Tax Tips for Procrastinators

With time running out to prepare 2007 returns, experts offer entrepreneurs advice on increasing deductions and reducing liability

by Karen E. Klein

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Editor's note: An earlier version of this column contained an incorrect number regarding the amount of compensation an entrepreneur can use to fund a SEP-IRA. A reader pointed out the mistake. The writer confirmed it with the original source, who explained that he had meant to say 25% instead of 100%. This is a corrected version.

April is right around the corner, which means it's tax time for individuals and unincorporated small businesses. If you're one of the many entrepreneurs who has put off thinking about taxes until the last minute, you're certainly not alone. Smart Answers columnist Karen E. Klein recently asked several tax experts to discuss common issues and offer advice for tax-return procrastinators.

Stop Stalling. Although you're getting a late start, you've still got two weeks to pull your paperwork together, figure out if you're missing documents, and track them down from your clients, vendors, or lenders. Along with all the practical reasons to get cracking, this year there's a financial incentive as well, says Kathy Harrison-Suits, a federally licensed, enrolled agent with Summit Capital Advisors in Tacoma, Wash. "In order to qualify for your tax stimulus rebate, you have to file your tax return. There's one more reason to get it done sooner rather than later," she says. Tax rebates will range from $300 to $1,500 for most households, but they won't be mailed until your return is filed with the IRS. So stop beating yourself up, and get to work. "It's normal to procrastinate, everybody does it," she notes.

Use Last Year's Return. When you sit down at that kitchen table with piles of paperwork, it can be overwhelming. Start by letting your 2006 return be a guideline for the documents you should have. "If you had an item of income or expense last year, you'll probably have the same thing or similar this year," says Keith Hall, a national tax adviser for the Dallas-based National Association for the Self-Employed. "It's a good way to check off the documents you need to file and go searching for the ones you're missing."

Check and Double-Check. Take your time and double-check all your numbers before you file. If you prepare your tax return yourself, use an automated software package. "If nothing else, it will eliminate math and number transposition errors, which are the No. 1 reason the IRS kicks back returns for corrections or more information. If you file online, the IRS software will check your math for you," Hall says. "Nobody wants to get that little white envelope with 'IRS' in the return address corner."

Hire a Pro. Although most entrepreneurs are probably capable of preparing their own returns, especially with today's affordable software, having a professional put together your return is preferable. "I recommend a professional, given the current IRS environment where audits are getting more common," Harrison-Suits says. Getting help is probably more cost-effective than you think. "Consider how many hours you'll have to spend, how much time it will take away from your business and your kids, and how much you'll spend on Advil," Hall advises. "Based on the sheer complexity of the tax code, it's probably worth it to pay a couple hundred dollars to have someone do it for you." Particularly if 2007 was your first self-employed year, or you bought or sold significant assets, or you brought on an employee, it's advisable to use a professional. Next year if things are pretty much the same, you might be able to do it yourself by following your 2007 return.

Don't Leave Money on the Table. Look through your business checkbook to find deductible business expenses, but don't forget there are legitimate expenses that don't turn up in your checkbook or your credit-card statements, like business use of your car or home office deduction.