a Roth IRA. If you have unused funds sitting in a 529 account, consult with your financial planner or give us a call at Adams Accounting Solutions. We can answer questions about the rollover process and help you decide whether it would be beneficial for your tax situation. Call or stop by today!
With all the things you’ll need to do in the new year, it can be easy to overlook some of the accounting tasks that go along with owning and running a business. To stay on top of them, resolve right now to keep up this year by getting into a routine and making time for mission-critical accounting tasks.
Here’s a list of small but vital activities you can start now to stay organized this year and make your life easier. Keeping up with all this throughout the year will make next year’s tax preparation much quicker and easier — not to mention providing insight into where your business is going!
Now is the time to establish a system for tracking all your business-related transactions. It’s critical that you choose a system that makes sense to you and is easy to use. If you’re constantly frustrated every time you try to make an entry, you’ll give up before mid-year.
Accounting software can help you get organized and stay organized throughout the year. Adams Accounting Solutions recommends QuickBooks, but there are several other good products out there too. Give us a call if you have questions about accounting software or need help choosing the right one for your business needs.
Another good way to ensure there are no surprises at tax time is to review your financial statements often. We recommend going over them at least quarterly, but business owners often feel better doing it monthly. Reviewing financial statements regularly helps you track revenue and profitability and gives you a view into whether you’re meeting your goals or not. Knowing where you stand at all times helps you make better business decisions along the way too.
It’s critical that you keep track of receipts for all business expenses throughout the year. These are often needed at tax time. Items like business travel (hotels, airfare, and rental cars), meals, and mileage are all tax-deductible business expenses. You’ll need receipts to back up your business-related deductions at tax time, so file them as they come in. Letting them pile up on a desk or in your purse or wallet is asking for trouble!
If administrative tasks aren’t your forte, you might consider hiring people to help. A good bookkeeper can help you enter receipts into your accounting software, track payroll, and generate financial statements for review.
A licensed CPA is good to have on the team too. They can advise you throughout the year on which expenses are deductible and which aren’t. They’ll also offer advice when making business decisions to ensure you don’t do anything that may hurt you at tax time.
Accounting practices are a key component of financial management and essential to creating a successful business. A sound accounting system helps you keep track of your expenses and revenues, plan for future growth, manage cash flow, prepare tax returns, and much more.
At Adams Accounting Solutions, we know that keeping your financial records organized is a lot of work, but it’s also an essential part of running a successful business. It may be overwhelming at first, but once you get in the habit of organizing receipts, tracking expenses, and reviewing financials regularly, it’ll get easier. You may even find you enjoy it because it gives you more insight into where your money goes throughout the year.
If you need help getting organized for the New Year, give Adams Accounting Solutions a call. We’re happy to help you set up the processes and systems you need to keep up with accounting tasks this year!
The end of the year is fast approaching. Many individuals and small business owners are turning their attention to year-end financial reporting and preparations for next year’s tax season. Wrapping up the year with tax day in mind allows you to make decisions that favorably impact your tax liability.
To help keep you on track, here are a few filing dates to remember as you close out the year.
Parents and grandparents often set up 529 accounts when children are born, so there’s money to pay for college when the kids are ready to go. Contributions to a 529 account are tax-deductible at the state level. Unlike other investment options, there is no limit to how much you can contribute. The catch is that all 529 contributions for 2022 have to be made by December 31.
December 31 is also the date by which contributions to your employer-sponsored 401(k) plan are due. Typically, no one misses this date since contributions come from employees’ paychecks. A 401(k) is a great way to save for retirement, and many employers match employees’ contributions up to a certain amount each year. It makes sense to take advantage of this “free” money. It’s also wise to contribute as much as possible because it reduces your taxable income.
If you’re a small business owner or independent contractor and have to make estimated tax payments throughout the year, you’ll want to mark this date on the calendar. Your fourth quarter estimated tax payment for 2022 is due on January 16, 2023.
The IRS requires employers to send W-2s no later than January 31 to give employees plenty of time to prepare and file their taxes by the April 18 due date.
January 31 is also the date by which 1099s should be mailed to independent contractors, self-employed workers, and others who’ve earned $600 or more through work you’ve provided. In addition, 1099s should be sent (or received) for income generated through non-work-related means, including dividends, interest, prize winnings, rent, royalties, etc.
April 18, 2023, is tax day. That’s not a typo. Since April 15 falls on Saturday, the IRS pushed tax day to Tuesday, April 18. Thank your lucky stars for three extra days to prepare!
Tax returns for 2022 have to be mailed no later than April 18, 2023. Even if you don’t have the money to pay the taxes you owe, the IRS still expects to receive a tax return. If you don’t meet the deadline, you’ll be subject to penalties and interest, so even if you don’t send a check, send in the return!
If you need to make payment arrangements, contact the IRS to work out a plan.
If you’re not ready to file your tax return, you can file an extension, also due by April 18. This gives you until October 15 to file your return. Remember that even if you file an extension, the IRS expects you to send in the taxes you owe by April 18. The extension applies to the tax return, not the taxes owed.
Finally, April 18 is the last day you can make contributions to your IRA or HSA accounts and have them count for the 2022 tax year. At Adams Accounting Solutions, we recommend making final contributions to these investment accounts by December 15. That way, there’s no mix-up later over the year to which they apply.
At Adams Accounting Solutions, part of our job is to stay on top of due dates for our clients. We’ll remind you when deadlines are coming up and do our best to get your tax-related forms filed on time. If you’re looking for an accounting firm that has your best interests at heart, give us a call. We’re happy to sit down with you and discuss your specific tax situation!
The end of the year is a busy time for business owners for many reasons. Most small businesses are frantically trying to land that big fish, drive in those last few sales, and increase revenue as much as possible by the last day of the year. Everyone enjoys the satisfaction of ending the year on a good note, especially if shareholders or investors are involved.
As hard as it is to believe, tax time is just around the corner. The beginning of a new year causes a flurry of activity as business owners prepare to turn their financial statements over to their accountants. While the accountant is the one who seemingly works the magic when it comes to tax preparation, it doesn’t happen in a bubble. Business owners must also be involved to ensure that all bases are covered.
Savvy entrepreneurs understand the importance of planning ahead for big tasks. Here are a few actions you can take now to help alleviate some of the stress-filled activity that typically takes place in the first quarter of a new year.
Update financials. Start now to update all your financials. Most business owners get so caught up in day-to-day operations they forget to stay on top of financial data entry and reporting. Log into your accounting system now, and make sure all income and expenses are updated. Also, make sure bank and credit card statements are all reconciled. This will save a lot of time next year when it’s time to pull financial statements and hand them over to your accountant.
Catch up on estimated tax payments. Many small businesses have to make quarterly estimated tax payments. Any missed payments result in penalties. Take a few minutes now to ensure that you’re up-to-date on quarterly tax payments. Even if they’re late, making payments now reduces the penalties associated with missing the deadline. You’ll pay more if you wait until tax time to catch up.
Review accounts receivable. Now is an excellent time to review your accounts receivable and try to collect outstanding debts. Contact the customers and partners who’ve been slow to pay and see if you can nudge them to do so. The more you collect, the better the company will look in the eyes of investors, shareholders, and employees at year-end.
Consider year-end investments. One way to reduce taxable income is to write off the purchase of new assets. If you need new printers, computers, or other office machinery, this may be a good time to invest in them. Check with your accountant to see what types of purchases qualify.
Make a charitable donation. Charitable donations are another great way to reduce taxable income while also benefiting worthy causes. If you’re trying to reduce the amount of tax you’ll pay on this year’s income, consider making year-end charitable donations.
Start gathering documents. Start gathering the documents you’ll need to file your taxes next year and store them where you can easily access them when they’re needed. These documents may include some or all of the following:
There are other actions you can take now to prepare for tax day next April. The professionals at Adams Accounting Solutions are happy to guide you through the process, suggesting tasks you can complete now to make tax time less stressful. They’ll also review your financials and highlight possible ways to reduce your taxable income. Call today to make an appointment. There’s no time like the present!
Last month, we talked about the tax benefits of an HSA. This month, we’re focusing on FSAs. They’re similar to HSAs in many ways but very different in others. If you missed the previous article, click here.
An FSA, or flexible spending account, is an account set up by an employer to help employees pay for health-related expenses not covered by insurance. Employees must opt into an FSA program and make contributions to the account via payroll deduction.
With an FSA, you’re essentially putting money in a separate account to reimburse yourself for qualifying expenses. FSA plans vary by employer, but generally, the funds can be used for expenses like medical deductibles and copayments, prescription eyewear, first aid products, and over-the-counter medications purchased with a doctor’s prescription. Some FSAs allow employees to be reimbursed for other health-related items, like gym memberships, massage therapy, and acupuncture. What’s covered and what isn’t is dependent on the plan.
Contributions made to an FSA are not tax deductible, but there is a tax benefit to having an FSA. Since contributions are made with pretax income, your taxable income is lower, meaning you’ll pay less to the IRS at tax time.
There’s a limit to how much you can put in an FSA each year, and you don’t have to contribute the maximum amount. For the 2022 tax year, the most you can contribute is $2,850. That amount will go up to $3,050 in 2023.
Because FSAs and HSAs work similarly, covering out-of-pocket medical expenses, many think they’re the same type of account. But that’s not true. An HSA is individually owned; an FSA is employer-owned. With an HSA, the money contributed each year rolls into the new year. With an FSA, unused funds most likely don’t roll over — or if they do, they do so with stipulations.
The use-it-or-lose-it aspect of an FSA sometimes trips people up at the end of the year. If they’ve contributed the maximum amount to the FSA but haven’t accumulated enough costs to reclaim it all, they may lose a chunk of their hard-earned money.
The IRS does give employers the option of allowing employees to use the funds in the FSA until March 15 of the following year. Employers can also let employees roll up to $500 of the unused funds into the next calendar year. But these options are at the discretion of the employer. Check the rules on your FSA plan to ensure you’re not caught off-guard at the end of the year.
Regardless, try not to over-fund your FSA. Estimate how much you think you’ll spend on out-of-pocket expenses during the year, and then only contribute that much. That way, you reduce the chance of losing unused funds at year-end.
Another thing to be aware of is that participation in an FSA usually isn’t automatic. You may have to sign up at the beginning of each year to continue using an FSA for expense reimbursement.
To go even deeper into the weeds, some employers offer HRAs. An HRA is similar to an FSA but with a couple of differences. While the FSA is employee-funded, an HRA is employer-funded. Employees can use the money in an HRA the same as they would an FSA, except that HRA funds cannot be withdrawn prior to an expenditure. Also, qualifying expenses may differ from an FSA.
Employers offering an HRA can claim employee reimbursements as tax deductions. Reimbursements received by employees under an HRA are generally tax-free.
Your company’s plan administrator is the best source for specific details on your company’s FSA. But if you need additional information about the tax benefits of offering or contributing to an FSA, Adams Accounting Solutions can help. We specialize in tax preparation for individuals and small business owners. We’ll help you determine whether an FSA works well for your tax situation or not. Give us a call today!
Many corporate employees are familiar with the company-sponsored 401k plan. This plan helps lower employees’ taxable income by allowing them to invest pre-tax dollars in the market so it can grow over time. Deposits made in a 401k plan typically come straight from employees’ paychecks, which is handy for people who have trouble disciplining themselves to save a little each month.
HSAs, or Health Savings Accounts, can also help employees save for retirement. HSAs are personal savings accounts used to pay qualified out-of-pocket medical and health-related expenses. For instance, medical deductibles can be paid with HSA funds. So can chiropractic care, hearing aids, prescriptions, over-the-counter medicines, and glasses. Eligible expenses may vary by plan, so check with your HSA provider to make sure you know what’s allowed and what isn’t.
Many employees eligible for a corporate-sponsored HSA choose to fund it through automatic withdrawals from their paychecks. This is an excellent way to enforce savings for the future while maximizing tax benefits in the present. Money going into and coming out of an HSA is tax-free as long as it’s used for the right purpose. Also, HSA funds are invested in the market, and any interest or money gained from the investments is also tax-free.
Not everyone is eligible for an HSA account. The account has to be set up through an employer and is available only to employees on specific high-deductible health plans. However, once you’ve qualified and set up an HSA through your employer, anyone in your household can deposit money into the account as long as you remain employed. However, there are limits to how much you can contribute to an HSA. See below.
Source: https://marketplace.cms.gov/outreach-and-education/health-savings-account.pdf
There are other benefits of investing in an HSA besides the tax advantage.
No expiration date. The funds put in an HSA account don’t expire, nor do they disappear at the end of each year if not used. The money deposited in an HSA account stays there until you use it.
Use it for other household members. HSA funds can often be used to pay qualified expenses for your spouse and children. Check your plan documents to determine whether your HSA plan can be used for other household members.
Keep it when you leave. Your HSA funds don’t disappear when you change jobs. Because you own the fund, it follows you, even when you change jobs. Note that because you’re no longer employed by the company that initially set up the HSA, you won’t be able to make deposits into the account. You will, however, still be able to access the existing funds.
There are a few things you need to be aware of if you’re setting up an HSA.
If you take money out before age 65 for non-medical costs or costs that don’t qualify, you’ll have to pay taxes on the amount withdrawn as well as a 20% penalty.
If you take money out after age 65 for non-medical costs, you’ll still have to pay taxes on the amount withdrawn, but you won’t be subject to the 20% penalty.
Also, you can no longer contribute to an HSA fund once you enroll in Medicare.
HSAs often get confused with FSAs (Flexible Spending Accounts). Both types of accounts can be used to pay qualified medical expenses, but an HSA is owned by the employee, while an FSA is owned by the employer. Many FSAs do not roll from one year to the next or, if they do, they do so in a limited fashion. Unlike an HSA, if you leave your employer, you’ll forfeit unused funds in an FSA account unless you qualify to extend the FSA through COBRA.
There are many other rules to consider with an HSA. It sounds complicated, but these accounts are worth considering when planning for retirement. Medical costs eat up a large portion of many people’s retirement funds, and having an HSA available to pay some of these costs can be a lifesaver.
Adams Accounting Solutions can help you make smart tax decisions now that will benefit you in retirement. Call today to make an appointment or ask questions about the tax implications of an HSA. We’ll work with you to make the best choice for your future!
If you’re a business owner or an independent contractor, you already know how much paperwork goes with owning and running a business. Not only do you have to keep track of sales forecasts, operating expenses, and incoming revenue, but you also have to handle marketing, advertising, and PR. And you have to make sure your taxes get done on time.
One task that often slips through the cracks is making estimated quarterly tax payments. As a business owner, you’re responsible for paying taxes on earnings that are not subject to withholding. These earnings include dividends, interest, self-employment income, and capital gains. Even your alimony may be considered taxable in this situation.
If your business is making money, the IRS wants to see tax dollars coming in each quarter. If you don’t make estimated tax payments throughout the year — or you’re not paying enough in estimated taxes on each payment — you’re subject to penalties.
In a nutshell, if you’re self-employed or own a business as a sole proprietor, partner, or S corporation, you must pay estimated taxes. If your business is a corporation, the IRS requires you to make estimated tax payments if you expect to owe $500 or more in taxes at the end of the year. If you’re a sole proprietor or partnership, the threshold is $1,000.
If you’ve been in business for several years, figuring out estimated taxes is fairly straightforward. Just base it on the total amount of taxes you paid the previous year. Divide that number by four, and you have your quarterly payment amount.
If this is your first time paying estimated taxes, figuring out what you owe is a little trickier. You’ll have to estimate how much income you’ll have earned at the end of the year and how much you’ll have in deductible expenses, and go from there.
Don’t worry if you don’t exactly hit the mark. The IRS will reconcile everything at the end of the tax year. If you overpaid, you’ll get a refund; if you didn’t pay enough, you’ll get a bill for the remainder.
Estimated tax payments are mandatory for those who fit the criteria. Here are a few reasons to embrace the process rather than ignore it.
Adams Accounting Solutions specializes in small business tax preparation. We work with clients to determine how much they’ll owe in taxes and what they can do during the year to lessen the tax load. We can also help calculate how much they need to pay in quarterly estimated taxes to avoid future penalties.
Give us a call today to make an appointment to discuss your estimated tax situation. We’ll walk you through the process, answer questions, and get you pointed in the right direction to make your business a success!
It’s finally happened. You’ve finished your taxes and taken them to your favorite CPA to be filed. You’re not (too) worried about penalties because your accountant filed an extension for you back in April.
When you drop your paperwork off, however, your accountant has questions for you. Words like depreciation, accruals, and forecasting are thrown about. Your mind spins, and you start to sweat. You suddenly wonder if you’re in over your head rather than moving your business ahead.
The world of accounting is full of jargon. At Adams Accounting Solutions, we believe in keeping it simple, helping educate our clients on accounting and finance terms that pertain to their unique situations. To that end, we demystified some of the more common business terms in our post, Accounting 101: Basic Business Terms. Now we’re taking the process a step further.
Here are a few of the more common terms you might hear when discussing your business and tax situation with your accountant.
Accruals: The term accrual refers to revenues or expenses that impact the company’s income statement or balance sheet but for which no cash has changed hands. For example, you’ve made a sale but haven’t collected payment for it yet. That transaction is an accrual.
Working capital: This is the term for money that’s available to improve the business or invest in things like new machinery or office equipment. Working capital is excess cash, above and beyond what’s needed for daily business operations.
Depreciation: Depreciation represents how much of an asset’s value has been used up at the current point in its lifetime. Accountants use depreciation to allocate the cost of physical assets over their estimated life. By depreciating assets, business owners can earn revenue from the assets and use that revenue to pay taxes on them over time. It keeps business owners from paying taxes on the full cost of an expensive asset in the first year of ownership.
Bad debt: Any accounts receivable that you cannot collect from your clients fall into the bad debt category. Bad debts are those that are uncollectible, often because of bankruptcy or business failure on the part of a client or supplier. Any business that extends credit to customers or partners should plan for a certain amount of bad debt. Bad debts can be written off on both business and individual tax returns.
General ledger: The general ledger is a record of your company’s financial transactions over the life of the business. It consists of numbered accounts that house specific types of transactions, i.e., asset, liability, expense, revenue, etc. Your accountant will likely request access to your general ledger to pull financial reports when preparing your tax return.
Fiscal year: A fiscal year is any 12-month period used for financial and tax reporting purposes. Many companies align their fiscal year with the calendar year. Others use a 12-month cycle that better fits their business model or sales calendar.
Forecasting: Forecasting is the act of using a company’s past performance to predict future performance. Many companies start with the most recent financial performance and factor in current or predicted trends to get an idea of the company’s future success.
We hope this primer helps clear up the confusion that can sometimes occur when speaking to accountants. Please remember that most accountants are so involved with these terms that they sometimes forget others aren’t as familiar with them!
At Adams Accounting Solutions, we want clients to feel comfortable asking questions. We’re here to answer them and explain all things tax-related. Give us a call or stop by and say hi. We’re happy to help you make sense of your accounting practices!
Many business owners are so focused on driving sales, increasing revenues, and protecting the company against competitive threats that they completely miss another threat that could be even more damaging — that of internal fraud. While larger corporations may be able to withstand an attack from within, depending on the size and scope of the incident, corporate fraud may swamp a smaller business to the point of drowning. This puts the issue high on the list of items to guard against.
According to the Association of Certified Fraud Examiners (ACFE) 2020 Report to the Nations, companies lose an average of 5% of annual revenues to fraud yearly. If you’re in business for any length of time, you’ll probably have to deal with the impact of corporate fraud at some point.
Corporate fraud, also referred to as organizational or employee fraud, refers to an act committed by an employee of the company against the employer. The employee uses the company’s property, assets, or other resources in an inappropriate way to recognize personal gains.
There are generally three types of corporate fraud:
Asset misappropriation. Asset misappropriation is the most common form of fraud. It occurs when an employee steals or misuses the company’s resources. Asset misappropriation may occur through the theft of cash or goods, inflated expense reports, tampering with the billing system, or payroll fraud.
Asset misappropriation accounted for approximately 89% of the fraud cases examined in the ACFE study. While this is a large percentage, these cases are usually the least costly for a company to resolve and recover from.
Corruption. Corruption cases are the next most common fraud type and are usually more difficult to identify. They often involve upper management, resulting in higher stakes for all concerned.
Corruption cases occur when upper-level managers use power or influence in a business transaction to gain a favorable outcome, either directly or indirectly. Fraudulent activities may include bribes and conflicts of interest that benefit the person handling the negotiation on behalf of the company. In the ACFE study, 38% of the cases identified involved corruption.
Financial statement fraud. Financial statement fraud is the least common, probably because fewer employees have access to the company’s financials. Although the occurrence of this type of fraud is low — only about 10% — the financial impact is higher than other types of fraud.
Financial statement fraud occurs when an employee purposely omits, falsifies, or misstates company data in financial reports to encourage false assumptions about the company’s overall health.
Fraud experts recommend taking the following steps to prevent fraud in your company. Remember that a reputable CPA can help with corporate oversight and compliance, significantly reducing the potential for internal fraud.
Set up strong internal controls. One of the best ways to prevent corporate fraud is to have a system of internal controls that makes fraud harder to commit.
Know your employees. A business is only as good as the people who work there. A little extra time spent up-front may help you avoid fraud in the future.
Perform regular audits. There’s no better way to mitigate the chance of corporate fraud than by conducting regular audits of the books. It’s best to hire outside experts for this. Third-party accountants know what to look for when auditing a company’s financials, and because they have no ties to the business, they’re not afraid to point out potential issues.
Adams Accounting Solutions specializes in small business consulting and tax preparation. We know what to look for when conducting audits for our clients. We’ll help you spot weaknesses in your systems, set up new ones if needed, and mitigate the potential for corporate fraud. Call today to schedule an appointment. We look forward to joining the team!
Richard Adams is a graduate of Benedictine College in Atchison, Kansas, with dual majors in Accounting and Business Administration. He is also a graduate of Wentworth Military Academy in Lexington, Missouri.