TBL Top 5 Income Tax Success Stories (and how you can have one, too)

For a lot of small online business owners, their first introduction to profit planning and financial systems comes from seeking out help with their taxes. In the early days, before you get a profit plan set up, it often feels as though your business lives and dies by your annual income tax. And when you reach that point when your taxes get more complicated than you can handle, all you really want is a financial partner who can ensure greater success than you can do on your own.

But before choosing which partner to work with, you’ve got to answer one question: what does income tax success actually mean for you?

Most people think of income tax purely in terms of saving a ton of money, even getting a refund. But sometimes success can be as simple as not owing a ton when you file, or partnering with a tax person who knows your business and believes what you say. (Accountants are notoriously skeptical and conservative!) For some, success means having money saved so they’re able to file on time and in full. We hear a lot from people who haven’t filed a tax return in five years! They’re stressed, they’re ashamed, so a success in their world is getting it off their plate so they’re not stressed about it.

We sat down with Marilyn to hear about all the diverse ways that income tax success shows up. Our top six income tax success stories include:

  • The Financial Success
  • The Filing Success
  • The Partnership Success
  • The Understanding Success
  • The Preparation Success

The Financial Success

My biggest monetary tax success story came from a client who got audited while someone else was working on their taxes for them. This guy had a sole proprietorship as a construction contractor, and he didn’t keep all that great of records. So when the auditors came in and starting pulling the information they wanted, his tax bill over four years was in the area of $300,000. He was scared that he was going to jail!  

I explained that without some level of substantiation behind your numbers, the IRS simply takes the income they know you’ve got, and the expenses you’ve documented, and the rest is taxable income. This ends up looking like a worst-case scenario, which it definitely did for this client!

In the end, all I had to do was meet with him and his IRS agent. First, though, I helped him document the expenses around a few of his jobs to show what kind of profit he typically makes, and wouldn’t you know it? The IRS agent accepted that. He ultimately saved $120,000 on his tax bill. Yes, he still owed a lot of money, but it’s a lot more manageable than his original tax penalty.

The takeaway: Get help when you need it. A tax professional’s word goes a lot further with the IRS than the taxpayer who doesn’t even know where their credit card statement is. It’s well worth the investment to work with a professional who knows how to talk to the IRS, what questions to ask, and what kind of solutions they will accept.

The Filing Success

Several clients have come to TBL because they have failed to file three, four, even five returns in a row. They’re worried, stressed, and embarrassed. I get it—we all stick our heads in the sand on certain issues. We say we’ll deal with it later, but later never comes. But those things always come back to bite you. The IRS has documentation of what you earned each year. If you don’t communicate with them, they’re simply going to tax you on the money they know you earned.

That’s why you have to make some time to sit down and make the best estimate you can of your numbers. Even if you don’t have receipts or other documentation, do it anyway. At a bare minimum, you need some kind of rationale around what your numbers are.

Once you have some reasonable numbers down, you can still file even if you’re behind by five years or more. I always advise clients to go ahead and file their current tax penalty ASAP, to avoid penalty and interest, then go back and file the other years all at once. That may sound daunting, but you can set up a payment arrangement with the IRS—in fact, if you owe them under $150k, they automatically grant you an installment agreement.

The people we’ve helped file their back taxes end up incredibly relieved. Without this worry hanging over their head, they are freed up to be more productive and strategic about creating profit in their business. They also know how much they can expect to owe in the future, and they’re able to set aside the funds ahead of time. Your business always thrives when you’re the one telling your money what to do, not letting your money tell you what to do.

The takeaway: the IRS doesn’t forget about you, even when you forget about them. But by making some basic reasonable calculations around your numbers, you can get your tax situation current and create a payback plan that is doable for you.

Paying your taxes on time is an important mindset issue. I’ve had people along the way, year after year, who wait to file their tax return. The extension time will come around and they’ll extend it, because they just don't want to deal with it. From January 1 all the way to October 15, they’re stressed—they know they owe money but they don't’ know how much and don’t have it set aside. When the taxes are actually filed, they often end up getting a refund. Not only did they waste a lot of energy and stress, but they actually let the IRS borrow money that was theirs for 9 or 10 months! That’s something that could be easily avoided if they just faced it early on. If you keep your books up to date, you don’t even have to deal with it.

The Partnership Success

Last year, we worked with a client who is an online service provider. She had been working with an accountant who didn’t believe the data she gave them for her tax return, so they disallowed all these expenses she had! She ended up owing a whole lot of tax that she did not agree with, but she had to file something, so she ended up paying this big fat tax bill. Needless to say, she was very upset about it.

The fact is that locally-based accountants don’t understand how online business owners earn their money, the specific expenses that online entrepreneurs have, or the language that gets used. It’s really important to partner with accountants that are aligned with you.

The good news is that we were able to amend the tax return, so she got the money back. However, it does take a couple of years for the IRS to process the refund, which can hurt your company in terms of cash flow. It’s definitely worth partnering with the right person who understands how your business works, so you get your tax return right the first time.

The takeaway: Not all accountants are created equal. It’s important to consider your tax preparer as a partner in your business—they need to understand you and what’s important to you, in order to serve you well.

The Understanding Success

The tax code is very situationally based. It’s also based on the experiences and mindset of the people interpreting it. Those things will differ from one accountant to another. It’s very important to ask the questions, research, and when you interview different tax preparers, listen to what they say and why they say it. You have to line up with someone is consistent and has facts to back up what they say. Once you find someone, stick with that person. Continuing to ask questions of different people creates an atmosphere of distrust.

You have to understand, accountants make mistakes, too. We’re all human. But when an accountant does make a mistake, how they approach it is really important—how much they take responsibility for it, and how well they fight for you in the situation.

A lot of clients just want to give us their information and have us send it back when it’s done. But to me, it’s very important to get every client on a call to review their tax return. While I can explain details to them, it’s important that they understand, at least on a high-level view, what their tax return says. They know their own personal and business situation better than I do, so they need to decide whether something’s right or not. When they sign that return, they’re responsible for the numbers on it.

The takeaway: Ultimately, you are responsible for your tax return. That’s why it’s imperative to work with someone who helps you understand it.

The Preparation Success

There is a point in time in your business when you need to know that it’s time to stop doing your taxes yourself. Frankly, if you’re busy enough in your business, odds are that someone can do your taxes better than you can.

This year, a new client came to us after having his return done by another accountant. He knew that something wasn’t right, but he didn’t know enough to know what it was. When I did the amended return, he ended up getting back almost ten times more than the fee they paid me. He was so excited—that was a huge success for him, especially because he’d invested twice in getting this tax return done.

Part of the situation arose because although he knew his numbers well enough to know something was off, he’d waited until the last minute to give his information to his first accountant. This is why I always advise people that you can’t expect the best out of your tax preparer if you wait to give them information until April 1. You know how stressful that time of year is for you—just think about how stressful it is for your accountant! If you have your numbers done by the first of February, get it off your plate!

The takeaway: Know your numbers way before the tax deadline. You are not getting the best service if you wait until the last minute to give your accountant information.

The Bottom Line

When you first get started, it’s easy to think that having a “small business” means you’re too small to really need or deserve help with your taxes. But trust us, no CPA worth their salt is going to look down their nose at your desire to create a plan for profit!

By finding the right partner and working with them throughout the year, you’ll enjoy one income tax success after another (on your terms and based on how you define the win) as your business grows.   

Talk to us! Which income tax success story would have meant the most to your business this year? Share your story on our Facebook page.