Ah, the sweet smell of tax season. Notes of despair, coupled with age-old panic, with a solid base of frustration and woe.
Guess what? Tax season for small businesses doesn’t need to be a woe-is-me event. Smart small businesses look at taxes as a year-round event, not just every spring and fall. That’s because those smart small businesses chose a tax advisor. They’ve built a relationship — which involves, without a doubt, some hefty legwork to begin — and that relationship serves their business month after month, year after year.
So how do you set your small business up for tax season success and choose the right tax advisor? We sat down with Kathryn Kaufman,CPA and Senior Associate at Chicago-based FGMK, LLC, a tax advisor who knows the nuances of taxes for small business well, and asked her advice. Here, she’ll help you get on your way with choosing an advisor; mistakes she sees small businesses making with tax preparation; and the benefits to building a long-term relationship with a tax professional who knows your business.
What are the key considerations for small business owners in choosing a tax advisor?
Kaufman: When a small business owner is considering a tax advisor, one of the most important aspects to consider is making sure the tax advisor has a good understanding of the business in which you are involved. There are so many kinds of tax credits out there and tax codes. So hiring an advisor that understands your industry can help you maximize tax benefits.
I would also advise the business owner to go with a tax advisor that focuses on small to middle-market businesses. When a larger company focuses the majority their business on larger clients, the smaller businesses tend to get lost.
As a tax advisor, how can your clients help you best at tax season?
Kaufman: I can’t tell you the number of times I have seen returns that need to be amended. Usually it’s due to information not given to the tax preparer. Whenever a business has a new agreement in place, they should send it over to their tax preparer right away. These can be structure changes, investor changes, etc. These are things we need to know about and capture on the return. Also, when you are not sure whether a document can impact your businesses tax return send it anyway. I always say, “I’d rather you give me too much than too little.”
What should owners consider when deciding to file on time or extend their returns?
Kaufman: One major reason small business owners tend to extend their returns are to give themselves extra time to fund their employer 401k matches/profit sharing contributions. Managing cash flows can be a deciding factor when it comes to funding those matches and timing of filing the returns. Also, I would always recommend extending a return rather than rushing it out. You run the risk of not capturing all the necessary items and having to then amend and refile the return.
When preparing returns themselves, what deductions and/or tax credits do you see missed most often?
Kaufman: There are so many credits out there and based on your industry, they vary. The most common mistakes I see small businesses owners make when trying to file returns on their own is electing incorrect year-ends, missing tax deductions/credits eligible to their industry, misclassification of income and expenses, and not filing in the correct states.
What are the benefits of building an ongoing relationship with a tax advisor?
Kaufman: You learn more about a client year-round than once a year. By building an on-going relationship with your tax advisor, you’re setting yourself up to prevent mistakes on your tax filings and maximize both your tax strategies and your business. When you have a tax advisor you trust, they’re your partner in every financial aspect of your business, including business decisions where you may not be able to see the tax ramifications.
A trusted relationship means you have a guide who knows your business and taxes to consult year-round, not just when IRS forms have to be filed. This prevents completely avoidable messes and surprises, two things I think every business owner would like less of in their lives.