Welcome to part 5 of our series on “Making the Tax Cuts and Jobs Act Work for YOUR Business.” We’re looking at survey results from small business owners and showing you how to navigate past any wrong information that’s currently circulating through the financial world…
So you can take full advantage of new tax laws, avoid “tipping” Uncle Sam, and march through tax season with complete confidence.
In the last article, we discussed the question of “How to Maximize Your Deductions with the New 2017 Tax Cuts and Jobs Act.”
Now, we know that fear of an audit keeps a lot of business owners awake at night. So in this article, we’re going to talk about simplifying your business’s compliance with the new tax laws — and how understanding the truth about business tax audits can help you sleep better.
What’s Going On Here?
Quickbooks Payroll surveyed 600 small business owners throughout the U.S at the end of 2018 to find out how they deal with tax season and what they think of the new tax laws.
They found that 44% of business owners don’t make full use of tax deductions (on purpose).
They’re afraid of getting audited.
And most of them think that taking too many deductions will “flag” them for an audit.
Worst of all, many of them get that kind of shoddy advice from their own CPAs. In our minds, that’s equivalent to financial malpractice.
Still, we get it. Audits are intimidating.
Add to that the ambiguity with many provisions in the 2017 Tax Cuts & Jobs Act that won’t be worked out for another 2-3 years — and the worry of triggering a tax audit by being “too aggressive” only escalates.
The Truth About “Conservative” Tax advice
But this fact remains: If you’re being “conservative” with your tax deductions, you’re almost certainly overpaying your taxes.
That doesn’t mean we advocate shady tactics. Far from it. There’s a huge difference between legal tax avoidance and illegal tax evasion.
We’re not looking to ignore the laws. We just feel it’s every business owner’s right to use the existing tax laws to their fullest advantage.
And the proper way to combat fearful, conservative tax planning is not to be “aggressive.”
Instead, it means that you approach your tax-saving game-plan with:
- Superior knowledge of the tax laws
- Tax-reduction strategies tailored to your situation, and
- A tax team with the ability to execute those strategies
Using this very system, we’ve helped 93% of our clients recover an average of $11,283 per year in taxes they would have otherwise overpaid.
And yes, some of these folks have been audited (because every business owner will eventually be audited at some point).
But almost every single one was able to breeze through their audits, usually without ever having to talk to the auditor. And without owing any more money. That’s the power of having a tax team.
The Truth About Business Tax Audits
The IRS has a mandated mission to audit every single business at least once in its lifetime.
So if you stay in business for any length of time, there’s a 100% chance that you will be audited at some point.
The key is to be prepared for an audit every year with great strategies, proper documentation, and an awesome tax team.
How to Ensure You’re Compliant and Safe in Case of an Audit
When you have a strong tax team, you have nothing to fear in case of an audit.
Your CPA or tax attorney will be the only one communicating with the IRS, so you won’t be grilled in some back-room by an intense auditor looking to “take you to the bank.”
Here are the 3 keys that will help you and your tax team breeze through an audit:
- Thoroughly understand the tax laws and how they apply to your business
- Stay updated on all the major changes to tax legislature
- Properly document your deductions
- Create a legitimate narrative for why the deductions you take and tax strategies you use in your business are reasonable and allowable according to the law…
If your tax team has these qualities, then you’re covered.
Here’s What to Do If Your Tax Team Isn’t As Strong As You’d Like
If you’re not confident your tax team has these qualities, it’s time to start asking some tough questions.
Here are just a small sampling of questions to ask your current CPA or tax-preparer:
- “How often do you recommend we meet?” Right answer: More than once, and outside of tax season.
- “Does it ever make sense to not take a deduction because it might trigger an audit?” Right answer: You should always take every deduction you’re entitled to and they’ll handle any audit that comes. If THEY’RE afraid of an audit, do you really want them defending you?.
- “Are you conservative and what does that mean?” Right answer: They’re neither conservative nor aggressive, they simply use the tax law to legitimately lower taxes as much as possible.
- “When should I start planning for my business exit, tax-wise?” Right answer: Now.
- “What are some of the unique ideas that you have brought to other clients tax-wise?” You’re looking for creative
A good team will use these tough questions to improve their knowledge and skills. Consider it a serious red flag if your team makes excuses or downplays their inability to save you more on taxes.
Remember, CPAs and tax professionals are no different than any other job or skill. There are good ones and bad ones. Some are more competent with certain kinds of businesses and not others.
We find that many small business owners actually out-grow their CPA at some point. Their tax situation becomes more complex and needs strategies that are more advanced or tailored to their unique situation.
So don’t be afraid to hold your tax professionals accountable and ask tough questions. Remember — it’s your money. You want to keep more of it. But you also want to have the best representation possible in an audit.
The key is having a great team.
Your Next Steps
This article marks the completion of our series on “Making the Tax Cuts and Jobs Act Work For You.”
Here are your next steps:
- Review all the Tax Articles in this series in our article directory for more tax-saving ideas.
- Check out the free “3×3 Tax Strategy” presentation while it’s available for the next few days.
- Grab the 2019 Tax-Cut Package at a 86% discount which includes a 3-year tax review by our in-house Accredited network CPA firm. This massive discount is only available until Monday, March 11, 2019.
That’s it for this week.
Build the life you love,
The Builders at Wealth Factory