Small business owners complain a lot about taxes. But the issue is typically about all of the filing requirements – all the things you have to do that give you major heartburn.
There are so many tax related activities required for small business that the IRS publishes a small business tax calendar every year. It’s a really useful tool that is normally released during the fourth quarter of the year. It’s out of stock now, but you can still view a handy interactive copy of the tax calendar online. Plus if you want to make sure you don’t miss any deadlines, you can subscribe to the tax calendar in your outlook calendar.
Since taxes are top of mind right now, I checked in with two of my favorite tax professionals, Suzette Flemming, President of Flemming Business Services Inc. and Kay Bell, Tax Journalist and author of The Truth About Paying Fewer Taxes, to get their thoughts on the key obstacles for small business owners, where they take some missteps and what they should do about it.
Key Obstacles for Small Business
“The biggest obstacles for small business owners are knowledge and understanding because tax law is constantly changing,” says Flemming. “Most small business owners have no time or desire to keep up with these changes.
Nobody thinks about taxes when they start a company. Did you?
According to Bell, “The variety of taxes that a small business faces often is a shock to start-ups. In addition to the well-known federal income tax, businesses also face various types of state and local taxes, including income, franchise and/or sales taxes. If you have employees, you must deal with payroll taxes, including not just payments but information filings to the government and your employees. Many businesses also face specific excise taxes. And even the type of business entity you’ve chosen (sole proprietor, partnership, LLC) affects your taxes. Too often a small business overlooks or misfiles some of these tax responsibilities.”
Is your head spinning yet? That’s why so many small business owners take the wrong steps when it comes to taxes.
Common Tax Mistakes Small Business Owners Make
Flemming and Bell both agree that the most common mistakes are not keeping good records, not planning to pay taxes – you know that old saying the only sure thing in life is death and taxes – and not setting aside the funds to pay the taxes you owe.
You also need to be conscious about classifying workers properly. Classifying workers as contractors when they should be employees could get you in a heap of trouble. Make sure you follow the IRS guidelines carefully to save yourself from future headaches (and potential fines and penalties).
Do It Yourself or Hire a Professional?
It’s very tempting to be a “do it yourselfer” when it comes to filing taxes. After all, there are plenty of software packages that will help walk you through the steps. But Flemming and Bell both think you would serve your business better by focusing on what you do best and hiring a professional who specializes in small business to prepare your taxes.
A professional knows the ins and outs of allowable deductions and can help you not only file properly, but will make sure you get the deductions you deserve along with identifying things you can do to reduce your taxes for the following year.
And remember, small business taxes aren’t just a do it once, set it and forget it activity. Bell notes that a tax professional can help you manage and meet these ever-present deadlines.
So where do you weigh in on small business taxes? Are you confident enough to do it yourself or do you place this important activity in the hands of a trustworthy professional? Tell me about your approach by leaving a comment.
Editor’s Note: this article was previously published at OPENForum.com under the title: “Take Steps to Minimize the Pain of Small Business Taxes” It is reprinted here with permission.
Great advice, Denise. Thank you. Just the subject of taxes causes pain in a lot of people’s hearts, right? But your post breaks it down and can help us prepare our minds as well as our checkbooks/financial records. I’ll still file an extension 😉
Shirley George Frazier
It’s true, Denise, about business tax complexities when you first start a business.
No way would I have been able to properly document my start-up costs without an accountant’s help, which is more affordable than most owners think. My accountant specializes in small business finances and charges by the hour. She’s worth every dollar.
After 20 years, I reconcile my accounts each month so that yearly taxes are a smooth and easy process, but I still ask my accountant to review my work.
The tax code is too complicated for my taste. I always leave it to the pros.
I use google calender and the lovely people at google made it compatible with outlook so you can also use the url for the tax calender to add it to your google calender.
Thanks for your thoughts everyone. Yes, you truly are better off using a professional. After all, they are the ones who specialize in that area and can make sure you are in compliance — not paying too much or too little. It’s the only way to go in my opinion.
P.S. @Noadi — thanks for the tip about importing the tax calendar into your google calendar. It really is a great tool!
The latest reports about credit management:
Thanks a lot Denise for sharing all the information and advice. Being the owner of a start-up small business, I really have very little idea about the legal aspects of business. Thanks for helping!
I’m a professional accountant but I still outsource some of my tax work, there are just some areas that require an expert
I agree. Small business taxes is complicated, and is much better left for the professionals. As a small business owner of a jewelry business (and also a contractor for Sage Software), I would much rather focus on designing than being forced to understand taxes. I just use my Billing Boss invoicing tool to quickly create invoices, have the invoice automatically sent to my accountant, and let her deal with my taxes. Plus her expertise has helped me save money with certain taxes!
Please note: This author has been compensated by Sage.
I used to work in a small company. The boss was always so annoyed when it came to the time to submit the company’s tax report. I also think accounting is very difficult as this kind of job usually requires high level of concentration and a lot of patience.
Denise, thank you for this informative article. In answer to one of the questions you posed I do my business taxes with a certified accountant. The IRS is nothing to fool around with and using a professional keeps me out of trouble.