Before You Spend a Dime— Why Return on Investment Matters

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A Red Flag That Started It All Lakeview Hospice Care, Inc., a family-run hospice agency in Burbank, California, found itself in Tax Court after what began as a routine red flag: its corporate tax return showed no officer compensation . For a C corporation with active owners, that’s a problem. The IRS expects a corporation to compensate its officers if they’re performing services. When a company has substantial revenue but reports zero officer wages, it signals that something may be off in the accounting. That missing salary line on the return caught the attention of the IRS , prompting an audit. But when the revenue agent started digging, she uncovered much deeper issues in the company’s bookkeeping. A Bookkeeping System That Didn’t Add Up Lakeview’s books were maintained by a long-time outside bookkeeper who had set the company up on an accrual accounting system. Unfortunately, the system wasn’t being used properly. Among the problems the IRS found: Accounts receivable were reversed to zero without explanation. The general ledger contained numerous vague “adjusting journal entries” labeled simply as “reverse of year-end accruals.” Invoices were handled manually — stamped “paid” and placed in folders — instead of being linked to the ledger or billing system. No monthly reconciliation was done between the bank accounts and the books. The company’s records didn’t match its billing activity or its bank deposits. Although the books were labeled “accrual basis,” the data didn’t actually reflect income when it was earned or expenses when incurred. That inconsistency gave the IRS authority under Section 446(b) of the tax code to disregard Lakeview’s accounting and reconstruct its income using another method. The IRS Turns to the Bank Deposits Method When books are incomplete, the IRS can use the bank deposits analysis to estimate income. The auditor adds up all deposits for the year, then adjusts for: Nontaxable items (like account transfers or shareholder contributions), and Changes in receivables and payables to approximate accrual-based income. Using this method, the IRS initially claimed Lakeview underreported more than $200,000 in income across two years. The Tax Court agreed that the auditor’s method was appropriate — Lakeview’s records simply didn’t “clearly reflect income.” But the Court also found that the IRS’s totals were too high , because the company’s explanation for certain deposits made sense. Some of those deposits came from owners, refunds, or other non-taxable sources — not from hospice revenue. The judge accepted Lakeview’s adjustments and ruled that those amounts should be removed from income. ✅ In short: Lakeview lost on the method but won on the numbers. Where Lakeview Lost Ground: The Deductions The Court did not, however, side with Lakeview on its expenses. Some of the questioned deductions included $222,000+ in “miscellaneous accruals,” Advertising expenses paid to a related person “Other deductions” $171,000+ Net Operating Loss from a prior year When pressed, Lakeview couldn’t provide invoices, receipts, or other proof. Some expenses were handwritten, others were tied to related parties, and others were simply labeled as “accruals” with no support. The judge sided with the IRS - those expenses lacked substantiation and the deductions are disallowed. The net operating loss was also denied because the company couldn’t back it up with prior-year records. In short, Lakeview’s bookkeeping errors erased many of its deductions. A Mixed Result — and a Pending Bill Judge Holmes called it a “mixed result.” The IRS was right to question the books and reconstruct income, but Lakeview was right that not all deposits were taxable. The company avoided penalties because it had relied — in good faith — on professional help. But the Court ordered that the final tax amount be computed later under Rule 155 , a standard procedure to calculate the final bill after applying the Court’s adjustments. So, while we don’t yet know how much Lakeview will owe, it’s likely to be a significant tax balance – probably tens of thousands - once the math is finalized. My Opinion on this Case: When Business Owners Don’t Provide the Data There’s an old saying in the accounting world: “Garbage in, garbage out.” No matter how skilled a bookkeeper may be, they can only work with the information they’re given. If a business owner doesn’t provide timely bank statements, credit card records, invoices, and receipts, the financial reports — and the tax returns based on them — will never be accurate. Many accounting and bookkeeping firms struggle with this same issue. It’s not always carelessness on the bookkeeper’s part; sometimes it’s simply that the client hasn’t provided the data needed to close the books correctly. In Lakeview’s case, that may have been a big part of the problem. The outside bookkeeper set up an accrual system, but without complete input from management, the records never reflected reality. At the same time, this doesn’t absolve the outside bookkeeper of responsibility. The Tax Court seemed to recognize that balance — removing the penalties partly because Lakeview had relied on a professional, but still making it clear that the bookkeeping itself was unreliable. In my view, a competent bookkeeper should press harder for accurate information or even disengage if the client won’t provide it. Personally, I would have fired this client rather than continue producing records that I knew weren’t accurate. A professional’s duty isn’t just to record what’s handed to them, but to ensure that the books meet quality standards and will stand up in audit. Takeaway Tips: How to Avoid Lakeview’s Mistakes Always report officer compensation. Even for C corporations, listing zero wages when officers are active can draw attention from the IRS. Use accrual accounting correctly. Record income when earned, and expenses when incurred — not just when money moves. Keep complete documentation. Every deduction should be backed by invoices, receipts, or agreements. Ledger entries alone aren’t enough. Reconcile your accounts monthly. Your bank activity, billing system, and accounting software should always line up. Give your bookkeeper what they need. Timely access to bank statements, credit card accounts, and supporting paperwork is essential. Your financials can only be as accurate as the information you provide. Author’s Note Written by KAC Consulting, Inc. — a firm specializing in bookkeeping, tax advisory, and resolution services for small businesses. We help owners maintain clean, compliant records and audit-ready financials. 📅 Don’t wait until tax season to find out there’s a problem. Contact us before year-end for a professional books review and make sure your financials are accurate, complete, and audit-ready.

Meet Jake. Jake is a hardworking general contractor who needed to hire extra hands during a particularly busy summer. He didn’t want to deal with payroll taxes or paperwork, so when his helpers asked how they’d get paid, he said, “You’re contractors. I’ll just write you a check every week.” Easy enough—or so he thought... When tax season rolled around in January, Jake’s tax preparer asked him for W-9 forms for all of his contractors so she could prepare their 1099-NEC forms. He hadn’t collected any information for any of them. He had names and phone numbers. Which is not enough. When 1099 Reporting Kicks In Here’s the deal: If you pay independent contractors $600 or more during the year (see below for changes to 2026 reporting), you may have to issue form 1099-NEC to report payments for services performed for your trade or business. How do you know who needs to receive a 1099? The IRS guidelines state that if the following four conditions are met, you must generally report a payment as non-employee compensation. You made the payment to someone who is not your employee. You made the payment for services in the course of your trade or business. You made the payment to an individual, partnership, estate, or in some cases, a corporation. You made reportable payments to a payee that total the threshold amount or greater during the year. Which is $600 for 2025. (An Important Note: The new $2,000 threshold signed into effect by the OBBB starts in 2026 for payments made after December 31, 2025. Don’t let rumors fool you—keep collecting those W-9s and issue 1099s for $600+ payments this year.) To correctly issue 1099 forms to your contractors, they will need to fill out a W-9 — the form that gives you their name, address, and taxpayer identification number (SSN or EIN). Jake didn’t know this, so he was missing the one thing he needed most — their tax IDs. The January Headache Instead of kicking off the new year with fresh projects, Jake spent hours chasing down contractors. He called. He texted. He left message after message. Some replied right away — but others had new phone numbers, moved away, or just vanished , taking Jake’s peace of mind with them. The IRS 1099 filing deadline was fast approaching, and Jake couldn’t complete half of his forms. There are two big issues when you pay contractors without getting a W-9: Issuing the 1099 — the problem everyone knows about. Without the contractor’s SSN or EIN, you can’t correctly issue a 1099, and the IRS may fine you for missing or incorrect forms. Backup Withholding — the problem no one talks about. And this one can cost you money. The Backup Withholding Trap Here’s what the IRS expects if you make payments to a contractor that are equal to or greater than the $600 threshold: Make sure you have the contractor’s name, address, and Tax Identification Number on a form W-9. This ensures you have everything you need to issue Form 1099. If you don’t have the contractors’ Taxpayer Identification Number, you must withhold 24% of their payment and send it to the IRS. This is called backup withholding . This is a very common area of non-compliance. The law (IRC 3406(a)(1)(A)) states backup withholding is required if the payee fails to furnish his Tax Identification Number to the payor. Let’s put this in Jake’s world. Jake paid one of his missing contractors $1,000 for some deck work. Since he never got a W-9 he should have withheld $240 (24%) and paid the contractor $760. The $240 would have been sent to the IRS. In this scenario, that $240 is not Jake’s money, it was the contractors, and Jake would be paying the tax on behalf of the contractor. But, here is the bad news. When the IRS reviews Jake’s filings and notices the missing forms or unreported payments, they will assess that tax against Jake, not the contractor. That means Jake could be on the hook for that $240, plus penalties and interest. The Cost of Procrastination By the time Jake finally tracked down a few of his contractors, the filing deadline had passed. He ended up filing some 1099s late, paying penalties, and still couldn’t report the payments for the ones who disappeared. And the worst part? All of it could have been avoided with five minutes of paperwork before cutting that first check. Jake’s New Rule (It Should be Yours Too) Now, Jake won’t let anyone lift a hammer until he gets their W-9 . His new motto: “No W-9, no pay.” If you pay contractors, learn from Jake’s mistake: ✅ Always collect a W-9 before making the first payment. ✅ If you don’t have one, start backup withholding (24%) AND pay that to the IRS. ✅ Remember, if you skip both, the IRS may come after you , not the contractor. Moral of the story: Paperwork may not be fun, but it’s a whole lot easier than trying to hunt down missing contractors in January. How can KAC Consulting, Inc. help? If you would much rather focus on the parts of your job that you love most, or you need help with bookkeeping and compliance, please contact us today and let's see how we can work together!

Managing payroll can feel overwhelming for small business owners. Between tracking hours, filing taxes, and staying compliant, it’s easy to lose valuable time. That’s why we partner with Gusto, a modern payroll platform designed to make the process simple and stress-free. Gusto automates the hard parts of payroll. It syncs employee hours, calculates taxes, and files forms automatically. You can run unlimited payrolls without extra fees and even customize pay schedules for different employees. Everything is handled in minutes, so you can focus on growing your business instead of crunching numbers. Why Gusto? Gusto makes payroll and HR simple, fast, and affordable: Finish payroll in minutes – Employee hours sync automatically, and taxes/forms are filed for you. Unlimited payroll runs – Pay weekly or customize schedules at no extra cost. Integrated time tracking & PTO – No more spreadsheets! Workers’ comp made easy – Pay-as-you-go options, no lump sums. Beyond payroll – Health insurance, 401(k), and other benefits in one platform. No hidden fees – Big company service at a small business price. Benefits Your Team Will Love Beyond payroll, Gusto offers benefits your team will appreciate. Health insurance, 401(k) plans, and workers’ compensation are all integrated into one easy-to-use dashboard. Employees can manage their benefits online, request time off, and access important documents without piles of paperwork Health plans tailored to your budget. Automatic syncing of benefits and payroll. Paperless onboarding and HR tools. Employee perks like Cashout for unexpected expenses. Ready to Get Started? We offer two ways to get started. If you want a hands-off approach, let KAC and Gusto manage things for you. Our team and Gusto will ensure compliance and accuracy for your payrolls! Do you prefer to do it yourself? Use our referral link to sign up for Gusto and enjoy all the features directly. Option 1: Let KAC Consulting, Inc and Gusto handle everything for you. We’ll manage your payroll and HR so you can focus on growing your business. * 👉 Contact us here or call us: 210-988-2841 to learn more. Option 2: Prefer to do it yourself? Sign up for Gusto using our referral link and enjoy all the benefits. Plus, once you pay your first invoice, you will receive a $100 Visa gift card. * 👉 DIY with Gusto Payroll Referral Link *And yes, KAC Consulting, Inc. earns a little something too.

KAC Consulting, Inc: The Founder’s Story

Tax season is like finals week for adults—stressful, confusing, and full of paperwork. But don’t worry, you don’t have to go at it alone. There are several types of tax professionals out there, each with different qualifications and specialties. Whether your tax situation is simple or complex, understanding who does what can help you choose the right person for the job.

Picking someone to do your taxes isn’t just about saving time—it’s about making sure everything is done right, so you can avoid costly mistakes or even fraud, and maybe even score some extra savings! Just because someone claims to be a tax pro (even if they have a fancy office with a potted plant) doesn’t mean they’re actually qualified. So, before you hand over your personal details or hit “send” on your return, know what red flags to look for

In this guide, we’ll break down what every restaurant owner needs to know about two key tax credits you may be missing. Read on to make sure you’re not leaving money on the table.

You probably have been receiving your refund by direct deposit; but just in case you have not, please read on!