Beware the Ides of April: How to stay on top of tax preparation all year long

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By Dan Heilman
Dolan Media Newswires

If you’re a typical small-business owner — solo attorney or otherwise — this is the time of year when the call of that shoebox full of bills, receipts and other scraps starts getting louder and more insistent.

Tax season can be extra stressful for solos for the simple reason that few have the time, foresight or inclination to keep records as the year progresses, meaning a bottleneck at tax time.

“A solo is going to be most concerned about doing his or her job,” says Mike Crabtree, a CPA and attorney with The Boulay Group in Eden Prairie, Minn. “The recordkeeping and managerial things tend to take a back seat.”

The hardest habit for solos to get into when it comes to taxes, CPAs agree, is looking at taxes as not something to frantically pull together in January, but as an ongoing part of running your business.

“A lot of it is just good record retention,” said Mark Sellner, a CPA and attorney in Ply-mouth, Minn. “By the end of the year, you’re going to forget a lot of miscellaneous items, such as business mileage. Your first trip to work and your last trip home are commuting, but anything in between can be business travel.”

Crabtree recommends keeping a datebook in your car and writing down every detail of driving you do for your practice: Where you went, when, who you talked to and why it was business-related.

“The IRS wants a contemporaneous record when it comes to things like mileage,” he said. “Don’t guess at your mileage at the end of the year. That won’t hold up under an audit.”

New laws on the books

Some recent changes in tax law could also affect how you prepare your return. While the raising of the top federal tax rate last year (9.6 percent for single filers making at least $400,000) will affect only the most successful solos, an additional 0.9 percent Medicare tax kicks in on earnings over $250,000 for married couples filing jointly and $200,000 for singles and heads of household.

While those changes might not apply to most solos, a more modest one certainly will: The standard mileage rate for business use of a car in 2013 is now 56.5 cents a mile, up from 55.5 cents.

Whether you run your practice as an LLC or an S-Corporation (the latter of which lets you pay yourself a salary out of your business expense) might also have a bearing on your taxes. In fact, even if you’re an LLC, you might be able to save money by electing S-corp treatment for tax purposes.

“I give solo attorneys a lot of the same advice I would give any small-business owner,” said Scott Reid of Jasper-Reid CPAs. “Make sure you have a separate bank account and you run your income and expenses through that account. It makes life easier when you’re doing your bookkeeping at the end of the year.”

Also, consider taking a home-office deduction if you work out of your house. The IRS has simplified the reporting of that this year so that, for instance, instead of taking a percentage of your electrical or water bill, you can just claim $5 per square foot for space devoted exclusively to your business.

Meals and entertainment — even a cup of coffee with a prospective client — are 50 percent deductible to the extent that they’re related to your business. If you outsource your reception service or share an office, those are all deductible office expenses.

More deductions that solos often overlook include continuing education, Internet and phone bills, electrical and water for your office, and self-funded health insurance.

But the No. 1 tip from CPAs? Don’t try to do it all yourself.

“Most attorneys, after a long day at the office, don’t want to come home and dive into QuickBooks or TurboTax,” Sellner said. “It really is more cost-effective to find a CPA who maybe knows a thing or two about the law business.”

Having a CPA prepare your return will likely cost somewhere between $500 and $1,000, but that means the security of knowing the job is done right — and the ability to hand over that shoebox full of paper to someone who knows what to do with it.

“It’s a cost-benefit proposition,” said Reid. “I could probably learn how to repair my car, but it wouldn’t be worth my while. The same goes for your taxes.”