There are countless ways to make mistakes during tax time: flubbing up data entry, missing a deduction or flat-out filing late. Those kinds of mistakes can complicate an already stressful yearly ritual, but small business owners are making a more critical mistake, according to a new study from Zogby Analytics and Xero, the cloud-based accounting software provider.
Zogby surveyed 400 U.S. accountants and discovered a form of neglect that can cost small business owners both time and money. The biggest mistake small business owners make is to engage with their accountants only during tax time.
Like holiday decorations that get unpacked around Thanksgiving, many business owners prepare to catch-up with their accountants only as April 15 approaches. While classic ornaments and strands of holiday lights may stand the test of time, tax rules can change like the weather and cause problems for the unprepared.
Frequent Visits Save You Money
Sixty-five percent of the survey respondents said that SMBs do better financially if they check in with their accountants more often. Simply put, the weeks leading up to April 15 are a terrible time to discover that a small business has been operating under the wrong tax assumptions and possibly leaving money on the table for nearly a year.
"Tax time is stressful for most of my clients," said Tom Compere, a manager at Los Angeles-based RBZ Accounting, in a statement. "Keeping tabs on existing rules and regulations is complicated enough, and new legislation—like the Affordable Care Act and changes in the tax code—further muddies the waters."
Nearly one-third of SMBs knock on their accountants' doors only during tax time, costing them dearly as tax professionals spend hours upon hours digging through a year's worth of finances and billing accordingly. Add to that the work required to fix mistakes or to deal with penalties that could have been easily avoided if caught earlier. To avoid this, 44 percent of accountants suggest meeting at least once a month.
According to the new U.S. CEO of New Zealand-based Xero, Peter Karpas, there's an even better way to keep accountants in the loop.
Cloud computing has done more than put big IT capabilities within the reach of small businesses, it's allowed an era of professional collaboration that provides small business owners with solid benefits, said Karpas. In the world of accounting, it's a game-changer.
Cloud-based accounting platforms, including Xero's, "allows small business owners to communicate with their accountants and accountants to communicate with their clients in a more real-time way," Karpas told Small Business Computing. They gain "fully updated, comprehensive financials in real-time."
In short, every stakeholder remains on the same page at all times. When tax time rolls around, it's often a simple matter of submitting a return. Karpas describes cloud accounting as a "better product [that] creates a better experience."
Accountants like the cloud because it "allows them to do the thing that made them want to be accountants in the first place," said Karpas. The pencil-pusher stereotype doesn't align with most accountants' passions and ambitions.
Instead, he said, most accountants feel that "the fun part is having an advisory relationship with your small business." Cloud accounting software provides an effective platform on which to forge those connections.
Cloudy, with a Chance of Savings
Another mistake small business owners make is placing their finances on the back burner, a habit that can burn them later.
Seventy-five percent of the surveyed accountants said that they can give their best money-saving advice if they have access to a comprehensive, real-time view of their clients' finances. Shockingly, 40 percent of clients do not keep up-to-date records.
Given the demands on the typical small business owner's time, it's no wonder that accounting keeps slipping down the to-do list. By leveraging the automated nature of cloud accounting tools and their mobile-friendly features, small business owners can peek into their finances while waiting in line for coffee, secure in the knowledge that cloud data centers are doing all of the heavy lifting.
The cloud can also help small business owners maximize their deductions with easy receipt-capture and expense-entry features. The study revealed that among the most overlooked deductions were depreciation (30 percent), out-of-pocket expenses (29 percent), car costs (16 percent) and office upgrades and renovations (10 percent).
Pedro Hernandez is a contributing editor at Small Business Computing. Follow him on Twitter @ecoINSITE.
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