As a practicing accounting and tax professional, I’ve had the unique opportunity to work with businesses of all sizes and industries in my nine years of experience. Without needing to say it, most people look forward to filing their tax returns to get their tax refunds. However, there is one group of people on average that dreads tax season, self-employed business owners. Most people who have never owned a business are unaware of all the complexities that exist in the compliance world for businesses.
To help combat some of the headaches business owners face, we’ve compiled a list of some of the top reasons small business owners hate tax season along with ways to help make your next tax season go a lot smoother.
#1) You know you’re going to owe money on your taxes (but you don’t know how much)
One of the largest challenges business owners face, especially if they’ve never owned a business before, is figuring out how much in taxes they’ll owe. Business owners commonly say to me “The IRS will get their money eventually” or “I filed an extension so I can worry about my taxes later.” These are common sayings from business owners who know they’re going to owe but never have any idea of how much.
Business owners on average tend to pay more in taxes than someone who is an employee earning the same income. Having the phone call at tax time with business owners telling them they owe a lot of money can be quite unpleasant. This is especially true if they were unaware they would owe or are new business owners.
What can business owners do to help combat this?
Working with your CPA or tax preparer throughout the year to do quarterly and year-end tax projections/planning can help you gather some kind of idea on how much your tax bill will be. Common strategies such as timely supply purchases and retirement plan contributions can make a big impact on your tax bill.
#2) You did not keep adequate records throughout the year
Most small businesses operate as either a sole-proprietorship or a single-member limited liability company (LLC). One of the major advantages of operating a business structured as such is that reporting your income on your tax return is not as complicated as other forms of doing business. Reporting the income for these types of businesses only requires their income and expenses. This provides a lot more flexibility in record-keeping which can help those who aren’t the best at accounting and bookkeeping.
However, this flexibility is also one of the cons to doing business as a single-member LLC or sole-proprietorship. One of the most common issues we see with clients is that they co-mingle their funds. What this means is that they combine all their business and personal transactions through one bank account. This makes recording and classifying business income and expenses extremely difficult and time-consuming. This is especially true if they go to the same vendors for business and personal purchases.
So what can business owners do to keep better records?
We always recommend opening a new bank account when opening a business or if a client is currently co-mingling funds. By separating your business and personal accounts you can dramatically reduce the likelihood to miss business income and expenses. This strategy also helps reduce the amount of time needed to comb through statements determining what is business and what is personal. Separating your funds can also help you determine very important items such as how much money your business is making and how much you have to pay yourself.
One of the best ways to make sure your records are accurate is to outsource your bookkeeping. As a business owner, you wear multiple hats in a company. Finding time to worry about your company’s accounting can be next to impossible. One of the easiest ways to help save you time and help make sure your records are as up to date as possible is to hire an experienced accountant to handle your books.
#3) You Do Not Have a Good Relationship With Your Accountant or Tax Preparer
Not having a good working relationship with your accountant can make things such as filing your tax return more difficult than they should be. Whether it is consistently poor communication, serious errors or omissions in their work, or other items such as unnecessarily high bills and poor service, having a struggling relationship with your accountant can make filing your tax return a burden on your business.
It always makes me take a step back when I discuss with a new or potential client who tells me that they’ve been unhappy with the service they’ve been getting from their current accountant for years. At first glance, the accountant in me goes “why didn’t you switch sooner?” However, when we look at the role an accountant plays for a business, it makes sense why people often drag their feet when making this decision.
A lot of times people have been working with the same accountant for many years. Although a lot of people operate a business under the adage of “business is business”, it can still be difficult to make the switch. This is especially true after forming a working relationship for any amount of time.
So how do you know when it’s time to make the switch?
If you’ve been unhappy with the service that you’ve been receiving from your current accountant and you either have had a discussion with them about it and things haven’t changed or your business sense is telling you that it’s time to move on, it’s probably time to do so. As your business grows and evolves, the needs of your business do as well. If your accountant can handle these changes they can continue being a great asset to your company. However, if they are not, it may be time to make a switch.
So, what steps should you take if you feel like you’re ready to make the move?
The first step is to ask your business connections, family, and friends for any referrals. A word-of-mouth referral is the strongest advertising a company can have.
The second step would be to research accountants on platforms such as Google, Yelp, Linked In, etc. I always recommend my clients work with CPAs, Enrolled Agents, or other credentialed accounting professionals with great online reviews.
The final step I would suggest is to request a free consultation. Most accountants will offer free consultations nowadays which should help you gauge if you would work well with them.
Needless to say, working with an experienced accountant can help eliminate these common, yet frustrating issues and turn tax time from a time-wasting burden into a much easier process for you and your company. If you are currently experiencing any of these issues, we’d love to hear from you!
Contact us today!