Nestled here between winter and spring, tax season is swiftly blowing through. As humorist Dave Barry once said, “It’s time again to gather up those receipts, get out those tax forms, sharpen up that pencil, and stab yourself in the aorta.” And it’s no wonder that filing taxes seems daunting, confusing, and painful to most of us. Today’s tax forms have become forty times longer and more complicated since 1940!
Luckily, the internet puts a cascade of information about “how to avoid a tax audit,” “small business tax deductions,” and “what tax forms to file” at your fingertips. And although we’re not experts, we just couldn’t resist scouring the web for some tax tips and trivia to help your filing go smoothly this year.
Any guesses on the most repeated tax tip out there? Find a good tax accountant. Professional tax preparation services will likely save you time and money on your small business tax filings. About 2 million Americans overpay on their personal taxes each year because they don’t know about all of the deductions they could claim. But a tax accountant will work to maximize your business deductions, any expenses that are “ordinary and necessary” for your business. Just be sure to arrive prepared with organized records that document all of your legitimate business expenses. A shoe box filled with receipts likely won’t cut it. Only detailed records will substantiate your claims in the unlikely case of an audit.
Finding a tax accountant should be an easy process; there are more than 1.3 million accountants employed in the United States. To put that in perspective, there are more accountants than there are enlisted soldiers in the U.S. Army, including Active, Reserve and National Guard personnel, which totals 1.1 million. A quick Google search for “tax preparation” will undoubtedly point you to a local office; just make sure to do a little research to find someone who is familiar with your industry and business.
A good accountant may not be cheap. According to a 2006 report by the Tax Foundation, compliance costs for individuals and corporations exceeded $265 billion and 6.5 billion hours in 2005. Businesses bear a brunt of these costs, over 50% of them in fact. Individuals spend over $111 billion annually on tax preparation services, which averages to about $1,000 spent per family every single year. But the cost will likely be worth it, especially if your accountant can save you a substantial amount on your taxes.
The other alternative is mastering the U.S. Tax Code yourself, an undertaking certainly not for the faint of heart. According to independent research from Taxpayer’s Advocacy Service, the tax code contained 3.8 million words in February 2010, nearly triple that of the code in 1975! If you’re looking to tackle this beast, Amazon.com sells the Internal Revenue Code for just $125. With over 5,000 pages and a final weigh in of 9.8 pounds, I’ll suggest purchasing the e-book version!
The IRS employs 106,000 individuals to review and audit tax returns. That’s almost twice as many people as the FBI and CIA employ combined!
Photo used under Creative Commons License, courtesy 401K.