What if ONE mistake ended up costing you $15,000 dollars?
This is something that almost happened to one of our clients.
A client of ours is part of a law firm that has multiple offices in several different states, one of them being New York.
Don’t get us wrong, New York is great! However, the New York taxes…ouch. They’re especially rough if you live in the city. Sometimes people end up having to pay 30-45% tax!
So anyways, back to our client…
The law firm prefers to do their bookkeeping in-house and then they send us a Quickbooks file so that we can do their corporate return.
Since the law firm has offices operating in different states we had to know how much revenue was received from each state so that we could apportion the income accurately. This is important so that each individual state can tax the correct amount of revenue.
In order to do this we used the numbers found in the client’s Quickbook file. When we finished the return we concluded that every partner of the law firm had to pay around $15,000 dollars to the state of New York in tax.
Two of the three partners were not living in New York. As you can imagine, the two not living there questioned why they had to pay the large sum of tax even though they weren’t New York residents.
We explained that because the business earned around $1 million dollars in revenue in the state of New York, each partner would have to pay the tax on it.
Our client then questioned where we got the number ‘$1 million dollars from’ and we told them it was in their Quickbooks file. They went back to their bookkeeper and asked them where the number came from.
Something seemed off.
After some analysis we discovered that the bookkeeper had been recording everything incorrectly. Revenue that had NOT occurred in New York was being recorded as New York revenue. Many different factors have to be taken into account when recording where revenue is taking place, such as where the client’s address is and where the work is performed. All of this had been ignored resulting in incorrectly apportioned revenue.
Our Tembo team did some research and found out how to properly define the revenue that had been made in New York. We went back to the Quickbooks file with the new definition and reapportioned all of the revenue for every single state involved.
Afterwards, we discovered that there was only about $100,000 dollars in revenue that actually came from New York. That’s a huge difference compared to the $1 million dollars that had been recorded. This made much more sense to the partners because the New York office was rather small with just one employee.
Next, we amended the corporate return and refiled it. Two of the partners of the law firm were not our clients, only the managing partner is. However, the other two partners had already filed their personal returns with the incorrect information.
We wanted to make it right.
Therefore, we told them not to worry and asked them to send us their personal return information so that we could file their personal returns free of charge.
They ended up only owing about $300-$400 dollars in tax to the state of New York instead of $15,000 dollars!
At Tembo we take great pride in not only our business and tax strategy, but in our customer service. It is our mission to make the lives of anyone we work with easier and we find joy in going above and beyond.
It’s simply the Tembo way.