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A Taxing Season

3 min read

Finding the right tax strategies as a business owner can make tax season seem far less daunting. From returns to compliance, knowing how to navigate taxes can help lessen the stress of the season.

However, business owners must approach taxes with a different strategy than individuals.

“There are so many things coming at a business owner that they have to think about. They have to think about their customer… first and foremost,” said Gary Cooper, CPA and partner at HoganTaylor. “And then they have to think about hiring people… finding people, trying to get them to stay, trying to figure out how they can pay more to keep them. Then, maybe, they have to borrow money… and the banks request a bunch of information. Intertwined with every bit of that is taxes.”

While income taxes are most common, business owners have other variations to consider, such as sales tax, payroll tax and property tax.

“There are levels of tax that get put on a small business owner that, to some degree, we have as individuals but not near what a small business might have,” Cooper said.

Whereas individuals pay personal property and real estate taxes, Cooper said those are “kind of easy” as they can be received and returned through the mail.

Taxes for a business, on the other hand, can be a bit more complicated. In this case, it isn’t unusual to hire an advisor to help manage tax season — in fact, it’s recommended.

Not only can a business owner save a bit of time by hiring out the tax filing processes, but by having a trusted tax advisor, an owner can ensure their business is following any new tax laws and filing proper exemptions. Plus, it never hurts to have someone to go to for advice.

“They [business owners] need to find a competent advisor that they can develop a good relationship with,” Cooper said. “And it’s not just once a year; it’s the ability to call that person and say ‘I need your help’ probably about three or four times a year on understanding what kind of tax implication the operation of their business is going to have.”

Misconceptions and Mistakes

There are just as many bad tax strategies fueled by misinformation as there are good methods. “When they come in and say something like, ‘Income taxes just aren’t my deal, I’m going to rely on you to tell me everything I need to know,’ that sends up red flags immediately. If you’re a business owner, you need to get comfortable with being uncomfortable with what you don’t know, particularly about income taxes,” Cooper said.

Cooper claimed that even having an advisor is “no excuse for a new business owner not to learn a piece of it [taxes],” and said that even being just conversational in the topic can help business leaders find the right questions to ask.

A lot of the tax-related misinformation revolves around deductions.

“Two of the most frequent questions I get are, ‘Can I write off a new vehicle and is taking a client out to lunch deductible?’ said Jason Schnepf, tax manager and CPA with Adams Brown in Little Rock.

According to Schnepf, vehicles are depreciated under the MACRS depreciation rules, not deducted.

“Under the current laws, you can deduct up to $1,220,000 of Section 179 for 2024, but once your total asset purchases go over $3,050,000, this deduction starts being reduced. Section 168K is being phased out, but for 2024, you are allowed to deduct 60% of the asset cost,” Schnepf said. “There are no asset purchase cost limitations for bonus depreciation. Always consult with your CPA before assuming you will receive these deductions.”

As for meals, business owners “can deduct up to 50% of the cost of business-related meals,” Schnepf said.

Another area business owners can find trouble is in payroll and sales or use taxes.

“With payroll tax, the IRS has very little tolerance and steep penalties for nonpayment of your taxes — especially the trust portion, which is what you withhold from your employees’ checks,” Schnepf said. “For sales tax, any purchase made through the business could be subject to sales or use tax, including personal purchases.”

Schnepf said he sees people encountering trouble with online purchases.

“Always check your online purchases for sales tax, and if they are not collecting it, make sure you file a sales/use tax return and remit the tax payment,” he said.

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