The Lunch and Learn yesterday was quite a success. Some of the topics I went over, ironically one of them being how to pay your accountant less, were met with helpful questions and led to the group discussion “learning” portion of the lunch. I’d like to go over some of the points I made just to recap and not leave out anyone that couldn’t make it.
How Prepping Can Save You Accountant Fees:
This seems like a self-defeating point to make, but in fact it’s the opposite. Most of our workload is done just a few months out of the year and the way you pay me less is by having your documents organized. By saving me time, it saves you money. Using expense and mileage apps organizes the information that you need and if you’re averse to technology, go through your shoebox of receipts ahead of time. Organizing the information you gather from your documented expenses onto a sheet of paper that your accountant can decipher is very helpful. Save the documents for your records, all an accountant needs is the numbers.
Another way to save money is to get your documents in as early as you can. It’s not uncommon for accountants to charge more for their work if you really put them in a time crunch. This comes in handy in a couple ways, in fact. Preparing your tax return early doesn’t necessarily mean filing your taxes early. I recommend waiting until mid to late February to be able to adjust to any amendments that might be issued by then. Also, it is helpful if you plan on filing for an extension. You need to have a good estimate of your tax liability before filing for an extension and the best way to make that estimate is by preparing a tax return.
One more note on organization. If you’re self-employed, it is important to clearly separate your personal expenses from your business expenses for your accountant. Again, it is a time saver. Furthermore, separating your expenses by becoming a corporation or a limited liability company saves your personal finances from being encroached upon if your business is on the hook for any sum of money. Separating your finances also helps you claim the “reasonable compensation” you’ve paid yourself throughout the year. The format in which you do so depends on which business structure you choose.
Planning:
Plan for the self-employment tax. If you are a pass-through entity or a sole proprietor, I recommend deciding on a fixed percentage to withhold on your W-4 form to do this, especially if you estimate you’ll have a good business year. You can reduce your tax liability by keeping accurate records of your work mileage and expenses throughout the year. If you have a home office, you can reimburse yourself through the company for that space in your home. Another way to avoid that big bill you’re expecting by making scheduled payments, however, depending on your company’s financial status I don’t necessarily recommend doing it this way. Less funding is going to the IRS, which means less agents. I’ve personally known some scheduled tax payments to be lost, so again, I stress: document, document, document!
Make sure your financial planner and your accountant are in cahoots. The best way to achieve your financial goals is to make sure these two entities are talking with each other. It helps your accountant know how to file, how to better spread your finances throughout the year, etc. These two capacities, while very different, are complimentary to each other and can help you better if they’re working with each other.
Being Selective:
If you have any more than a W-2 form, I recommend seeking a professional tax-preparer. However we are not all equal. Seeking out an Enrolled Agent or a CPA is probably best for your business and tax liability. While a CPA can represent you in tax court, both enrolled agents and CPAs pass similar standard tests to assess their proficiency. Other tax preparers who are not held to these standards, simply have to file for a PTIN, a tax preparer identification number, annually in order to do your taxes. Interview your tax preparer and ask for their qualification and experience.
Thanks to all those that made yesterday’s Lunch and Learn a success! I enjoyed it. I’m glad both Pat and I had a chance to share our knowedge with local business owners during tax season. Hope it helped to get the most out of your return
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