Estimated reading time: 4 minutes
Are you ready for the tax season?
We’ve assembled a few things you should look out for and how technology can help save time and provide you with some peace of mind.
Let’s face it, convenience stores are still one of the most cash-intensive businesses. Because of this, they are sometimes closely scrutinized or examined by tax officials. How do you keep your records in top shape and show good faith?
These are the top 3 issues that a tax official grapples with when reviewing a c-store’s tax and supporting documents:
- Unreported income
- Handling and accounting for cash receipts
- Cost of goods sold
Cash Handling and Control Procedures
Unlike checks, credit cards and other methods of payments (MOPs), cash is hard to trace as it passes from one person to the next. How do you track and safeguard your cash? Consider:
- Who collects cash?
- Where do you keep it?
- Who reconciles it to sales at the end of the day or shift?
- Is it used to pay suppliers?
- Do you have well-communicated cash procedures?
- What do you track and what reports are helpful in your operations?
How Do C-Store Tech Apps Help with Cash Handling?
Along with some standard operating procedures, technology helps in these ways:
- Back-office technology can help you reconcile your daily transactions
- Loss prevention technology can help you identify thefts and mistakes
- POS systems can also be set up to ensure that cash drops happen consistently
Not only do these solutions keep you on top of your business but they also help you show good faith in how you approach cash in your business.
What Questions are Tax Officials Likely to Ask?
- What percentage of sales is attributed to cash compared to credit or check payments?
- What do you do to make sure all cash is reported?
- What do you do to make sure employees aren’t stealing?
- Do employees share a cash drawer?
A few other cash control tips:
- Bank Deposits. Cash can go missing if the same person who records sales (1) also fills out the deposit slip and (2) makes the deposit (deposit slips can be changed!).
- Free Food. Many c-store also operate fast food units. Having cash collected at one station and delivered at another can decrease the risk of food being given away free or that cash will be stolen.
- POS Receipts. Some c-stores also offer a free item if the customer doesn’t receive a receipt. This helps to ensure employees record all sales in the cash register.
- Zapper Technology. Tax authorities are well aware of zapper technology which alters register sales data. Keep this in mind.
Inventory and Cost of Goods Sold (COGS)
These are the top inventory issues for tax officials:
- Self-consumed items
- Physical inventory counts
- Inventory values tracked at retail and not cost
How Do C-Store Tech Apps Help with Inventory Issues?
- Back-office technology helps c-store owners track their inventory “perpetually” both at cost and retail
- Back-office also tracks cashier scan rates which can be one reason for inventory issues
- Back-office apps also come with licenses for accountants and integrations with financial systems
- Loss prevention technology can help to validate differences in inventory that are not readily apparent
- Scan Data tracks your promotional discounts and buydowns
- POS systems can help keep track of self-consumed items
- POS systems can also keep track of payments made to suppliers
What Assumptions are Tax Authorities Likely to Make About Inventory?
If your method of tracking inventory creates more questions than answers, a tax authority may require you to take a physical inventory account and or apply these assumptions :
- Ending inventory is the same amount as beginning inventory
- You have 59 days of sales in ending inventory
- Your inventory turn ratio is 6.4X or inventory turns 6 times a year
- Your gross margin is 25.5%
Final Thoughts
We’ve pointed out a few areas where technology can help you improve operations and show good faith in how you manage your cash and inventory. There are many other questions that a tax authority may ask, including if you’ve received funds from an oil brand to improve the branding of your store. You can find out more about what a tax authority may ask in links to the IRS guides provided in the resource section.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
Resources:
https://www.irs.gov/pub/irs-utl/cashchapter14_211003.pdf
https://www.irs.gov/pub/irs-pdf/p5495.pdf
