Ask anyone who’s been in business for more than ten years, and you’ll get the same reaction when you bring up small business taxes: Please change the topic. It’s not just that the topic is mind-meltingly boring (it is) or a buzz-kill (it is). It’s because taxes are always the biggest expense we have and, unfortunately, the least controllable. We know this. And we know five other unarguable realities about taxes too.
1. Disorganization will cost you.
The messier or more disorganized you are, the more it’s going to cost you. Your administrative person is going to waste time tracking down the documentation you need to send to your accountant. Your accountant is going to waste more time figuring out your mess. You run the risk of missing an estimated tax payment. As you defer, delay, and procrastinate, your anxiety will increase each day as you approach the filing deadline. And, if you get audited and are missing receipts, that’s the worst-case scenario.
None of this is healthy or profitable. Pretending that the IRS doesn’t exist won’t make it go away. At some point, we all just have to suck it up and make sure our files are accurate, complete, and organized because it will cost us less over time.
2. Falling behind will sabotage you.
Please, please don’t skip a tax payment. It’s so tempting; I know. It’s just “estimated,” right? Who’s gonna know? It’s a bad precedent. Schedule your estimated payments in your accounting system – better yet, in your online banking application, and make it a required payment. Then forget about it.
Making these payments is as important as paying the electric company and your employees. Falling behind builds up a huge liability and subjects you to penalties and interest. I’ve learned to take these payments seriously. You should too.
3. There is no silver bullet.
Sure, if you’ve got operations around the world and an army of tax lawyers, you can shift money here and there, take advantage of changing policies, invest in sheltered assets, and leverage tax-preferred investments. But, if you’re reading this article, this is probably not your reality.
You, like me, run a smaller business, and we don’t have those kinds of resources. For you, me, and all those like us, our tax options are limited. There is no silver bullet that will magically cut our tax bill with a keystroke or signature. Planning, recordkeeping, and paying attention to the tax effects of a significant transaction are what small business owners do to keep their taxes under control. That’s reality.
4. Your accountant doesn’t care as much as you think.
This is not a knock on accountants. They care. And they’re probably very good. But there are limits to how much you can lean on them. if they’re any good, each is likely to serve hundreds of clients just like you. This means they’re busy and overworked and likely can’t give everyone 100%. And just because they sign the ‘paid preparer’ line on your return doesn’t mean they’re responsible – unless there’s fraud.
In the end, it’s your tax return and you’re responsible for it. If there’s a problem, the IRS comes after you, not your accountant. So keep that in mind the next time you blindly sign the returns they send to you two hours before the filing is due. Know thy returns.
5. You are crazy to do your own taxes.
Having said the above, I still very strongly recommend that you have an accountant. Every business owner, at some point in their business career, realizes that becoming an expert in taxes is like becoming fully fluent in a foreign language. Sounds nice, but it’s unlikely to happen. There is just too much to know, and too many changes to keep up with.
And if you make a mistake, the punishment in the form of requests, summons, queries, and other correspondences from the taxing authorities will make your life miserable … while taking you away from running your business. Hire an accountant to do the work. Just keep an eye on them.
These are the realities of taxes that any business owner will confirm. If you don’t believe me, just ask any of them.
~ Article by Gene Marks: Featured on The Hartford