After finishing 2003 taxes, look back and ahead

By Joyce M. Rosenberg
Associated Press

NEW YORK — The arrival of April 15 shouldn't signal the end of small-business owners' tax concerns — they should take another look at 2003 and plan for 2004.

"Once you complete the return, it's a time for reflection," said Paul Gada, a senior tax analyst with CCH Business Owners Toolkit, a service based in Riverwoods, Ill. "You have an opportunity to mend your ways and fix what was previously done wrong and to do things that were done right for next year."

Gada suggests business owners first look back at the process they went through in compiling their returns. Was your tax prep software helpful? Do you need to try another type? And, if you used a professional tax preparer, how were they in terms of meeting your needs?

If you're dissatisfied, "now is the best time to pick a tax preparer for next year," he said.

This is also the time to be projecting what your 2004 taxes will be. Many business owners tend to give little thought to the current year — even though it's more than 25 percent over by the time they file their previous year's returns.

"Go back and think about things you've been doing," said Mel Schwarz, director of the national tax office for the accounting firm Grant Thornton in Washington, D.C. "Ask yourself, 'Is what I've done in the past 3 1/2 months consistent with my overall tax plan?' "

Said Gada: "Look at where you came out on your tax return. Were your taxes too high? ... If you want to reduce your liability for next year, how can you do that?"

It's obvious that you'll want to look for ways to maximize your deductions. But Los Angeles certified public accountant Gregg Wind also recommended that business owners look carefully at any losses they can carry forward into 2004 that might offset gains.

Doing tax projections is part of your overall business planning. For example, if you're buying new equipment, you'll want to consider whether you'd want to take a Section 179 upfront deduction or amortize the acquisition over a period of years. But remember that you should never make business decisions based solely on tax consequences.

You need to consider your taxes as you make cash-flow projections. Wind said he finds that most business owners aren't planning how they're going to pay their taxes; they're not putting any money aside. Instead, he said, "they're using the tax allocation to run their business." That can make for a lot of grief this time next year.

It's also a good time to familiarize yourself with tax code provisions that will apply to your business.

You can get some of the many books available on small businesses and taxes, or you can schedule a meeting in the near future with an accountant or other tax professional. You might want to meet with a tax professional anyway, even if you feel you have a good handle on tax law.

It's possible as you're considering this year's taxes that you find you made some mistakes or omissions on your 2003 return, either in your favor or the government's. This shouldn't be a cause for panic — you have three years from the date you filed your return during which you can file an amendment.

You might have found in the course of working on the 2003 return that there were deductions you could have taken in 2001 or 2002. Schwarz noted you still have time to amend those returns and get back taxes you paid.

Some business owners worry that an amendment will flag their return for an IRS audit. But, said Wind, "if the return is questioned, as long as the taxpayer has adequate documentation, there's nothing to fear."

Many taxpayers, finding a mistake that shortchanged the government, would rather just keep quiet about it. Not a good idea.

"You really have a duty as a taxpayer to correct the error," Wind said.

But let's say you find something in your favor. You might not want to immediately dash off an amended version.

"There is something to be said for waiting and making sure that you've got all the things you want to amend the return for," Schwarz said. "You don't want to get into a situation of serially amending the return between now and your extended due date," in three years.