In Salt Lake City, designer Jenny Wecker collected pledges in the mount of $42,000 when she used Kickstarter to test market a diaper bag she had created. She received over 300 orders. Previously, she had handmade her product and marketed it on Instagram.
She indicated that she and her husband never considered the tax impact of such success. Apparently, other entrepreneurs are in the same position as they succeed at crowd funding but don’t realize that the IRS considers them to be small businesses with tax responsibilities.
Abraham Finberg, an L.A. tax accountant, says people are stunned when they receive a 1009-K and don’t know what to do. In addition, crowd funding complicates issues related to charitable giving. Is giving money toward having your company name stencilled on a food truck a charitable donation in the eyes of the IRS? Kelly Phillips Erb, a tax attorney from Pennsylvania, says the IRS has to make a decision on these nebulous issues.
English: A photo of crowd funding expert Pim Betist (Photo credit: Wikipedia)
Diaper bag inventor, Jenny Wecker, who normally uses TurboTax software to prepare her returns, says she and her husband get tax refunds. This year, she used a paid preparer. She was relieved when, despite the surprise implications of crowd funding her project, they had a flat tax year–neither owing nor being refunded money.
Since Wecker explored Kickstarter, she has gotten questions from many potential customers and has lined up retail clients and wholesale customers, too. She indicates that the crowd funding experiment taught her what mistakes to avoid and also helped launch her design business.
While you may have been doing taxes on your own in the beginning, a growing business usually needs an accountant. Unfortunately, not all accountants are the same. While some may know a lot about your type of business, others may not. Then there’s the fact that some accountants may be too busy to work with you one on one. If you’re starting to feel overwhelmed, don’t. Here are a few tips on how to choose a tax accountant for your business.
Find an Accountant That Understands Your Business
There are many different fields of work out there and different accountants will understand different businesses. It’s important that you find an accountant that understands your business or you could risk missing several tax deductions. For example, if you’re a freelance writer, you can deduct things that others can’t, such as books bought for research. An accountant that doesn’t work with writers would try to tell you that this deduction isn’t legal. That’s why you must find an accountant that knows your line of work.
Choose an Accountant That Has Time for You
Accounting isn’t as easy as some accountants would lead you to believe. It takes several hours to complete difficult business forms. If your accountant doesn’t have time to meet with you one on one to discuss your taxes before and after preparing them, you should look for another accountant.
Opt for an Accountant with Experience
There are a number of classes that turn out tax preparers in a matter of weeks. However, when you’re dealing with complicated tax issues, you want to choose someone that has years of experience. Not having enough experience can result in you being audited or paying more than you were supposed to.
Select an Accountant That Uses the Latest Technology
Believe it or not, there are still a number of accountants that do taxes by hand. While there isn’t anything wrong with this method, it will take longer to receive your return. Opt for an accountant that uses the latest technology so that you receive your return quickly and know that the IRS has received your return.
Consider the Accountant’s Qualifications
There are a number of qualifications that an accountant can have. The best accountants will have a CPA along with other certifications, such as ABV (Accredited in Business Valuation). A CMA can prepare your taxes and has passed many exams, but they lack the education that a CPA has.
Seek Out an Accountant That Can Offer More Than Tax Returns
Obviously, tax returns are important, but a business has more accounting needs. You may need to pay estimated taxes or need help keeping financial statements. Either way, there’s a good chance you’ll need your accountant throughout the year rather than just on April 15.
A good business accountant is necessary for not only getting the best return on your taxes, but preparing financial statements. Take your time and choose an accountant that is right for your business.
About the Author: Patria Bigger is a tax advisor who enjoys working with small business owners. During tax season she offers free tax support to her family members and friends but she also recommends anyone who needs help seek the advice of a qualified accountant.