A recent study prepared by the Treasury Inspector General for Tax Administration (TIGTA), found that more than 2,000 small companies, either unaware of or confused by the small-corporation exemption from the Alternative Minimum Tax, may have overpaid their taxes by an average of $11,638. It is important to note, these are just companies that paid the AMT by mistake, not all others that just flat out overpaid their taxes for other reasons.
There have been several other studies done in the past that estimate small business owners overpay their taxes by thousands of dollars each year. A study by Clutch found that 30% of small business owners believe that they overpay their taxes each year. Small businesses also can benefit from seeking help with other financial processes. Ninety-five percent (95%) of small business owners and managers say they are ‘confident’ or ‘very confident’ in the accuracy of their overall financial records – but these same small businesses often don’t recognize when they make mistakes.
This is not a new problem. If one thinks that some of the new tax laws that came out this year were the result of a new wave of errors, they would be incorrect. In a 2015 article in Forbes, Garret Gunderson who has a company that helps entreprenuers with finances and investing went a few years back to study his new clients and found that 93% of them were overpaying on their taxes.
There are two common links between all of these studies and articles. First, most business owners are not up to date on new tax laws. When I spoke to a group of women entreprenuers this past year, exactly zero of them raised their hand when I asked a question about their knowledge of the new tax laws that benefited pass through entities. And really…that Is fine. The fact they don’t know that is what makes them more popular at cocktail parties. However, only half of them said they were working with a tax professional, which makes this story even scarier.
The other common link is horrible bookkeeping. Take it from me, it’s really hard to deduct an expense that isn’t recorded. And the simple fact is, small business owners miss recording a ton of expense. Litterally tens of thousands of dollars of expenses in some instances. That bookkeeping that you are saving $1,000 per month on by doing yourself is costing you that in taxes (and more when you start considering what your time is worth).
At Krieger Analytics, we’d love to talk with you about your goals and how we can help with our accounting and finance solutions. Since all of our phone calls are free, contact us now to talk about your business.