Tax Tips Business Owners Need to Know to Avoid Financial Pitfalls

For many business owners, tax season means contending with the familiar feeling of bearing the weight of the world on your shoulders as you cross your fingers and hope that you’ve remembered every write-off, filed every form, and checked every box. After all, what’s the worst that can happen if you make an error on your taxes? Oh, you know, just a massive financial loss or the hassle of an audit.

Tax professionals exist for a reason; the ins and outs of tax preparation and tax law are tricky to navigate and make a huge impact on a business’s financial well-being. But tax professionals can’t do it alone. They need the help, cooperation, and knowledge of the business owners themselves to make the most of their tax returns. That’s why part of my strategy is meant to help entrepreneurs get the most out of their tax returns by knowing what to do, what to look for, and what to stay away from. As a small-business attorney, I have worked with countless companies in all stages of the business lifecycle and have become an expert at identifying the common pitfalls that new entrepreneurs often fail to see when starting a business, especially when it comes to working with their CPAs.

Failure is part of life. More often than not, it is through our failures that we learn our greatest lessons. And like it or not, it is failure that makes our successes feel so victorious. Ask any successful entrepreneur or business owner for a story of failure or hardship and you are sure to get an earful. We’ve all been there, and it is just another part of the process of building a successful business or brand.

As a serial entrepreneur myself, I’ve faced more business failures than I can count. A couple of my failed ventures include a clothing boutique and a very short-lived influencer agency. Finally, I realized my strong points were the law and advising other small businesses.

I have created a cheat sheet of sorts featuring some of the common advice, insights, and tax-related headaches that come up in my work with clients. In sharing these tips, I hope to alleviate some of the stress and overwhelming feelings that plague business owners every tax season. While failure may be a necessary stepping stone to success, there are ways to ease the pain and minimize the chaos. Here are my top tips for avoiding common mistakes when working with a CPA to file taxes after forming a business venture:

  1. If you didn’t tell your CPA when you formed the business, tell them before you file. Don’t wait until you have revenue or profits to tell your CPA that you started a business. Leave assumptions in the past when filing obligations for your business arise. I’ve seen clients reap unique advantages that reduced their tax liability because they told their CPA early on about their business venture, well before they brought in revenue or profits. To make it clear, you do not have to bring in revenue to get tax deductions in your business.
  2. Don’t assume that the only business expenses that count are ones you incurred after the business was formed. The IRS has specific rules about what can be counted toward tax credits and tax deductions. Assuming these rules hinge on whether your Inc. or LLC was formed could leave money on the table. There are plenty of options for expenses that occurred before the business was actually formed.
  3. Don’t assume your CPA and lawyer know how to stay in their own lanes. The formation of a business has tax implications. The tax status selected for your business has legal implications on how you run or raise money for the business. Be cognizant of whether your CPA properly mentions when you should talk to a business or tax lawyer. Similarly, your business lawyer should not be too quick to give you tax advice—unless they are also a tax lawyer. This is why many of my comments here refer to what to discuss with your CPA. Each person is responsible for their own area of expertise; when they start to blur the lines of where their knowledge and expertise lie, that’s prime territory for messy situations and expensive mistakes.
  4. Find a way to tell us about your mess. Trust me—we have seen a lot. We know there are people who don’t open their mail or who have years of unfiled tax returns. Let go of the idea that these professionals will judge you. Believe it or not, your own CPA or lawyer may have been one such person who turned their own mess around. Find one with whom you feel comfortable telling about your mess so they can help you get closer to that feeling of being free of fear when it comes to tax matters. Leave the shame behind you, and step into the freedom that the truth allows. We’ve all got stuff that we sweep under the rug, but now is not the time to hide it—shake it all out so we can clean it up together.
  5. Plan the next tax strategy meeting immediately after the filing deadline. Tax strategy matters. It calls for advance planning ahead of an immediate need to file. Ask your CPA if they offer tax strategy or tax planning services and get on their calendar before their next busy cycle. A little advance planning can help you make adjustments to how you spend funds to qualify for credits or deductions easily within reach. Hint: June and July were often the easiest for me to schedule with my CPA.

Tax season is not something that many people look forward to, but with a little bit of planning and the right people on your team, you can have a plan of action to set you up for stress-free success.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.  

Author Information 

Andrea Sager is a small-business attorney and founder of Legalpreneur, which provides affordable all-access legal advice for small businesses. She also hosts the Legalpreneur podcast. 

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