For some small business owners, income tax filing season feels like a slow-motion train wreck.
These are often owners who tend to be disorganized and unable to keep good records. Instead of keeping their companies’ books with a small business accounting program, they use a stack of overstuffed file folders or worse, boxes and shopping bags. They often end up spending hundreds of extra dollars paying their accountants to sort through the whole mess ? provided the accountants will even agree to deal with it.
There’s another group of owners who end up in trouble at tax time. They haven’t been paying attention to things like letters from the IRS or state tax authorities. Or they don’t stay on top of filing deadlines. They don’t listen to the advice of their accountants. Tax season can turn out to be full of unpleasant and costly surprises.
These owners still have time to avoid a train wreck. And also avoid being in a similar situation a year from now.
Tax time is pretty easy for small business owners who use accounting software to keep the books. At some point early in the year, they just e-mail records for the previous year to their accountants or tax preparers.
For the disorganized, the season can be torturous as they sort through piles of receipts, checks, credit card statements and invoices. It can also be extremely expensive if they hand the mess over to a CPA who’ll charge several hundreds of dollars an hour to clean it up.
Mark Toolan, a certified public accountant in Exton, Pa., has advice that starts with: “Grab hold of yourself.” Then invest in some small business accounting software and input the information from all those bits of paper. Do that and you’ll be able to file your taxes on time and with a lot less stress, and set yourself up for an easier time next year. The reason why many small business owners have such haphazard record-keeping is they’re so busy with all the other facets of running the business. Or, they can’t stand the tediousness of the job.
These owners need to get some help. One option is to hire a bookkeeper. Or, as John Evans, a partner with the accounting firm BDO Seidman in New York, suggests, taking on an intern, perhaps an accounting student from a local college. Evans also recommends using your bookkeeper or intern to help you get tax forms like 1099s for independent contractors in the mail. “They will do what you hate to do,” he said.
And if you don’t have books, ask your new assistant to create a ledger. It doesn’t have to involve accounting software, Evans said.
“Have them set up a little record system,” he said, adding that putting all your expenses on one credit card can be a start. There are more reasons for being organized than avoiding tax-time hassles. Most important is the fact that the more haphazard you are, the less of a handle you have on your company’s finances. And, in turn, the greater your chances of finding out one day your company is in trouble.
Toolan said some companies are successful enough and bringing in enough money that they’re able to prosper despite their owners’ chaotic records.
But, he said, “you’ve got to be in a certain plateau where you can pull that off.”
READ YOUR MAIL
The return address starts with Internal Revenue Service. Or something like New York State Department of Taxation and Finance. Toolan says many small business owners never even open the envelopes. They put the letters aside and at tax time, hand them to their CPAs. It sounds obvious, right, open your mail? But not everyone does it, and in the process owners miss notices about mistakes on a tax return, questions about employment taxes or actual bills for taxes. Not addressed, those issues can lead to late payment penalties and interest.
“Don’t wait until a year later and say, this is 12 months of correspondence” when you visit your tax preparer, Toolan said. Of course, this is Monday morning quarterbacking for anyone who’s been sitting on such letters for months. The answer is to open the envelopes right away, and deal with whatever the question or problem is.
LISTEN TO YOUR CPA
Toolan tells the story of a small business client who came in for a tax planning session, and at the end, the CPA realized that the client hadn’t understood what they had been talking about for the last half-hour.
Like many tax professionals, Toolan reminds his clients that “there’s no such thing as a silly question.” Especially since professionals of all kinds tend to slip sometimes into their own lingo, forgetting that the average person may not know what a loss carryback is, for example. Or, in the case of Toolan’s client, a safe harbor.
Moreover, the time to start talking to your accountant, if you didn’t meet with him or her at the end of 2009, is now. You don’t want to be asking questions as the April 15 deadline is at hand.
Copyright 2010 The Associated Press.