Kelly Phillips Erb is the Tax Girl — not only is she a top-notch blogger covering the topic of taxes, but she also is a top notch tax lawyer. She took some time to answer our questions about taxes for small businesses.
How did you get to be Tax Girl? What’s your background as a tax expert?
On my site, I joke about being in law school in Moot Court wearing an oversized itchy blue suit and hating it. But it’s true. It was horrible. In a desperate attempt to avoid anything like that in the future I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I had a LL.M Taxation. I worked for other law firms for a few years after graduation and decided that I could do it better on my own – so I convinced my (not quite yet at that time) husband to quit his BigLaw firm job and work with me. We opened our firm ten years ago.
The blog kind of grew organically out of opening our firm. I was updating our firm web site fairly constantly because tax law changes so quickly. I was looking into a better way to do it (because that’s how I’m always thinking) and I came across this notion of a blog – this was years ago when the word wasn’t even in mainstream vocabulary. I loved the idea of a site that was constantly moving and encouraging dialogue about tax. So I started blogging about tax. A bit after I started, I took the plunge and made an offer for the domain (taxgirl.com) since it had been my moniker for years. I bought it and I’ve been at taxgirl.com ever since.
What’s the strangest tax question you’ve ever gotten?
Gosh, I get literally thousands of questions so it’s hard to pin down the strangest… The absolute oddball ones tend to be related to tax evasion schemes, like the notion that if you’re service based and not product based that you don’t have to pay taxes or the ones that say the government has “secret accounts” that you can access. But the ones that really blew my mind were the folks trying to maximize rebate checks that were based on the number of dependents – one guy had something like 10 kids that he had not been supporting and he was wondering if the government would chase him for back child support if he claimed the kids this year. It’s unbelievable what people will say and do to get a refund.
What would you say are the key differences between completing your taxes as an individual and as a business owner?
Individual taxes are much easier because there’s usually just the one (income tax). Business taxes tend to be more complex because you may have other issues to worry about – corporate tax reports, franchise taxes, sales & use taxes, use & occupancy taxes, payroll taxes… Depending on what kind of business owner you are, the list can be fairly extensive.
I think, because of the sheer number and types of taxes, business owners have to focus on tax planning and compliance all year round as opposed to your individual taxes which, for better or worse, you can typically crank out your individual obligations in a day or two. Perhaps a painful day or two, but still…
What sort of key problem areas should business owners be on the look out for when tax season rolls around, especially if they’ve already been in business for a couple of years?
It’s easy to lose track of tax items that you may have already elected to report a certain way like depreciation, use of your car, etc. That’s why having a regular accountant can be helpful.
I think business owners tend to fall down on the record-keeping side when it comes to meals and entertainment. Inevitably, on examination, business owners struggle to remember what they were doing at a meal – and with whom. Contemporaneous record-keeping, even if it’s just writing little notes on the backs of receipts, helps a lot.
The same issue comes up on the home office side. It’s a wildly misunderstood deduction and there’s just so much bad information out there that I don’t think taxpayers always keep the right kind of records. I recently wrote a post about home offices and the comments, even from alleged tax professionals, just showed a real lack of comprehension about what’s acceptable. That actually ties in with the idea that overall knowledge about what is and is not deductible is pretty lacking – of course, I don’t blame taxpayers, I blame Congress. The rules and the changes are just out of control.
As a tax professional, what characteristics do you think are key for a business owner looking to find help with his taxes?
Trust and communication. You have to feel comfortable with your tax professional. If you feel intimidated or stupid around him or her, it’s time to find someone new. You need to feel as though you can ask any question and get a good, complete answer.
If you can only offer one piece of tax advice for a small business owner, what would it be?
Be educated. You don’t have to know everything about taxes but you need to know enough to make smart decisions. Don’t rely on your tax professional or anyone else to tell you about your business – that’s your business, to know what’s going on. You don’t have to know the intricacies of the Tax Code (that’s what you’re paying someone else to do, right?) but you need to know the basics: what constitutes income, what kinds of things are generally deductible, and the timing and nature of your filing obligations. Don’t be that business owner that just signs returns each tax season: know what (and why) you’re signing.Google+