“Can I ask you a quick question…” If these aren’t the most dreaded words to a tax accountant, they are near the top of the list. The problem with the quick question is that it leads to follow up questions and more follow up questions. Even after the client is satisfied with an answer, I can find myself falling down the rabbit hole of the tax code in search of the obscure and interesting. When in doubt the tax accountant default answer “It depends” reigns supreme. But I digress, below are some of the more common questions that I run across.
1.) How much do you charge?
I will give you the universal tax accountant answer, “it depends.”
2.) How long should I keep my records?
Answer: Generally speaking you should keep your records a minimum of 3 years, but I would encourage you to keep records for 7-10 years.
3.) When do I need to get an accountant/bookkeeper?
Answer: I like to use the analogy of when you should you see your doctor? Do you want to wait until you have a heart attack? Or get professional guidance on how to stay healthy and prevent the heart attack all together? Also, accounting can be time consuming, difficult and stressful. Your time and energy can be better spent growing your business.
4.) What can I write off for business expenses?
Answer: The guidance that the IRS gives with regards to business expenses is that the expense should be “ordinary and necessary.” Is the expense ordinary to the industry that you are in? Is the expense necessary to run your business?
5.) How do I avoid an audit?
Answer: The latest report on IRS audits show that audits are at an all time low, just at or below 1%. Does this mean that you can go crazy and write everything off? Of course not, but it does suggest that your return being audited is very unlikely. In all honestly, as long as you do not lie, cheat or steal it is very unlikely that you will get audited…but if you do as long as you have your documents and a business purpose to your expenses an audit can be pretty uneventful.
6.) How do I increase my refund?
Answer: First, I would like to point out that a refund is in large part the result of overpayment on your part. Periodic review of your withholding and/or estimated payments can ensure that you are not overpaying. Once your withholding is correct you want to focus on credits, deductions, and adjustments to lower your tax, and possibly receive money back from refundable credits.
7.) Why do I pay so much in taxes?
Answer: The IRS tax code is approximately 70,000 pages, and of that less than 20 are dedicated to levying tax. The remaining 69,900+ pages detail how to get out of paying taxes! Taxes can be reduced significantly with proper planning and some creativity.
8.) Who can I claim as a dependent?
Answer: The 2017 Tax Cuts and Jobs act eliminated the personal exemption. In its place, the child tax credit was increased to $2,000 for each qualifying child and a new $500 credit was added for “other dependents.” Generally speaking, dependents are usually children or family members that live in your household of which you provide support for.
9.) Can I file an extension if I can’t pay my taxes?
Answer: Extensions are an extension to file not an extension to pay. Federal income taxes are a “pay as you earn” tax meaning that in a perfect world you are paying taxes throughout the year as you earn your income, think of taxes being withheld from a paycheck for a wage earner. Self employed taxpayers are required to pay quarterly estimated tax payments on April 15th, June 15th, Sept. 15th and January 15th. In the real world sometimes, that doesn’t happen and you are left with a tax liability on April 15th. If you cannot pay the full amount, pay as much as you can, and check on payment plan options. The worst thing to do is not file and not pay.
10.) I got a call from someone who said that they were the IRS and they would arrest me if I didn’t pay immediately!?
Answer: This is a SCAM! The IRS will not call you without first sending a notice.
11.) Should my small business be an LLC?
Answer: While there isn’t a one size fits all approach to small business, an LLC may be as close as it gets. An LLC, Limited Liability Company is a legal structure that helps create some separation from you as a personally and your business, sometimes referred to as a corporate veil. This can protect you personally from liability/lawsuit against your business. More than just liability protection, and LLC allows business owners flexibility to treat their business as any of the following: sole proprietor, partnership, S. Corporation or C. Corporation etc. when if comes to their tax filing.
12.) When will I get my refund?
Answer: In an attempt to curb fraudulent returns and ID theft the IRS has implemented some safe guards to prevent/detect fraud. These safeguards cause some delay in processing of your returns/refunds but you can typically expect your refund within 21 days.
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