Six Reasons Entrepreneurs NEVER Earn ALL the Tax Credits They are ENTITLED to (AND THEY SHOULD!)
Written by David Wilson
Small and midsize businesses are directly responsible for keeping the US economy running and moving forward. Every year. Every month. EVERY DAY! Further, when we as consumers buy local and support small and midsize businesses, we are helping to pay mortgages, put kids through school, and feed families. Thank you!
And while running a successful business is infinitely rewarding, it comes with some burdensome (and, sometimes expensive) challenges--time management, employee issues, work-life balance, stress (I wrote an article awhile back about the benefits of yoga for entrepreneurs). One obvious omission from the shortlist above is THE BIG ONE (pun intended)--paying taxes.
Many times, tax burns up to half (or more) of earnings! That’s quite a hit! Because of that, every business owner of any size should have SOME strategy in place to mitigate tax liability. Many owners work in conjunction with their accountant or CPA. Many do not. And as a result, most business owners NEVER earn ALL credits they are ENTITLED to. That’s right, I said ENTITLED TO! Here are the top 6 misconceptions entrepreneurs and business owners have that get in the way of the flood of credits:
1 / “My company won’t qualify for any tax credits.”
Most business owners have a general idea about what tax credits are available. However, it is impossible to be an expert on all the many nuances of federal, state and local tax code. Some owners think their company doesn't DO anything to qualify. Many times, making, improving, creating, starting, building, manufacturing, hiring, bending, molding (you get the idea) SOMETHING, opens up credit possibilities. Every year, potential opportunity passes to mitigate tax liability and not cut one (or two or more) quarterly tax checks.
2 / “My CPA handles all of that stuff.”
Great. Most CPAs do a fantastic job with their clients identifying tax credit and business planning opportunities. However, because there is so much to comb through each and every year (code, changes in code, deletions of code), most CPAs would be more than happy to outsource this area of their business to add value to the service they provide to their clients. Similar to medicine, a second opinion from a specialist almost ALWAYS helps in the long run.
3 / “My company is way too small.”
Small and midsize companies are often the one’s that can most benefit from reducing expenses and discovering tax credits—sometimes more than the super large conglomerates. It is important to choose a partner who’ll work with you personally and without obligation to identify areas of opportunity BEFORE any work is done and BEFORE any checks are cut (pay for performance).
4 / “I already owe the IR$ too much in taxes.”
This is a great reason you should be seeking to mitigate that liability as soon as possible. Many credits offer an opportunity to qualify and receive a retroactive benefit many years back. There goes your tax bill (perhaps). What do you have to lose?
5 / “I’m busy enough. It’s too much work to gather all that stuff.”
Most information required to begin the tax credit qualification process is gathered from a CPA or accountant, a controller, or from each employee/new hire. It is usually not that burdensome an endeavor. After all, the qualifying credit (or credits) make the fact finding process well worth the time and effort.
6 / “It costs too much upfront that I just don’t have to spare.”
There are firms that charge small and midsize businesses upfront fees just to SEARCH for tax credits and other reductions to expenses, with no promise of any results. Conversely, some companies work on a contingency basis and only charge clients a percentage of the expenses reduced or the credits discovered. So, it doesn’t have to cost anything to explore the possibilities. The worst case scenario is you will find out (without obligation) that your business does not qualify for ANYTHING.
So, if you are a business owner, adopt a strategy and find a partner as soon as possible to look into this. If you know a business owner, share this with them. They may profusely thank you later!
By the way, if you need help with this, my team can get the ball rolling for you.
Continue living the dream!