Most tax preparers, including many CPAs, are skilled at getting your numbers into the right box on the tax form. That’s just reporting what happened. It’s not helping manage what happened in the first place so a different number could go in the box, resulting in less tax. Your tax forms must be properly filled out but thinking about that before committing to the transaction is the only way to reduce your tax.
The tax law contains more than a million words. Albert Einstein is credited with saying, “The hardest thing to understand in the world is income taxes.” Experience with the tax law is critical. A formal education in the law coupled with experience is priceless. Figuring out which box to put your number in isn’t as difficult as figuring out how to structure the transaction before it happens so the number is different. That takes a specific skill set. Your circumstances change. The law changes. No one has the experience with the new law. It’s critical at that point that your CPA has the formal education in the law so they can help navigate the new law as experience is gained.
Your CPA needs to have the time to talk with you about your situation and to think about how to minimize your after-tax cost. That takes effort. And effort takes time. When a CPA has too many clients, they don’t have the time needed to ensure the best outcomes. To have the time, their rates must be higher upfront. But your interest should always be in the after-tax cost of your CPA. If they cost you $20,000/year and saved you $40,000/year in tax, they were well worth the cost. Your preparer that cost you $2,000 for the year and saved you nothing cost you $18,000 in taxes. That’s penny wise and pound foolish. Some years of the relationship with your CPA will be better than others when it comes to tax savings, but as a business owner you will constantly face situations needing the expertise of a thoughtful CPA.
Accounting done right can save small service-related businesses many thousands of dollars in unnecessary taxes and IRS penalties—making it an incredibly important investment. Piecemeal, not well-thought-out solutions typically cost the business—and its owners—dearly. Despite this, many small business owners end up spending more time selecting a new automobile than they do on an Accountant. Here’s the rub: Many owners could end up paying for that automobile—and then some— with the money saved by accounting done right.