Waynes World - April 2009
UNORGANIZED BUSINESS OWNERS ARE
PRONE TO TAX PITFALLS, SO...
DON'T GAMBLE - HIRE A
TAX PROFESSIONAL
by Wayne Schooling
Income tax filing season can be a trying time for small business owners – and in a recession, it can be even more so. One of the pitfalls owners are likely to encounter is a big one: poor record keeping. When you do not keep good records, it is not only hard to complete your tax returns, but also to know where your company stands financially. Another common problem is keeping up with changes in the tax laws, especially for state and local governments that are now looking for ways to increase revenue.
Ask tax professionals what their clients struggle with and most will say that their clients keep haphazard books and ledgers. Many business owners don’t know how much money they have on hand, how much they owe and what their customers or clients owe them. “You really need to control your books and understand what you’re making,” said Paul Payne, a certified public accountant (CPA) with NTA. “Some business owners use their checkbooks and credit cards as their records, but it’s a problem when they can’t locate all their check registers or all of their bank statements,” said Mr. Payne.
Other small business owners (including many independent truckers) are even more disorganized. Many “shoebox clients” keep their records in boxes or piles. Stacks of invoices, receipts and canceled checks are thrown into a box which will then need to be sorted through and organized at the end of the year. These owners are in danger of missing out on important deductions and can end up overpaying the government. Or, if the government questions a deduction, they could lose it if they don’t have the proper documentation to back it up.
An easy solution to this record keeping problem is to utilize a computer application (program) to keep your books. Be sure to choose a program that interfaces with tax preparation software such as QuickBooks. But many owners don’t use such programs, saying they don’t have the time to input the information. Well, you can either spend the time throughout the year keeping your books, or spend even more time trying to figure things out, all at once, at the end of the year. Either way, you are going to have to spend the time doing it, so why put it off and risk doing it wrong or forgetting something?
An even easier solution to this “taxing” problem (pardon the pun) is to get some professional help. Whether it’s a bookkeeper to take care of ledgers or a tax professional to handle your returns (or both), these people can get you more organized and can help you to sail through tax season, and beyond, effortlessly. Now, wouldn’t that be nice, for once! It may be too late for 2008, but it’s still early in the year for 2009, and a good time to get organized is now.
Poorly kept records can be a particular problem for owners with home offices or who use mobile phones and/or vehicles for both personal and business reasons. These people need to keep good personal, as well as business, records. The IRS allows these owners with home businesses to deduct a portion of their expenses including mortgage interest, repairs, utilities and insurance, but unless taxpayers have invoices and receipts, they can’t compute the deduction accurately. Similarly, these owners can also deduct a portion of what they pay out on cars, cell phones and other items with dual purposes, but they need to keep track of when a car, for example, is driven on personal errands or to meetings with clients. At this point, after the year has ended, it’s hard to reconstruct that information accurately.
Another problem for many small business owners is keeping up with all the changes in the tax laws – and not just at the federal level. Many states have laws that differ from the Internal Revenue Code, and owners need to be aware of them. Paul Payne, a CPA with NTA, noted that some of the states treat depreciation of assets differently from the federal government, which means that there may be separate calculations for each item being depreciated. Another complication is for companies that do business in different states. Chances are each of these states has different tax laws, which again creates separate calculations. “Trying to keep current on both federal and state tax law changes, and every locality where you do business, becomes extremely difficult,” Payne said, adding, “It’s forever in flux at all levels.”
The easiest way to keep up with those changes is to hire a good tax professional whose job it is to follow these tax laws. There are some federal law changes for 2008 that owners need to be aware of, Payne noted. For example, if partnerships choose to get an extension on the April 15 filing deadline, they now have to file their tax returns by September 15 – not October 15 – as it was in the past. Many more changes are likely for the 2009 tax year because the government is expected to have an economic stimulus plan in place. Many states are likely to enact changes in their own tax codes, as well.
The unemployment rate hit 8.1 percent in February, which was a 25-year peak, and the nation has lost 4.4. million jobs since the recession began in 2007. This is no time for guessing and hoping. You should set up a business plan if you haven’t already (as I have discussed in several previous articles). Don’t be like one of Paul’s clients who quit a high paying union job and then used his retirement money to become a trucker. He only lasted for a year because he did not have a solid business plan in place.
The NTA has everything you need to start you on your way – whether you are a new owner operator or one that has been around for a while but still has not figured out how to profitably run your business – we can help. Not only are you made aware of the rules for new motor carriers, but you can also get a fleet safety manual, software for your DQ files and vehicles, hours of service policy information, a maintenance policy, a cargo loss guide, a cargo securement guide, copies of two DOT audits, a record retention guide, a sample business plan, a rate guide and more. Joining the NTA could be the best business decision you will ever make, so why wait. Visit our website at www.ntassoc.com or call us at (562) 279-0557 today.
~ NTA remains a name you can trust. Our website (www.ntassoc.com) is your official U.S. DOT Internet Training Site and we are administrators of a Nationally Accredited Drug and Alcohol Program. If you have any questions, call me at (562) 279-0557 or send me an e-mail to wayne@ntassoc.com. Until next month, “Drive Safe – Drive Smart!”