Idea Cafe’s Guide to the IRS Site

As you can imagine, the Internal Revenue Service site is huge -- there are so many issues and situations to cover. They have a nice subsection for small business but even that is so deep it’s still somewhat daunting. Only a few topics can be seen from the top level, but as you start to dig deeper, there’s so much there, you can quickly hit overload.

To make your experience of the IRS site more fun and less time-consuming, we’ll offer you Idea Cafe’s guide to areas we’ve discovered that we think are most interesting for small business owners. Plus we’ll list others you should know about -- such as specific help for common problems some types of businesses encounter.

Our recommendations for small business on the IRS site

• IRS “home page” for small business
This page, titled “Small Business and Self-Employed One-Stop Resource”, is your hub for small business info at the IRS site. Its link shows up under the “Business” link from www.irs.gov. This is the place to start for anything you ever want to find on small business, although you probably won’t see the specific thing you are looking for from this page, you can always use IRS search box, which is on this and most every other page.

Small Business/Self-Employed

• Frequently Asked Tax Questions And Answers
A super resource with short, succinct answers to just the types of questions you’d like to ask. Like “Can a husband and wife run a business as a sole proprietor or do they need to be a partnership?” or “Can you give me plain English definitions for the following: (1) a closely held corporation, (2) a personal holding corporation, and (3) a personal service corporation?” After the short answer you get links to more detailed publications. Oddly, this great FAQ section is somewhat buried -- it should be more prominent.

Small business FAQ page
All topic FAQ index

• Operating a Business
if you are in business or going into business be sure to glance at this page just to know what’s there. It points to a number of important small business topics, including business tax credits, accounting periods and methods, intangible business property and more.

Operating a Business

• Starting a Business page
Here’s the hub for startups. It leads you into tax-related aspects you need to know about, but isn’t overwhelming.

Starting a Business

• IRS resources helpful to small business owners
Another page of good resources for startups. It features educational programs in various format options like streaming video, Powerpoint® presentations and CD-ROMs you can order. If you’ crave step-by-step handholding with basic small business tax topics, try these.

Online Classroom

• Avoiding tax scams
The IRS and the Department of Justice aggressively pursue and penalize tax scam promoters. IRS links to a tax scam section from the small business hub page. Here are some of the articles you might want to check out:

Tax Scams - How to Recognize and Avoid Them

If you feel you’ve been the victim of a scam and were led to screw up your own tax return, this tells you what to do now:

Abusive Home-Based Business Tax Schemes - Questions and Answers

Here’s the list of the latest tax scam fads. It appears to be updated every spring.

Dirty Dozen Tax Scams

• Help for specific business types
For selected industries, such as child care, construction, cosmetology, real estate and restaurants the IRS offers specialized.ax tips and trends and statistics. See if your industry is included.

Industries/Professions

• Bingo! sole proprietor income and expenses by field
What a gem, hidden eleven layers down in the IRS site! With this sampling of data from recent Schedule C filings, you can find out what you’ve been dying to know -- what other businesses like yours make! There are over 135 different business fields listed, from auto body shops to attorney firms, day care to technical services to laundries and many others, so you will probably spot your own specialty or something similar.

This report shows by field how many businesses filed, total income reported for the whole field, total deductions by category and total net income. Unfortunately it does not show what the average individual business in each field reported, but you can find out by doing a little math. Just divide the overall field totals by the number of returns submitted in that field to arrive at the average per firm. Now you can see how your company compares to the average for your industry.

Of course any field includes companies of diverse sizes. For example in the furniture store category, some companies may have just one location while others have several. So instead of just looking at dollar averages, it would be more helpful to look at relative percentages of the different categories to total sales. This can be easily figured by hand or by tossing into a quick spreadsheet.

Then you can compare the percentages of your own business numbers to the average for your field. The industry average percentages will show you roughly what the IRS compares your return to. As we discuss later in the Tax Savings section, an out of proportion expense can flag your return for audit. So use this tool to help you avoid audits as well as to see how you’re doing compared to your industry as a whole.

The data that can be computed from this report is also helpful for business plans. If you’re working on a business plan or an update, this source may give you the numbers you’ve been trying to come up with for your financials.

Sole Proprietorship Returns, 2002 by Pierce and Parisi (PDF)

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