There is a world of difference between business and personal taxes. When it comes to personal taxes, filing manually or using online software can be a viable option for individuals with some financial background. For small business taxes, however, this is not always the case.
"Like any software program, garbage in is garbage out," said Scott Berger, a principal tax expert at Kaufman Rossin's tax and entrepreneurial services practice.
While there are several tax software options for small business, the only way to get personal, valuable insight is by working with a professional, according to Berger. You could quickly find yourself in a "garbage in is garbage out" scenario if you lack knowledge on basic tax concepts and rely on tax software.
"If you've never done it before, you probably shouldn't start," Berger said. As with any problem, "if I'm Googling it, I really should find a professional. Time is always better served doing what you do and doing it right."
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Tax law can be immensely complicated, and business structure, personal filings and changes in the law can create major headaches for small business owners trying to manually complete taxes.
The short answer: Get professional tax help
There are a few reasons why it's important to seek out professional help when it comes to taxes. The first is that a tax professional can make sure you're paying the exact amount of taxes you're supposed to. Berger said it can be easy for inexperienced small business owners to accidentally overpay on their taxes. By not taking advantage of all the available deductions and incentives, business owners can end up overpaying simply due to a lack of knowledge.
"If you make an error or omit deductions that you're entitled to, it's costing you money out of your pocket," Berger said. [Looking for tax software to do your taxes yourself? Check out our reviews and best picks.]
The second reason to work with a professional is more obvious: to avoid errors. By making a mistake on your taxes, you expose yourself to penalties from the IRS. There are underpayment penalties, late filing penalties and various other penalties you could owe to the IRS if you don't file properly, according to Berger. By making an error on your taxes, you are exposing your business to financial risk.
Berger also stressed how business owners should stay focused on running their business as opposed to dealing with operational tasks like filing taxes. A business is successful in the first place because its members are focused on growing the business and doing what they love.
"Most of these business owners should be spending more time working on their business, not in their business," Berger said. "They should do what it is they do best."
Healthy tax practices
Working with a tax professional also means establishing healthy tax practices so you're prepared to file. Tax season shouldn't be a looming time period to gather financial info; it should be a simple time period where there are no surprises, Berger said. By working with a professional, you can establish quarterly check-ins and recordkeeping habits so little work is required come springtime.
The biggest healthy habit, however, is keeping consistent and maintaining current financial records.
"In a perfect world, they're keeping contemporaneous books and records, so as transactions are occurring, they're recording them so they're not trying to figure out three months later or six months later what's going on," Berger said.
Proper planning also provides you with the opportunity to cash in on deductions and other tax-saving incentives. Berger said it may be too late if you're just starting to look into these ideas now.
"In February and March, it's generally too late to do anything to reduce your tax liability for the prior year," he said. "There are some things that can be done, but it's too late."
Why it matters
Establishing healthy tax habits and working with a professional are two ways to ensure you're running your business correctly. It can also allow you to spend more time focused on your business and less time worrying about keeping up with tax law.
In 2017, Congress passed the Tax Law and Jobs Act, which made significant changes to the U.S. business tax code. Professionals like Berger have been studying these new laws on a full-time basis, so they're in the best position to help small businesses file for the right amount and maximize deductions. If you're running a small business, it's important to play to your strengths and allow other professionals who have the time and background to help your business.