There’s not an entrepreneur on the planet who likes thinking about taxes. But it’s time to get organized! Almost every aspect of your business has tax ramifications and if you don’t know what they are, you’re inviting trouble down the road (can you say “audit?”).
1. I CAN DO IT MYSELF.
“Most small business owners do not have the tax knowledge they need to stay out of trouble, but they won’t pay for planning,” says McKenzie. Maybe you really are capable of doing your own tax planning. Maybe you can also rewire your office, build your own website, and represent yourself in court. That doesn’t mean you should. Just sayin’.
2. LET’S MAKE EVERYONE AN INDEPENDENT CONTRACTOR
Employees are expensive. Independent contractors, not so much. So why not make everyone independent contractor? It’s not that easy, says McKenzie. “If you’re going to designate a worker as independent you have to treat him as independent contractor.
3. I CAN PAY MYSELF WHATEVER I PLEASE
If you’re incorporated, not really. Say you typically pay yourself $100,000 a year. After a good year, you decide to increase that to $300,000. “You have to substantiate a reason for the increase, or part of the money can be disallowed by the IRS as unreasonable compensation,” says McKenzie. “Then it can be taxed at the corporate level, and distributed as a dividend. And then you’ll pay tax on the dividend.” Ouch!
4. THAT CAN’T POSSIBLY BE DEDUCTIBLE
Not so fast! The dry cleaning for the suits you wore at that business conference in Duluth? If you were away overnight, it’s deductible, says Nathaniel McKenzie. A movie and dinner with friends, with whom you also talked business? Also deductible he says, even if your business discussion didn’t occur at dinner, but within the same 24-hour period as the social engagement.
Certified public accountants can be a tremendous resource to any small business, from those just beginning operations to established enterprises. Building and maintaining a close working relationship with your CPA will help to ensure the success of your business, and can save your business money in the long run.
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Contact Nathaniel McKenzie for more details regarding this update and other Tax / CPA related topics and services provided by McKenzie Forensic Group,
Certified Public Accountants. 305-248-5300