Reasons You Shouldn't Try to File a Business Tax Return on Your Own
When you’re a business owner, you have to wear many hats. At times you’re a manager, and at other times you’re a customer service representative. Sometimes you handle the marketing, and sometimes you might find yourself troubleshooting your equipment and playing an IT tech. But the one hat a business owner should never try to wear is that of tax advisor. Even if you’ve always prepared your personal tax return in the past, a business tax return is a different matter altogether, and you should never try to file it on your own. Keep reading to find out why.
It’s Important to Claim the Right Deductions
As you likely know from your personal tax returns, claiming the right tax deductions can save you a lot of money on your taxes. This is also true for your business, but on an even larger scale. Most businesses, particularly new companies in their first few years of operation, have a great deal of deductible business expenses and minimal revenue, making it even more important to ensure that you’re claiming all of the deductions for which you qualify. Missing out on the deductions you qualify for can result in thousands of dollars in lost savings.
On the other side of things, it’s also possible to mistakenly claim a deduction that you didn’t actually qualify for, which can have repercussions with the IRS. For example, many new business owners do a lot of work out of their own homes. Since you spend hours every day working out of your home office, you might assume you qualify for the home office deduction. However, in order to qualify for this deduction, you must use that office space exclusively for business purposes. This means that if you use that space as a craft room or your kids do homework on the computer in there, you cannot claim this deduction.
Mistakes Can Be Expensive
If you do claim a deduction improperly—or make a mistake with your income or expenses—you could find yourself with a higher tax bill. For example, let’s say you mistakenly claimed that home office deduction. Should you be audited, and the IRS finds that you’re claiming these deductions incorrectly, your return will need to be modified, and you’ll end up paying more in taxes than you originally planned for. Additionally, you might face fines and interest for the unpaid amount.
Underreporting your income or overreporting your expenses can have similarly expensive consequences. While these mistakes can be innocent, a single unreported contract or accidentally duplicated expense can result in major differences in your taxes when compared with your books, and that never looks good for a business. A professional tax preparer is more likely to file a truly accurate return for your business, so you can avoid these expensive mistakes.
You Get Audit Support
Facing down an IRS audit is never something you want to do. However, an audit can be a lot easier to deal with when you have a professional representing you. If you file your own taxes, then you’ll also be handling your own audit if the IRS chooses to audit your business. If a professional prepares your tax return, then they are automatically able to represent you for any IRS audits that may arise. This makes it a lot easier on you, and can allow you to keep your focus on running your business instead of dealing with document requests from your auditor.
Your Time Is Valuable
Speaking of focusing on running your business, filing your own taxes can be a major distraction from that task. As a business owner, your time is at a premium. When you spend time preparing your business tax return—which will take a lot longer than your personal tax return, we promise—you’re taking time away from other important business tasks. Working with a professional keeps your focus where it belongs: on helping your business to grow and thrive.
Get Tax Planning Advice
As a business owner, you should be doing a lot more than retroactively reporting your income and expenses. You should be planning for your future financials, and considering the tax implications of your business decisions before you make them. Proper tax planning can allow you to proactively reduce your tax liability throughout the year, instead of scrambling to find deductions when it’s time to file. This can save you thousands in taxes each year, making it well worth the cost of hiring a business tax preparer.
If you’re a business owner and need help filing your business taxes, contact Demian & Company CPAs today to schedule a meeting with one of our CPAs.