Why Your Tax Accountant is Costing You More in Tax

Part of running a successful business is recognizing which functions to do yourself, and which to hire out for. Taxes are one of the first areas that small business owners tend to look for additional help. You hire a tax accountant for one primary reason: you don’t want to pay more on your taxes than what is absolutely necessary.

Yet, the fact of the matter is that your tax accountant may not be doing the best possible job on your behalf. Most tax professionals don’t work proactively, and that costs you money at tax time. There are three reasons why some tax professionals don’t work proactively:

1. They don’t work on a year-round contract.

If you only meet with your tax professional during tax time, she’s going to spend most of her time playing catch-up. The fact is that it’s going to take her more time, cause you more frustration, and result in a higher tax bill if you only work together during tax time. Ideally, you’ll meet with your tax professional 3-4 times throughout the year. If possible, quarterly meetings are ideal. This helps you on several levels:

  • It lets you know how much (if any) you should be paying in quarterly taxes.
  • It makes sure that your books are updated at least quarterly, resulting in more accurate accounting.
  • It allows you to make important changes that can save you significantly on your taxes before the end of the year.
  • It gives you an idea of what your overall tax burden is going to be for the year.

The best part about working with your tax accountant throughout the year is that it usually doesn’t take that much more time or money to meet together on a regular basis.

2. They are better at recording history than writing it.

You plan just about every aspect of your business. You’ve got a good idea of what materials and supplies you might need to order next month, in six months, and maybe as far out as two or three years. You have sales projections, profit projections, and even ideas about what your employee base will look like in the future. You’re writing the history of your business ahead of time in order to maximize success.

You should be doing the same thing with your taxes. Yet, many tax professionals come in after the tax year is complete. They look at the choices you’ve made, record them, and process your taxes based on that.

Instead, your tax professional should be helping you to make tax plans throughout the year. For example, making last-minute purchases at the end of the year can be a huge tax boon, especially if you’re on the cusp of a change in tax law.

You need to keep this in mind when choosing a tax professional: you want someone who can make a tax plan each year, not simply gather the information and analyze what happened last year.

3. They view your tax return as a scorecard, rather than a chess game.

Maximizing your tax situation is a challenge. Your business needs to make specific moves and decisions that are specifically designed to work against tax laws. In many ways, taxes for small businesses are a game of chess. It’s you versus the IRS, and unfortunately, they start out with a huge advantage. You need someone advocating for you, coaching you on the right moves, and helping you stay one play ahead of the game.

Unfortunately, many tax accountants look at your tax accounting as a scorecard, instead. It’s a game that’s already been played. They look back after the fact and say “you should have done X, instead of Y.” Worse yet, some tax accountants don’t even do that. They simply say, “the IRS won, and here’s how much they won by.”

The ability to make proactive, strategic tax decisions is a hallmark of a good tax professional.

Making it Work

So, how do you make sure your tax accountant is actually saving you money rather than costing you more in taxes?

It’s really all about the vetting process. You need to choose a tax accountant who is willing to work with you throughout the year, who’s interested in identifying potential areas of tax savings, and who’s willing to help you strategize in order to get the most from your tax situation. In short, you need to find a tax professional that’s willing to be proactive, and who’s really concerned about saving you money on your tax bill.

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