by Darren Oliver
April 15 may be long gone, but many independent accountants and tax preparers or small firms will find themselves without that nice, additional tax season generated revenue. Although you may be used to experiencing this and plan for it accordingly, a trend within the industry towards providing year round federal tax review and recovery services for small businesses is emerging, that could redefine the time frame by which we define tax season.
Meanwhile, small businesses are demanding that accountants advise and/or consult on a larger scale. Currently, the accounting industry is large and fragmented and areas of specialization are becoming more common as a means for firms to differentiate themselves. Providing year round tax services for small businesses could not only generate additional, year round revenue but, is one of the ways that independent or small accounting and tax firms can differentiate themselves from their competition and provide their clients with additional expertise.
According to the United States Small Business Administration’s Office of Advocacy, there are approximately 22.9 million small businesses (defined as with fewer than 500 employees) in the United States. This is currently one of the fastest growing segments in the country. Other statistics indicate that these small businesses overpay their taxes to the tune of billions of dollars each year due to missed deductions, unrecognized tax law changes or being given incorrect advice by the IRS or a lesser experienced accountant or tax preparer. Providing your small business clients with tax review and recovery services is one such much-needed service that would enable you to further build customer loyalty and enable differentiation.
According to Tax Recovery Systems, following are just some of the most commonly missed small business deductions, whether through self or external returns preparation, that could result in overpayment:
- Home Office Deductions – If a taxpayer runs a home office they are 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, etc.
- 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 fair market value of these converted assets can be a business deduction starting with the date of conversion.
- Self-Employed Health Insurance – As of the 2002 tax year, those who are self-employed are entitled to deduct 70% of their health insurance premiums.
- 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.
- 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 it’s lawnmowers or other equipment; they are entitled to a credit.
As the United States tax law is one of the most complex in the world, even the best tax preparer, CPA or even IRS representative can, as all humans do, easily make a mistake. What is more, with increased attention being placed on this issue, more and more small business owners are realizing that they have or are overpaying their federal taxes.
Samuel Rowley, owner of Muffler Masters in Colorado Springs, CO was able to recover $14,500 through the filing of an amended return when it was found that he overpaid FICA and payroll taxes. Another business owner, Karen McClafflin, owner of home-based Secret Canyon Realty also in Colorado Springs, was able to recover $11,000 when her tax preparer failed to include home office and automobile deductions in her past returns.
According to the IRS tax code, one has three years from the filing date for the tax year in question to file an amended return. In fact, in 2002, 3.3 million taxpayers filed an amended return. You may worry that by filing an amended return that will it will open your client up to an audit however; the IRS itself admits this is not the case.
As the accounting industry becomes increasingly competitive and the growing numbers of small businesses demand more services, accountants should closely evaluate providing tax review and recovery services. It just makes good business sense.
Darren Oliver is the Chairman and COO of Tax Recovery Systems (TRS) which he founded in 1995. Through their network of sales partners and franchisees, many of which are accountants or tax preparers, TRS is dedicated to recovering overpaid taxes for home-based, independent and small to medium sized businesses all over the U.S. For more information, visit www.trs-esp.com or call (800) 714-3504.