About a year ago, Paul Graboff, a graphic designer in Takoma Park, Maryland, began gathering financial records from his business for his annual visit to his accountant. He was feeling pretty good about the money he had made in 2013. The three lean years he’d spent establishing his business paid off.
A couple of months later, Graboff received a rude awakening. Didn’t he know about the self-employment tax that would shave an additional 15 percent off his income? Hadn’t he been paying enough estimated tax on the money he was earning? Graboff owed more in taxes than he had in cash. That meant he’d probably have to defer buying that important new Macintosh equipment a little longer.
“When we got involved, he was already behind the eight ball,” said Terry Rice, the Washington, D.C., certified public accountant to whom Graboff turned. “There wasn’t much we could do about 2014.”
“Terry told me to go ahead and budget for good new equipment in 2014,” said Gradoff. “He told me I could write off up to $10,000 a year in office equipment. He explained how I should set up a tax-deductible home office, and he gave me advice on how to develop a business record-keeping system that would work.”
Gradoff no longer uses Rice “like an H&R Block.” They talk regularly on the phone, and Rice helps Graboff steer the finances of his business. Their relationship illustrates the ways in which entrepreneurs can use CPAs all year long, in ways that go well beyond traditional tax filing.
WHY HIRE A CPA?
Here are just some of the things a good CPA can do for you:
1. Help select your record-keeping and billing software.
2. Set up a bookkeeping system that will give you valuable information about your business all year long.
3. Tell you when to buy and when to lease new equipment.
4. Set up a tax-deferred retirement plan for you and any employees you might have.
5. Figure out the best structure for your business and tell you when to incorporate.
6. Help with “succession plans” if you want to transfer your business to your spouse or children.
7. Help you write your business plan.
8. Produce the data for getting a loan.
9. Tell you when to borrow and when to pay cash.
10. Refer you to the right attorney, management consultant, or marketing expert when you need one.
11. Figure out which products and services you are making money on and which ones you aren’t.
How much will all this cost? Thomas McGlinchey, a CPA from Little Neck, New York, says you should always get more back than you pay. “If you spend $250 to talk to your accountant, you should be able to walk away with something you can leverage. If the advice is worth only $250, you aren’t making any money.”
Jerrell Atkinson, an Albuquerque CPA and chairman of the American Institute of CPA’s Private Company Practices Executive Committee, says that while the partners charge between $125 and $175 an hour, his firm provides a range of services to clients at hourly rates that average $72 an hour.
HOW TO ENRICH YOUR CPA EXPERIENCE
The best way to get the most out of your CPA is to select one that is right for you in the first place, Atkinson says. Here are some tips for finding and working with an accountant.
Start with an accounting firm that is about the same size as your business. “If you are a mom-and-pop candy store, don’t hire Coopers and Lybrand,” says Irvin Feldman, a certified management accountant (CMA) from Queens, New York. An accountant whose firm has about the same number of employees as yours or a few more will probably understand the scale of your problems, have respect for the limitations of your budget, and have the time to spend on your account.
Look for knowledge of your field. Oil and gas drillers have their own tax issues; artists have theirs. Ask people in your field for recommendations for accountants and make sure before you hire one that he or she understands the peculiarities of your business.
Seek computer literacy. Computers’ play a big part in business accounting, recordkeeping, tax planning, and tax filing these days. If you work with an accountant who can’t give you advice about your systems and software, you’re missing an opportunity.
Ask about the CPA’s stance on questionable deductions. “You don’t want a CPA who works for the IRS,” says Atkinson. “In contrast, if I have anything to hang a hat on, I’ll hang it.” If you fear an audit more than anything in the world, look for an accountant who’s more cautious than Atkinson. If you want to stick your neck out, look for someone who can think creatively but will clearly show you the pros and cons of each deduction.
Consider hiring a CMA instead of a CPA. A certified management accountant is not licensed to perform legal audits, but can prepare your taxes and may offer more in the way of financially based management decisions. Feldman notes, “Management accountancy is more concerned with the problems one faces in running a firm on a day-to-day basis. I can tell you how much you should charge for a particular product, how profitable a product is, where to put your cash register to maximize sales.”
Use the same accountant for your personal and business issues. People who run partnerships, or sole proprietorships especially, find their tax forms integrate their businesses with their family finances. A good accountant can show you how to manage both to minimize expenses and taxes.
Invite your CPA to visit. “Often I can get ideas about how to help my clients just by seeing how they work,” says Rice.
Budget for a midyear planning session. Accountants have time in the summer that they don’t have in mid-March. Schedule a meeting to go over your finances, and plan your expenses and tax-related activities for the rest of the year. It’s often cheaper if you make appointments outside of tax season.
Contact your accountant about major finance-related issues. Whenever you have or expect an “event,” says Atkinson, like an inheritance, a long-term contract, or a move to a new home, call your accountant. By structuring the event before it happens, you can often save big on your taxes.
Call when you have questions. Don’t be afraid to ask questions about business matters such as, Should I spend $1,000 to advertise this $50 service by direct mail? or Should I borrow money to buy this printer or just lease it? Accountants can crunch numbers faster than you can, so it might be worth paying for an hour or two of their time to get a quick bottom-line answer.
Use their contacts. An accountant with a number of small-business clients often has his or her own network of computer consultants, marketing experts, and attorneys. Your CPA can often put you in touch with the professional you really need.
Tags: accountant tips, tips for hiring a cpa