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I am not sure why anyone would want to do their own taxes as a small business owner. I don’t know how you would find the time to keep up with all of the rules, laws, and changes and frankly, I believe a business owners time is best spend working on their business; generating new business or finding better ways to serve their current customers and clients.
For those that still feel they want to tackle doing their own taxes, I wanted to provide some insight as to where many people make mistakes on their taxes, so I reached out to Deirdre Morhet, a tax accountant in Mesa, Arizona, and the Founder of BASC Expertise, for some words of wisdom. As a disclosure, I have a professional relationship with Deirdre and her company.
According to Deirdre, the three most common mistakes business owners make that cost them money are:
1. Not understanding the tax election process. LLCs can be taxed many ways and it is important to understand how the elections impact your individual taxes as a pass thru entity.
2. Ignoring itemized deductions on schedule A. In particular, ignoring those deductions that may not help them on their federal return but will help on their state return. The most common of these is leaving off medical expenses. With the 7.5% floor, most folks think that since they never get over that amount it won’t help them, but the IRS works with trends so it’s important to always include this amount even when it doesn’t go over. Also its 100% adjusted on the Arizona State return. This mistake is also carried forward with missing little deductions such as tax preparation fees, mileage for charity and medical, etc.
3. Not keeping good track of charitable giving. One year I kept a list of my qualified donations and was shocked when I calculated what the donation value was worth. If I had not tracked it, I might have overlooked it as a valid deduction.
These are just 3 areas where you might be losing money. Taxes have become so involved that is just makes sense to have a professional accountant on your team. If you are still doing your own taxes as a business owner, make it a goal to make this the last time you do it. I know that I have learned so much (and saved so much) over the years by having great accountants handle my business and personal finances and I can’t imagine having it any other way.
Stay tuned for my follow up post on the advantages of working with a professional accountant.