Tax planning services: does your business need them?
Owning and operating a small business is not easy. You’re responsible for your team, your clients, and your business’s profitability. With so many responsibilities, the last thing you need is work that will make your job even more difficult.
Hiring a tax planner is just one of the ways you can ease your responsibilities while using trusted expert services. Curious to learn more?
Below are 14 reasons your business should take advantage of professional tax planning.
What is a Tax Planner?
A tax planner also referred to as a tax advisor, is a finical expert who will help you with taxes and financial planning. They have extensive training and knowledge of tax accounting and law.
Tax advisors work with clients to stay in compliance with finical laws while finding strategic ways to minimize tax payments and plan for the future.
Tax planning is helpful for individuals but can be vital for a small business. Smart business tax planning throughout the year can lower the amount of taxes you owe and ensure that your business stays legally compliant.
1. You Own a Business
Tax planning services are beneficial for the individual, but they can be incredibly impactful if you own a business. Business owners often face strict regulations and compliance rules. You’ll need to follow both federal laws and nuanced state laws.
The tax system can be quite complicated to work under. Guidelines always change over time, and you may not have full knowledge of these changes as a business owner. If you choose to prepare your business’s taxes yourself, you likely will miss at least a few crucial laws.
You should hire a professional tax preparation service if you’re a small business. They will have full knowledge of the laws and will ensure that you’re compliant. Many even cover the risk of legal consequences that arise should they make a mistake.
Tax preparation services are responsible for preparing the statements on your tax return and being proficient. There will be little to no error when they prepare your tax statements.
2. You’ll Gain Peace of Mind
Filing taxes can be a stressful process, regardless of your income level or occupation. 74% of millennials report that they feel stressed about filing their tax returns.
Using a tax preparation service will significantly reduce stress and help you gain peace of mind. And this goes beyond the individual assurance you’ll have when you file your taxes – businesses will feel much more confident, too.
As a business owner, you have much more at stake when you’re filing taxes. You may the dozens or hundreds of employees who will depend on you to stay compliant with the laws to keep the company operating.
You may be operating an LLC. In this case, you won’t be held liable in many cases. But if you don’t use this model, filing taxes improperly can lead to serious personal ramifications.
Business executives already have full plates. The last thing they should be worrying about is filing taxes. With a tax planning service, you can focus on your priorities and leave your finances to the experts.
3. You Want to Avoid Errors
Almost everyone has experienced what it feels like to make a mistake with their tax returns. In 2018, 80% of people make a mistake that could affect their refund.
The stakes are a lot higher when you’re filing your business’s taxes. First of all, the future of your employees and your business is on the line each time you file your taxes. Certain mistakes could become so severe that you face high penalties.
The threshold for making errors is also much low when you choose to file your business taxes on your own. You have many more variables to keep track of.
Say that you’re working on including your employee expenses for your tax preparation. You’ll need to sum up the salaries of each employee. Many will have benefits, payouts, and bonuses that you’ll have to factor in.
Once you include these expenses, you can then claim a tax deduction for all of the expenses. But would a bonus or commission be included in the deduction? What about benefits?
If you fail to record costs and deductions properly, you could face serious problems in the future. Tax planning and preparation services will minimize errors.
4. You’re Feeling Confident
Maybe you’re confident that you can file your business taxes on your own. You may feel that you have all the knowledge you need to successfully file your taxes.
However, it’s unlikely that you have zero doubt in your head. You probably have at least a few questions or concerns that you wish to be answered. If anything, it never hurts to have a second set of eyes look at your business’s taxes.
If you do get a second opinion, one of two things will happen.
You may be right. In this case, you will have prepared your taxes correctly and can file them. You’ll have peace of mind and may even get some positive feedback from a tax preparer.
You may be wrong. If you’re wrong, you’ll be pretty happy that you chose to have a tax preparer look at your statement. Making a mistake on your business statements can have far more serious consequences than accidentally slipping up on personal tax filings.
When you’re wrong, you’ll have the chance to fix your filings before you send them to the IRS. And if you’ve already filed, you’ll have caught the mistakes early and can fix them more easily.
Having a professional look at your tax calculations could be the difference between getting your business into trouble and having a hassle-free tax filing experience.
5. You Want to Save Time
Are you considering filing your business taxes by yourself? We highly recommend against this strategy.
While you may feel comfortable completing your taxes, completing your business’s taxes without the guidance of tax experts will likely result in hours of your time being wasted.
Consider that the average time it takes for a non-business taxpayer to file their taxes is 13 hours. When you take into account the complexity of a business, filing taxes may turn into a weeks-long process.
And filing individual taxes is much less complex than filing business taxes. You’ll likely make multiple mistakes which you will have to correct, adding even more time.
With a tax preparation service, you’re guaranteed to save time. Their years of experience will equip them to understand and sort through your finances in a matter of hours. Even if you don’t make any mistakes on your tax returns, the experts will still complete the process much more quickly.
6. You Want to Save Money
Hiring a tax professional can help save your business money in numerous ways.
First, you won’t need to hire an in-house accountant. You’ll save on paying for training, salary, and benefits. A professional tax preparer will only provide services when you need them, saving you financial costs.
Second, your tax planning service will use the expertise of an individual or team with years of experience in accounting. They’ll know all the laws and won’t make mistakes, which could save you thousands each year.
Most importantly, tax preparers are well versed in finding ways to pay lower taxes while still staying in compliance with the laws. They may find certain rules and exemptions that allow you to legally pay less in taxes. They know how to be creative without compromising your business’s financial integrity.
7. You’re Unsure of the Laws
Depending on the location of your business, you’ll have to pay certain taxes. Businesses have to pay taxes both to the IRS and to their state and local governments.
Naturally, you may be unsure of the laws in your state. A state may decide to tax your business even if the business does not earn any income.
In addition, different state rules will apply to different kinds of businesses. Each state has its approach to business taxes.
Does your business operate in multiple states? If so, you’ll have to pay taxes in all of these states. This doesn’t mean that your business has physical locations in each state – you may have a nexus in a certain state.
Defining nexus can be difficult, which makes it imperative to work with a tax preparation service that can help you determine your tax responsibilities. And even if you operate in only one state, you may not know recent changes.
8. You Make Poor Year-End Decisions
Tax planning is a year-round effort, and for good reason: leaving your planning and decision-making to the end will likely put you in a position of making poor decisions.
This could look like spending money at the end of the year to reduce your business’s tax bills. Spending a dollar doesn’t necessarily mean you’ll have a deduction. Wastefully spending money usually isn’t a good idea.
Another common error is to accelerate expenses into the current year. Say you may want to make a purchase as quickly as possible or claim the deduction for the current year.
But with a tax planner, you can determine what the numbers for next year may look like and which hear will be better for you to make the purchase this year or at the beginning of the next.
It’s crucial to start each new year by getting your financial records up-to-date and analyzing profits and losses. You’ll find that you’re less stressed when you start to prioritize your tax planning at the end of the year.
Keeping track of your tax planning year-round can be quite time-consuming and expensive. Instead of hiring an in-house accountant, you can hire a professional tax planner. You’ll gain the same – often better – quality of service for a more reasonable price.
9. You Can Plan for the Long-Term
When you operate a business, you’re rarely just taking into account the “hear and now”. While you have short-term goals that you’re trying to reach, you also have to keep in mind all of your business’s long-term goals.
Preparing and filing your taxes can remind you of what your goals are. It can also show you how close you are to achieving those goals.
For instance, one of your goals may be to expand your team by increasing the salary budget each year. Your tax preparation can show you how much you’ve spent and what your expenses will look like.
But what if there was a better way to hire more employees? You took an incremental approach. Would it have made more sense to create a new department all at once and hire new employees all at the same time?
This is when a tax planning service becomes extremely helpful. They can show you different outcomes for your taxes based on future changes or goals you want to achieve.
They’ll be able to show you what makes the most financial sense for your business, including the best ways you can save money.
10. You Need to Correct Previous Returns
Filing your taxes properly is crucial to avoid getting yourself into trouble with the IRS. Luckily, the tax filing system is fairly forgiving. If you make a mistake, you can refile your taxes to correct an error.
If you correct the error, you will need to file an amended return with the IRS using the 1040-X form. Failing to do so may result in penalties and interest.
Common tax mistakes that many business owners commit include depositing employee taxes, underpaying taxes, and filing late. Many business owners also fail to separate their expenses from their business expenses.
It’s a wise idea to reach out to a tax preparation service if you have made a mistake with filing your business’s taxes. Not only will they correct it for you, but they can discover what led to the error and give you strategies to prevent it in the future.
In seems cases, it may be difficult and time-consuming to correct a mistake. For instance, say you suspect that your business may be audited by the IRS soon. You fear that you accidentally have recorded personal expenses as business expenses.
Going through each expense yourself will take hours and likely will result in even further mistakes. A financial service will be much more effective at finding and then preventing these errors from happening again.
11. You Have Foreign Assets
You may have heard of the IRS Form 8938. Corporations and partnerships use this trust when they hold foreign assets beyond a certain threshold. They’ll file this form with their tax results.
This form first became a requirement in 2010 when President Obama signed the Foreign Account Tax Compliance Act into Law.
Foreign assets on this form include financial accounts at institutions outside the US, stocks, and securities outside the US, notes or bonds issued by a foreign person, a financial construct with an issuer who isn’t from the US, and any interest in a foreign entity.
Corporations, partnerships, or trusts with foreign financial assets of more than $50,000 a year or more than $75,000 at any given point of the year need to file this form.
Valuing foreign assets involved measuring their fair market value in the currency that dominates the asset. Taxpayers will need to know the highest fair market value for that asset both throughout the entire year and on the last day of the year.
Sounds a bit daunting, right? Keeping track of and recording all of these assets can become quite complicated.
A tax preparation service can help you assess the value of and monitor your foreign assets. When it comes time to file the 8939 form, you’ll have peace of mind.
12. You Get Divorced
If there is a change to your marital status as you operate the business, you should work with a tax preparation service.
A tax preparation service can help you on both the personal side and the business side. Your marital status on December 31 determines your status for filing taxes that year.
When it comes to your business, you may have certain stipulations in a prenup or divorce settlement that entitle your spouse to shares of your business. You may need to pay them a royalty or give them a certain number of sales. Or, they may be entitled to a certain amount of the business upfront.
Whatever your divorce settlement looks like, it’s a wise idea to work with a tax preparation service because your business’s taxes will look different depending on the payout.
13. You Want Protection During Personal Audits
Are you familiar with the IRS’s audit process? Tax audits are a compliance tool conducted by the IRS to ensure that the tax system operates fairly. The IRS works to select people for auditing on a fair and impartial basis.
That being said, certain people face a higher chance of being audited. The likelihood of an audit will increase as your income grows.
So taxpayers with an income of $10 million or more face the highest chance of being audited by the IRS. Those with income rates over $1 million also had higher exam rates than others who were earning less.
The most recent data from the IRS shows that taxpayers with an income of $10 million or more have an audit rate of 8.16%. Those who earn between $1 million and $10 million have a 2.53% chance of being audited. And this earning less than the $1 million generally face an audit rate of less than 1%.
If you’re earning more than $1 million a year, you have a fairly high chance of being audited. It’s a good idea to invest in a professional tax preparer to ensure you’re being compliant with the laws. But even if you earn far less, it’s still wise to prepare your taxes as if you were being audited.
14. You Want Protection During Company Audits
Audits go beyond just personal income. Few words are stressful for business owners as hearing the word “audit.”
The chances of an IRS conducting a business audit on your small business are relatively low. However, there are still “audit red flags” that a tax planner can help you avoid.
The first is the salary amount for S-Corp share-holder employees. Many small businesses owners choose to set up an S-Corp instead of an LLC so they can avoid the 15% self-employment tax. S-crop shareholders won’t have to pay self-employment tax on distributions but must report their wages on a W-2.
The IRS watches out for S-crops that have a low wage paid to shareholder-employees. If compensation doesn’t seem appropriate for the job range and the company size, it will target your business for an audit.
Another common mistake is claiming disproportionate deductions and excessive expenses. Deductions are a helpful tool for small businesses owners, especially during the building phase of a business.
But if deductions seem disproportionate to the business’s income, this is a major trigger for an IRS audit. The IRS has proprietary methods that it uses to determine how much inductions surpasses the limit of a reasonable amount.
To reduce the risk of an audit, only claim deductions that are “ordinary and necessary” for your business. A tax preparation service will help you determine what these deductions are.
And if your business has faced an audit in the past, it’s even more important that you use tax preparation services for upcoming filings.
Hiring a Professional Tax Planner
Using the services of a professional tax planner will keep your business compliant and can save you countless hours and dollars each year. Gain peace of mind by trusting the expertise of professional tax advisers.
Bennett Financials is here to ensure that you keep more of your business’s hard-earned money. Schedule a free consultation with us so we can get to know your business’s needs.