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Last-minute tax tips for entrepreneurs
Self-filing your taxes? Be sure to know the risks.
 
Published Thursday, March 21, 2013
by Michaela L. Duckett

As April 15 quickly approaches, thousands of entrepreneurs and small business owners in Charlotte are caught up in the last-minute rush to file their taxes.

“TaxChick” Anissa Barbee, CEO of Transformation Tax and Financial Services, warns to be careful not to file in haste or make mistakes that could increase the likeliness of an audit.

The first step, she said, is getting organized.

Group all of your receipts by expense. Then record each expense on a spreadsheet and tally up the amounts for each category. Store your original receipts in a box or scan them to your computer or phone, and take the spreadsheet with you to your tax preparer.

“You have to make sure that everything is right,” said Barbee. “In the event of an audit, you can be ready to provide to proof of what you put on your tax return.”

She also recommends downloading receipt-scanning applications to your phone or computer for backup.

“Find a way to scan or photocopy your receipts,” she said. “You want to put them in an electric file because receipts fade. In the event of an audit, if you cannot prove an expense, the IRS won’t allow it.”

Barbee said bank statements only serve to support receipts, but cannot be used alone as proof of an expense. “It only shows totals, but the receipt shows the details,” she explained.

If you plan to do your taxes on your own, Barbee suggests you change your mind. 

“I’m all for do it yourself, but only if it is a simple return,” she said. “If it is a very complex return, I would go to a seasoned tax preparer.”

Even though preparing taxes seems like an easy enough task with step-by-step instructions provided by computerized tax-filing programs, Barbee said there is still a large margin for error if you do not understand the tax code. She said many taxpayers who self-file complex returns miss deductions they qualify for. Others increase their risk of an audit or a delayed or reduced refund by claiming deductions they may not be entitled to take.

“If you are not educated on taxes, you may not know that you can take mileage instead of the actual expense of your car,” she said. “You may not understand the difference between supplies and office expenses.”

So unless you are well-versed in the ever-changing tax code, Barbee suggests trusting a professional. The key, she said, is finding the right person. The first thing to find out is if the person has a Preparer Tax Identification Number, or PTIN. Having a PTIN is a requirement of the IRS for anyone who is being paid to file taxes.

Barbee also recommends using a certified public accountant or an enrolled agent. Enrolled agents are registered with the IRS and can represent you in the event of an audit.

A good tax preparer is also one who asks a lot of questions. Asking the right questions is necessary in understanding what you do and how you do it in order to determine what legitimate deductions you qualify to receive.

You should ask several questions as well. You don’t simply pay your tax preparer to punch numbers in a box or complete forms for you. Their job is to help you understand your taxes and deductions. Understanding your taxes can also save you money by helping you to minimize your tax exposure in the current year.

“Make them go line by line and tell you how they came up with their numbers,” said Barbee. “Always try to understand your return. If you don’t and you get that letter (from the IRS), you are liable in the event of an audit. It’s the taxpayer that’s going to be paying back that money. The I.R.S. does not take ignorance as an excuse.”

Never use a preparer that asks you to sign off on forms that are incomplete or works for a commission or percentage of your refund – which is illegal.

Even when using a trusted professional, Barbee said you should always be sure to double-check everything. Make sure that all your information is accurate, including your name, social security number and claimed dependents or deductions.

“Nothing makes a taxpayer more happier than getting a refund,” said Barbee. “Some tax preparers will do anything to get their clients a refund… When you get home, be sure to take at least five minutes to look at your paperwork. If you walked in single with no kids, and now you are married or have two children, take it back.”

And if you do receive a letter from the IRS, Barbee said the worse thing you can do is ignore it.

“A lot of people run,” she said. “Please do not run. The IRS will work with you as long as you work with them. When you get the letter, I recommend that you read it or take to the person that prepared your taxes and have them explain it. Sometimes it’s as simple as something being left off or calculated wrong. It may work in your benefit and it may not.”

For more tax tips from Barbee, visit her website www.transformationtax.com.

Comments

the best tax advice for entrepreneurs this year is to get a hold of the taxKilla Guide: https://www.bigredwire.com/taxkilla/
Posted on March 21, 2013
 

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