It’s tax season and you can almost hear the collective eyeball-rolling as thousands of accountants review their clients’ same old tax filing mistakes.
We spoke with Mark Chapman, a CPA and Founder of My Virtual CFO, on the things his clients do every year that make his optic nerve spin. Following this advice will not only keep you on good terms with your accountant, but will save you the ever-elusive time and money for your online business.
1. Procrastinating! Most clients do not think about taxes until after the first of the year or even until April. I can do much more for my clients and their business if we talk first in November about ways they can maximize their tax situation, than if they wait until after the first of the year. Every online retailer’s tax situation is different based on factors like year end inventory levels, and Home Office Expenses. When they wait until just before the filing deadline the last minute we don’t have time to explore their full situation and discover ways to reduce their tax liability that might not be apparent during the first review, such as bonus depreciation on fixed assets, and other optional tax strategies.
2. Not using a system. There are so many inexpensive accounting systems like QuickBooks and Xero that there is no reason not to be using software to track your business. Critical data can be overlooked, such as inventory and administrative costs, without accounting systems. It is much easier to help clients find deductions and file accurate returns (at a cheaper cost to them) if they use accounting software.
3. Not keeping business and personal accounting separate. When a client splits their personal and business finances and uses separate accounts for each it is very easy to work with, but when they use the same accounts or pay for personal items directly out of their business accounts it makes it much harder, less audit protected and more expensive for them. Treating a business like a separate person makes taxes much more simple.
4. Taking tax advice from unreliable sources. I have worked with many business owners who were scared of their tax bills and listened to people who gave them bad advice to hide assets or income or both. In reality there are usually perfectly legal ways to accomplish the same savings without breaking the law.
5. Trying to save a few bucks on tax prep fees. When a client comes to us with prior returns they did themselves or paid a “cheap” fee to someone’s brother, it costs a lot more to fix it and amend the returns. Do it right the first time and pay a little bit more up front.
Keep these words of wisdom in mind as we move forward in 2014, so that when next tax season rolls around, your accountant’s eyes won’t be rolling with it.