For any business, taxation is an area where there really is almost no room for error. Additional taxes, interest, and penalties are just the tip of the iceberg for making tax-related mistakes. An audit can be a very expensive procedure. Having to put together records before an audit because of poor record keeping practices can lead to an audit -- an expensive procedure that can require countless hours of record-gathering and preparation. Talking to a tax attorney now is critical to your understanding of what the IRS and state tax boards require. Following is a list of ten key reasons to see a business tax attorney for help.
1. TIME. Learning about your various tax obligations and what you must do in order to meet those obligations is time consuming. An attorney can tell you what you need to know, and what you need to do -- when, why, and how.
2. TIME PART II -- IMMEDIACY. Tax obligations and record keeping are not things that you should attempt to learn on the job. You need to have a system in place on the day you start your business. New businesses usually have start-up costs, inventory costs (even if just for things like letterhead and business cards), and at least one employee (it may be just you). The IRS and state taxing agencies care a great deal about your business from day one. You must too!
3. TAX YEAR. Businesses have tax years. Sometimes you can set your own tax year, and sometimes the government makes this decision for you. An attorney can help you choose the appropriate tax year, or will ensure that you comply with government requirements as to your business's tax year.
4. BUSINESS INCOME. Business income may come in many forms. The IRS refers to "gross income" -- which includes goods, property, services, bartering, and income derived from sales. You need to know what the IRS considers "gross income," because failure to report something as "gross income" will lead to additional taxes, interest, and penalties. An attorney can clarify your income reporting responsibilities.
5. STATE TAXES. Many businesses derive income from doing business outside of the state where they are located. It is as important to be aware of the tax obligations of conducting business outside of your home state as it is to be aware of your in-state obligations. An attorney can guide you through this potentially confusing and complex area of taxation.
6. EMPLOYEE TAXES. Even if you have no "employees," you may be required to meet the tax requirements for a self-employed individual, including making quarterly estimated tax payments. Although a sole proprietor may not have to pay business taxes, he or she is usually considered both an employer and an employee, and the tax implications of this dual role can be complicated. Consult an attorney if you are not sure of your responsibilities.
7. BUSINESS FORM. Different business forms have different tax obligations. An attorney can assist you in determining the most advantageous form for your business. Your personal economic situation is one factor to consider in this analysis.
8. BUSINESS DEDUCTIONS. One of the great incentives for starting a business is the availability of business deductions to offset income. However, in order to take advantage of the many available business deductions, you must know what they are and what is required to utilize them. An attorney can help you optimize your deductions.
9. CHANGE, CHANGE, AND CHANGE. Federal and state tax laws and regulations change frequently. You can count on a new Tax Code every year. But during the year, taxing agencies (especially the IRS) issue rulings interpreting the Tax Code on a daily basis. Your attorney follows these rulings and knows how they impact your business.
10. IGNORANCE IS NO EXCUSE. You don't want to be in the position of arguing that you deserve a break from the IRS because you didn't know about a tax obligation, or what was required to meet it. If you win that argument, you will be the first to do so. An attorney will work to make sure you know (and do) what is necessary to satisfy your tax obligations.