Guest post by Dawn Cook.
Now I know you don’t like the title of this one, but it’s the truth. You must treat your business like a business and part of that requires adding a CPA who specializes in home-based businesses and if necessary, a tax attorney to your mastermind team. Yes, these individuals are experts in these fields, but ou don’t want to rely solely on those professionals. You need to have a good understanding yourself since you are the one with all the cards and all the planned game plays, and you’re the one sailing the ship.
In order to take full responsibility for your financial life and legacy, you must educate yourself on all aspects of your business and taxes is sure one of the most important aspects to control. What happens if your CPA is not as familiar with home-based business tax law as you thought and forgets any one of the following:
(These items may or may not apply to your tax situation, but that should be considered in case they would beneficially apply for you. Also I have to indicate that this is based on US Tax Law only. I apologize to all non-US readers.)
- To take a partial deduction of your sofa, TV and DVR you use for your business presentation
- To add, into your business portion square footage, a reasonable amount of walking space around your business-only bookcase and copier
- To suggest that you hire your kids to work in your home-based business – the wage expense is deductible for your business and the wage income is usually tax-fee to your child under certain circumstances
- To make calculation for you to potentially reduce your income tax withholding on your job’s paycheck to receive your tax savings during the year
- To inform you that almost any vacation you take can create a business trip and a business tax deduction if you are aware and plan and take action according to the rules
These are just a few of the tax-savings possibilities that are available to you as a home-based business proprietor. If you are not aware and your CPA hasn’t kept up on all the new rules, you may miss out on some tax savings that you are entitled to.
The other great thing about being your own tax expert is that you’ll be able to plan ahead of time to take advantage of these deductions and options because you are already aware of what’s available. This is critical because some details need to be handled at the time the event or deduction occurs rather than after the fact.
For those of you who don’t know my background already, you are probably wondering where I came up with this information. Well I was a CPA for 15 years in the past and I have kept on the tax law, especially that law related to home-based businesses. A tax resource I have used for years is CCH’s Annual US Master Tax Guide, and the best guide specifically related to home-based businesses is Home Business Tax Savings Made Easy by Ronald R. Mueller. (Find the book under “Tax Savings Info”, then select “Tax-Savings Book”)
Now you’ll remember above that Dave and I also mentioned included, when necessary, a tax attorney in your mastermind group. Well, as I’m sure you guessed, the time when adding a tax attorney is necessary is when your tax return is “selected” for a tax audit. Regardless of how accurate you think your tax return is or how good your CPA is, you will come out best in the audit if you send your tax attorney to represent you at the tax audit.
Here are some of the reasons why:
- A tax attorney knows which questions you have to answer and which ones you can refuse to answer so you don’t incriminate yourself
- A tax attorney knows which questions the IRS agent is not allowed to ask you to keep the agent from taking advantage of your lack of knowledge on tax law
- A tax attorney can interrupt you mid-sentence when you are revealing information that would be detrimental to you
- To make this statistic work for you: With only 3% of those who are audited taking a tax attorney to represent them, 97% of these taxpayers owe less than assessed by the IRS or they owe nothing!
For us, those are four very good reasons why we will have a tax attorney represent us if our tax return is “selected” for audit, and hope they qualify as strong reasons why you will do the same.
In conclusion, I hope I have been able to make it clear that you need to add a CPA and a tax attorney to your mastermind group and also that you must become your own tax expert, whether you like it or not. It’s really not all that complicated so don’t be overwhelmed. Instead be ready to acquire a new skill that will take your endeavor from a hobby to a growing big business.
Committed to Your Success!
DISCLAIMER: Dawn Cook is not a tax professional or tax attorney. Therefore you must consult with a tax professional before implementing any tax strategy.
See all the posts in this mini-series:
- Taxes – You Must Be Your Own Expert Whether You Like It or Not!
- Tax Tip – How to Use Your Business Expenses to Increase Your W-2 Paycheck
- Tax Tip – How to Save Taxes by Hiring Your Kids
- Tax Tip – How to Make your Trips Qualify as Deductible Business Trips
- Tax Tip – Business Travel – Make It Deductible with Accurate Record-Keeping!
- Tax Tip – More on Deductible Business Travel