Business Records For Onboarding

Here are some expanded instructions and explanations to the checklist items above.

Employer Identification Number (EIN) Woes

We prefer to have your original EIN issuance letter from the IRS. Other desirable documents include an IRS notice of sorts or previously filed tax returns. Why do we care? A lot of business owners obtain EINs on their own- no worries, but a lot of business owners mess it up. They obtain an EIN for a sole proprietorship (no entity like an LLC). They obtain an EIN for a different business name or a trade name.

Obtaining an EIN when the owner is another entity (for example, you and your spouse have a real estate holding company and you are obtaining a new EIN for a subsidiary LLC) is not available online. It requires old school faxing paperwork to the IRS. At times people get frustrated with this, and they obtain an EIN using their SSN instead of the EIN of the “responsible party” which in our example is another LLC. This can be problematic.

All these EIN errors make S Corp elections, payroll account openings and tax return filings disastrous. We’ve had business owners rock up to us just for us to find out that they had three EINs. How does this happen? The IRS will quietly issue EINs should they feel your current EIN is inappropriate for the tax form you filed. Send off an S corporation election with an inappropriate EIN? Boom, you get a new one. And you might not even know.

The worst thing with an incorrect EIN is payroll account opening and processing. Many states use your federal EIN for their account number systems, and that is messed up on day 1 it is painful (read expensive) for us to resolve. We do it, and we do it well. But let’s avoid the WCG heroics please.

Owners Information

We need some precision here. Some owners hold their interests in a trust or another entity. For example, you and your buddy formed an entity way back when to invest into rental properties. Cool! You hold the interest in your personal name, and your buddy holds their interest in another partnership formed with their spouse. Sure, your buddy is your partner, but technically you are in partnership with another entity.

We also need basis information. What the heck does that mean? We need to know who contributed what into the business, and their ownership stake. Previously filed tax returns certainly help, but anything you have smashed into a desk drawer is helpful. At some point you are doing to exit this business, and getting ownership information correct today while memories are fresh is ideal.

S Corp Election

In the past we trusted when a business owner said, “oh yeah, for sure, I am an S Corp. 100%.” Today, the new kids just say “100” since the percent part is implied.

Also, today, WCG CPAs & Advisors trusts and verifies the veracity of your S corporation. Yes, we trust you. Yes, we need to verify. We need one of four things-

1. The S Corp acceptance letter which is mailed to the address on file with the IRS about 4-6 months after your election is sent off, or
2. A previously filed S Corp tax return (Form 1120S) that was filed at least 12 months ago (the IRS is slow to reject these tax returns and notify you), or
3. A Power of Attorney (POA) so we can call the IRS and verify your S Corp election and while we are at it, your EIN, or
4. WCG prepares and files your S Corp Election Form 2553 ourselves.

Just like EIN woes above, this can create a lot of insidious problems that do not present themselves for several months.

Prior Year Stuff

Once we prepare and file a tax return, we own that data and the prior data it was built on. Tax returns collectively are a chain, and each year is connected through links in that chain. As such, we need to verify prior year tax returns against the data set (financial statements and other documents) that was used to prepare those tax returns.

We commonly find ourselves scratching our heads with the thought, “this doesn’t look right, something is broken.” No worries! We usually sort it out with the prior tax accountant who graciously shares all the adjustments and changes between your records and the filed tax return. This commonly happens when business owners prepare their own financial statements (income statement, balance sheet, etc.) but don’t enter adjusting journal entries (AJEs) from their tax professional.

“Why are my retained earnings off by a zillion dollars as compared to the tax returns?”

“Because you haven’t entered AJEs for over a decade.”

All this is common, and truly not a big deal. However, as we said just a bit ago- once we prepare and file a tax return, we own that data and the prior data it was built on. Let’s not forget this other thing we said earlier- at some point you are doing to exit this business, and getting tax return and and financial statement information correct today while memories are fresh is ideal.