Recreating Accounting Records for Filing Back Taxes

[AccountingStudent]

Washington

Hello, I am an accounting student. My friend's elderly father stopped using his CPA and stopped paying federal taxes in 2012. He is now, of course, receiving letters from the IRS. I have agreed to help him with the accounting. He has not kept good records.

The man is a sole proprietor and owns a restaurant, and a combination ice cream & toy store. He also has rental income. He pays his son and daughter in-law to work for him by 1099. All of his other employees are W-2. He has kept up on his state taxes.

I plan to start by entering all credit card and bank transaction into quickbooks. He would like me to start with 2017 since that is what the IRS is contacting them about, but I think we should start with 2013 since those are the last numbers we have. Which is better?

Also, since he has not kept good records there are many purchases that we cannot tell if they are business expenses. Since he does not have good records, we are not sure how to approach cost of goods sold for his toy inventory either, as he buys most of it at discount retail stores and then resells it.

If anyone can give me any guidance, I would be very grateful. I don't want to see my friend's children lose everything because of this mistake.

 

[LdiJ]

Washington

Hello, I am an accounting student. My friend's elderly father stopped using his CPA and stopped paying federal taxes in 2012. He is now, of course, receiving letters from the IRS. I have agreed to help him with the accounting. He has not kept good records.

The man is a sole proprietor and owns a restaurant, and a combination ice cream & toy store. He also has rental income. He pays his son and daughter in-law to work for him by 1099. All of his other employees are W-2. He has kept up on his state taxes.

I plan to start by entering all credit card and bank transaction into quickbooks. He would like me to start with 2017 since that is what the IRS is contacting them about, but I think we should start with 2013 since those are the last numbers we have. Which is better?

Also, since he has not kept good records there are many purchases that we cannot tell if they are business expenses. Since he does not have good records, we are not sure how to approach cost of goods sold for his toy inventory either, as he buys most of it at discount retail stores and then resells it.

If anyone can give me any guidance, I would be very grateful. I don't want to see my friend's children lose everything because of this mistake.

I believe that it works more efficiently to start with the oldest years and work forward. That also helps carry forward numbers and categories and helps avoid duplication of setup and data entry. It also helps with inventory.

Just do the very best that you can and avoid doing anything overly creative.

 

[Zigner]

If you need guidance on an internet forum, then you are likely not the best person to be doing this...

 

[adjusterjack]

I am an accounting student.

An amateur. You need to back off and tell the guy he needs a tax pro or a tax attorney since his tax issues may rise to the level of criminal tax evasion and, trust me, you don't want to risk being between him and the IRS when the stuff hits the fan.

I'm guessing you don't have malpractice insurance so a lawsuit will end your career before it starts.

You might even be acting illegally if your state requires you to be licensed.

You are being extremely foolish to get involved in this.

 

[LdiJ]

An amateur. You need to back off and tell the guy he needs a tax pro or a tax attorney since his tax issues may rise to the level of criminal tax evasion and, trust me, you don't want to risk being between him and the IRS when the stuff hits the fan.

I'm guessing you don't have malpractice insurance so a lawsuit will end your career before it starts.

You might even be acting illegally if your state requires you to be licensed.

You are being extremely foolish to get involved in this.

Whoa...this is a major overreaction. Yes, the guy will need a tax pro when its time to do the tax returns (and maybe a tax attorney once the returns are prepared and he sees where he stands), but what this guy is proposing to do for him is bookkeeping. He does not need a license or malpractice insurance to do basic bookkeeping. This is getting the guys info into quickbooks.

He is also using reasonable sources to obtain that information (credit card receipts and bank statements)...so again, basic bookkeeping.

Even if he went to a tax attorney or tax pro they would tell him to get his bookkeeping in order first. Tax attorneys and Tax pros don't do bookkeeping.

 

[Zigner]

Also, since he has not kept good records there are many purchases that we cannot tell if they are business expenses. Since he does not have good records, we are not sure how to approach cost of goods sold for his toy inventory either, as he buys most of it at discount retail stores and then resells it.

If anyone can give me any guidance, I would be very grateful. I don't want to see my friend's children lose everything because of this mistake.

LdiJ - the above shows that this OP is doing much more (or, would like to do much more) than simple data entry.

 

[LdiJ]

LdiJ - the above shows that this OP is doing much more (or, would like to do much more) than simple data entry.

Its still bookkeeping...and I forgot to give him some advice on that particular issue.

OP, your friends father should know how much of a markup he puts on his inventory sales. So, if he marks things up by say, 25 percent of what he paid for them, then it would be relatively safe to calculate cost of goods that way. Take his total sales of merchandise and apply the appropriate calculation. Make sure that you document how you calculated cost of goods sold, so that whatever Tax Pro he will use for the actual tax returns is aware of how you came up with the numbers.

In fact, you should document in general how you came up with the numbers that you enter into quickbooks.

 

[quincy]

AccountingStudent, you are making a mistake by handling this for your friend's elderly father. You can ask one of your professors why this is a mistake.

 

[LdiJ]

AccountingStudent, you are making a mistake by handling this for your friend's elderly father. You can ask one of your professors why this is a mistake.

Again, this is BOOKKEEPING. I would agree with you if he was proposing to do the tax returns. However, this is bookkeeping. There are many bookkeepers who don't even have a college degree. He can certainly ask one of his professor's opinion as to whether or not he should help someone out with bookkeeping, but I can just about guarantee that the professor will say that its a good idea to get some practice at a practical aspect of his accounting skills.

 

[Zigner]

Again, this is BOOKKEEPING. I would agree with you if he was proposing to do the tax returns. However, this is bookkeeping. There are many bookkeepers who don't even have a college degree. He can certainly ask one of his professor's opinion as to whether or not he should help someone out with bookkeeping, but I can just about guarantee that the professor will say that its a good idea to get some practice at a practical aspect of his accounting skills.

You may be right, but I get the impression that, while on the surface it may seem like bookkeeping, the OP is actually going to dive deeper in to this.

 

[PayrollHRGuy]

Again, this is BOOKKEEPING.

It may well be but should this account to be really risk his career over it?

 

[AccountingStudent]

Thank you everyone for your advice and opinions. Zigner is correct, I am probably not the person for this job. I understand the fear in taking this on as an inexperienced person. He has been to several CPA's and they have all told him to get his records together, which is what he is paying me to do. So, I am just doing bookkeeping. I am invoicing him as a 1099 employee for data entry, and I am actively looking for a CPA to work for as well. Can someone explain how I am risking my career, so I can use the reasons to convince him to hire a CPA's bookkeeper instead of paying me?

 

[Whoops2u]

Thank you everyone for your advice and opinions. Zigner is correct, I am probably not the person for this job. I understand the fear in taking this on as an inexperienced person. He has been to several CPA's and they have all told him to get his records together, which is what he is paying me to do. So, I am just doing bookkeeping. I am invoicing him as a 1099 employee for data entry, and I am actively looking for a CPA to work for as well. Can someone explain how I am risking my career, so I can use the reasons to convince him to hire a CPA's bookkeeper instead of paying me?

I think it is because the difference between accounting and bookkeeping is hard to define. I don't think you have any problem, but the question on COGS seems a bit more than a bookkeeper might ask.

 

[PayrollHRGuy]

A. If what you are doing rises to the level of requiring a license in your state you would be in violation and it could well affect you ever getting a licence.

B. You have no insurance to cover yourself for an error you might make that cost your client money.

 

[quincy]

The risks are best outlined for you by one of your accounting professors.

All accountants have an obligation to report financial situations accurately and to hold confidential all of the financial and personal information they work with.

Fumbling either can open up the accountant to both civil and criminal liability.

The task, with the elderly person's financial and tax data dating back several years, is best handled by an experienced, licensed and insured CPA.