Before we cover what questions to ask, there are a few basics
every business owner needs to know.
- CHECKS AND BALANCE Every enterprise must have checks and balances. Even if you are a sole proprietor with no employees, you should have someone else reviewing your books to make certain your tax return is based on a strong foundation. Most CPA’s will take your money to prepare your return, but that return is not of value, if your books do not have integrity
- CONTROLS If you do have employees, then you need controls. You can watch your local paper and see small business embezzlement reported at least once a week. A business hires a bookkeeper, and after a few years you begin to trust and give more and more control. It starts with a tank of gas and doesn’t end until thousands or hundreds of thousands are gone. If you need controls, then your CPA can either provide them or help you put them in place
- ADVICE Everyone needs advice, if you don’t, you are just kidding yourself, there is no way anyone can know everything they need to know. The question you need answered, is what kind of advice do you need, and where should you be getting that advice
You need to think of your CPA as your primary care Tax Physician. He/She should know enough to recognize opportunity, and once recognized, they should know who to refer that opportunity to. If your PCA / Tax preparer does not have a network of experts, they will try to make the determination themselves as to the best course of action. In most cases that CPA / Tax professional will simply tell you its not worth it, and push you to move on.
A true story, I was meeting with a friend about some tax strategy work for his firm and the question of structure came up. In our research we found that he was over paying nearly $50,000 a year in self-employment tax. When he asked his CPA about it, the CPA brushed it off by saying that it would cost him $7 or $8,000 to fix it and would only save him $8 or $9,000. The real answer was that it costs him a few hundred dollars to correct and the savings was $50,000, per year. When I asked him how long did he have incorrect structure; he responded by saying about $500,000 worth.
- LONG TERM PLANNING: You do need to keep you CPA for your lifetime, but your planning should be. The fact is you are going to be paying taxes for the rest of your life. Your tax planning must be based on what is best for you now and in the future.
- COST VS. SERVICE: DO NOT shop by cost. One of the biggest obstacles you face in getting good tax advice is that your CPA / tax preparer is competing with software. It is estimated that about 30% of US tax returns are currently being done overseas. Tax returns have become a commodity and with all commodities, there is a product and a price, and the free market system dictates that price. Shopping by price will get you a compliant correct tax return, that cares little about how much you are paying, only that you will not get an audit.
Business returns, including 1040 schedule C, simply cannot be done effectively and efficiently only by software.
- CREDENTIALS AND TRAINING: Even a CPA with 20 years of continuing education can have almost no training on business tax strategy. So, credentials by themselves are of little value. But let’s start with what is out there
- CPA = master’s degree with 40 hours of annual CE required training
- EA = Certification with IRS exam with 24 hours of annual CE required training
- Accounting or tax professional = Who knows, I have met with hundreds of tax professionals and some of which have thriving practices and their entire training was a 2-week course, through H&R Block or Liberty Tax. Some of these firms do a really good job but recognize that there is a difference.
- ON-GOING SUPPORT: You may only file a tax return once a year, but you should be asking for advice much more often than once a year.
- WHO IS DOING MY WORK: You may not want your CPA helping you with monthly journal entries, a supervised controller that bills $75 an hour would be just as good, instead of the CPA who bills at $150 an hour. But you don’t want your tax return sent someplace else to have it done.
- WHAT ARE YOUR RESOURCES: Know before hand that you have access specialists when the need presents itself.
- WHAT ARE THEY GOING TO BE LOOKING AT: If the only thing your CPA is going to look at is your books for last year, then move on and find someone that will look both forward and backward. You deserve better, you did not go into business just for the headaches and stress. There are a lot of opportunities you should be taking advantage of and your CPA should be the one leading the way toward those opportunities.
In Summary here are my 10 questions you should be asking your CPA / Tax professional
for me I would require at least an EA, but only if the rest of the answers were satisfactory, I would avoid someone that is not a CPA or an EA)
Remember that a CPA has 40 hours per year and an EA has 24 hours per year. You need someone that wants to be learning as much as possible about tax strategy planning, not so they can be an expert, but that they will know when to apply those opportunities)
The tax code was written not to generate revenue, but to motivate people to act in a certain way. The fact is the government wants you to take advantage of the incentives it offers.
If the percentage is above 40% for the Schedule C or 1065 combined, it shows that he/she is not helping the business as it grows. A 1065 may be simple but as they grow most businesses will be better served by converting to a 1120 or 1120s
You do not want just a tax-shop, your CPA should have some knowledge of business cash flows and ways to improve them
) believe it or not, there are many tax firms that do not like accounting and because of that they don’t want to help you. You need someone that like to get into the weeds. Its in the weeds that the big problems start.
A tax professional is going to sign your return. Many do not want to look at your books in order to have deniability, if a problem comes up. You want a firm that requires you to send over the accounting files.
If they are not asking about your goals, what you are trying accomplish then move on. The tax code is goal based. They cannot do a great job for you if they do not know what road you want to be on.
A. ERISA planning for both Funding and Distribution
C. Succession planning
D. Tax-Loss Portfolio Harvesting
E. Gifting Appreciated Securities
F. Research and Developmental tax credits
G. Cost Segregation depreciation
H. Business Structure & Trust work (attorney)
I. Intellectual Property off-shore planning
Answer : No one will have experts lined up in every opportunity, but you are looking for is a pattern for bringing in experts. You very well may need to bring in your own expert. But if they are not currently working with experts, they will be uncomfortable doing so.
Don’t be afraid of an audit. Today’s software is written so that you will not be audited, but that is not a good reason to be aggressive. The software will also lead you to pay thousands more than you need to. Its not about being aggressive, its is about taking advantage of what is being offered. The more your CPA knows this the more help they will be to you.