As serious as taxes are, it’s critical that small business owners take proactive steps to reduce their risks of being audited.
Why Small Business Owners Should Hire a Tax Professional
Small business owners should hire a real tax professional such as a CPA or Enrolled Agent to avoid pitfalls and find benefits due to the current crisis.
With individual and business tax deadlines extended this year because of coronavirus , and most Americans restricting their social interactions to only essential activities, many taxpayers are giving do-it-yourself tax programs a try. While these programs can certainly be a fit for some, there are many potential pitfalls, as well as benefits that can be missed. Fortunately, there are many tools that make it possible to hire a real tax professional, such as a CPA or Enrolled Agent, without having to physically go to an office.If you heard that millions of people tried performing surgery on themselves every year, you’d probably be shocked or at least wondering why people would take a chance on something so complex. Well, every year, millions of taxpayers decide to perform complex tax preparation by themselves and, while it may not put their life at risk, it is a perilous task.
For taxpayers with the simplest income tax returns, do-it-yourself online tax systems are a great option. These people often have only one source of income coming from a traditional employer, may have a home mortgage with interest, student loan debt, and perhaps some childcare credits. For these taxpayers, do-it-yourself systems like TurboTax, H&R Block, or TaxSlayer can help them save money over the often high-fee, seasonal tax preparation offices that open each year.
But for individuals with more diverse income sources—such as revenue from businesses, income from interest and dividends, capital gains on a home sale, or foreign assets—seeking the expertise of a professional can save time, money, and potential legal complications.
For small business owners and most taxpayers, there are many reasons why seeking a tax professional is better than performing your own tax surgery.
Taxes are Complex
Even seemingly simple tax situations can become complex.For example, do you:
- Own a business or receive income from one,
- Have children,
- Receive income from stock transactions,
- Have recently divorced complications,
- Receive a Form 1099,
- Have income from a state you don’t live in,
- Have complications from recently moving?
Adding to the complexity outlined above, new tax laws are enacted every year that affect virtually everyone, making it tough to keep up with changes and how they might affect you. For small businesses that have to manage income tax withholding and reporting for its employees, taxes are even more complex. And then there’s healthcare reporting.
While tax software can help, an experienced small business tax pro “has seen it all before,” and also keeps up with tax law changes through educational courses.
Your Time is Money
While you may be able to prepare your taxes yourself for $200 or less online, many do-it-yourself filers spend an inordinate amount of time doing it. According to the IRS, the average taxpayer spends 13 hours preparing their return.
Hiring a tax pro can reduce that to the time it takes to gather your tax documents and forward them digitally to his or her office, go over a few items with the pro, then review the final return for accuracy. If your time is better spent with family or even binge-watching tv instead of reading about income thresholds for credits, and other factors that determine tax rules, then hiring a tax pro can make for less stressful days.
Tax Pros Can Save You Real Money
According to a 2017 survey by the National Society of Accountants, it costs an average of $273 for a tax professional to prepare a person’s federal and state U.S. income tax returns. A Schedule C (for business income and expenses) only costs an average of $184 more.
In addition to saving you hours and hours of painfully boring and perilous tax guessing, experienced tax preparers also know all of the deductions that you may qualify for, and which items are tax-deductible if you own a business. They can also easily tell you whether it’s more beneficial to itemize or take the standard deductions and which expenses are legitimate, versus the ones that could get you a visit from the IRS.
Even if you just earn a little extra income on the side, a small business tax professional may be able to find you deductions or credits that will more than pay for their services and keep more of your hard-earned money in your pocket. They may even get Uncle Sam to send more of it back in a tax refund. To top it off, the cost of having your taxes prepared by a professional can also be tax-deductible.
Mistakes Will Cost You
If you do your taxes yourself, you are much more likely to make mistakes—and they can cost you big. Even simple math errors can cause a return to be inaccurate, leaving the taxpayer liable for past taxes, interest, and penalties. For errors the IRS believes are not accidental, such as failing to report income, taxpayers can also face large fines and even criminal prosecution.
Peace of Mind
Have you ever finished your taxes and were pleased with the income tax refund amount, but felt less than confident in the accuracy of the return or if a particular deduction or credit really applied to you? The only people that look forward to an IRS audit are IRS auditors, and the best way to avoid their scrutiny is to make sure your tax return is in compliance with the tax laws. The best way to do that is to hire a professional who lives, works, and breathes taxes every day (or at least a lot more frequently than you do).
There is still a chance that any taxpayer will get audited, but if you use the services of a professional CPA, Enrolled Agent, or Tax Attorney, and your return is selected for further inspection by the IRS, those professionals will help represent you before the IRS. Don’t go before a court without a lawyer, and don’t go before the IRS without a tax pro.
The taxes you pay this year can affect the taxes you will owe next year, so it is best to look at the larger picture. Plan ahead for those events that you can plan (college, new house, business changes, moving, divorce, etc.).
Most tax professionals would like you to meet with them before it’s time to do your taxes, while there is still time to take proactive steps to reduce your taxes or minimize other effects. A tax planning meeting can result in significant savings for many taxpayers and businesses.
Virtual Office Visits
Most tax professionals have been adopting digital technologies over the past decade that enable you to work with them without going into their office. You can easily scan and upload your tax returns and send them to the tax preparer using a secure digital sharing system, similar to those used by banks, and the preparer can ask questions via chat, email, phone, or video call. You can even digitally sign the return when it is ready. The professional will then e-file the return for you, and provide you with a digital copy when they are finished.
Tax firms have the tools and the expertise needed to continue providing the highest quality of service, even during this unpredictable and difficult time.