Few taxpayers actually enjoy preparing their tax return, but the processes can be considerably more complex for small business owners. For starters, employers are required to send W-2 tax forms to all employees by the end of this month, and that’s only a fraction of the tax-related tasks that small business owners face. The April 15 tax deadline is only three months away. Is your small business ready?
Michael Raanan worked at the Small Business/Self Employed division Internal Revenue Service for eight years before he launched his own small business, Landmark Tax Group
last year. As a small business owner and a tax expert, Raanan can relate to the many challenges of deciphering the tax regulations that apply to small businesses.
“Realizing the need for competent tax representation, coupled with the personal satisfaction I gained by working with taxpayers, led me to leave the government and start my own professional tax firm where I’ve been helping taxpayers ever since,” he said.
During his tenure at the IRS, Raanan earned his MBA at the University of Phoenix in 2009. Accounting is one of the most common specialties offered by online MBA programs. Raanan said earning his MBA helped him transition between working for the IRS and owning his own business. His education particularly taught him to the ability to multitask and stay organized and focus on customer satisfaction.
“One of the first things you learn in business school is how important it is to keep your customers happy. Customer service and client satisfaction are by far the most important tenets of my firm. As with all new businesses, transitions can be challenging at times, however what keeps me motivated is the positive feedback from taxpayers and clients. Knowing that I’m making a positive difference in people’s lives reinforces the fact that I’m on the right track and inspires me to continue moving in the right direction.”
Raanan shared his tax tips for entrepreneurs launching their own business and preparing for tax season:
Question: What tax challenges do small business owners face?
Raanan: One of the biggest tax challenges faced by many small business owners is not knowing what their federal and state tax obligations are and how to comply with them. Many small business failures are largely attributed to financial strains caused by non-compliance with the tax laws. To address this problem, we educate our clients about their particular tax obligations and encourage all small business owners to learn as much as they can about theirs. In 2013, the new Fiscal Cliff legislation (American Taxpayer Relief Act) will add to the challenges of both small business owners and tax practitioners alike.
Question: What are some common mistakes small business owners make on their taxes?
Raanan: Many small business owners come to me for help with their back taxes. The liability is usually a result of insufficient or lack of estimated tax payments that the taxpayer was required to make. Small business owners fall behind on these taxes during the year with the intent to make it up towards the end of the year or just before filing their tax return. Often times, however, the unpaid estimated taxes are too high to full pay come April 15th, resulting in a balance due on the tax return and an eventual notice or visit from the IRS.
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Question: What happens if you don’t get W-2 forms to your employees on time?
Raanan: The IRS requires every employer engaged in a trade or business to furnish Form W2 to their employees by January 31st of every year. Delays or errors in furnishing Form W2 may result in IRS penalties. It’s important to note that small business owners are ultimately responsible for this requirement, even when using a payroll service provider. An employer may request an extension of time to furnish Form W2 by sending a letter to the IRS before the due date explaining the reason for the delay. Employees who don’t receive Form W2 on time can use Form 4852 “Substitute for Form W2” when filing his or her tax return.
Question: What options do small business owners have when they cannot pay their taxes?
Raanan: Taxpayers in this situation should always pay what they can with their tax return and immediately contact the IRS and inform them of their circumstances. Being proactive and informing the IRS of your intent to full pay the balance over time is the best way to prevent the agency from initiating collection actions. When communicating with the IRS, small business owners can request an installment agreement or offer-in-compromise, where appropriate, which will allow business operations to continue while simultaneously paying off the back taxes. In situations where the tax liability is large or IRS enforcement action has already commenced, we recommend seeking assistance from a qualified tax professional.
Question: What other tax tips or advice can you offer to small business owners or entrepreneurs who are just starting out?
Raanan: The two best moves entrepreneurs can make to ensure the success of their current or future business is to choose a business structure that is most tax favorable for their type of business and to educate themselves on their business’s tax obligations. Staying in tax compliance and off the IRS radar will allow small business owners to focus on the day-to-day operations of their business and give them an advantage over their competitors. A good place to start is the free IRS Publication 583 “Starting a Business and Keeping Records.”
Follow Elise Rambaud Marrion on Twitter @elisermarrion.