Are you overpaying your small business’s taxes? One of the major reasons small business owners (including me) hate paying taxes is the mystery of it all.
The rules are complex.
The tax code is enormous.
The forms are onerous.
Even with the help of tax preparation software most of us still aren’t entirely sure that we’re taking full advantage of the law.
“Isn’t there a loophole somewhere?” I frequently get asked.
“Isn’t there anything more to be done?” others plead.
We hand our numbers over to our accountants and they work their strange magic and we trust that they know every conceivable way to save us money.
But the fact is that accountants don’t know it all. The code really is too complex and large. Most accountants have many clients and work by the billable hour. They are required by their state to get continuing professional education, but every hour not doing billable work is costly, so there’s less motivation to research, study and learn all the nuances of the tax code.
Does that make you nervous that your accountant could be missing something big?
Don’t be. The fact is that for most small businesses and individuals, tax returns aren’t all that complicated. Unless you’re involved in some type of complex overseas deal (you’re probably not) or hiding money illegally (you better not be) the typical tax return of a small business is repetitive. You have revenues and expenses. They net to profits. Maybe some personal expenses could be argued to be business-related. Maybe there are a few rules, like inventory valuation or depreciation, that apply to you or your industry. But after the first year or two of tax returns preparation you’re going to see that it’s pretty much the same each year after.
So does that mean that you’re stuck? That you have no options? That you’re doing everything possible to pay the least amount of taxes? Probably. But there is one thing you can do just to make sure: Get another opinion.
If you’re preparing your tax return yourself or using a tax prep software, take your prior year returns to a Certified Public Accountant (CPA) and ask to be audited. If you already have a CPA, then take those same prior year returns and give them to another CPA and ask to be audited. You want a new set of eyes. You want someone to go through those returns being objective. You want a different perspective. Make sure the reviewing CPA knows that you’re making no promises. Oh, and pay him or her. It might cost you a few hundred or even a thousand bucks. But it’ll feel worth it.
If the CPA does find something substantial that could save you taxes then you’re going to want to understand why your current CPA (or tax prep software) isn’t identifying the same savings. You might decide to switch CPAs or start using the new person – that’s up to you. If the CPA does an audit and comes up with nothing new then your money is still well spent. You’ve gone through the necessary due diligence to make sure you’re maximizing your tax situation. You’re performing a good, fiduciary duty to your shareholders, even if you’re the only shareholder.
Is this being disloyal to your current service provider? No. It’s being a good and responsible manager. Regardless of the outcome, bringing in an outsider – a competitor – to audit your tax returns, your insurance policies, your computer network is something I see smart business owners doing all the time. You’d get another opinion from a doctor, right? So what’s the difference?
Join writer and small business owner Gene Marks each Wednesday on the Small Biz Ahead podcast. You can submit a question for Gene to answer on the podcast.