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Are You Overpaying Taxes If You Use Tax Preparation Software?
By Richard Chapo
For many business owners the answer to this quandary is tax preparation
software. Fill out a fairly simple interview, click print and
out comes a completed return that will pass muster with the IRS. The answer
to all your problems or is it?
Can One Software Program Cover All Businesses for tax preparation?
Take a moment to consider the wide range of businesses that exist in the
United States. Now cut that number down to those that can be categorized
as Internet businesses. If you were asked to write a business
plan to provide web design services to each of these services, how long would
it be? It would be huge and completely useless because each business would
have different needs. A Internet business selling flowers would have completely
different needs from an online bank which would have different needs from
a hosting company and so on. The only way you could create a practical plan
for all Internet businesses would be to offer a collection of general services
they could all use on their sites. Tax preparation software designers
have the same problem.
There are over 15,000 pages in the tax code and over 100,000 pages of regulations
interpreting those pages. Changes are made to the tax code ever year, and
new regulations are issued constantly. If one were to create a list of questions
for every tax preparation deduction and credit detailed in those pages,
the list of questions would be the size of a phone book! Yet, tax software
programmers have somehow boiled it all down to a simple 30-minute interview
process? Common sense should tell you that doesnt make sense.
As practical matter, tax preparation software programs are designed
to make sure that you claim a general set of deductions that are applicable
to businesses across all industries. Most programs try to mask this fact
by asking you to identify your business before proceeding. For a lark, you
might try selecting another industry and then running through the interview
process. You will find that the interview process is modified a bit, but
you are still being asked the same basic tax deduction questions.
If you are only claiming general business tax deductions, you are paying
more than you should in taxes. Ask yourself if you have seen any of the following
questions in a tax preparation software program interview:
Q. Do you store business inventory in your house?
Hint: You may be able to claim hundreds or thousands of dollars in deductions.
Q. Did you start a pension plan for your employees?
Hint: You may be able to claim a tax credit for the next three years totaling
Q. Do you have a home-based business and a second office?
Hint: You may be able to deduct your commuting expenses each day. Yes, commuting
Q. Do you have business meetings at your home?
Hint: Did you charge your business for the space?
Q. Should you claim the standard mileage rate for your auto or the actual
Hint: The standard mileage rate may not the best option.
Q. Did you modify your business location to comply with the Americans with
Hint: You may be able to claim a tax credit AND tax deduction for tax savings
of $20,000 or more.
Q. Did you refinance your home?
Hint: The points you paid on your original mortgage are fully deductible
now, not over the length of the loan.
This represents only the tip of the iceberg of available credits and deductions
available to you. Just one of these deductions could save you thousands of
dollars in taxes. Yet, you are never going to see these questions raised
in a tax preparation software program interview. The tax code
and regulations are simply too large to be incorporated into a usable software
Your business is unique. You face and overcome issues and problems that are
unique to your size, financial situation and particular business needs.
Dont short change yourself by limiting your deductions by using tax
preparation software programs.
Richard Chapo is CEO of
- Obtaining tax refunds for small businesses by finding overlooked tax deductions
and credits through a free tax return review.
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