Business Tax advisory and tax preparation

Business Tax advisory and tax preparation

• Tax pre­par­ers are NOT tax advi­sors, so know the dif­fer­ence
• Almost all tax pre­par­ers do not pro­vide mean­ing­ful tax advi­so­ry and plan­ning, they sim­ply pre­pare tax returns as quick­ly as they can with min­i­mal sur­face-lev­el advice
• Most tax pre­par­ers are not legal­ly qual­i­fied and able to rep­re­sent a tax­pay­er if there is an audit and con­test­ed
• DIY — Do it your­self busi­ness own­er tax prepa­ra­tion is a vir­tu­al cer­tain­ty of pay­ing more in tax than the cost of qual­i­ty advice

This is our cen­ter of our uni­verse. When it comes to busi­ness tax­a­tion, unless a tax pro­fes­sion­al is advis­ing the busi­ness own­er, there’s sim­ply no rea­son­able way a busi­ness own­er is able to max­i­mize their after tax income. Quite sim­ply, there’s too much to know, and too much time will have to be spent attempt­ing to save mon­ey. Worse still, it’s VERY like­ly the busi­ness own­er will make mis­takes due to the com­plex­i­ty of the tax code.

An easy way to explain what I mean is to use an exam­ple most busi­ness own­ers under­stand well. Ask your­self this, can some­one start and oper­ate your type of busi­ness by only spend­ing 15–25 hours read­ing about your indus­try and watch­ing a few hours of YouTube and tik­tok videos?  Maybe in some cas­es, albeit at an expert lev­el as well as you can, and when a large amount of mon­ey is at stake?

Also, would YOU hire a tax pro­fes­sion­al that said they’re new to the world of tax advi­so­ry, albeit they watched a few videos and read a few things online, so they’re ready to advise you on tax­a­tion? Because that’s exact­ly what some small busi­ness own­ers are doing, they’re either hir­ing a pro­fes­sion­al who works full time and also has the nec­es­sary train­ing, expe­ri­ence, and learned knowl­edge, or they’re hir­ing them­selves with what­ev­er lit­tle and incom­plete knowl­edge they pick up.

I can’t empha­size this enough, if there is enough mon­ey that it mat­ters, then there’s enough mon­ey to do it right, because a tax advi­sor should save mul­ti­ples of what they charge in fees. Let me repeat that impor­tant mes­sage, a tax advi­sor should save mul­ti­ples of their fee vis-a-vis doing it your­self (and you’ll spend more time doing oth­er pro­duc­tive income earn­ing activ­i­ties and/or time doing the things you want to be doing. In oth­er words, hir­ing a qual­i­ty tax advi­sor is like pay­ing $50 for $100 bills.

But I’m real­ly smart and/or high­ly edu­cat­ed.…. Again, unless you work in tax­a­tion, it’s espe­cial­ly impor­tant for you to engage a tax advi­sor because it’s like­ly you’re mak­ing enough mon­ey that it mat­ters. Be smart enough to know what you’re good at and where the lim­i­ta­tions in your sub­ject mat­ter are.

Run­ning a busi­ness is demand­ing, and while many busi­ness own­ers may espe­cial­ly take pride in han­dling tasks them­selves (as a busi­ness own­er you’re first a prob­lem solver), doing their own tax­es with­out the guid­ance of an expe­ri­enced tax advi­sor can be a cost­ly mis­take. At first glance, prepar­ing and fil­ing tax­es on your own may seem like a way to save mon­ey, but in real­i­ty, the poten­tial pit­falls far out­weigh the imme­di­ate sav­ings.

From over­looked deduc­tions to audit risks, nav­i­gat­ing the com­plex and ever-chang­ing tax land­scape with­out a pro­fes­sion­al can leave a busi­ness own­er vul­ner­a­ble to finan­cial and legal reper­cus­sions. Here are the key rea­sons why busi­ness own­ers should always con­sid­er work­ing with a tax advi­sor.

Overlooking Key Deductions and Credits

One of the most sig­nif­i­cant risks of doing your own busi­ness tax­es is miss­ing out on valu­able deduc­tions and cred­its. For instance, the Qual­i­fied Busi­ness Income (QBI) deduc­tion can allow eli­gi­ble busi­ness own­ers to deduct up to 20% of their qual­i­fied busi­ness income. How­ev­er, the rules sur­round­ing this deduc­tion are com­plex, and only cer­tain types of income and busi­ness struc­tures qual­i­fy. Fail­ing to ful­ly under­stand these rules may result in lost sav­ings.

Addi­tion­al­ly, many busi­ness own­ers are unaware of indus­try-spe­cif­ic deduc­tions and cred­its they could be tak­ing advan­tage of. For exam­ple, a tech start­up may qual­i­fy for R&D tax cred­its for inno­va­tion and prod­uct devel­op­ment, while a retail busi­ness may ben­e­fit from Sec­tion 179 expens­ing or bonus depre­ci­a­tion on cer­tain equip­ment pur­chas­es. With­out a tax advi­sor, these oppor­tu­ni­ties could eas­i­ly slip through the cracks.

Under­stand­ing how bonus depre­ci­a­tion and oth­er expens­ing strate­gies inter­play with the cur­rent and future years to max­i­mize after tax income is essen­tial.

Increased Risk of an Audit

The IRS pays close atten­tion to small busi­ness tax returns, espe­cial­ly those that raise red flags such as exces­sive deduc­tions or irreg­u­lar­i­ties in report­ed income. Fil­ing your own tax­es with­out the help of an advi­sor can increase your chances of being audit­ed. If errors are found, even if unin­ten­tion­al, the IRS can impose sub­stan­tial penal­ties and inter­est.

A tax advi­sor under­stands what the IRS looks for and can help ensure that your tax return is accu­rate and com­pli­ant. They will also keep metic­u­lous records and doc­u­men­ta­tion in case of an audit. If your busi­ness is audit­ed, hav­ing a tax advi­sor in your cor­ner can help you nav­i­gate the process and min­i­mize any penal­ties.

It’s a lot cheap­er to hire an advi­sor before fil­ing than it is to hire a tax pro­fes­sion­al to help solve a prob­lem or mis­take that results in an audit. It should come as no sur­prise that the IRS (like any gov­ern­ment agency) gets it wrong from time to time. Either way, often audits can be avoid­ed alto­geth­er if a tax return prop­er­ly explains a posi­tion that may oth­er­wise become tar­get­ed for audit and review.

Tax Planning and Strategic Advice

Tax advi­sors do more than just file tax­es; they offer strate­gic advice to help your busi­ness grow while min­i­miz­ing tax bur­dens. An expe­ri­enced tax advi­sor will help you struc­ture your busi­ness in the most tax-effi­cient way, plan for upcom­ing tax pay­ments, and advise on tim­ing for major pur­chas­es or cap­i­tal invest­ments. This is cru­cial for long-term finan­cial plan­ning.

For exam­ple, depend­ing on your business’s income lev­el, it may make sense to tran­si­tion from an LLC to an S‑corporation to take advan­tage of reduced self-employ­ment tax­es. A tax advi­sor can help you eval­u­ate the ben­e­fits and draw­backs of these choic­es and guide you through the process of restruc­tur­ing.

With­out this proac­tive plan­ning, you may end up pay­ing more tax­es than nec­es­sary or miss oppor­tu­ni­ties to rein­vest in your busi­ness. Advi­sors also help with retire­ment plan­ning, estate tax strate­gies, and more—areas that can impact your per­son­al finances as well.

Time Savings and Peace of Mind

For most busi­ness own­ers, time is mon­ey. Every hour spent on tax prepa­ra­tion is an hour that could be spent grow­ing your busi­ness or serv­ing clients. Tax­es require metic­u­lous record-keep­ing, data entry, and con­stant atten­tion to detail. Doing your own tax­es can take count­less hours, espe­cial­ly if you’re unfa­mil­iar with the process.

Hir­ing a tax advi­sor frees up your time, allow­ing you to focus on what you do best—running your busi­ness. Beyond the time sav­ings, work­ing with a pro­fes­sion­al also pro­vides peace of mind. Know­ing that your tax­es are in good hands reduces stress and helps you avoid cost­ly mis­takes.

Managing Changing Regulations

Busi­ness tax laws are con­stant­ly evolv­ing, and new leg­is­la­tion can have a pro­found impact on your tax strat­e­gy. Recent changes, like those in the Tax Cuts and Jobs Act of 2017, dra­mat­i­cal­ly altered cor­po­rate tax rates, deduc­tions for meals and enter­tain­ment, and how pass-through busi­ness­es are taxed.

Stay­ing on top of these changes and under­stand­ing how they apply to your busi­ness requires sig­nif­i­cant exper­tise. A tax advi­sor can inter­pret these laws and make sure your busi­ness takes advan­tage of any new oppor­tu­ni­ties or avoids pit­falls. For exam­ple, in 2023, rules relat­ed to Sec­tion 179 deduc­tions and bonus depre­ci­a­tion were adjust­ed, and know­ing how to han­dle those changes can sig­nif­i­cant­ly impact your bot­tom line.

Avoiding Legal Issues

Tax com­pli­ance is crit­i­cal for avoid­ing legal trou­ble. If you make a mis­take on your tax­es, you could face penal­ties, back tax­es, or worse, legal action. The IRS has broad enforce­ment pow­ers, and an unpaid tax lia­bil­i­ty can result in wage gar­nish­ments, bank account levies, and liens on busi­ness prop­er­ty.

A tax advi­sor helps ensure your busi­ness is always com­pli­ant with tax laws and that returns are pre­pared accu­rate­ly. In the unfor­tu­nate event of a legal tax issue, hav­ing a tax advi­sor to rep­re­sent you can be invalu­able, as they can help nego­ti­ate penal­ties, resolve dis­putes, and rep­re­sent you in front of the IRS.

Advisors are Specialists

Busi­ness own­ers are experts in their fields, whether they run a con­struc­tion com­pa­ny, a law firm, or a retail busi­ness. But tax prepa­ra­tion is a dif­fer­ent spe­cial­ty, requir­ing years of edu­ca­tion, cer­ti­fi­ca­tion, and prac­ti­cal expe­ri­ence to ful­ly under­stand. A tax advi­sor brings this spe­cial­ized knowl­edge to the table.

Tax law is nuanced and high­ly detailed. By work­ing with a spe­cial­ist, you ben­e­fit from their depth of knowl­edge, under­stand­ing of your spe­cif­ic indus­try, and expe­ri­ence in nav­i­gat­ing the most effi­cient paths for tax sav­ings. Doing your own tax­es may give you a basic under­stand­ing of your oblig­a­tions, but it won’t pro­vide the same exper­tise a tax advi­sor can offer.