Taxes: Common Mistakes Business Owners Should Avoid

culled from:inc.com

Each year tax laws change.  Since the majority of businesses are pass-through entities, profits are passed through to the owner(s) and taxed at individual income tax rates.   It’s why I recommend my clients talk with their accountant before year end.  It helps them develop options to legally reduce liability and minimize tax payment surprises.

According to Ray Giunta, CPA and partner at Baratz and Associates, here are some common mistakes small businesses want to avoid when it comes to taxes.   

Tax Planning in January.  If you wait until the new year to talk to your accountant, you will likely lose the opportunity to make any changes that could potentially reduce your tax liability.   Adjusted gross income thresholds on itemized deductions, exemptions, capital gains and Medicare tax thresholds have all changed this year.  Take the time to talk with your accountant and work up some projections to avoid surprises at tax time.

Poor Record-keeping.  This often represents missed opportunities for deductions.  Some common ones include automobile logs and travel and entertainment substantiation.  Keep receipts and include descriptions, purpose and people (for entertainment).  Categorize expenses properly in your financial management system.  A bookkeeper or accountant can help with this.

Poor Business Decisions.   Don’t let tax considerations get in the way of sound business decisions. Taking actions that minimize tax liability at the expense of cash flow or long-term growth may put your business in jeopardy.  If you are uncertain, talk to your accountant before you take action.

Ignoring Miscellaneous Tax Obligations.  Federal and state income taxes are obvious, but make sure you know and understand the requirements relating to local taxes, business use taxes, state nexus taxes, sales taxes and personal property taxes.  They all impact your business and personal wealth.

Choosing an Accountant

Selecting a trusted advisor (accountant) for your business is important.  They not only have access to your financial information, but can help guide you in making sound business and personal financial decisions.  Reputation, price, services offered, responsiveness and responsibility are all factors to consider.  Here’s a list of questions I find helpful when referring business owners to an accountant or CPA:   

    Do they have experience and knowledge working with others in your industry?
    Do they have capabilities beyond simple tax preparation such as estate, gift and trust expertise?
    What is their reputation in the business community – are they a trusted advisor for others you know?
    Do they have credibility with banking and bonding institutions?  This is helpful when you need business financing and/or personal loans.
    Do they have the capabilities to service growing businesses? As your business grows and expands, it becomes more complex – so you want an accountant who is ready and able to guide you.