Every year at tax time you may think to yourself, "I wonder if I'm paying too much tax?"
It's a good question, and you very well could be. This may be because of your business structure, the lack of tax planning or some other factor; but it may also be because of mistakes you’re making. Here are four, big mistakes small business owners make that lead to paying too much tax:
#1: Using the wrong accountant
A sub-par accountant is one that appears to be working in the background all year long, performing bookkeeping and administrative tasks. Then, just before April 15th, you get a "hot & fast" delivery of bad news indicating how much you owe Uncle Sam in taxes for the year.
A good accountant is working proactively for you, making suggestions, offering ideas and navigating the tax law changes to your advantage. You want an accountant that’s smart and motivated to help you save tax. They should be in touch throughout the year, planning ahead and offering ideas. They should be proactively thinking of ways to help you reduce what's likely one of the biggest hits on cash flow in your business.
Going beyond tax planning by pointing out that there are better options for credit cards or the interest rate on your bank loan appears too high. If that’s not a description of your accountant then it may be time to find a new one.
#2: You didn't plan ahead
A smart accountant can provide value to your business by offering constructive feedback. If they don't, request the meetings yourself, at least two or three times a year.
Things change, including tax legislation. It's important to keep your accountant up to speed on what’s going on in your business so they can apply any beneficial changes in respect to the ever-changing tax code.
A good accountant will be looking at your financial data and making adjustments if needed. Offering suggestions to reduce your tax burden and even warning you of potential liabilities that you may not see coming. They should be current on the latest tax legislation and be thinking of ways to help you keep your tax exposure to a minimum.
You should be giving them plenty of time to think about your situation by meeting with them well before the busy season begins.
#3: You have become disengaged
We get it, staying current on the latest tax legislation is right up there with insurance seminars. But think about this, you scour the web to save 10% on your insurance. Why not spend some time trying save on the amount of income tax you pay?
Savvy entrepreneurs are engaged in their businesses and pay attention to their tax situation. They read and even attend a seminar or two once every now and then. They do this so when they meet with their accountant they have questions to ask and aren’t operating in the dark. They understand that every dollar saved is another dollar that can be put towards their business.
#4: Using a local accountant because it's convenient
Technology has advanced dramatically in the accounting industry just like it has in every other industry. The problem is, an alarming number of accountants haven't embraced technology.
Like individuals, accountants typically shy away from advancements in technology due to the learning curve, the costs involved and taking time away from doing other things.
With today's technology, there is no reason you can't use an accountant that's the best fit for you; no matter of their geographic location. With the right tech stack, your accountant can actually provide better service than the one downstairs from your office.
If your accountant is not investing in technology, then are they really invested in your privacy and best interests?