By Deborah Jeanne Sergeant
While it’s important to pay your fair share of taxes, making a few crucial mistakes can cost your business a lot of money. Avoiding these goofs can save your firm some cash — and a few headaches.
“I see people failing to deduct everything they’re entitled to,” said Kimberly S. Manrow, president of Custom Accounting Services, Inc. in Auburn. “The D-I-Yer may not know how to interpret what these things mean. The tax code is complicated and intricate.”
It’s important to ask a tax professional about items that they should track for deducting.
“What you can deduct is different from the next guy,” Manrow said. “People get advice from friends but that doesn’t mean it fits your business.”
It’s not all lost if you have missed things in the past — or, at least in the past three years — as Manrow said that conducting an amended return may help businesses get back some money. Some preparers, like Manrow, offer a free, cursory review of a return to determine if an amendment submitted by the tax professional or the business owner would be worthwhile.
Amendments may be even more useful for those filing their own returns who ignore nuances of new tax laws taking effect this season and next.
Bill Symons, tax accountant with Canale Insurance and Accounting in Oswego, said that small businesses should know about the 199A deduction, part of the Tax Cuts and Jobs Act (TCJA), which began to take effect in 2018.
Some small business owners can receive up to a 20 percent tax deduction on their taxable business income, providing they qualify.
“There are a lot of factors involved in that to determine whether or not you get the deduction,” Symons said. “If you fall into the right spots, it can save you some money. It’s going to affect a lot of folks.”
Another change this year is how businesses use depreciation. Symons said that business owners may want to write off the whole value of a new purchase right away or wait on part of it, in case they anticipate an upswing in their income and want to lower their tax burden then.
“It’s part of taking a look down the road,” he said. “Maybe you want to use part of it later.”
He also thinks it’s a good idea to ask a tax preparer now what the business could do all year to make next year’s tax bill lower. As an example, changing the business entity may affect the taxes.
“Maybe you want to incorporate or change from a C corporation to S or an S to a C,” Symons said. “It all depends upon your situation.”
He added that a common mistake many small businesses make is failing to pay any required quarterly estimated tax payments. Those doing this face not only a large tax bill, but also a penalty and interest if they owe enough.
While handing over the taxes to a professional to complete can likely prevent some costly mistakes, business owners need to perform due diligence for the rest of the year.
“The biggest mistake business small owners make is they don’t do bookkeeping as the year goes along,” Symons said. “A lot of times, they don’t really know where they’re at as far as their taxable income. They wait until after the year ends and then try to get things together. Possible deductions get lost in the shuffle and don’t get used.”
