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Why You Shouldn’t Do Your Own Business Taxes in 2020?

business taxes

Tackling your taxes once you’ve become a small Business owner has become a much more challenging prospect than it used to be. The IRS estimates that it will take the average person 11 hours to complete their 2020 tax return, and this number is easily multiplied tenfold when you’re factoring in business taxes.

While entrepreneurial types like to take a hands-on “many-hats” approach, savvy business owners know when they need to outsource certain tasks and knowledge areas to the experts. Eleven hours, much less the more probable thirty or forty, is an enormous amount of potentially billable time to lose, or time that could be better spent running and growing your business.

A professional tax preparer is the best choice for handling your business taxes in the upcoming 2020. Here’s why.

1. Several key provisions pertaining to small business owners and the self-employed changed with the 2018 tax reform.

The 2018 Tax Cuts and Jobs Act was the largest material change made to the tax code in three decades. While these sweeping changes have been daunting enough on the individual tax-planning level, the reform also drastically changed several business provisions.

Whether your business is a sole proprietorship, S-Corporation, or C-Corporation, the vast number of revisions to the tax code will unequivocally affect you and can end up necessitating more time and energy than your basic year-end updates.

2. The more complex your business is, the more likely you will need professional assistance.

If you freelance or have a small e-commerce shop with revenue less than $100,000, all reported on a Schedule C with your personal tax return; you may be more in the clear for the DIY route. Because certain deductions and credits require more nuance to understand, and you may not have been aware you qualified for them, it’s still prudent to work with a Tax Professional.

However, if you are operating an S- or C-Corporation or your business has more than one owner, working with a tax professional will save you plenty of headaches.

Beyond the more complex tax reporting needed for these types of businesses, additional financial recordkeeping is also required, such as a full set of books with a balance sheet in order to properly file the tax returns. Knowing how to run a business, or simply being diligent with numbers on spreadsheets is not a substitute for the necessary accounting knowledge to avoid costly mistakes with complex financials and tax forms.

3. Major life changes can also affect business taxes and make them more complicated.

Moving, marriage, divorce, and having children will affect your personal life and taxes, but they can also affect your business to the tune of thousands of dollars.

If you move to a state that has different requirements for local business taxes, payroll taxes, and sales tax nexus, it can completely change the way that you operate. Often, small business owners will move from high-tax states like New York and California to pay less tax in Nevada or Florida without realizing potential implications this can have at the business level.

If you are getting divorced, depending on your state’s rules regarding community property and whether your spouse had any ownership stake to begin with, this can make your tax situation incredibly complicated. Divorce laws or decrees could stipulate that your spouse now owns a percentage of your business assets and the resulting income from it, and navigating these matters can be confusing and stressful.

A tax professional who specializes in divorce matters can help you determine the correct amount of income to report and how else your life changes will affect your business and personal taxes.

4. Certain tax deductions and nuances require more documentation than your receipt.

tax deductions

When it comes to tax deductions for small business owners and the self-employed, many people often overlook some benefits due to their fear of the IRS or simple unawareness that they qualified for these deductions, to begin with. However, when it comes to popular audit targets like travel expenses, you’ll want a tax professional on your side.

Not all deductions are created equal: some of them will require more substantiation than others. Having a receipt may be enough proof for small deductions that are allowed under the tax code, but travel, car, gift, and meal expenses tend to require more notetaking or substantiation than a proof of payment alone.

A tax professional can help you determine which of these expenses has sufficient substantiation and how to put a system in place for that in future tax years.

5. Tax avoidance strategies can raise red flags, and you want to make sure you’re on the right path with professional guidance.

Tax Audit

If your business is going through a downturn or you needed money for personal purposes, it’s a common maneuver for S-Corporation owners to loan money to themselves and simultaneously avoid the taxes. This move is legal, but it can also be incredibly risky.

While hiring a tax professional is never a 100% audit-proof, you can still have more peace of mind hiring one from the start and discussing your options with them.

In the event that you are receiving notices from the IRS, a credentialed tax preparer (like an Enrolled Agent or Certified Public Accountant) can discuss these matters with the IRS on your behalf while you focus on other aspects of running your business.

6. Tax professionals carry liability insurance in the event that you get penalized.

Business taxes are far more prone to the kind of inaccuracies, missing documents, and complexity that can result in grievous penalties, as well as interest on said penalties and unpaid taxes if you owe them. By working with a credentialed tax preparer, you can have the peace of mind that you’re not only getting their specialized professional experience but also a cushion from certain penalties.

Tax professionals are still only liable to the extent of what you disclose to them, so you won’t escape penalties if you were hiding income or assets. But if you have to deal with any accuracy-related penalties or fines that arise from errors and omissions on their part, then you are due reimbursement of any subsequent penalties, and the tax professional will file a claim with their insurer.

In the event that you need to dispute any penalties with the IRS, the tax professional can also handle those disputes for you and save you valuable time.

If you do your own business taxes, you are 100% liable for paying penalties that arise from the mistakes you make. If you want to dispute the mistakes, you will need to call the IRS on your own time, or you may wind up paying a credentialed tax preparer to handle the matter for you in the end.

Content Credit: Lee Reams Sr., BSME, EA is the Chief Technical Officer for ClientWhys, TaxBuzz, and CountingWorks. In addition to being an expert on taxation and a leading speaker on tax-related topics, Lee has experience in managing his own 700+ client tax practice.

Read also:

What Preparations Must You do Before the Next Tax Season Starts?

What to do if You‘re Not Prepared to File Your Taxes by the Due Date?

The post Why You Shouldn’t Do Your Own Business Taxes in 2020? appeared first on Cogneesol Blog.



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Why You Shouldn’t Do Your Own Business Taxes in 2020?

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