SAN ANGELO, Texas — Tax season is over!
At least for many of us that had to file by April 15, and hopefully after filing taxes for your businesses too, we feel relief and ready to continue the year. But, I constantly ask myself, how much relief should a business owner feel after filing taxes?
Some of course, but I would like to stress the importance of not only submitting your taxes but also the importance of understanding the finances of the business such as how much are you paying on employee contributions, sales tax, self-employment tax, unemployment insurance, etc. There are many business owners who leave the accounting to the “experts,” and they continue their business doing what they know best in the business.
Unfortunately, sometimes we need to get out of our comfort zone and become more hands-on in the accounting side of the business. For example, if you are a small-business owner who can’t afford to have an accountant to go over your books monthly, then you would need to start paying more attention to the finances of the business. More importantly start truly understanding what is happening at your business.
You might not be a numbers person, but when it comes to your business, you may want to become an expert. It is important to be aware of new regulations affecting your business, employees’ health insurance, sales taxes, income taxes, etc. Sales tax audits are the stories I have heard during the past months, microbusinesses being audited and fined for not having clear records of sales and purchases. These microbusinesses’ sales tax fines have ranged from $15,000 to $26,000. Microbusinesses are defined by the business dictionary as a small business with five employees or less with a need of less than $35,000 of seed capital.
You might be thinking, “That won’t happen to me,” or “They audited me last year, so I am good to go for a while.” Unfortunately, both statements are far from true. Audits can happen to anyone, at any time, multiple times.
An audit doesn’t automatically mean you or your business is in trouble. According to the IRS, sometimes you get selected because when tax returns are filed they are compared against “norms” for similar returns. The “norms” are developed from audits of a statistically valid random sample of returns, therefore, yours might have fall into a part of that threshold.
So you ask, “What’s the big deal?” Time is the big deal.
Time is the one thing many small businesses don’t have. They are stretched to the limit as it is. Looking for the information, scanning or photocopying the invoices, and putting a package together to send to the auditors can be a very frustrating and time consuming process.
My advice for business owners is to be prepared at all times for an audit. Even when your books have nothing to hide, be ready to answer questions backed with documentation that will be requested by auditors within a short deadline. If you have some records missing, try to obtain them from backups or from other sources, like your bank or credit card company. Always remember to provide only records related to that issue and that year.
But most importantly, remember to stay calm and be pleasant to auditors. Your attitude should always be one of cooperation.
My intention with this article is not to cause panic but instead make you aware or remind you of the importance of keeping your records handy and organized as well as to encourage you to understand the financial side of your business. Sometimes investing money on a quarterly visit to an accountant will be a good idea to stay on top of your business.
“Business Tips” was written by Adriana Balcorta Havins, Business Development Specialist of Angelo State University’s Small Business Development Center. For more information on the topic of this article or the services of the ASU SBDC, contact her at Adriana.Balcorta@angelo.edu.