Nothing is certain but death and taxes. — Benjamin Franklin
Well, death, taxes, and endless spreadsheets, Ben…but you couldn’t have foreseen that last bit.
We’re used to talking taxes here at Far West Capital. As it turns out, many of us are not perfect accountants.
“About a quarter of the businesses we see have some kind of tax problem, and the majority are in the area of payroll, or 941s,” says John Center, Vice President of Far West Capital.
The IRS is the best lender in the world—for the first 90 days. They don’t come knocking, and that’s one of the biggest surprises to business owners. There are no initial consequences, and that’s a good-bad surprise.
John has seen many folks take advantage of what they see as an unexpected window of opportunity and use the money they’ve set aside for taxes to float business expenses. Then, when the IRS does want their money, says John, that’s when the trouble starts.
Here are some things you can do to make the tax process easier for you and your business.
I’m just starting my business. How does this work?
First, you need to incorporate. How you incorporate depends on your business type, your goals, how many employees you conceivably might have, and how you envision paying yourself. Here’s a good starter guide.
How do I figure out how this works if I can’t afford an accountant?
One great option: attend an IRS-run small business tax seminar or workshop in your area.
Many banks and credit unions offer free seminars for small business owners, and local Small Business Administration (SBA) Chapters offer counseling and mentoring. The AARP also offers free tax help to anyone over 50 through the AARP Foundation Tax Aide program.
Once you’ve got the funds, hiring a CPA is always the way to go. Not sure how to find one? Look for recommendations from colleagues, local or national industry associations or SCORE, a source of free business education and mentoring.
Are there any special rules for my industry?
Yes. Many industries come with their own tax particulars.
- Trucking operators are subject to the Heavy Highway Vehicle Use Tax. They must file a Form 2290 and may need to display an International Fuel Tax Agreement (IFTA) decal.
- Construction companies may be on the hook for federal excise taxes or have special deductions.
- Staffing companies pay higher 941s, or payroll taxes, and liability insurance than most industries.
- Manufacturing companies need to pay attention to excise taxes and inventory and may have deductions for environmental cleanup or research and development costs.
- Fuel distributors may be subject to a number of specialized taxable events, depending on fuel type and use. They may need to file a Form 720. Biofuel wholesalers may need to file a Form 6478.
How do I know when tax laws change?
Congress enacts new laws. Administrations change. Courts make decisions. Flux happens on the state and local level, too. Sometimes, you’ll see those changes reflected in your taxes in the form of new penalties, caps, limits, allowances, deadlines, and cuts. CPAs make it their business to keep up with changes in tax law. A good one will help make sure you dot your i’s and cross your t’s.
But even without a CPA, there’s lots of ways to stay informed. The IRS also updates its income tax guide, Publication 17, yearly. If you have employees, use Publication 15 to keep up on your tax responsibilities as an employer. Both these can be found in the IRS’s current Forms & Publications index. The IRS also publishes regular updates in their Internal Revenue Bulletins and sends out the latest tax news and helpful info via the IRS Newswire. These sources require time to comb through, but they’re all available free of charge. Your industry association or trade publication may offer resources, as well.
I have to manage payroll. What do I need to do to stay in compliance?
Whether or not you’re using a CPA or bookkeeper, consider using a payroll company — this is a cost that definitely pays for itself.
“If you’re small or have just a few employees, payroll tax compliance isn’t your first priority,” says Center. But it is for a good payroll company.
“They’re definitely worth the expense,” he says. “In the long scheme, it’s not much money and it can prevent problems in the future.” ADP is a major payroll player, says Center, but ask colleagues or other small business resources for personal recommendations. Go for big, reputable companies, search for their ratings and ask around. (We’re happy to provide recommendations — just ask.)
At Far West Capital, we’re not accountants, but we do help our clients stay on top of their tax obligations. Sometimes, we’re the ones picking up the pieces, keeping one tax mistake from derailing a great company. We’ve dealt with plenty of liens and penalties, and while they’re no fun, tax issues can be overcome — as long as a client is willing to admit the mistake and commit to better practices moving forward.
“Some of our staff have been doing this for over 30 years. We know what to look for,” Center says.
At the end of the day, it’s our job to be trusted advisors, to help prevent and solve challenges and keep you ahead of the curve.
Far West Capital is in the business of funding the goals of high-growth entrepreneurs. Know a great company in need of capital to unleash their potential? Send them here and we’ll give them a call.