Business Owners Often Paint Themselves Into a “Tax Corner”
As weather interrupts some parts of the country and business owners have to scramble and fill in the gaps of employees, supplies, deliveries and the like, it’s easy for them to worry about taxes later, after all, there’s “plenty of time.”
That often comes back to bite them though, sometimes hard. If they run their business as a sole proprietorship then yes, they have until mid-April to file, and until mid-October if they file an extension. However, the majority of small businesses under pay tax estimates, if the pay them at all, and the first filing date (mid-April) is when the taxes are due, even with an extension to file. The penalties and interest are based on what’s owed and not paid by the April filing deadline, so the real trap for them is do they know what they will owe so they can send that in by April. The answer is almost always NO.
If the business is an S elected Corporation or a Partnership, then they have even less time, as those filings are due March 15th. That’s less than 30 business days from now, and business owners know how a week can simply “melt away” trouble shooting this or that. If businesses have bookkeepers keeping good books every month then all they need now is their payroll package, 941s and such, and they are good to go, but again many business owners are behind in bookkeeping or have been in their own QuickBooks and made many errors that need to be corrected before taxes can be done.
The biggest problem of all is the lack of tax preparers with the talent to do business tax returns well, and if the majority of their clients wait until the last two weeks to dump their mess on them, then they simply don’t have the capacity to do all those returns in time. The business owners come flooding in just before the March pass-through entity filing deadline, and even though the accountants do their best, error rates increase. An even bigger problem, TAX PLANNING GOES OUT THE WINDOW!
If instead, that business owner connected with their preparer now, before the season starts really heating up, they could have a draft return in hand by mid-February. Now they can have a conversation with that preparer. Business Owner: “Why do I have such a big gain?” Accountant: “Well, let’s take a look. Ahh, last year you had more employees and spent more on salary.” Business Owner: ”Well, what can I do to reduce my taxes?” Accountant: “We could advance the deprecation on that new machine instead of using normal deprecation, or you could fund your profit sharing plan.”
Those conversations almost never happen on March 15th. Instead, it’s the Accountant saying “Sign here and who’s next?”, the Business Owner saying, “Oh, wow. What can I do?” and the Accountant (who has worked over 100 hours in the last seven days) says “It’s too late to do anything…NEXT!” Get started NOW and get better results, which usually means keeping more of your own money. Tax planning time for business owners is crucial!