Are You Overpaying Taxes If You Use Tax Preparation Software?
By Richard A. Chapo, Thu Dec 8th
For many business owners the answer to this quandary is taxpreparation software. Fill out a fairly simple interview, click“print” and out comes a completed return that will pass musterwith the IRS. The answer to all your problems…or is it?
Can One Software Program Cover All Businesses?
Take a moment to consider the wide range of businesses thatexist in the United States. Now cut that number down to thosethat can be categorized as “Internet businesses”. If you wereasked to write a business plan to provide web design services toeach of these services, how long would it be? It would be hugeand completely useless because each business would havedifferent needs. A Internet business selling flowers would havecompletely different needs from an online bank which would havedifferent needs from a hosting company and so on. The only wayyou could create a practical plan for all Internet businesseswould be to offer a collection of general services they couldall use on their sites. Tax preparation software designers havethe same problem.
There are over 15,000 pages in the tax code and over 100,000pages of regulations interpreting those pages. Changes are madeto the tax code ever year, and new regulations are issuedconstantly. If one were to create a list of questions for everytax deduction and credit detailed in those pages, the list ofquestions would be the size of a phone book! Yet, tax softwareprogrammers have somehow boiled it all down to a simple30-minute interview process? Common sense should tell you thatdoesn’t make sense.
As practical matter, tax software programs are designed to makesure that you claim a general set of deductions that areapplicable to businesses across all industries. Most programstry to mask this fact by asking you to identify your businessbefore proceeding. For a lark, you might try selecting anotherindustry and then running through the interview process. Youwill find that the interview process is modified a bit, but youare still being asked the same basic tax deduction questions.
If you are only claiming general business tax deductions, youare paying more than you should in taxes. Ask yourself if youhave seen any of the following questions in a tax softwareprogram interview:
Q. Do you store business inventory in your house?
Hint: You may be able to claim hundreds or thousands of dollarsin deductions.
Q. Did you start a pension plan for your employees?
Hint: You may be able to claim a tax credit for the next threeyears totaling $1,500.
Q. Do you have a home-based business and a second office?
Hint: You may be able to deduct your commuting expenses eachday. Yes, commuting expenses.
Q. Do you have business meetings at your home?
Hint: Did you charge your business for the space?
Q. Should you claim the standard mileage rate for your auto orthe actual costs?
Hint: The standard mileage rate may not the best option.
Q. Did you modify your business location to comply with theAmericans with Disabilities Act?
Hint: You may be able to claim a tax credit AND tax deductionfor tax savings of $20,000 or more.
Q. Did you refinance your home?
Hint: The points you paid on your original mortgage are fullydeductible now, not over the length of the loan.
This represents only the tip of the iceberg of available creditsand deductions available to you. Just one of these deductionscould save you thousands of dollars in taxes. Yet, you are nevergoing to see these questions raised in a tax software programinterview. The tax code and regulations are simply too large tobe incorporated into a usable software program.
Your business is unique. You face and overcome issues andproblems that are unique to your size, financial situation andparticular business needs. Don’t short change yourself bylimiting your deductions by using tax software programs.
About the author:Richard Chapo is with Business TaxRecovery - Obtaining tax refunds for small businesses foroverpaid taxes. Go to our articlesection to discover tax strategies and deductions.
