This post is part of Priori’s blog series “From Our Network,” where we feature lawyers in our network discussing important issues small businesses face. After every post, we give our readers a chance to ask the lawyer questions, and the lawyer picks several to answer. In today’s post, tax lawyer Lindsay Rubel discusses how a professional tax advisor can help businesses minimize their tax liabilities.
As tax season approaches, many small businesses find themselves scrambling once again to assemble the proverbial shoebox of receipts in time to meet 2013 filing deadlines. Unfortunately, many will eventually discover that their actual tax liabilities are far in excess of their original estimates.
If this sounds like your business’ standard operating procedure in March, it may be time to seek professional structuring and reporting advice. Failure to plan ahead and explore structuring options can lead to higher taxes, end of year chaos, unnecessary legal liability and increase risk of tax audits.
Advice from professional advisors—accountants and tax lawyers—can help. Here’s how:
Proper structuring can lower tax rates and cut a business’ risk of legal liability.
Informed choice of business form can shield business owners from personal liability for legal judgments. Correct entity choice can also lower income tax and employment tax rates. For example, a shift from sole proprietorship or LLC status to S-corporation status may offer a significant reduction in employment tax liabilities, but choosing LLC form is typically the lowest tax option for businesses that own real estate. A professional can help you pick the option that’s right for your business.
Organized record keeping and a professional approach can prevent end of year chaos, limit audit risk, and eliminate late fees.
Learning how to keep proper financial records can greatly ease the administrative burden of tax season, and an organized, well-considered approach to setting up and maintaining record systems can eliminate the unnecessary expense of late tax-filing fees. Accurate records also lead to accurate tax reporting, which can limit the risk of audit. For example, upon audit, tax deductions for transportation and entertainment expenses will only be permitted if records are maintained in the correct form. Disallowance of this deduction means that back taxes, penalties and interest will all be due.
Obtaining professional tax advice can limit audit risk while keeping tax bills as low as possible.
Incorrect tax reporting can lead to substantial fines and penalties upon audit. A professional advisor will know how to properly report technical tax items—from capitalization rules to the home office deduction and everything in between—which can all but eliminate such expense, and may substantially reduce the risk of audit. A knowledgeable professional advisor will also be able to point out ways in which to reduce taxes while not exposing the business to a higher audit risk.
A professional can help you make these decisions based on what makes sense for your business and your plans.
Questions about how your business can work with a professional tax advisor? If so, submit your questions in the comments section below, twitter, facebook or to firstname.lastname@example.org before Friday 2/14 at 11:59pm and Lindsay will pick 1-2 to answer. We will post her answers to the blog later this week.