Every week as @SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wed on Twitter from 8-9pm ET. This is excerpted from my recent interview with Ebere Okoye @WBCPA (on Twitter). Her company Wealth Building CPA, is a complete accounting and financial firm which helps companies handle and grow their assets. Ebere Okoye is a Certified Public Accountant, who also holds MBA from University of Maryland. Her unique areas of expertise give her an in-depth understanding of the mistakes individuals and businesses make in their tax planning and investments. She specializes in providing sound financial strategies to small business owners that will lead to wealth creation. More information at: http://www.WealthBuildingCPA.com.
Smallbizlady: When are small business taxes due?
Ebere Okoye: Depending on your legal entity, your business taxes are due March 15th or April 15th. The majority of business taxes are due in March however.
Smallbizlady: What is Year-End Tax Planning?
Ebere Okoye: Tax preparation for the March 15th /April 15th return is not considered advance tax planning. It is merely tax compliance. Some of the best tax-reduction moves really need to be done by mid-November or early December. They often take some advance planning. Getting a head start could make you a lot happier in March/April, giving you a bigger refund or a smaller check to write to Uncle Sam, which is the goal of this stage. You either pay the IRS, pay a tax preparer, or pay a qualified CPA to come up with some tax reduction strategies.
Smallbizlady: What’s the single most important thing a small business owner can do to reduce tax liability?
Ebere Okoye: Have up-to-date financial records on your business every month. The worst thing you can do for your small business is wait until the end of the year to meet with your accountant. Do not just use your accountant to do your taxes. You should meet with an accountant or CPA at least quarterly to strategize about your business financially. You can only reduce your tax liability before taxes are due not after December 31st.
Smallbizlady: How can small businesses safely do taxes themselves without paying an accountant?
Ebere Okoye: Whether someone can do their own taxes is an interesting question. The U.S. tax code gets more and more complicated with each passing year. Another year, another set of rules added to the previous set of rules. If you have a very simple and straightforward tax situation, then you can afford to do the taxes yourself. When in doubt, get some help. If you can’t afford to hire a tax preparer, many cities have volunteer tax assistance programs offered through local colleges or non-profit organizations. See if there is one available near you. In addition, I also suggest using a prepare and review model to keep costs down. You could prepare the taxes yourself and then have an accountant review it for a nominal fee.
Smallbizlady: Why does every business owner need to do a financial analysis?
Ebere Okoye: This is the piece that many people overlook. You will paint for us a current picture of where you are financially and where you need to be and with that, we can come up with a plan for a wealth building program through your business.
Smallbizlady: How can tax extensions reduce your chances of an audit?
Ebere Okoye: A lot of smalls businesses tend to rush to meet the March 15th or April 15th deadline. As a result, the tax returns may not be prepared accurately or checked properly for audit flags. This is the busiest time for most accountants and CPA’s. But by waiting for the extended tax season which is through September 15th, your accountant will have more time to review the return and identify possible audit flags. Your return is no longer competing with other returns for your accountant’s time. Therefore, filing extensions can significantly reduce your chances of an audit.
Smallbizlady: How does tax reduction planning work for small business owners?
Ebere Okoye: When my firm, Wealth Building CPA, does tax reduction planning, your last three years tax returns will be reviewed for accuracies, inconsistencies, audit flags, and potentially overlooked deductions. An important part of reduction planning is not wasting deductions or making certain elections to take advantage of unused deductions in the future or even carry them back to prior years. We will also prepare individual and business tax returns for the current tax year.
Smallbizlady: How can I prevent an IRS audit?
Ebere Okoye: You need three walls of defense against the IRS:
1. Audit Prevention
2. Automatic Pre-Audit Preparation
3. Advance Tax Planning before December 31st.
Smallbizlady: Could changing my small business legal entity structure help with my tax liability?
Ebere Okoye: Sometimes, it may be necessary to revise your small business’s existing legal structure to maximize asset protection and tax savings. For example, you may choose to convert from an S corporation to a single or multimember LLC. These changes can be handled by first talking to your CPA or attorney to see what structure is a fit for your business. Once this step is done, there are several forms available through the IRS website that can be completed to make this change. You can also choose to update or file a resolution to your existing operating agreement to reflect this change. Whatever the case, it is always advisable to look at entity restructuring at least once a year as it could save you a lot in taxes.
Smallbizlady: IRS audits on small businesses have increased. What are the top 3 things on tax checklists for small business owners?
Ebere Okoye: 1.Do you have an EIN number, operating agreement, and a separate business bank account?
2. Have you recorded all the income and expenses related to the business on the business bank account? This is a huge audit item for 2009.
3. If you have significant education expenses, have you registered a business in order to minimize your audit exposure on deducting these expenses?
Smallbizlady: What’s the number one reason most people meet with their CPA’s, Lawyers, tax, and investment advisers more than they need to, or should?
Ebere Okoye: The chronic lack of communication and integration of services between your CPA, lawyer, tax and investment adviser. They simply don’t talk to one another! They work in a vacuum, disregarding the impact their individual recommendations will have on the other pieces of your financial pie…until it’s too late! And then they spend your time — your money — unscrambling what should have been avoided…if only the right hand knew what the left hand was doing! How can any financial adviser recommend a prudent, effective financial course of action for you…without examining, diagnosing and understanding your whole financial circumstance?
Smallbizlady: What kind of tax accountant should small business owners be working with?
Ebere Okoye: Your tax accountant should be someone that always remembers YOU are the employer and not the IRS. Your accountant should returns all calls promptly, meet promised deadlines and thoroughly understand your business. They should also be willingly research your questions and should never “surprise” you with an unexpected bill. Above all they must be willing to integrate their services with all aspects of your financial planning.
If you found this interview helpful, join us on Wednesdays 8-9pm ET follow @SmallBizChat on Twitter.
For more tips on how start or grow your small business subscribe to Melinda Emerson’s blog http://www.succeedasyourownboss.com.
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