Tax season only comes once a year but it’s enough to make most people want to pull their hair out. When you’re an entrepreneur or small business owner, tax season can be doubly worse than usual. For anyone having gone through tax season as a first-time entrepreneur then understanding all the little restrictions and regulations is daunting. Without professional help to manage everything there is a chance the IRS may take a closer look at your return or results. We spoke with tax expert Tom Wheelwright to get more insight on how entrepreneurs and business owners should approach their taxes.
How can entrepreneurs and small business owners start preparing for tax season in advance?
Get your bookkeeping caught up to date. Most mistakes are a result of bad bookkeeping and most of the cost of preparing a tax return is correcting poor accounting.
Are there any major dangers associated with using DIY tax software at home?
Yes. DIY tax software is intended for simple tax returns, such as a W-2 and home mortgage. More complicated tax returns should always be prepared by a tax professional, preferably a CPA with knowledge about your specific industry.
What are some major pitfalls entrepreneurs and freelancers need to be aware of when it comes to filling out their taxes?
The number one pitfall is to not underestimate the value of a good tax preparer. A good tax preparer can both reduce taxes for an entrepreneur and reduce the risk of an IRS audit. Of course, bad tax preparation has the opposite effect. One specific idea is to never have a Schedule C (sole proprietorship), since this significantly raises the risk of an audit and also can increase taxes. Also, remember that documentation is king, so having accurate records, including accounting records (balance sheet, profit and loss).
What are some of the most important things small business owners should save throughout the year to make tax time easier?
Small business owners should save all receipts for meals, travel and entertainment. You want to keep your bookkeeping up to date and accurate. Be sure to reconcile bank statements every month.
What advice do you have for entrepreneurs and freelancers filling out their taxes for the first time?
Don’t do it yourself. Sit down with a CPA (not a corner tax preparer or enrolled agent) and walk through how the tax return preparation process works. Be sure to have your bookkeeping done ahead of time. Keep a complete set of books, including a profit and loss and a balance sheet.