TAXES & ACCOUNTING • February 3, 2016
3 minutes Read
Small business owners are known for their drive, self-motivation, and in many cases, their desire to be hands-on in every aspect of their business. Many small business owners are notoriously reluctant to delegate tasks, believing to their core that if they want something done right, they have to do it themselves. On the other hand, many owners of small or startup businesses are simply on a tight budget and feel they have no choice but to do everything themselves until the business grows a little more. Now that tax season is approaching again, it’s time to consider whether or not filing business taxes should be included in those do-it-yourself tasks.
Tax filing is always a potential minefield, whether one is filing business or personal taxes. The IRS makes changes every year, and it is your responsibility, and/or that of the tax professional(s) you hire, to keep up with all of these changes.
As a small business owner, you have two basic options for calculating and filing your taxes: do it yourself, or hire an expert. Here are points to consider when deciding which option is most appropriate for you and your business.
Do it yourself.
If you really know what you’re doing, there is certainly nothing wrong with doing your own taxes, but there’s a lot you have to know. For instance, generally speaking, a small-business owner who itemizes deductions must complete and file IRS 1040, Schedule A, Schedule C and Schedule SE – among other forms, depending upon the type of business. And each and every one of these forms requires various information from your records; hopefully you keep good records, or have a trusted staffer to do it for you. It is time consuming to navigate your way through a complicated tax return, and with each form you need to file, the risk for error can be magnified.
Of course you’re not really on your own, because there are numerous resources and tools to help you. Whatever you might think about the IRS, the agency is a fount of information that can help you avoid making disastrous and costly mistakes (see the link at the end of this article). You can download most of the forms you need directly from the IRS web site.
In addition, there are excellent software applications and online tools available, updated as needed to keep up with the constantly changing tax landscape. No doubt you’re familiar with names such as TurboTax, QuickBooks, TaxACT, and H&R Block’s tax prep software, all of which can guide you step by step through simple to fairly complicated tax returns. Software programs vary in price, but there are free online tools as well. If you’re undecided, go online to research what other small business owners or tax prep experts are saying about these programs and tools, and/or ask some of your colleagues who have experience with them.
When you’ve taken all of the above into account, you may decide that it is better to consider that second option…
Hire an expert.
Hiring an expert can certainly ease your burden considerably, since as indicated above, some tax returns can be incredibly complicated. A qualified tax professional such as a CPA, or a professional tax service such as H&R Block or Jackson Hewitt, can ease this burden. There are many good reasons to hire someone who is schooled in taxes, and whose entire livelihood depends on keeping up with the changing tax codes.
For instance, a tax professional can help you find deductions and credits for which you qualify, and, depending upon the extent of their expertise, they can give you advice on specific tax issues, such as deciding whether to take a deduction or credit when both options are available.
Moreover, a pro can help you reduce or eliminate errors. Some of the most common tax errors, as documented by the IRS, include computation mistakes when determining taxable income; entering payments on the wrong line; and, not surprisingly, simple math errors. At best, an error on your return can delay a refund if one is due to you, but at worst, it can result in substantial interest and fines. Of course tax preparers are human too, and they can make mistakes – which is why you need to go over your tax return yourself to ensure that the numbers are correct and accurate to the best of your knowledge. Even so, a qualified professional is less likely than you to make blunders, particularly serious ones.
Overall, having a professional prepare your return also helps protect you from adverse consequences that might result from errors. If the IRS audits your return and finds errors, that could mean potentially severe legal consequences, but with a pro watching your back, you have a bit of a safeguard, generally reducing your potential liability.
Taxes are indeed a minefield and you need to watch your step. But there is plenty of help available, so you really don’t have to do everything yourself. And don’t forget that the IRS itself is the best source of tax information for small business owners. Check out this page, which is the portal to their information for small business owners and self-employed individuals: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed.
We hope you sail through tax time with a minimum of pain, and that 2016 is your best year ever.
Photo credit: IhorL/shutterstock.com
IMPORTANT INFORMATION: This is not investment, tax, or legal advice. Should you have questions, please consult your own attorney, tax accountant, or other appropriate expert having expertise in the area of your question or before making important decisions in these areas.