A look at common tax considerations for small business owners, with small business expert financial consultants Geni Whitehouse and Jan Haugo
Few business requirements elicit confusion and anxiety quite like taxes. In our ongoing effort to provide insight and advice for small business owners, we sat down with distinguished financial consultants Jan Haugo and Geni Whitehouse to discuss the latest tax considerations and strategies. In this installment, Haugo and Whitehouse reveal the most common mistakes small business owners make as they prepare—or don’t—for their tax obligations.
While there are no universal tax strategies or tactics that will work for every small business, there certainly are rules of thumb. And also common pitfalls to avoid.
Accountant, author, and keynote speaker Geni Whitehouse says the biggest missteps are procrastination and inattention. A large percentage of small businesses, in her estimation, only consider and tackle taxes once a year, in largely reactive fashion. Being more proactive and diligent can uncover additional ways to maximize deductions and minimize tax liability.
“Every business decision, from purchasing new equipment to hiring part-time help, can have tax implications,” says Whitehouse, one of the 100 Most Influential People according to Accounting Today. “That’s why it’s critical to work with a tax specialist on a continual basis and not just once a year. You need to strategize and adjust as things happen, not after the fact.”
Organization and visibility
Good recordkeeping—and the visibility that comes with it—is the key. But many small companies are haphazard with their financials, says Jan Haugo, accountant, small business owner, and former CEO of the Institute of Certified Bookkeepers in the United States. In her experience, it’s not uncommon to find receipts in a shoebox, bills scattered across desks, and electronic documents stored in email folders.
“Many are still using Excel, which is fine when you’re getting a company off the ground, but extremely limiting once the company starts to grow,” says Haugo, one of the Most Powerful Women in Accounting according to CPA Practice Advisor. “Every business needs full visibility of their financials, and it has to be up to date and all in one place. It’s the only way to make sound tax and cash decisions.”
Poor bookkeeping can lead to additional mistakes, she adds. Like intermingling personal and business expenses. Or estimating work-related mileage and costs. Or mishandling cash and non-cash revenue.
“You don’t want to miss out on potential deductions and savings,” says Haugo, “or get flagged by the IRS and face penalties.”
“Audits are painful,” Whitehouse concurs. “Small business owners need to think holistically about their tax liability and plan accordingly.”
Many fail to look beyond income tax, she says, which is another common pitfall. Sales and payroll tax should always be considered, especially when operating facilities, paying workers, or selling products in multiple states. Payroll tax can be particularly challenging, Whitehouse says, with different strategies and tax implications for companies that have employees (W-2 filers), independent contractors (1099 filers), or a mix of the two.
“Most don’t realize that sales and payroll liability can influence income tax liability,” she notes. “They can also trigger an audit if they’re not handled correctly.”
Tools and guidance
To avoid miscalculation and oversight, both Whitehouse and Haugo suggest a combination of software tools and professional guidance.
“Not getting help is one of the biggest mistakes a small business owner can make,” Haugo claims. “Many think they can do it themselves, and just because they can doesn’t mean they should. Estimating payments improperly, missing deductions, and reporting at the wrong time are all too common.
”Platforms like Quickbooks and Freshbooks can help organize and track a company’s financials, providing visibility across accounts payable and receivable, cash and non-cash revenue, and operational workflows. Whitehouse and Haugo also recommend apps (like MileIQ for mileage tracking) and services (like Fundbox for no-hassle lines of credit) that are tailored to small business needs.
Once a company’s financials are consolidated, organized, and up to date, tax advisors can help determine the strategies and tactics that will serve it best.
“At some point, small companies need to act like a real business,” says Haugo. “That means putting systems and processes in place to get a handle on the financials, and seeking help from a tax specialist or financial advisor on a regular basis.”
Perhaps it’s time to reconsider the shoebox filing cabinet.
INFOGRAPHIC: 5 Small business tax mistakes and how to avoid them
About Geni Whitehouse
Geni Whitehouse, CPA, divides her time between working as a winery consultant at Brotemarkle, Davis & Co in the Napa Valley and writing, speaking, tweeting, and posting at EvenANerd.com. She is a co-founder of Solve Services, a remote bookkeeping business for the wine industry, and the author of “How to Make a Boring Subject Interesting: 52 ways even a nerd can be heard,” which is available on Amazon.com. Geni is a regular keynote presenter at CPA and technology conferences around the country, and was curator and inaugural speaker at the TEDxNapaValley event series. She has been named one of the 100 Most Influential People (Accounting Today), a Thought Leader in Accounting (CPA Practice Advisor), and one of the Most Powerful Women in Accounting (CPA Practice Advisor).
About Jan Haugo
Jan Haugo is an accountant, small business owner, and former CEO of the Institute of Certified Bookkeepers in the United States. She founded Jan Haugo & Associates in 2000, which offers bookkeeping and accounting services to small businesses in the Phoenix area. Jan utilizes cloud-based accounting products and technology applications to support her clients and enhance their collaborative workflow environments. Her unique, integrated approach of working with business, banking, and investment specialists helps align the efforts and outcomes of each client’s extended support team. In addition to leading her own firm, she also works with Kansas, MO, firm MarksNelson CPA, where she serves as a supervisor, implementing cloud solutions with their entrepreneurial services division. According to CPA Practice Advisor, Jan is one of the Most Powerful Women in Accounting.