When it comes to corporate taxes, most small business owners try to handle them themselves. This is especially true of sole proprietors, who have no employees and therefore are not required to pay payroll taxes; since they know how much money they earned that year, the logic goes, they can calculate their corporate income tax on their own.
This approach makes a lot of sense in theory. After all, the owner knows best what their business did. But when it comes time to file taxes with the IRS for that year (if ‘time’ is even a concept applicable here), more often than not, things don’t work out quite as planned. One reason for this has to do with perception: As you’ll see below, calculating your own corporate taxes can be like looking through a backward mirror. The other significant reason has to do with how the IRS views the world versus how small business owners view it.
This article explains why you should never try to file your own corporate taxes and provides four key reasons for having them done professionally instead.
A Tax Professional Has Credentials and Experience
Since most small business owners see themselves as the experts on their own businesses, they may not understand that a tax professional is an expert—a licensed accountant who has two to three years of experience and advanced education in tax preparation.
To many owners, this means a big difference—experienced CPAs are better able to accurately file corporate taxes than the business owners themselves, whose time would be better spent carrying out day-to-day operations. In addition, most deduction opportunities won’t even occur to the small business owner (who can otherwise get caught up in minutiae). Yet, at the same time, the CPA will find them for you almost automatically.
The expertise and credentials make your life easier; you don’t have to waste precious time learning how to file corporate taxes, which frees you up to concentrate on your business.
A Tax Professional Serves as a Liaison Between You and The IRS
The owner of a small business knows that they have to pay taxes. However, plenty of things can go wrong when filing that leaves many owners confused and worried about how their businesses are assessed, especially if they don’t understand the difference between net income and gross income.
Corporate Taxes Are Handled Differently
Perception is more important than reality when it comes to calculating what you owe in federal income tax on your corporation’s profits. And by perception, I mean just that—what you think happened during the year doesn’t always match what happened. The result? There is a discrepancy between perception (what it feels like) and reality (printing out an official IRS form and filling in the blanks).
One of the biggest issues is that a sole proprietorship does not behave like an incorporated business. As a sole proprietor, you can write off 100% of your business expenses against 100% of your profits. For instance, if you earn $50K profit and pay $10K in expenses, then these are your net earnings:
50,000 – 10,000 = 40,000
You’re feeling pretty good right about now. You earned $40K last year!
A Tax Professional Can Help You Plan and Save on Corporate Taxes
While you want someone who knows their way around the ins and outs of tax laws and can help your business save as much money as possible, remember that those rules are constantly changing. The best thing you can do is be proactive; talk to your CPA well before filing time, so they can help you plan (for example, by offering recommendations for savings on corporate taxes). This will ensure that everyone understands the most effective tax strategies for your business, making paying taxes less painful in the future!