Small Business Taxes: What’s the #1 Reason You Pay Too Much Tax?

What is the number one reason you pay too much tax? Let’s brainstorm. We all pay too much tax because:

1) Our elected politicians created the complicated and convoluted monster known as the United States Tax Code, and this monster takes our money.

2) Public Enemy #1 (The IRS) takes our money.

3) Tax preparers are too busy preparing tax returns to help us take advantage of all the complicated and convoluted tax loopholes, leaving us to fight a losing battle against The Monster and his evil watchdog, the IRS.

What do you think? are we on the right track?

I’d like to suggest one more reason, and it’s really the only factor you and I have complete control over: accounting.

There is not much we can do about reasons #1 and #2. And there is a limit to how much we can do about Reason #3. But there’s a lot we can do to keep better tax records, and this, more than anything else, is the number one reason why small business owners and the self-employed pay more taxes than necessary.

Let me prove it to you by asking you this question: How did your business do last year? (By “business” I mean any type of small or home-based business, full-time or part-time, including the self-employment activities of the typical sole proprietor.) Did you make a profit or a loss? Do you even know if you made a profit or a loss?

If I were to call you on the phone right now and ask you how much profit (or loss) you made in your business last year, at least 5 out of 10 people would have no idea. If I asked you right now to tell me how much profit (or loss) you made last month, I know for a fact that 9 out of 10 you couldn’t tell me.

And chances are, when it comes time to file taxes each year, you won’t even know how much profit you made last year for at least a month or two, after spending days and countless stressful hours trying to fix your nightmare of registry mantenance.

I deal with this scenario regularly: the typical small business owner or self-employed person is stressed about taxes because their records are in shambles. You know what I’m talking about, don’t you? Receipts scattered in five places, and you long ago forgot what they were for. Hand-scribbled notes on your day timer. A checkbook. Twelve months of receipts from three different credit cards.

And now you need to figure out how to put it all together in the next few weeks so you can prepare your own return or give it all to your accountant without having them laugh in your face because of the total mess your records are in.

And most people wouldn’t even think about what would happen if the IRS asked for an audit. The IRS would laugh all the way to the bank for the record keeping mess they find.

Most self-employed people use a variation of the “shoebox” method: They throw all their receipts, canceled checks, bank deposit slips, and anything else related to the business into a box and then, in March or April, they throw it away and try it. to find out what the heck was what, for about 5 days straight. Is this a way to run a business?

Isn’t it time you got organized? And the easiest way to do that is to automate your accounting. You are using a computer right now, correct? Then do yourself a favor and ditch any manual accounting system you’ve used before and start keeping records on the computer.

There are several good programs on the market: Quicken and Quickbooks are the best known. If you have little or no accounting experience, give Quicken a try. Quickbooks is for those with an accounting background.

If you’re self-employed or have a small business and keep the books yourself, Quicken is the program for you. Nothing fancy or confusing. Fairly easy to learn. You’ll save hours with this program, and when you’re done, you’ll have all the information you need to file your taxes. If you take your “tax stuff” to an accountant, he’ll love you for using it.

Not only will tax time be much easier, but you’ll finally know how your business is doing at any time during the year. No more guessing about the end result.

Never forget this simple fact: most people pay more in taxes than they should. And the #1 reason is unreported deductions. When your record-keeping system is messy, you end up paying hundreds and even thousands of dollars in taxes that you shouldn’t have paid.

With a program like Quicken, it will take you a fraction of the time to organize everything. And because it’s designed specifically for home and small business owners like you, it’s easy to start saving time and money.