Self-Employed? 5 Times to Independently Review Income Tax Returns
Posted on: 15 July 2020
When you are self-employed, you juggle many different tasks. Income tax filings are one of the many — but also often one of the least welcomed. So few people would want to revisit their income tax filings a second time. However, it can be a good idea in a few circumstances. What are some of these? And why? Here are five of the most important.
1. When You Lack Confidence in Your Accountant
If you have felt concerned about anything your accountant or tax preparer does, you should get a second opinion about what they've filed. Nagging doubts cause unnecessary stress, so you deserve to get a conclusion by reviewing prior or current returns with an independent accountant who specializes in tax preparation services.
2. Before Presenting to Business Partners
A self-employed taxpayer's Schedule C may be part of their documentation for presenting business opportunities to new investors, verification for getting credit, and a business plan for lenders. Because your case may hinge on the numbers you present, you should have them verified before showing them to others.
3. If the IRS or State Reviews Them
Have you received a notice from the IRS or a state taxing agency that they are reviewing your return? If so, it could be a small matter or it could be a big flag. Either way, get on top of what's going on by reviewing relevant returns with a tax preparer on your own. If you find an error or omission, you still have time to take proactive steps such as filing an amendment ahead of IRS penalties or fines.
4. When Getting Divorced
Divorce opens up your finances in a way that few other life changes will. Part of your preparation should be a thorough review of tax returns during your married life. An experienced tax preparer will be on the lookout for errors, missing income, verification of deductions, backup documentation for Schedule C income, and confirmation that all taxes have been paid.
5. If Changing Business Entities
If you switch from a self-employed business to a new entity, such as a corporation, make sure everything is wrapped up with the old business entity first. Credits and deductions, for instance, often can't be used by the new entity, so you may lose out if something wasn't done correctly on a Schedule C.
Are you in any of these situations? If so, take a proactive course by meeting with an independent accountant for a thorough income tax review and make any amendments necessary now. It may not be the most fun project, but it could save you a lot of trouble later on.
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