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To save money, you MUST expand your knowledge about taxes!
You don't have to be an expert when it comes to understanding taxes in
general or filing your own return, but whether you call yourself a home-business owner or a self-employed
individual who works at or from home base, you need to become an expert about
the many deductions available to you on the Schedule C form and related Home
Office Expense form.
Copyright © 2000-2015 by Barbara Brabec. All Rights Reserved.
How to Get a Handle on Your
Schedule C Deductions
and Work with an Accountant
by Barbara Brabec
Attention Home-Business Owners! Waiting until the last minute in April to think about your tax situation is a
DO YOU TEND TO PROCRASTINATE when it comes to the topic of taxes? Always
waiting until the last minute in April to think about your tax situation is a
BIG mistake because there are things you could be doing throughout the year, and
especially at the end of each year, to lower the amount of self-employment and
federal taxes youíll have to pay on April 15.
I know the topic of taxes is considered boring to most small business owners,
but saving money isnít a boring topic, and the more you know about the tax
strategies and deductions available to home business owners, the less taxes you
will have to pay. Just identifying the many deductions to which you are entitled
is the first step to cutting both your self-employment and federal taxes;
understanding the special tax-cutting strategies you might be able to put into
place to further lower your SE taxes is the second.
In talking with home-business owners nationwide, I've learned that most have
no idea at all of the many tax advantages of a business based at home. They think
they are doing everything right when they hire a tax preparer, accountant, or CPA
to do their taxes, but if they haven't kept track of all their expenses in the
first place, or even identified all those to which they are legally entitled,
they will end up paying higher taxes than necessary.
From a lifetime of self-employment, Iíve learned that accountants rarely (if
ever) remind business owners about deductions they might be overlooking, or
tax-cutting strategies they might implement to lower self-employment taxes. They
just work with the figures they are given. Only one of all the accountants Iíve
worked with ever suggested that I might be overlooking a deduction. Always so
busy at tax time, they just took the figures I gave them and dropped them in the
appropriate slots on the tax forms, often making mistakes in the process.
Working with an Accountant
When my favorite CPA retired, I once again had to look
for a new accountant. Following my own advice to others, I got a referral from a
trusted business friend, had a brief interview with the man, and later went in
with my usual well-prepared tax organizer. Later, after picking up the draft of
my return and seeing there were some problems with it, I called for an
appointment to discuss them.
First, my "draft invoice" was for $395 instead of the $300 I had originally
been quoted in writing. Fifty dollars of the overcharge was for a form related
to a foreign tax credit on a mutual fund that resulted in a "whopping big"
three-dollar deduction. I said I should have been consulted about this since I
didn't feel a puny $3 deduction was worth a $50 fee to complete the form. The
accountant gave me a poor excuse about it not being his job to tell me to
disregard this deduction (what was that again?), but he did remove this amount
from my bill. In the end, he also removed the remaining $45 because his reason
for the extra charge (that my tax return was more detailed than he anticipated)
didn't hold as much water as my objection to him changing his quoted fee.
(Always remember there is room for negotiation, especially when you're dealing
with someone who wants to keep you as a client.)
Even when you believe you have a qualified tax preparer or accountant, you
may have problems simply because tax regulations are so complicated, so
confusing, and often so vague that they can be interpreted in different ways.
While an aggressive accountant may interpret a particular tax rule in such a way
that it becomes a valuable tax deduction for you, a more conservative accountant
might say, "I wouldn't take this deduction if I were you because . . ." (which
could cost you the loss of a legal tax deduction if you're less than savvy about
I was not satisfied with this accountant, not only for the above reasons, but
because he had a totally different idea of how major home improvements (such as a
furnace, air conditioner, or a roof) are to be deducted as part of the Home
Office Deduction. I was stunned when he told me that my previous accountant—an
Enrolled Agent—had been doing it wrong. That wasnít true, of course; it was
just another example of the point I've made in my tax strategies eBook about it being hard to
find two accountants who agree on anything because the complicated tax laws
allow for many interpretations. The bottom line here is, if you don't like the
way one accountant interprets the tax laws, maybe it's time to look for a
different one, which is exactly what I did.
I can't stress enough the importance of going over your return with a fine
tooth comb to make sure all the figures are not only correct, but in the right
place. The above-mentioned accountant—who gave me a very impressive finished
product—had overlooked $1,000 in deductions that were clearly listed in my
organizer. "Sorry, I just didn't see that," he said about one of the two missed
deductions. He also listed the home equity line of credit interest I had that
year as a separate
deduction on the home office worksheet where it gave me a deduction worth only
10 percent of the total amount, instead of including it in my mortgage interest
expense so I could get the other 90 percent of that amount on Schedule A. Funny
how much a couple of missed or misplaced deductions can increase your total SE
and federal taxes, and how much you can save just by being savvy about all the
figures on your tax return.
The lesson here is that it is simply imprudent to put all your faith and
trust in a tax preparer, accountant, or CPA, no matter how impressive their
credentials or fancy tax package. Unless you're willing to pay the penalty in higher taxes, you need
to become more knowledgeable about taxes in general, and home business
deductions in particular. Above all, never assume that accountants don't make
mistakes, because they do, and it's your job to find the errors.
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