Planning, preparing and filing business taxes can prove to be a chaotic, stressful and confusing ordeal for many small businesses.
Due to a variety of tax-related issues your company may face it is critical to seek out expertise. According to Outright.com in a recent post, “Businesses [should] turn to either a professional accountant or tax attorney for help… Forming a working relationship with a tax pro can keep you out of hot water with the IRS and take some of the stress off of tax time.”Sponsored Post. This post is brought to you by Visa Business. Visit http://facebook.com/visasmallbiz to take a look at their reinvented Facebook Page: Well Sourced by Visa Business. The Page serves as a space where small business owners can access educational resources, read success stories from other business owners, engage with peers, and find tips to help businesses run more efficiently. Every month, Visa will introduce a new theme that will focus on a topic important to a small business owner’s success. For additional tips and advice, and information about Visa’s small business solutions, follow @VisaSmallBiz and visit http://visa.com/business.
Locating and hiring a qualified tax specialist is just the beginning. Former IRS Revenue Officer and Landmark Tax Group founder, Michael Raanan suggests that “due to the substantial increase in IRS audits, business taxpayers should take precautionary steps when filing their taxes this year to help reduce their chance of an audit.” Raanan recommends:
1. Beware of your deductions.
2. Claim proper exemptions.
3. Ensure all your tax filings reconcile.
4. Document any questionable information.
5. File on time.
However, the risk of facing a potential IRS audit is merely one of many hurdles that small business owners are tasked with addressing each year. So, we asked fifteen of the nation’s leading CPA’s, tax attorneys and tax analysts to shed light on common tax mistakes you should avoid:
Mistake #1: Ignore opportunities to offset current losses.
“Most small business owners do not understand the power of utilizing Net Operating Losses (NOLs). If your company is in a net loss position at any point in the year, and the business or the pass through shareholder has paid taxes in the previous two tax years, you can file for an emergency refund (e.g. you do not have to wait until tax time to get a refund to shore up cash flow needs).”
– Michael J. Fitzgerald, CPA/PFS/MTAX, President at Fitzgerald Financial Partners, LLC
Mistake #2: Remain uninformed of filing requirements and due dates.
“Many small business owners don’t know the filing requirements or due dates of required returns. Often there [are more requirements and documents to be filed alongside your] corporate return. There are also payroll taxes, personal property taxes, sales taxes, and excise tax returns. Also penalties for late filing, incorrect calculations, or non-filing can be substantial.”
– Cheryl L. Yarbrough, CPA, Practice Leader, Business Services at Windham Brannon
Mistake #3: Unfamiliar with tax rate changes.
“Income tax rates for higher income individuals went up on Jan. 1, 2013. This is relevant because most multi-owner small businesses are taxed as partnerships, LLCs, or S corporations where results of operations are passed through and taxed to the individual owners, partners or shareholders. With this in mind, it may be good idea to pull income into 2012, where it is taxed at lower rate than would be in 2013.”
– Jim Keller, Senior Tax Analyst at Thomson Reuters
Mistake #4: Fail to consistently perform bookkeeping tasks during the year.
“Most small business owners are so overwhelmed with running the day-to-day operations of their business, that they habitually postpone recording their daily, weekly, monthly, and yearly transactions… As a result, tax time turns into chaos, with boxes of receipts, invoices, and checks flying all over the room. The solution: set aside a few hours each week to organize your company’s financial transactions. If a few hours won’t cut it, consider trusting a competent CPA to manage your company’s financial and tax life.”
– Dave M. Finklang, CPA/CGMA, Senior Tax Associate at Brown Smith Wallace
Mistake #5: Fail to consult a tax specialist prior to making major financial decisions.
“[Many entrepreneurs don’t] reach out to a qualified CPA or tax professional before making major financial decisions, including making the correct entity selection at the outset, failing to draw a salary and using company accounts and funds for personal use and expenses. These mistakes can lead to serious consequences on the business owners’ tax positions. In some cases, they may even strip owners of the liability protection under which they think they are operating.”
– Eddy Mathieu, CPA, EA., Owner at Mathieu Accounting & Tax Services, LLC
Mistake #6: Don’t take full advantage of employee benefits arrangements.
“Retirement plans can benefit both employees and the employer, providing significant opportunities to reduce current year taxable income and save for the future in a tax deferred plan. Likewise, Section 125 cafeteria plans allow employees the opportunity to pay for benefits such as medical care, life and disability insurance, and child care using pre-tax dollars. Although most small business owners, as “self-employed individuals,” are not eligible to participate in cafeteria plans, the benefits provided to employees under these plans are not subject to payroll taxes and thus can yield substantial savings to the employer. In addition to the tax savings, offering these types of benefits can help you attract and retain top talent; a win-win solution.”
– Eric S. Fletcher, CPA, Senior Tax Manager at Bond Beebe, Accountants & Advisors
Mistake #7: Submitting 1099’s or W-2’s behind schedule.
“Not issuing 1099’s or W-2’s by the necessary due dates — January 31st to be issued to employees and consultants; February 28th to submit documents to the IRS. It is imperative that both deadlines are met to minimize assessed IRS penalties.
– Michael Kaplanidis, CPA, Managing Director at Water Street Associates