Audit vs Review vs Compilation: How Small Business Financial Statements Differ

CPA firms are a great resource for small business owners to get help organizing their financial reporting. When a business owner applies for a loan or wants to get a new investor on board, the business owner should have the appropriate financial statement prepared to accurately reflect the business’ financial health. The three different financial statements that a small business owner can use are audits, reviews and compilations, but they each mean different things.

The Difference between Audits, Reviews and Compilations

Audits

A small business audit is when a CPA takes an extensive and methodical look into your business’ finances, transactions and accounting records. After reviewing everything, the CPA will form an opinion whether or not your financial statements comply with generally accepting accounting principles (GAAP). You would provide this insight to a lender, investor or potential buyer to assure that your finances are in line.

Reviews

Not as rigorous as an audit but still a look into your finances, a review is a good idea for small business owners who don’t have the time or expenses for a full audit. The CPA will do a basic analysis to make sure that the financial statements make sense, giving a limited opinion if your procedures follow GAAP. These reviewed financial statements are given to a lender when the business owner is trying to secure a small loan.

Compilations

A compilation report doesn’t require a hard analysis or deep dive into your finances. It’s the best option for simple accounting and organization. During a compilation, the CPA will help you prepare your financial statements without issuing an opinion; whereas during an audit or review, you prepare your financial statements and the CPA analyzes them to give an opinion.

Which financial statement is best for your small business?

Since each report has different requirements and levels of assurance, knowing which one to choose can be tough. That’s why Watson CPA is ready to help small business owners in Carmel, Westfield and the greater Indianapolis area and find the best financial statement for their business. Request your free consultation today to get started!

Hidden Small Business Tax Deductions and Tax Extension Deadlines for 2018

Small Business Extended Tax Return Due Dates for 2018

While fall isn’t considered “tax season,” there are a handful of crucial dates for businesses to know as Q3 wraps up and the fourth quarter begins. The remaining deadlines for 2018 are for those who have requested an extension to filing their tax return.

September 17, 2018:

  • Deadline to make estimated tax payments for the 3rd quarter of 2018
  • Final deadline for Partnerships and S-Corporations to file corporate tax returns for 2017 (with extension)

October 1, 2018:

October 15, 2018:

  • Final deadline for C-Corporations and Individuals to file corporate tax returns for 2017 (with extension).
  • Last day the IRS will accept an electronically filed tax return. You will have to file by paper after this date.

Home Office and Other Small Business Tax Deductions You Didn’t Know About

Starting, owning and running a small business can be incredibly difficult at times. Ease some of the load and take advantage of these hidden tax deductions that small business owners can claim.

Home Office Deduction

In order to properly write off your home office for your small business tax deductions, it’s important to understand how exactly this rule works. The IRS states that the space is exclusively used for your business and serves as the principal place of business. To calculate the deduction, the IRS offers a simplified option: deduct $5 per square foot of home used for business, up to a maximum 300 square feet. The regular option is to calculate the percentage of space in your home used for business. Read more about the different options for calculating your home office deduction.

Coworking Spaces

Perhaps you don\'t operate your business out of a home office, but instead from a collaborative workspace. Save a purchase receipt for any fees associated with your coworking space, and you can write off these expenses.

Travel Expenses and Mileage

Certain conditions apply when writing off travel-related expenses. In order for a trip to quality as business travel, it needs to be ordinary, necessary and away from your tax home. You also need to be traveling for longer than a normal day’s work. A few business travel expenses approved by the IRS are meals and lodging, tips, shipping of baggage, and transportation fees such as bus or taxi fares, car rentals, airplane tickets, and mileage of your personal car.

Insurance Premiums

If you are self-employed and pay for your own health insurance premium, these costs are deductible as long as they don’t exceed your business’ total profit. If your health coverage is through a secondary employer, though, you can’t write off those premiums.

Employee Benefits

You can deduct the cost of employee benefit programs, including wellness assistance programs, education assistance and retirement plan accounts. If you’re self-employed with no additional employees, you may be eligible for personal deductions if you make contributions to your own qualified retirement plan.

Education, Certifications and Self-Improvement

Educational costs are fully deductible if they add value to your business or increase your work ethic and expertise. This includes books, workshops, conferences, and traveling to and from classes. Any educational cost that is unrelated to your business or industry don’t qualify.

Start-Up Costs

If this is your first year of being a small business owner, you may be able to write-off costs related to creating, preparing and organizing your business. This can include providing surveying and field work, employee training programs, visiting potential office locations, or advertising fees.

Hire A Local Accountant for Small Business Tax Filing Help!

With so many possible deductions and the fine print behind them, it’s easy to get confused about whether or not you qualify for them. If you’re self-employed or a small business owner in Carmel, Westfield or the greater Indianapolis area, consult with Watson CPA today to verify the business tax write-offs you’re qualified to make.

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