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Monday, May 23, 2016

Guest Post - Four Factors That Can Help Business Tax Compliance

Here is a guest post from Jayson Mullin, a partner at the tax debt resolution company Top Tax Defenders, offering helpful tips for small businesses to reduce tax headaches and feel more comfortable dealing with complex taxes which likely won't get much easier for businesses even with tax reform.


Whew! Tax Day is more than a month behind us. For many small business owners, that's a huge weight lifted. For others, it means playing the procrastination game against a filed extension, or continued concern that taxes weren't filed correctly, sparking the dread of a potential audit.

There are four things small business owners can do for a more stress-free tax experience (no, that's not an oxymoron):

  •  Be financially prepared.
  • Be organized enough to file on time.
  •  Have a decent understanding of complicated tax laws, rules and the paperwork required.
  • Understanding differences between federal and state reporting.

According to Rep. Tim Huelskamp, R-Kan, chairman of the House Subcommittee on Economic Growth, Tax and Capital Access, small businesses that employ between 1-5 employees spend an average of $4,308 to $4,276 per employee in order to comply with the United States tax code. That's a notable financial burden.

4 Factors to Protect Your Business's Tax Compliance & Bottom Line
Filing incorrectly can mean sizable penalties. Even if you opt not to use a certified tax professional to file your taxes, it's a good idea to consult with one to make sure that you are filing taxes correctly. Let's take a look at each of the above factors in greater detail.

Get Tax Finances in Order
In almost all cases, small business owners should be filing quarterly taxes. While that may seem like just one more thing to do, there are several benefits to this method. First, it works as a budgeting tool for small business owners, allowing them to get money sent in to the IRS in the hopes that they will not owe anything more, or that the amount they owe will be significantly reduced when taxes are due.   Also, being faithful about paying quarterly taxes is a good way to "be prepared" as the old Boy Scout Motto goes. Accurate tax filing requires organization and preparation. Ideally, if you're doing your homework to get accurate quarterly tax figures, you will have less to contend with as tax day approaches.

Be Organized Enough to File on Time
Yes, certain small businesses (primarily partnerships) can file for a tax extension but we never recommend this route. The goal for tax compliance is to be on time. Filing an extension usually translates to "more time to procrastinate," and this isn't helpful when you're scrambling a few months down the road.   It's much better to consider tax compliance as a year-round event. Pay attention to small business tax updates provided by the IRS. Keep your paperwork in order. Work with a CPA to determine which things your business can deduct and which you can't. Then, keep individual files for deductions so they are easy to itemize later.   Make sure you:
  • Separate personal and business expenses.
  • Track mileage and relevant car expenses (check the IRS publication pertaining to Car Expenses).
  • Don't exaggerate deductions; the IRS has a good idea of which expenses make the most sense for specific industries.
  • Keep payroll records up-to-date (it's often worth the expense of hiring a payroll company to make sure this item is taken care of).
  • Reconcile, track and support expenses with a receipt.

The more organized you are, the easier it is to do your own taxes, or streamline the work you'll do with a professional.

Have an Understanding of Current Tax Laws and Relevant Paperwork
That's simple enough, right? It's no mystery that small businesses have it rough when it comes to tax compliance. The U.S. Tax Code contains more than 10 million words! It's impossible for a small business owner to keep up with each and every code included there. 

Should you choose to go it alone, there are helpful IRS tools you can access, like the Small Business & Self-Employed Tax Center or IRS-Hosted Webinars and Tax Workshops.   While there are some new breaks, such as Section 179, which allows small business owners to write off equipment purchases and leases (up to $500,000), the tax code is a very complicated web to navigate.

This is the most compelling reason to work a tax professional is so important, ideally a CPA or licensed tax professional with experience and an impeccable reputation. At the end of the day, you are ultimately responsible for any discrepancies in compliance.

Variances Between Federal, State & Local Compliance
That segues to the fourth factor: knowing the variances between the federal and state tax codes. Then there are the other local taxes you're responsible for. Many business owners get so caught up in the stress of federal tax compliance that they forget about their other tax obligations such as self-employment, property, payroll, local and excise taxes. 

Again, even a series of consultations with the right tax professional will help you remain organized and ahead of the curve with small business tax compliance.

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