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by Barbara Brabec
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How to Get a Handle on Your
Schedule C Deductions
and Work with an Accountant

by Barbara Brabec

Attention Home-Business Owners! Waiting until the last minute in April to think about your tax situation is a BIG mistake.

DO YOU TEND TO PROCRASTINATE when it comes to the topic of taxes? Always waiting until the last minute in April to think about your tax situation is a BIG mistake because there are things you could be doing throughout the year, and especially at the end of each year, to lower the amount of self-employment and federal taxes you’ll have to pay on April 15.

I know the topic of taxes is considered boring to most small business owners, but saving money isn’t a boring topic, and the more you know about the tax strategies and deductions available to home business owners, the less taxes you will have to pay. Just identifying the many deductions to which you are entitled is the first step to cutting both your self-employment and federal taxes; understanding the special tax-cutting strategies you might be able to put into place to further lower your SE taxes is the second. In my popular eBook, Secrets to Maximizing Schedule C Deductions, I've made these things both easy to understand and entertaining to read.

In talking with home-business owners nationwide, I've learned that most have no idea at all of the many tax advantages of a business based at home. They think they are doing everything right when they hire a tax preparer, accountant, or CPA to do their taxes, but if they haven't kept track of all their expenses in the first place, or even identified all those to which they are legally entitled, they will end up paying higher taxes than necessary.

From a lifetime of self-employment, I’ve learned that accountants rarely (if ever) remind business owners about deductions they might be overlooking, or tax-cutting strategies they might implement to lower self-employment taxes. They just work with the figures they are given. Only one of all the accountants I’ve worked with ever suggested that I might be overlooking a deduction. Always so busy at tax time, they just took the figures I gave them and dropped them in the appropriate slots on the tax forms, often making mistakes in the process.

Working with an Accountant

When my favorite CPA retired, I once again had to look for a new accountant. Following my own advice to others, I got a referral from a trusted business friend, had a brief interview with the man, and later went in with my usual well-prepared tax organizer. Later, after picking up the draft of my return and seeing there were some problems with it, I called for an appointment to discuss them.

First, my "draft invoice" was for $395 instead of the $300 I had originally been quoted in writing. Fifty dollars of the overcharge was for a form related to a foreign tax credit on a mutual fund that resulted in a "whopping big" three-dollar deduction. I said I should have been consulted about this since I didn't feel a puny $3 deduction was worth a $50 fee to complete the form. The accountant gave me a poor excuse about it not being his job to tell me to disregard this deduction (what was that again?), but he did remove this amount from my bill. In the end, he also removed the remaining $45 because his reason for the extra charge (that my tax return was more detailed than he anticipated) didn't hold as much water as my objection to him changing his quoted fee. (Always remember there is room for negotiation, especially when you're dealing with someone who wants to keep you as a client.)

Even when you believe you have a qualified tax preparer or accountant, you may have problems simply because tax regulations are so complicated, so confusing, and often so vague that they can be interpreted in different ways. While an aggressive accountant may interpret a particular tax rule in such a way that it becomes a valuable tax deduction for you, a more conservative accountant might say, "I wouldn't take this deduction if I were you because . . ." (which could cost you the loss of a legal tax deduction if you're less than savvy about taxes).

I was not satisfied with this accountant, not only for the above reasons, but because he had a totally different idea of how major home improvements (such as a furnace, air conditioner, or a roof) are to be deducted as part of the Home Office Deduction. I was stunned when he told me that my previous accountant—an Enrolled Agent—had been doing it wrong. That wasn’t true, of course; it was just another example of the point I've made in my tax strategies eBook about it being hard to find two accountants who agree on anything because the complicated tax laws allow for many interpretations. The bottom line here is, if you don't like the way one accountant interprets the tax laws, maybe it's time to look for a different one, which is exactly what I did.

I can't stress enough the importance of going over your return with a fine tooth comb to make sure all the figures are not only correct, but in the right place. The above-mentioned accountant—who gave me a very impressive finished product—had overlooked $1,000 in deductions that were clearly listed in my organizer. "Sorry, I just didn't see that," he said about one of the two missed deductions. He also listed the home equity line of credit interest I had that year as a separate deduction on the home office worksheet where it gave me a deduction worth only 10 percent of the total amount, instead of including it in my mortgage interest expense so I could get the other 90 percent of that amount on Schedule A. Funny how much a couple of missed or misplaced deductions can increase your total SE and federal taxes, and how much you can save just by being savvy about all the figures on your tax return.

The lesson here is that it is simply imprudent to put all your faith and trust in a tax preparer, accountant, or CPA, no matter how impressive their credentials or fancy tax package. Unless you're willing to pay the penalty in higher taxes, you need to become more knowledgeable about taxes in general, and home business deductions in particular. Above all, never assume that accountants don't make mistakes, because they do, and it's your job to find the errors.

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