It’s a high-stress season. Most of us have to work, yet the birds are chirping, tempting us to join them outside. Allergies are up in arms for many of us. And most people get stressed because their taxes are due.
Some tax professionals take advantage of the high-stress season and the fact that most people do not know much about taxes. Many business owners, often new ones, will be tricked by the pressure of the season.
I’ll give you a very good example. I knew a young entrepreneur who had a brand-new medical service startup. We’ll fictionally call him Sean. Sean talked to a “friend of the family” who was also a tax professional. This was back in February. Despite what Sean understood about his business, he was told by this so-called friend, and thus believed, that business taxes were due March 15. It’s true, some of them are, but not a single-owner LLC or sole proprietorship.
The “friend” hurried Sean into deciding for the LLC to be an S Corporation. While the S Corporation can save a business owner on taxes, it’s not a good fit for all situations. Sean’s business was just starting, so its profit was lower, which means the S Corporation did not save much money.
When talking to Sean, I found that the S Corporation return cost $350. I looked at his return and noted that it saved him $27 (for a net cost of $323). If an S Corporation could save money later, then it can be elected later; it’s not a decision a business has to make in the first year.
I’ve seen this far too often. I call them cookie-cutter solutions. Too often, tax practitioners apply solutions that don’t fit the situation at hand. They take a strategy that works great in one situation and then apply it to all situations. The sad reality is that they do so merely to increase their tax preparation fees. This disgusting behavior happens too often in my industry. You should be able to trust your tax adviser.
It’s our goal to lower the stress of the season. This year, use a tax service that is honest and transparent with all of its clients.