The arrival of April 15 shouldn’t signal the end of small-business owners’ tax concerns — they should take another look at 2003 and plan for the current tax year.
“Once you complete the return, it’s a time for reflection,” said Paul Gada, a senior tax analyst with CCH Business Owners Toolkit, a service based in Riverwoods, Ill. “You have an opportunity to mend your ways and fix what was previously done wrong and to do things that were done right for next year.”
Mr. Gada suggests business owners first look back at the process they went through in compiling their returns. Was your tax preparation software helpful? Should you try another type? And, if you used a professional tax preparer, “How are they in terms of meeting your needs?” Mr. Gada said.
If you are dissatisfied, “now is the best time to pick a tax preparer for next year,” he said.
This is also the time to be projecting what your 2004 taxes will be. Many business owners tend to give little thought to the current year — even though it’s more than 25 percent over by the time they file their previous year’s returns.
“Go back and think about things you’ve been doing,” said Mel Schwarz, director of the national tax office for the accounting firm Grant Thornton in Washington. “Ask yourself, ’Is what I’ve done in the past 3 months consistent with my overall tax plan?’”
Mr. Gada advised, “Look at where you came out on your tax return. Were your taxes too high? … If you want to reduce your liability for next year, how can you do that?”
It’s obvious that you will want to look for ways to maximize your deductions. But Los Angeles certified public accountant Gregg Wind also recommended that business owners look carefully at any losses they can carry forward into 2004 that might offset gains.
Doing tax projections is part of your overall business planning. For example, you will want to consider if you are buying new equipment whether you would want to take a Section 179 upfront deduction or amortize the acquisition over a period of years. But remember that you should never make business decisions based solely on tax consequences.
You should consider your taxes as you make cash-flow projections. Mr. Wind said he finds that most business owners aren’t planning how they are going to pay their taxes; they are not putting any money aside. Instead, he said, “they’re using the tax allocation to run their business.” That can cause a lot of grief this time next year.
It’s also a good time to familiarize yourself with tax-code provisions that will apply to your business.
You can get some of the many books available on small businesses and taxes, or you can schedule a meeting in the near future with an accountant or other tax professional. You might want to meet with a tax professional now anyway, even if you feel you have a good handle on tax law.
Why brush up on tax law? Mr. Wind noted that business owners can overlook deductions that might seem obvious to others. He recalled one client, for example, who didn’t realize he could get a deduction for business meals.
It’s possible as you are considering this year’s taxes that you will find you made some mistakes or omissions on your 2003 return, either in your favor or the government’s. This shouldn’t be a cause for panic — you have three years from the date you filed your return during which you can file an amendment.
You might have found in the course of working on 2003 that there were deductions you could have taken in 2001 or 2002. Mr. Schwarz noted you still have time to amend those returns and get back taxes you paid.
Some business owners worry that an amendment will flag their return for an Internal Revenue Service audit. But, said Mr. Wind, “if the return is questioned, as long as the taxpayer has adequate documentation, there’s nothing to fear.”
Many taxpayers, finding a mistake that shortchanged the government, would rather just keep quiet about it. Not a good idea.
“You really have a duty as a taxpayer to correct the error,” Mr. Wind said.
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