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January 17, 2004
Time to think about Taxes
Although it may be too late to take some actions to benefit your tax situation for 2003, this article shows how many activities that already may be going on in your business can still have a positive impact on your 2003 taxes. Just as important, now is the time to start tax planning for 2004. It may be something as simple as a New Year's resolution to keep better or more organized records for your business transactions. Or, it may be a more comprehensive plan that recognizes the interplay between business decisions and their tax implications.
If you do not have one already, create a simple system to keep receipts, records, contracts, and so forth organized. It is tempting to try to short-cut this important process and simply create a system like I've been known to use. Incoming paper starts out in one big pile on my desk. Eventually, I sort the pile into several piles: a file pile, a read pile, and a ?maybe I'll get to this sometime? pile. When I do get around to filing, I have one big file called "expenses" or "taxes". I throw everything in that one file and then sort it all out later, usually when I'm getting panicked about getting ready for tax time. I wise old bookkeeper once told me that your goal should be to only touch a piece of paper once. Create a file for each type of expense, such as business meals or office supplies, and put any receipts or other records directly into that file the first time you touch it.
As tempting as it may be, do not try to do your own tax work for your business. The laws change too fast, you will miss too many opportunities to save taxes, and you expose yourself to too much risk. You can pay your accountant now, or you can pay her much more and maybe the IRS, too, later. Your accountant should not simply be a place to dump all of your records once a year to get sorted out. It is amazing how many decisions have tax implications. Engage your accountant periodically to keep her up to speed on your business. Such proactive tax planning will pay off over the long term by helping your accountant more effectively help you save in taxes as your business grows.
Finally, I have seen more than one entrepreneur whose tax situation had gotten way out of hand. It may have been due to sloppiness, it may have been a result of trying to cut corners, or it may have been ignorance of the importance of taking taxes as seriously as they should have. Whatever the reason, do not wait another minute. Ignoring such a situation will not make it go away. The problem will only grow worse. Sit down with a qualified CPA who works with business clients. As embarrassing or even frightening as it may be, it is critical to proactively get your tax affairs in order. If the situation is bad enough, it may require some negotiation with the IRS to develop a plan to get your business caught up and back on track. It may be financially painful, but the outcome will be far better than what will happen when, not if, the IRS discovers it on their own.
Posted January 17, 2004 12:32 PM
at Belmont University in Nashville, Tennessee. He consults with a variety of businesses on start-up and growth related issues, and with larger corporations on re-establishing entrepreneurial cultures within their organizations. Dr. Cornwall's current research interests include entrepreneurial finance and entrepreneurial ethics. He has authored or co-authored four books.
