7 Mistakes to Avoid When Hiring a Business Tax Preparer
If you decide you need a tax preparer, first think carefully about these seven mistakes businesses make in selecting a tax preparer so you can avoid them.
Looking for the Cheapest Person and the Cheapest Solution
You might fly the cheapest airlines, but you wouldn't look for the cheapest doctor, would you? Finding a professional advisor of any kind based on price is misguided and can cause you to spend more money.
Looking for a Preparer Just for Tax Season
The term "professional tax advisor" is preferable to "tax preparer." A professional tax advisor is a certified public accountant (CPA) who can look at your company's financial statements at least quarterly and help you plan to minimize business taxes.
Your tax professional should be able to tell you about changes in the tax law (like the most recent change, the Tax Cuts and Jobs Act of 2017) and how they might change your business tax strategy.
A good tax professional will spend time with you at least on a quarterly basis to discuss strategy and long-range planning for taxes into the future. You should get questions like, "What are your profit estimates for the next few years?" and "How do you see your business growing in the future?"
Hiring a Non-Professional to Advise You on Taxes
The word "professional" means someone who is qualified to evaluate tax situations and advise on them. This isn't your neighbor who dabbles in taxes or thinks he's an expert because his business was audited by the IRS and he knows what they are looking for.
An accountant might be competent to help you, but if your business is complicated at all, your tax advisor should be a CPA or Enrolled Agent.
Find a tax professional who is willing to play offense on taxes and to assertively go after tax savings measures. Your strategy should be "What's the least I need to pay in business taxes—legally?" (It might be helpful to read this article about tax avoidance versus tax evasion.)
Not Looking at the Big Picture
Your business is about more than taxes. A tax strategy you select should be part of your larger business strategy. What might be the best solution for a tax problem might not be the best solution for your business as a whole.
Some tax preparers will tell you, "Incorporate in Delaware or Nevada; it's cheaper." Actually, it's not (read what an attorney says about incorporating in Delaware or Nevada), and it can be more complicated.
Or maybe your tax advisor wants you to form an S corporation, from your sole proprietorship. The corporation might be a great idea from a tax standpoint, but S corporations are complicated, and you must understand all the complexity.
Accepting Easy Answers
A good mantra for dealing with any professional (any business person in general) is "Trust, but verify." That is, don't accept that the solution proposed by your advisor is the best one. Take the time to get a second opinion, or do some research on the Internet.
It's not that you don't completely trust this person, but you're the one who is responsible for your tax return, and it's just prudent to make sure you are doing things right.
Telling you to dump money into a "qualified plan" is an easy end-of-year strategy. Find an advisor who will guide you through the decision process for these plans at the beginning of the year, not the last minute.
Doing Your Business Taxes Yourself
Finally, the biggest mistake small business owners make is attempting to do their taxes themselves. Business taxes aren't like personal taxes. Business taxes include complicated reports like cost of goods sold, depreciation, and business driving expenses. Unless you spend your life talking about and thinking about these things, you could make a mistake that will cost you money.
If you want one more reason to get a professional tax advisor, here's a word for you: Audit. Hiring a tax professional who can go with you to an IRS audit can save you lots of time and stress. And if your professional tax advisor does the job right, and you have good records, maybe you might be able to breeze through that audit easily.