COLUMBIA, MD (April 21, 2005) -The April 15th tax filing deadline is history but that doesn't mean that small business owners should close their books on taxes and forget about them until next year. On the contrary, entrepreneurs need to work with their tax professional throughout their business cycle to try and eliminate problems before they occur, according to Fiducial, an international multidisciplinary professional business services provider.

Since the best lessons are often those learned from past mistakes, knowing what troubled taxpayers this tax season is certainly warranted-and could help you save money and IRS headaches down the road:

Incorrectly Categorizing Depreciable Assets. The biggest problem for some taxpayers who poured over their receipts this year was that 'they just lumped all their expenses together into one large expense amount,' said Bill Pound, Fiducial's district manager in Stark, OR. That won't fly with the IRS, which requires that expenses be broken down into categories and properly categorized as an expense deductible in the current year or a capital asset. In the case of a capital asset, the cost of the purchase is spread over the much longer IRS prescribed life of the asset. More than a few clients found that of these large expenses, 'some of them were not expenses but, in fact, were depreciable assets,' said Pound, resulting in a higher taxable income than anticipated.

Mingling Business and Personal Expenses. Gene Polley, senior business advisor in Fiducial's San Diego office, indicated that the vast majority of his business clients came in to see him having used their personal credit card for a work-related expense or had written a check out of their business account for a personal expense. 'Don't mix the two kinds of receipts,' said Polley, or what you think is a valid business-related deduction might not be allowed for lack of proper documentation. 'Don't pay your mortgage on your business credit card. You need to keep your business and personal life separate.'

Forgetting About the Self-employment Tax. Those going into business for themselves received a surprise when they discovered that despite large deductions that offset total income on their returns, Schedule C business income was taxed separately by this tax that duplicates the Social Security and Medicare taxes for wage earners. 'You can pay zero income tax and have child and tuition credits and that has no impact on your self-employment tax,' Polley said. A client mentioned that he had $20,000 worth of interest and property taxes on a million dollar house but Polley told him he still owed his self-employment tax. 'They cannot believe it when you tell them,' he said about this additional tax that carries an effective rate of up to approximately 14%. 'They didn't put money aside for it.'

Not Understanding the Impact of Retirement Asset Distributions. A number of clients had difficulty this year understanding the tax impact of asset distributions, especially with Individual Retirement Accounts. Randy Penn, Fiducial's branch manager in Arvada , CO , told the tale of one client who took $70,000 out of an IRA and was advised by a non-Fiducial financial advisor who told him it was a tax-free distribution because it was an investment in their business. 'That was wrong because reinvesting in a business is not a valid reason among the explicit reasons that the IRS has for allowing you to withdraw money from an IRA tax free,' said Penn. 'It cost him $40,000 in taxes after including the income on his return and the penalties. So no matter how you rearrange your assets-whether you take distributions from retirement plans, IRAs, selling property or stock-everyone's tax situation is different whether it's business or personal so you need to talk to your tax advisor before you start rearranging things on your own.'

Not Seeking Proper Advice in Complex Areas Such as Like-kind Exchanges. Taxpayers often underestimate the complexity of this vehicle for saving big on capital gains taxes so Pound recently advised two clients contemplating like-kind exchanges to wait until they came into his office before they made a move in this area. One client heeded his advice while the other committed a costly mistake. For the client who came to see him, Pound says, 'We worked out the numbers and he's happy as a clam.' The client who jumped the gun, however, paid the price by selling one property and buying two others, which resulted in a six-figure gain that taxes had to be paid on. Pound noted that 'we can't help you if you don't give us the opportunity.'

Of course, not all tax season tales have an unhappy ending. By and large, those clients who worked closely with their tax professionals came through in much better shape because they did not wait until the last minute to have their tax work done. There's no substitute for having tax planning performed on an on-going basis with mid-year and year-end meetings.

San Diego's Gene Polley applauds his clients who took advantage of his year-round status as a small business tax advisor. 'The ones who took me up on it knew exactly where they stood,' he said. 'Coming to see your tax professional throughout the year is crucial. It's the only way to avoid surprises.'

About Fiducial: Fiducial is an international provider of professional business and financial services to small businesses and individuals. Established in Europe in 1970, Fiducial entered the U.S. market in 1999 through a series of strategic acquisitions and now serves clients nationwide through a network of more than 500 company-owned and franchise offices. Privately held with global revenues of more than $1.2 billion, the company is the thirteenth largest accounting firm in the world and the twenty-fifth largest in the country.

For more information, visit www.fiducial.com.