I know I just wrote a tax blog a couple weeks ago, but I felt compelled to write another one. A lot of business owners hire someone to do their taxes. There are so many reasons for doing this. You may not want to deal with all the technical language and changes in tax law. I get it…I’m a CPA and I don’t even like keeping up with tax law details (shout out to all my tax referral partners that help me offer a full service to my clients!). You might hire someone to make sure you aren’t paying more taxes than necessary. This is also completely normal and reasonable but it can get you into dangerous territory. Being a profitable business owner that makes enough money to pay your personal bills, go on vacations, and invest in the things you love…means you made a PROFIT. The goal of every business owner is to maximize their profits. The tax law has plenty of grey area in small business tax deductions but that is not the same as making things up. If your tax person is pulling a rabbit out of a hat…take a second look.
You Know What You Know
You are a successful business owner. That doesn’t happen by accident. You’re amazingly smart and good at what you do. You have an idea of what your sales and expenses are. If you know you made a profit but your taxes show a loss, that’s red flag. Heck, if you know approximately how much business money you used for personal expenses (and what’s left in the bank)…your taxable income probably isn’t that far off. Like I said, there is some wiggle room on tax deductions and some expenses have slightly different treatment for bookkeeping vs. taxes.
You can do some simple math, without getting into the details and nuances of tax law, to gut-check your business return or schedule C.
Net Income = Revenue – Expenses
This “simple math” gets a lot more complicated if you don’t know your revenue and expense. Keeping accurate books and records is important for taxes but it’s more than that. Your books and records are the key to your profitability. So here’s your friendly reminder that this is EXACTLY what we’re here to help with when you’re ready for it!
But back to taxes…
At the end of the day, if you feel like your taxes are off, they might be. Listen to your instincts and what you know about your business. Ask questions! Even though we rely on the knowledge and expertise of our tax preparers, they are not ultimately responsible for our taxes. If your tax return misstates your taxable income, you will be responsible for the potential audit, penalties, and back-taxes. A good CPA or tax preparer will assist with the audit but the IRS is going to contact YOU.
Tips to Finding a Good Tax Preparer
Whether you use one of our tax referral partners or find your own. You deserve reliable tax preparation. Here are a few tips to help you find just that!
Not all Tax Preparers are Created Equal
The IRS requires a Preparer Tax ID Number (PTIN) be used by anyone that prepares federal tax returns for compensation. It’s not difficult to get a PTIN. We recommend you take it a step further. Look for a credentialed tax preparer (CPA, law license, or enrolled agent designation). All of these credentials have additional education requirements. You can verify their PTIN and credentials on the IRS website.
CPAs have Specialties
It’s extremely easy for a CPA to get their PTIN, I’ve done it. But being a CPA doesn’t mean you do taxes. We all learned about taxes in school and had to test on them for our certification, but we all choose a path or specialty. Not every CPA specializes in taxes. Ask what they’re specialty and experience is in. You should also ask for and lookup any CPA on their state board for actions that may have been filed against them.
Fees and Guarantees
Most tax preparers will charge set fees based on the components of your tax filing (state, federal, schedule C, itemized vs standard deduction, or other additional forms). Some tax preparers may charge an hourly rate, especially if you need some level of bookkeeping to be performed to populate your return. If your tax preparer is basing their fee on your refund or guarantees a refund, proceed with caution. CPAs are generally banned from this form of payment or guarantee by their code of ethics.
E-File and Willingness to Sign
The IRS requires tax preparers with more than 10 returns in a year to e-file. If your tax preparer is unwilling or unable to file your return electronically, they may not be filing very many tax returns each year or they are not filing them under their PTIN. Which brings me to the next point. PTIN preparers are required to sign the tax returns they prepare. But we aren’t writing this article to discuss the people that do things the “right” way. Your tax preparer should be willing to sign the tax return and even represent you in front of the IRS if applicable. Never ever sign a blank tax return. The tax preparer could fraudulently file the return and steal your refund (by using their personal bank account information).
This builds on the last tip. A good tax preparer should be able to clearly articulate what they did and why (for both you and the IRS). If you have any question about a number that doesn’t look like you expected or a deduction you thought you should/shouldn’t get, ASK. Even if you don’t have a question, find something to ask. If your tax preparer is unable to answer a question about tax law or your specific tax scenario, you want to find a new tax preparer.
5 TIPS TO HIRING THE RIGHT TAX PROFESSIONAL
I’ll get off my soap box now. It just really bothers me that so many people flock to the refund and it can sometimes be to your own detriment. Most tax preparers are great and have great advice and tax strategies to minimize your tax burden. That’s their job! But remember, the goal of every business is to make money! With profit comes taxes. It’s just a part of business. Don’t let someone convince you to risk the business you love to keep a few extra dollars from the IRS.