Technology Makes Tax Time Less Taxing

As director of tax services at accounting firm Needel, Welch & Stone in Rockland, Mass., Jim Bailey has seen stuff that would make your toes curl.

“I have had people in here who have not filed their taxes in three years. I have seen others who come in on April 1 with the proverbial shoebox full of invoices and canceled checks. ‘Here, you make sense of this.’ That is a very, very expensive proposition.”

April is too late, and three years is way too late, needless to say. Bailey and others in the tax trade say small-business owners generally need to start getting their tax information in order by early fall. A meeting with one’s tax planner by mid-October or early November is ideal.

To the Rescue
Technology helps: A good accounting application can forestall the inevitable by a couple of weeks, but only if it is being used correctly.

After all, a digitized report is only as good as the parameters set by the user, cautions Eva Rosenberg, the voice behind She recalled a recent instance in which a client had diligently set up an array of computerized record-keeping programs, “but then when we were looking at their records at the end of the year, the cash register computers said the total sales were $100,000 less than what it said in QuickBooks.”

Time-saving? Hardly. Nor is such an instance surprising to Debbie Webb, a CPA with Thompson, Derrig & Craig, P.C. in Bryan/College Station, Texas. “Technology means that reading tax instructions is replaced by reading software instructions,” she said. “Technology means that finding math errors is replaced by finding input errors. Plus, technology means that getting your taxes done can be delayed by hard drive crashes, computer viruses, and power outages.”

Others take a somewhat less glum view. Bailey said it is in fact possible to win some efficiencies at tax time by using computerized record-keeping. The trick is to spend time right at the start establishing the right categories and parameters, so that year-end records will be of use to a CPA later on. “A little more up-front work can save time and money in the long run,” he said.

The biggest accounting programs for small businesses are Peachtree and Quickbooks, both of which generally receive high marks from the CPA community. After all, anything helps the small-business community to move its record keeping from shoebox to spreadsheet is going to be a plus.

“The benefit of having a decently prepared, computerized set of books can be significant,” said Joel Maller of The Maller Group in Maryland. “I can turn around an estimate in 20 or 30 minutes with a good Quickbooks or Peachtree report, whereas if they were giving me a quarter’s worth of check stubs and bank statements, I can’t turn that around very quickly.”

Lessons Learned
Even clean records won’t be enough, though, if the business owner is late getting off the mark.

“The most common mistake I will see is people who come in after year-end” said Maller. “Maybe they have done this or that, and if they had come in before year’s end I could have told them a much better way to do it. Frequently if we can at least hear about it before the year end, we can do something to fix it.”

In one especially awful instance, a client engaged in a complex transaction, effectively merging his small business with an offshore corporation, thus nullifying the existence of the original corporate entity and throwing the books into chaos. Maller could have shown him a better way, if he had asked, “but instead they probably cost themselves $10,000 in bookkeeping time to fix this.”

The lesson here — and it is one that is echoed by CPAs across the boards — is that it is far better to start early than late. “You want to be as proactive as possible in making sure that you are doing things in the most effective manner. You almost can’t start too early,” said Maller.

Safe Passage
The safest course may be to review the major tax figures on an ongoing basis. “Knowing what your taxable income looks like during the year can help optimize the amount of estimated income tax payments made,” said Webb. Rather than tie up cash in overpayments or risk the penalties associated with underpaying, “keeping abreast of current taxable income helps the small business owner know how much cash can be used for the business and how much needs to be reserved for taxes. That knowledge is invaluable for managing cash flow.”

Year-round tax prep? Maybe it sounds like an entrepreneur’s worst nightmare, but some would argue that it can in fact be a business owner’s best friend.

“A lot of people resent doing all these things — but it’s a funny thing. When you do all the things that the IRS wants you to do for their reporting, you actually end up knowing a lot more about your business and what works and what doesn’t. You actually get better management,” said Rosenberg. “If you are running a business, you really ought to be paying attention.”

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