Ah, April. The trees are budding. The jonquils are in bloom, and we are experiencing the signs that spring is committed to stay for awhile.
The song of the bluebird is calling others outside, so why are you stuck indoors in a frantic race to meet the tax deadline?
Procrastination and lack of organization create tax time turmoil for many small business owners. Though it may be too late to take the pressure off this year, I interviewed accountant Penny Clayton, with Clayton CPAs & Advisors to get some expert advice to help make next April a little less stressful.
WBZ: For many small business owners April is a frenzied time as they try to pull together a year’s worth of documents, receipts, etc. What advice do you have to help keep them from being crunched at deadline time?
PC: Proper planning and good organization throughout the year is important. For some folks, organization doesn’t come easy and many may balk at the notion of keeping records throughout the year. The thought of record-keeping creates unnecessary anxiety and it’s just too easy to stash receipts in a drawer or shoe box and forget about them all together! Instead, we recommend small business owners and individual tax clients keep a folder or file marked clearly for tax documents. As documents accumulate throughout the year, papers should be filed as received instead of waiting to sort and total at year end.
WBZ: Do you have any special tips or personal tricks to help make organization of tax documents easier?
PC: Some small businesses hire in-house book keepers to maintain daily record keeping. User friendly software such as Quick Books or Peachtree is ideal for managing daily transactions and summarizing financial information. The real “trick,” however, is to plan ahead and be organized. Whether a small business can afford in-house record-keeping or not, the important thing is to file important tax receipts and documents in well-labeled files and accumulate information on a daily or weekly basis. Don’t wait until the task at hand is overwhelming.
WBZ: What are some of the more common mistakes or misconceptions that small businesses make/have on the topic of taxes?
PC: Unfortunately, mistakes happen, but most can be easily avoided. I can’t emphasize enough the importance of planning and good organization. For example, working with a tax professional to ensure the proper submission of quarterly tax filings is crucial. Under- or over-estimating quarterly tax payments can affect the cash flow of individuals and businesses. So many taxpayers enjoy receiving a “big refund” but the financial-savvy person realizes a large refund simply means the government received an interest-free loan to use his/her money throughout the year. It is much better to work with your tax professional in an effort to “break-even” at tax time.
Many small business owners also become irritated or frustrated when they learn that not all expenses are tax deductible. Allowable deductions must be within the tax code, so it is important to ask your tax professional about proper deductions throughout the year. Your accountant will also be familiar with recent tax law changes and can help you take advantage of newly available deductions.
Though there are many mistakes and/or misconceptions, a common one relates to the filing of extensions. Contrary to what many believe, an extension doesn’t automatically trigger an audit. But, it could create a situation where the taxpayer may owe additional interest or penalties. The IRS requires all tax due to be paid by April 15 whether an extension is filed or not. Failure to comply may result in additional late-filing fees.
WBZ: Why is hiring an accountant a good investment, how can an accountant help a small business owner particularly in the area of taxes?
PC: A good tax professional or accountant is an expert within his/her field and has received proper education and training. Accountants are also required to stay current in the field through continuing professional education requirements. Working closely with a reliable tax professional can allow a small business owner to focus more on the business at hand and less on current tax code or accounting guidelines. Many business owners are comfortable with numbers and are quite capable of performing tax or accounting functions. However, understanding and completing complicated accounting procedures can take up valuable time and energy. In the end, the benefits far outweigh the costs involved of hiring an accountant or tax preparer.
WBZ: Any other advice on what a small business owner can do now, to make next year’s tax deadline a little easier to manage?
PC: Find an experienced CPA or tax preparer you can work with throughout the year to help lessen the anxiety associated with tax time. Proper tax planning can make a difference in your overall yearly tax obligation so find a professional that understands your business and one who is willing to take the time to visit with you about your tax and business needs. If you aren’t comfortable with your tax advisor, shop around. Contrary to the “bean-counter” image, many accountants are true people persons and interact easily with clients. Find a professional with a personality that leaves you feeling positive about the experience. It is important that you can trust your tax professional and feel comfortable asking questions.