How to Avoid Bad Small Business Tax Advice: Seven Tips to Remember

Small business owners are more vulnerable than ever to lousy tax advice. Today, we will talk about why, explore current scams, consider the role of the IRS, and tell you how to avoid bad small business tax advice. Buckle up and take some notes.

1. Bad tax advice isn’t new.

With a tax code that’s constantly in flux, savvy business owners have continually stayed on the lookout for more opportunities to save money. Bad tax advice can cause disaster. If you make the wrong move, you can end up with financial losses, legal trouble, and unnecessary stress.

What’s different about the current moment is the speed at which lousy tax advice travels.

2. Social media makes it easier for misleading information to circulate.

Social media platforms like TikTok and Instagram often spread questionable financial advice. It’s never been easier for a small business owner to fall victim to fake news about tax savings.

Even well-informed entrepreneurs need help to verify what constitutes professional advice versus online chatter.¹

3. Examples of bad tax advice are easy to find online.

A simple web search can generate misleading information about topics as fundamental as quarterly estimated tax payments, the home office deduction, and how to calculate a company’s valuation. Many social media posts promise tax deductions and credits without proper verification. They even encourage taxpayers to claim excessive expenses and deductions.

Yes, you can claim legitimate business expenses to reduce your tax bill. But make sure to distinguish personal and business expenses, or you’ll find yourself dealing with the IRS. Mistakes like this affect your taxable income and corporate income tax calculations, and you may not even notice until the bill is out of control.²

4. Fake tax preparers can wreak havoc on your company.

Some frauds pose as tax professionals and provide advice that can result in penalties and legal trouble. Always verify your tax preparer’s credentials. Here’s how:

1. Ensure they are certified and licensed.
2. Look for relevant experience with small businesses.
3. Find positive client reviews and testimonials.²

5. Small business owners should watch out for common scams.

• Never respond to emails requesting sensitive information. Genuine IRS communications do not ask for personal details via email.
• Government entities usually contact you via traditional mail. Scammers call out of the blue, threatening legal action. The IRS will never call you.³
• If the deal sounds too good to be true, it probably is. Some scams involve the misclassification of workers as independent contractors to avoid state and federal payroll taxes. Some scammers say you can get out of paying taxes on non-negotiables such as unemployment insurance, disability, Social Security, and Medicare.

6. Work with a professional or a professional organization to verify eligibility.

No matter what you read or where you read it, always verify that you actually qualify for deductions and refunds with a professional.³

Bookmark these essential pages on the IRS website:

1. Taxpayer Advocate Service.⁴
2. Small Business and Self-Employed Tax Center.²
3. IRS Newsroom for Updates.⁵

Always cross-reference advice with multiple IRS resources and ensure that you’re reading the most up-to-date information for the appropriate tax year.

7. When in doubt, talk to a professional.

CPAs bring a wealth of experience and knowledge, but even here, you can run into some stumbling blocks. Not all tax professionals are the same.

Before hiring a tax professional, confirm their credentials.

Essential qualifications to look for include:

• CPA Certification and licensure,
• Relevant experience with small businesses,
• Continuing education and professional development,
• Membership in professional organizations such as the AICPA and
• Positive client reviews and testimonials.¹

When establishing a relationship with a new accountant, watch out for red flags such as:

• Lack of verifiable credentials,
• Poor communication or unprofessional behavior,
• Overpromising results or making guarantees,
• Negative reviews or unresolved complaints, and
• Hesitation to provide references or proof of qualifications.

Always interview candidates and seek testimonials.

Prepare a list of questions about their experience and services, and make sure they understand your industry.

Discuss practices, strategies, and communication styles, and be sure to make sure they are accessible during tax season.⁴

Take the next step with professional tax advice.

Bad tax advice can have dire consequences for a business owner. The best way to ensure an accurate and compliant tax return is to hire a qualified professional. Be vigilant, and you can protect your business from scams and misinformation.

Schedule a discovery call today to get professional tax advice.

Talk soon,
Jeremy A. Johnson, CPA

References

1. Internal Revenue Service. Small Business and Self-Employed Tax Center. Available at: https://www.irs.gov/businesses/small-businesses-self-employed
2. Internal Revenue Service. Publication 334 (2023), Tax Guide for Small Business. Available at: https://www.irs.gov/publications/p334
3. Internal Revenue Service. Dirty Dozen: Taking tax advice on social media can be bad news for taxpayers. Available at: https://www.irs.gov/newsroom/dirty-dozen-taking-tax-advice-on-social-media-can-be-bad-news-for-taxpayers-inaccurate-or-misleading-tax-information-circulating
4. Taxpayer Advocate Service. Your Voice at the IRS. Available at: https://www.irs.gov/advocate
5. Internal Revenue Service. Taxpayers and tax pros, beware of these common tax scams. Available at: https://www.irs.gov/newsroom/taxpayers-and-tax-pros-beware-of-these-common-tax-scams