Tax season can be a stressful time of year for those who operate a home-based business, but once it's over, it's important to start planning for the year ahead.
The reality is that after going through the exercise of filing taxes, most people shelve everything until the next tax season – but this is a big mistake for those who are looking to maximize their tax write-offs.
To make matters worse, if you have little communication with your tax person throughout the year, they'll have no idea what's going on in your business, often resulting in missed opportunities to claim tax write-offs throughout the year.
To avoid this, it's important to have a tax preparer you can work with proactively throughout the year to seek advice, bounce ideas, and discuss tax strategies. Their responsibility is to focus on ensuring you capture these write-offs to reduce your taxes and minimize your risk of being audited. This is particularly important for home-based business owners, who may not have the in-depth knowledge of tax strategies and who are busy running their business – resulting in missed write-offs.
Unfortunately, not all tax preparers are created equal, and they don't offer this level of tax strategy advice throughout the year. I've heard from many home-based business owners who hire a tax preparer; however, they called me for advice.
In one example prior to the last tax season, I received a call from an individual asking for tax advice. I answered their question and then asked them, "Do you have a tax accountant who does your taxes?" They answered yes, and I then asked them, "What do they charge you?" The response was $700 to file their taxes. My response was that for $700 to file a tax return, they should be the ones you are calling with your question. What exactly are you paying for?
I've experienced examples like this for the last decade. In another example, an individual in a network marketing business who earns a six-figure income in commissions had their tax preparer record the commission income as 'sales revenue' on their tax return. This mistake led to a tax audit and a reassessment of previous years' returns. The government believed, based on the tax return reporting, that this network marketer should have collected and reported sales tax on their income, and the individual was issued a tax bill for $60,000 for "unpaid sales tax."
In my new book "Write Off Almost Anything," Chapter 10 is titled "Your Tax Preparer is Giving You Bad Advice," and I wrote extensively about this topic.
If you are using a tax preparer, here are a few criteria to keep in mind when choosing a tax preparer:
- Find a specialist in home-based tax write-offs and tax-lowering strategies.
- Check their expertise and client base to ensure they have experience working with businesses like yours.
- Ensure your tax preparer knows the IRS/CRA guidelines for home-based businesses.
- Choose a preparer who will proactively work with you to minimize your tax liability and understands your unique business.
Remember, you as the taxpayer and home-based business owner are ultimately responsible for all the information on your income tax return, regardless of who prepares the return. While most tax return preparers provide quality service, unfortunately, some are unreliable.
When using a tax return preparer, taxpayers should look for a tax preparer who's available year-round in case questions come up after the filing season is over. Ask about service fees and avoid tax preparers who base their fees on a percentage of the refund or who offer to deposit all or part of the refund into their own financial accounts.
- Ensure their preparer offers e-file of tax returns.
- Provide records and receipts. Good preparers ask to see these documents.
- Understand the preparer's credentials and qualifications and review their history for complaints or disciplinary actions.
- Never sign a blank or incomplete return. Taxpayers are responsible for filing a complete and correct tax return.
- Review their tax return before signing it and ask questions if something is not clear or appears inaccurate.
- Make sure any refund will go directly to the taxpayer's bank account – not into the preparer's bank account.
- Review the routing and bank account number on the completed return and make sure it's accurate.
Choosing the right tax preparer can save you time, money, and potential headaches down the road. As a home-based business owner, it is your responsibility to minimize your taxes and maximize your tax write-offs. You can start by downloading the "Getting Organized Tax Preparation Checklist" and reading through it to ensure you have everything you need to file your taxes.
Don't wait until the next tax season to start tax planning; by then, you will have missed many write-offs. It begins with a system of keeping accurate records throughout the year and being proactive in seeking out potential tax deductions for your business.
Taxes can be complex, and the rules and regulations are constantly changing, as is your business and the marketplace you are in. Having a knowledgeable tax expert to consult with allows you to stay on top of these changes and make the most of your tax situation.
This is why I have recently upgraded my "Home Business Tax Write Offs Made Simple" system to include Personalized Onboarding Calls & Tax Strategy Clinics. My goal is to transform your tax experience with Doug's guidance, support, and expert insights. With this one-time small investment, you will receive a comprehensive video training course, membership to a private community, business templates, as well as the following personalized support:
- Private One-on-One Coaching: Start with a personalized 60-minute session with me so I can answer all your questions and provide strategic tax-saving insights.
- Business Tax Strategy Clinics: Regularly scheduled tax clinic sessions offer further guidance and the chance to ask questions.
- Audit Support: Should you ever be faced with an audit, contact me! We will go through it and I'll give you guidance needed to navigate this challenging situation.
So, take the time to ensure you are getting the support you need in your home business with a tax expert who has your best interests in mind. With the right support on your side, you can rest easy knowing that you're saving thousands in income tax annually while ensuring you are audit-proof.