Growing Pains: Tax Hurdles During Business Growth

It has been said that nothing is certain except for death and taxes. Tax season isn’t something that generally ranks high on anyone’s list of favorite things. For many small business owners, filing taxes on behalf of their business can be a daunting task, made only more complicated as your business grows. When it comes to the hiccups and hurdles of taxes for a growing small business, we spoke with Luke Roessler, Officer at Mahoney, Ulbrich, Christiansen & Russ, P.A. for an expert’s take on taxes.

According to Roessler, two of the biggest tips for small business owners are to get organized and to forge a relationship with a tax expert early. Many business owners are traditionally self-sufficient and try to manage their taxes on their own. “You don’t have to do it alone,” Roessler says. “If you need help, asking earlier rather than later is always better. An ounce of prevention is worth a pound of cure.” Even though many business owners are worried about the costs of professional tax assistance, the potential savings and the time gained back generally outweigh the costs.

Preparation is also key in Roessler’s eyes. Building a good framework from day one of your business will make your life infinitely easier when it comes time for tax season. Roessler suggests utilizing systems for tracking all inflows and outflows of your business from the start. That doesn’t just mean keeping an Excel document – bookkeeping software will save time and money every season. This tracking will get more complicated as your business grows but is vital to measuring the real-time results of your expenditures and efforts. Many people think accountants are continuously looking to the past but keeping complete records allows you to leverage that data to inform future decisions.

A major source of complication during a period of growth comes with employees. When a small business adds employees other than the owner, it greatly complicates the tax considerations for that business. Payroll, healthcare and benefits all affect the way that a business needs to approach their taxes. When starting a venture, knowing whether you are going to start with employees other than yourself or if you plan to add employees down the road will give you a leg up when preparing and collecting tax data. Because of the large increase in variables, the addition of employees is where Roessler sees many small business owners who did their taxes themselves run into difficulty. Once again, reaching out to a professional before you add employees can reduce stress and the risk for error down the road.

Entity choice is very vital to any small business’s tax preparations. When choosing an entity, speaking with a tax professional is important to make sure that you are aware of the requirements and benefits of each entity type. For businesses which are already running, it can still be important to consider your entity type. According to Roessler, upcoming changes to tax laws can have a great effect on entity choice. Many business owners should be examining their business to make sure that their entity is still correct for them or if they should reevaluate their choice.

Although it may seem like common knowledge, for small businesses, early preparation and professional assistance are pivotal to success come tax season. Building those systems and relationships from the beginning of your business’s life cycle is important but, as Roessler says, “It’s never too late to start good tax habits. Every period of growth will introduce changes to how your taxes are handled, so make sure you are continuously making time to work not just in your business, but also on your business. Don’t hesitate to ask questions.”

Luke Roessler, CPA, is an Officer with Mahoney, Ulbrich, Christiansen & Russ, P.A., a public accounting firm located in St. Paul, Minnesota. His firm provides a full range of services for small businesses, affordable housing developers, nonprofits, and many other clients in the Twin Cities and across the country. He can be reached at (651) 281-1839, or at lroessler@mucr.com.