It’s tax time. If you are ambitious, you may already have them done. I am not part of that category when it comes to taxes. My poor accountant usually receives my reports middle of March. Which might not be a problem if it didn’t involve 3 businesses. Even if you have finished your taxes this year already, continue to read because this article isn’t strictly about getting your taxes down this year.
When I started my first business, I went through a checklist to get my professional support team in place. I found an attorney (well two one business law the other real estate and rental), I found a CPA, and I found an insurance guy. It wasn’t until after I had my first taxes done that I learned that all CPAs are not built the same.
Big Box Tax Preparation
It’s no secret that places H&R Block and Hewitt-Jackson are not the same as the Certified Public Accountant that may operate a practice off your local street corner. If you need a description of why they are different think of it this way: H&R Block operates a business, a CPA operates a practice. A CPA practices accounting much like you say your doctor practices medicine. H&R Block is business with a procedure used for every transaction (much like McDonald’s drive thru). While I believe H&R Block and others may do okay for the Jones Family who don’t own businesses or investments, if you own either of those you are being under serviced by those companies.
Do You Dare Do Your Own?
The same goes for doing your own taxes if you own investments or a business. Tax preparation is a specialized field. If you don’t have the proper knowledge to complete your own taxes (and your online service doesn’t go in depth) then you are doing yourself a disservice. I truly believe preparing your own taxes is much like doing car repair. You wouldn’t rebuild your transmission without preparing yourself with a very complete understanding of vehicle operation and the process to rebuilding the transmission. Tax preparation is the same way when you own things other than your primary residence. You should have read a few books, watched a few tutorials on how the tax code works prior to preparing your own. Your research should include learning how to prepare them when business income or investment income is involved.
CPAs v. Tax Advisors
Now all CPAs are not built the same. The vast majority of CPAs are specialists in accounting and the procedures of filing taxes. An accountant can help your depreciate your asset, decide between accrual and cash accounting, and like concepts. But most accountants are not tax advisors. A tax advisor is one who helps you build a plan for your investments and businesses that presents the lowest possible tax liability based on your projected performance for the year. When you have a major change, they help you structure and organize said change so that it will have the smallest negative affect (or biggest possible positive influence) on your tax liability. Tax advisors are passionate about knowing the tax code in its most updated form.
It is possible for CPAs to be tax advisors but not all tax advisors are CPAs. Tax advisors do have accreditations available to them. The Accreditation Council of Accountancy and Taxation bestows tax advisors with the accreditation of ATA (Accredited Tax Advisor). This is why every once in awhile you may stumble upon an accountant that lists his or herself as “Ellis Bell; CPA, ATA”. If you prefer to have your accountant and tax advisor in one, that is the alphabet soup you look for after their name.
You may be wondering if they even should be the same person. It depends on the size of your ventures. If you own 300 rental units and have 7 LLCs you may want to consider having an accountant and a separate tax advisor. Only because keeping your accounting in line will likely be enough of a load one person. And truth be told at the point your tax strategy will be enough work for one consultant. However until you get to an enterprise level, you can certainly use one accredited person for both purposes.