NAICS in the Grass - Don’t make this mistake in your tax filings

Feb 8

The North American Industry Classification System (NAICS) is the code on your tax return used to categorize types of businesses as a tool to evaluate the US economy.

Why does this matter to me? Lenders, banks and insurance companies reference NAICS codes when qualifying loans and determining policies – meaning your code can impact your premiums or the ability to get a loan at all.

For example, with a Small Business Association (SBA) 7(a) loan (according to the Standard Operating Procedures), a business can finance the entire acquisition of another business with the same NAICS code. That means a loan for up to $5,000,000, often with $0 down!

Make sure your filer uses the right NAICS code on your tax return this year. If you amend your return, the new code is buried in the amended return. Best practices is to have at least one year showing the right code.

See:
Schedule C - Line B
S-Corp Form 1120S - Line B
C-Corp 1120 - Schedule K Section 2 line A-C

NAICS codes are six digits long. The SBA requires all six numbers to match exactly for the business to finance 100% of the acquisition, but there is a movement for the requirement to be lowered to the first five, or even four, digits.

So – This tax season, make sure your company has the proper NAICS code and emphasize its importance to your accountant. Verify your code here – https://www.census.gov/naics/.

Shout out to Daniel Talbott and Shannon Hay for raising this issue!