Businesses Often Miss Tax Deductions And Overpay
By Christine Hall, CPA, Hall, Murphy & Schuyler
One of the biggest hurdles you’ll face in running your own business is staying on top of your numerous obligations to federal, state, and local tax agencies.
Tax codes seem to be in a constant state of flux and increasingly complicated. The old legal saying that “ignorance of the law is no excuse” is perhaps most often applied in tax settings and it is safe to assume that a tax auditor presenting an assessment of additional taxes, penalties and interest will not look kindly on an “I didn’t know I was required to do that” claim.
On the flip side, it is surprising how many small businesses actually overpay their taxes, neglecting to take deductions they’re legally entitled to that can help them lower their tax bill.
A common misconception is that if you start up a company while you have a salaried position complete with a 401K plan, you cannot set up a SEP-IRA for your business and take the deduction. This is untrue. There are many part-time small business owners that fail to take advantage of this benefit.
Preparing your taxes and strategizing as to how to keep more of your hard-earned dollars in your pocket becomes increasingly difficult with each passing year. Your best course of action to save time, frustration and money – and an auditor knocking on your door – is to have a professional accountant handle your taxes.
Tax professionals have years of experience with tax preparation, regularly attend tax seminars, read scores of journals, magazines and monthly tax tips, among other things, to correctly interpret the changing tax code. For the 2015 tax filing year, the summary of the tax code changes was more than 300 pages!
When it comes to tax planning for small businesses, the complexity of tax law generates a lot of folklore and misinformation that also leads to costly mistakes.
Another misconception that we see with both business and personal taxes is that extensions allow taxpayers to pay their tax liability at a later date without penalty. Wrong!
An extension is for time to file only, not time to pay. Penalties and interest begin accruing from the date your taxes are due which is the due date of the return, not including extensions.
Keep in mind that the IRS doesn’t care if you pay the right amount of taxes or overpay your taxes. They do care if you pay less than you owe and you can’t substantiate your deductions. Even if you overpay in one area, the IRS will still hit you with interest and penalties if you underpay in another.
It is never a good idea to knowingly or unknowingly overpay the IRS thinking that it will make you “audit proof.” The best way to “audit proof” yourself is to properly document your expenses, keep good records and make sure you are getting good advice from a tax professional.
Whether it’s a missed estimated tax payment or filing deadline, an improperly claimed deduction, or incomplete records, understanding how the tax system works is beneficial to any tax payer whether they are a business owner or simply an individual filer. Even if you delegate the tax preparation to someone else, you are still liable for the accuracy of your tax returns. If you have any questions, don’t hesitate to call the office for assistance.
Hall, Murphy & Schuyler, PC is a full-service public accounting firm. They have a staff of experienced professionals that stand ready to meet all of your accounting, tax and general business needs. For a complimentary consultation, call 706-855-7733 or email at cmh@HMandScpas.com.