Five Tips to Get Ready for Tax Day
On April 15, many small-business owners will leave money on the table, overlooking exemptions and write-offs on their federal taxes. Whether your practice is a sole proprietorship, limited liability company or takes some other form, here are some tips for keeping your federal tax filing on track.
1. If you haven't done so already, pull together all necessary receipts and other documentation now.
You don't want to realize as the deadline draws near, for example, that you are missing a Form 1099 report you need in order to complete your taxes.
2. Consider whether the right person, or combination of individuals, is handling your tax preparation.
With the widespread availability of tax software packages, many practitioners are preparing their own business returns. That may make sense if your finances are relatively straightforward. On the other hand, many business circumstances are sufficiently complicated that you need to think about taking advantage of a financial professional's expertise.
As part of your decision making, consider whether it would it be more profitable to spend the equivalent number of hours seeing patients in lieu of preparing your tax return yourself.
A division of labor can work well for some practitioners. For example, you may keep careful financial records throughout the year and provide them to your accountant to complete the business tax forms. Not only do some practitioners find that this arrangement keeps them disciplined about maintaining basic financial information for their practice, but it also makes them more knowledgeable in reviewing the return their accountant prepares.
Depending on your needs, you may want to employ tax attorneys, certified public accountants or other accountants, enrolled agents (a tax adviser and preparer who is licensed by the IRS), or other professionals who prepare tax returns.
3. Define the nature of your working relationship with any outside professionals who help prepare your taxes.
For example, will that person represent you during an audit and pay any penalties that result from his or her errors? Make sure that your professional relationship is clearly defined and is consistent with your needs and expectations.
4. Take advantage of all available deductions.
A tax advisor can help you avoid missed opportunities for saving on taxes by ensuring that you claim all the deductions you are eligible to take. A knowledgeable financial expert who prepares your taxes also can help you steer clear of penalties and other fees by making sure that you pay the correct amount of quarterly estimated taxes.
5. Look ahead to next year’s taxes.
If you notice something has changed that may affect your taxes, go ahead and make appropriate changes in anticipation of filing taxes next year. For example, file an updated federal W-4 form if the number of exceptions you can claim is likely to change.
Every page of the IRS site includes a link to "Forms and Publications" under "IRS Resources" on the left side of the page. One example of material that may be helpful to access online is Publication 334, "The Tax Guide for Small Business (for Individuals Who Use Schedule C or Schedule C-EZ)."
US Small Business Administration and SCORE
Other websites with relevant information include the United States Small Business Administration (SBA), and the website for the SBA-affiliated organization known at the Service Corps of Retired Executives, or SCORE. You may wish to consider ordering the "Small Business Resource Guide CD," developed by the IRS and SBA and available online. Among the free online courses offered by SBA is the federal tax training course, "Introduction to Federal Taxes for Small Businesses."
Small business owners can email or call SCORE, a nonprofit association dedicated to helping small businesses. Local counselors are available to consult directly with small business owners free of charge.
Note: The content of this article is presented for informational purposes only and does not constitute tax, legal or financial advice. Tax decisions can be extremely complex and should be made in consultation with your legal and/or financial advisor.
Updated March 2014