How to Keep More of Your Money This Tax Season

It’s one of the most important – and one of the most dreaded – times of the year: Tax season can be stressful and complicated for anyone; for entrepreneurs, it tends to be even more so. And you’re not alone: Some 40% of business owners name tax preparation as the worst part of owning a business. But with the right tools and knowledge, you can survive tax season with flying colors – and, with the following tips in mind, you can keep more of your money while doing so.

Beware of phishing and other predators.

This tax season, we have seen a significant increase in warnings from the IRS regarding phishing emails and phony calls to taxpayers demanding money.

Last year saw a major increase in identity theft and the filing of false tax returns. The Federal Trade Commission “tracked a nearly 50% increase in identity theft complaints in 2015, and [stated] that by far the biggest contributor to that spike was tax refund fraud[, which] occurs when criminals use your personal information and file a tax refund request with the IRS in your name. Victims usually first learn of the crime after having their returns rejected because scammers beat them to it.”

The most effective way to prevent and deal with phishing emails, phone scams, and identity theft is to hire a trusted, reputable CPA/accounting firm to handle your taxes. Tax professionals know what to look for and how to identify potential fraud, and they are in a much better position than most of us to (a) deal with it when it occurs, and more importantly, to protect you against it in the first place. Also note that the IRS does not initiate contact through any type of electronic communications like social media, text messages, or email.

Hire a tax professional.

A tax professional can do much more than help guard against and deal with fraud and identity theft, however. In fact, as an entrepreneur leaving your taxes to a trusted professional is one of the biggest favors you can do for yourself and your business. We recommend having them handle both your personal and business taxes; “discussing your personal taxes and helping [your accountant] understand that connection to your business taxes is going to help you gain a strategic planning partner. [T]hey’re going to know all the applicable laws, regulations, and proper deductions. That will save you money on deductions and, if applicable, tax refunds, but will also prevent you from making incorrect deductions and costly mistakes.” A tax professional can also help itemize and categorize your expenses so as to ensure the most advantageous tax treatment.

Think ahead to the next tax year(s).

We may all breathe a collective sigh of relief once each tax season closes, but for business owners, it is crucial to be able to look ahead to the coming tax years and plan effectively for the future. This is another area where hiring an accountant or other tax professional can save you a massive amount of time, money, and stress; you can focus on running your business while they focus on, for example, upcoming changes in the laws and tax code that may affect you next tax season. One example of this is the Protecting Americans from Tax Hikes Act, or PATH, which was passed and signed into law in December 2015, and which may provide significant tax relief for the 2016 tax year for equipment and software purchases. The bill expanded the Section 179 deduction limit to $500,000, meaning businesses that purchase equipment up to $2 million can deduct $500,000 of the cost of the equipment in the first year. Additionally, 50% bonus depreciation has been extended through 2019; as a result, businesses of all sizes will be allowed to depreciate 50% of the cost of equipment acquired and put into service during 2015, 2016, and 2017. They then will be able to depreciate 40% of the cost in 2018, and 30% of the cost in 2019.  Check out this calculator to grasp the power of this deduction. Keep in mind that all tax situations are unique and it’s important to talk to a tax professional before making any tax-related decisions.

Another critical reason to plan ahead to future tax years relates to the sale of your business. A large majority of our clients are entrepreneurs who have spent years building and running their businesses, and now want to sell or liquidate. Because of the huge tax implications inherent to a sale or liquidation, it is vital to start planning for such an event at least three to five years in advance. Here, too, hiring an experienced and reputable professional will arm you with the knowledge and preparations to make a liquidity event (not to mention post-event asset management) as seamless and stress-free as possible.