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Filing Business Taxes for the First Time? Don’t Panic!

originally posted on AllBusiness

by Dealstruck

The words “tax time” are enough to get many first-time entrepreneurs’ hearts racing. We conjure up visions of grim-faced IRS auditors rifling through our papers and scrutinizing our inventory—and, if they find a single small mistake, turning around and demanding money that our bootstrapped businesses can’t spare.

I know these nightmares because I’ve had them myself. I still remember the apprehension I felt when it was time for my partner and me to file our first tax return in 2013. At Dealstruck, we’d gone from zero to seven employees in our first year of business, and the idea of gathering and organizing the minutiae of our income streams and expenses, all while managing day-to-day business, was daunting. Entrepreneurs focused on growth can’t sweat the small stuff, but the IRS wants all the details. If I messed up a line of the return, would I get a dreaded audit notification in the mail?

Luckily, this never happened—and it likely won’t happen to you either. We’ve breezed through several tax seasons since then, and over the years, I’ve learned a few things I wish I knew back in 2013. The overall message? Don’t panic.

Tax Day isn’t the End of the World

It’s easy to see April 15 (for LLCs, or March 15 for corporations) as a set-in-stone deadline, but stop treating the date like such a big deal. The IRS began accepting electronic returns on January 19, so you can (and should) begin organizing your tax documents nice and early. But, if you’re the procrastinating type like we were back then, LLCs can file their returns until April 18 (or April 19, if you’re in Maine or Massachusetts, because of Patriots’ Day). If you start feeling like you’re down to the wire, you can even file for an extension.

Specific dates aside, remember that no one does their best thinking under extreme stress. Do whatever you need to to keep your cool, whether it’s maintaining your regular routine, adding in a few minutes of meditation to your day, or making time for a trip to the gym.

Getting Audited is Extremely Rare

Yes, getting that “Notice of Audit and Examination Schedule” letter is everybody’s greatest tax nightmare, but let’s talk statistics: only 1.6% of businesses are audited, so the odds are in your favor. Even if you do face an audit, it’s a relatively painless process. The IRS forgives honest mistakes. Your best move is to respond promptly, provide copies of your records, and remain calm.

Of course, audits do happen. But as one small business owner shared on her blog, they’re not always that bad. Because Rebeca Mojica provided well-organized documents, the IRS audit of her DIY jewelry boutique went smoothly. Even if the audit reveals mistakes, all may not be lost. When Tim Geithner was under scrutiny for the position of Treasury Secretary—a process as rigorous as an audit—he was accused of not paying $35,000 in self-employment and FICA taxes. He testified that TurboTax didn’t tell him to pay it, and, because he had adequate documentation, he was confirmed. That’s now called “the TurboTax defense,” and it’s been used successfully since then. The moral of the story: keep good records and it’s likely you’ll be fine.

Can’t Pay in Full? Keep Breathing

Sure, it’s always better to file on time, but it’s not the end of the world if you can’t pay everything immediately. The IRS’s Fresh Start program has made it easier for taxpayers to qualify for payment programs, and it may allow for extended time to pay your obligation.. Taxpayers can use Form 9465 to set up a payment plan.

Your Peers are Probably Reporting Losses, Too

It’s not unusual for a business to report a loss in its first year, and some don’t show a profit for five years, including some now household names. Sure, reporting losses in three out of five years could jeopardize your status as a business as well as your deductions. But a clear plan that shows your path to a profit can earn the IRS’s confidence. If you’re in the red, a solid business plan for a better second year is essential, both for your business and for your status with the IRS.

You Have a Right to Deduct

Depending on what your business is, the law says you can deduct anything frombeer to pet food. If an expense really is related to your business, then chances are you can deduct it. Here’s where outside help can really pay off: the advice of a good accountant can keep you from claiming deductions the IRS will flag and can save you a lot of money by pointing out deductions you might have missed. Yet few business owners take advantage of this resource. In a tax refund survey of 501 business owners we conducted this year, only 38.5% said they used a CPA to file.

They’re missing out. When my partner and I were facing our first year of taxes, we were fortunate to find an accountant who handled the filing process for us. He pushed us for the kind of detail that ensured an accurate and complete tax filing, and that saved us a lot of headache, heartache, and seemingly terrifying letters from the IRS. Of course, before you hire your sister’s best friend’s cousin for the job, consider what sort of accountant will best serve you, such as someone with an outside firm or someone who works for you exclusively. But overall, hiring a professional to handle your taxes is a solid business choice.

If you’re still not convinced that those dreaded auditors won’t come knocking at your door, remember: the IRS is not out to get you. They just want their bills to be paid. Sound familiar? IRS agents and entrepreneurs aren’t so different after all.