April 15th may be gone but, but certainly not forgotten--especially if, like millions of businesses, you unknowingly overpaid your businesses' federal taxes and can recover money by filing an amended return.
According to the IRS tax code, you have three years from the filing date for the tax year in question to file an amended return. For example, if returns for the 2003 tax year were filed on March 1, 2004, the taxpayer has until March 1, 2007 to file an amended return. This same role also applies if the taxpayer feels they have made errors resulting in a balance.
Reasons Businesses Overpay
Most businesses either prepare their business taxes themselves or have a tax preparer or accountant do them. With either method, the tax liability can be calculated as higher than it actually is because of missed deductions, unrecognized changes in tax laws or just plain being given bad advice.
For small businesses especially, there are a number of applicable deductions which many tax preparers often miss from home office deductions to self-employed health insurance to personal assets converted to business use (see Top Ten Most Often Missed Business Tax Deductions). Although some deductions may seem minor, over an entire year, they can add up to thousands of dollars.
Another area, which causes many business owners to overpay, is being given incorrect advice by their tax preparer or even the IRS directly. In a poll performed by Money magazine, the average tax preparer produces an average of 480 returns between February 1 and April 15, making it difficult for each return to get the time and attention it deserves. This same poll also found there was an average discrepancy of 300 percent between what the tax preparers said was due and what was actually due.
Furthermore, in the IRS's 2001 assessment of their own call centers, they found that 50 percent of the time, their representatives gave incorrect or insufficient advice. Whether a business owner does their own taxes and had to call the IRS for clarification on an issue or the business's taxes were handled by a CPA, odds are the answer was not correct.
U.S. tax laws are among the most complex in the world. Plus, tax laws change every year and have changed tremendously in the last couple of years. Even the best tax preparer can easily make a mistake.
Addressing a Need
Over the last few years, numerous new tax franchises have emerged that provide tax preparation services for consumers. In addition, there are many non-franchised accounting and tax firms dedicated to the needs of large corporations. This has created a gap in the marketplace, leaving the smaller business owner without experienced tax professionals to address their unique needs.
Why is it that when faced with a life-threatening surgery a second opinion is immediately sought after but, when trusting thousands or millions of dollars to an individual or entity, it's done without question? Businesses should get a second opinion, whether it is done before or after the return is filed, to ensure they are not overpaying or simply to ensure their returns are accurate in all aspects. If not, they could be leaving thousands of dollars on the table.
TOP TEN Most Often Missed Business Tax Deductions (Listed in no particular order)
1. Home office deductions--if a taxpayer runs a home office he is entitled to deduct expenses for the percentage of square footage the home office is occupying. Expenses include the combined total of mortgage interest, property taxes, utilities, repairs, and other related items.
2. General business expenses--Often, business owners will use their personal money or property for business expenses and will fail to deduct it.
3. Imputed interest on corporate shareholder loans--If a shareholder loans money to his corporation he is required to charge interest on it. The shareholder would be required to report the interest as income on his personal return, but the deduction on the corporate return can be used to reduce wages resulting in a refund of Social Security and Medicare taxes.
4. Meals/entertainment expenses--Similar to the general business expenses deduction, many times business owners will use personal money to pay for meals or entertainment expenses.
5. Personal assets converted to business use--in many cases when a person starts a business, he uses personal assets to get the business going. The lair market value of these converted assets can be a business deduction starting with the date of conversion.
6. Self-employed health insurance--As of the 2002 tax year, those who are self-employed are entitled to deduct 70 percent of their health insurance premiums.
7. Company entertainment--Company holiday parties, barbecues or other forms of entertainment are often paid for with personal funds and are not accounted for or reimbursed.
8. Communications expenses--Anytime a personal cell, telephone or Internet connection is used for business use, that is an additional deductible expense, which is often missed.
9. Fuel tax credit--Fuel that a business uses for off-highway equipment or machinery is entitled to a fuel tax credit. For example, if a landscaping company purchases fuel to power its lawnmowers or other equipment; it is entitled to a credit.
10. Automobile expenses--Often, personal vehicles are used for business use but the individual will fail to deduct for mileage and other related automobile expenses.
Darren Oliver is the chairman and COO of Tax Recovery Systems. He can be reached at 800-714-3504.
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