Starting a small business – Taxes Part 1

I should be finishing a third response to the IRS for a client under audit.  The response has me so angry and frustrated that I decided to start a new thread.  By the way, I’ve had 3 clients get audited in 10 years of having my own firm.  That’s 3 out of about 3500 tax returns.  The IRS audits about 1% of returns each year some I’m either lucky or good – most likely a combination.  The first audit was due to being way to aggressive on deductions.  The second audit was because the IRS agent couldn’t figure out the Form 1040.  No lies – his supervisor admitted that I was right over the phone but decided to let her agent audit the return anyway.  The US Treasury got nothing from the audit but I had to bill my client more than $500 for my work.  Insipid.  This last audit was a no brainer.  I warned the client when I filed it.  The IRS originally wanted about $14,000.  I should have it down to less than $200 when I finally finished.  It will probably cost him about $1000 in heavily discounted fees from me.

Besides the relief of ranting, I’m telling you these stories because taxes are a large part of a business.  All three of the audits above were on small businesses or self-employed individuals.  Taxes suck.  They are complicated.  The average person (non-HGH or steroid using) probably couldn’t carry the paper version of all the forms, codes and regulations for just the IRS.  When I started studying taxes, they could fit in a duffle bag with room left over for a notebook, textbook, Mountain Dew and M&Ms.

Here’s a list of taxes that the average business must confront:

  • Federal Income tax – business or personal
  • State Income tax – business or personal
  • Social Security tax
  • Medicare tax
  • Self Employment tax if self employed
  • Federal Unemployment tax
  • State Unemployment tax
  • State and local Sales tax
  • Property tax
  • Real estate tax
  • Myriads of excise taxes (usually paid when you buy something)

I’ll address the taxes in separate posts.  Please leave any questions in the comment section.  I’ve have to get back to my audit response.



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