When people invest in a CPA, they often want to know how to get the most value from the CPA’s services. What should they ask? What information should they provide? How involved should they be in the processes?
To ensure your financial, personal, and business goals are met, Wood CPA has some tips on how to maximize the benefits of working with a CPA. Whether you’re aiming for personal financial security or steering your business towards success, unlocking the full potential of your CPA can be a game-changer.
View Your CPA as a Relationship, Not a Transaction
If you need someone to simply file your tax return as quickly as possible, then your local HR Block or digital tax filing software will do just fine. If, however, you’re looking for professional tax advice, guidance with tax planning, and access to years of knowledge that you can consult, a CPA is who you need.
Unlike a tax filing software, a CPA’s work is not simply transactional — we are people, and when you choose to work with us, you become a part of a professional relationship that’s mutually beneficial. Think of how you might work with a tailor: you wouldn’t simply toss them your measurements and walk out the door. You would instead spend time in the store, allowing them to take your measurements, discuss concerns, give professional advice, and review your goals. Over time, that professional relationship would become stronger, making it easier and easier to find your perfect fit.
Now more than ever, it’s important to find a CPA that’s perfect for you. The past few years have brought on many tax law changes, leaving people very confused about which of those changes affect them. When you seek out a CPA’s guidance and advice, make sure you approach it with the same kind of relationship-mentality as you would a tailor. You’re not just paying for your returns to be done — you’re investing in professional advice and guidance.
Be Up-Front and Honest About Any Changes Going on in Your Life
It’s not uncommon for clients to try to hide major financial decisions from their CPA. Some might forget to mention that they started a side business, or won’t reveal what certain charges are on their business credit card. This makes it difficult (or even impossible) for CPAs to give useful advice and prepare accurate financial statements and tax returns.
Remember, your CPA is not here to judge you, we’re here to help you. Every financial decision that you make will impact your tax return, and the more honest you are, the better we can help you prepare and plan your taxes.
You CPA needs to know when you:
- Change jobs
- Move houses
- Get a roommate
- Have a baby
- Get married
- Get divorced
If it impacts your finances, chances are, we need to know about it. Only when we have all the information will we be able to give you the best tax advice and financial guidance.
Let Us Know if You are Thinking About Starting a Business
Many people are considering starting their own businesses these days, and it’s not hard to imagine why. For one thing, you get to be your own boss and set your own schedule. Another draw of business ownership is the idea of having a “side hustle” to help bring in some extra cash on top of the income from your day job.
While all of this sounds great, what people fail to realize is the impact that starting a business has a major impact on their taxes. Whether you’re diving into a franchise or you’re starting up an Etsy shop, your CPA needs to know about it. Here’s why:
Not sure which type of entity your new business should exist under? Your CPA does.
Did you know there’s a self-employment tax that is required for your side-hustle income? Your CPA can help you prepare for it.
There’s a new BOI filing requirement that will cost $500 a day if you miss it — your CPA will make sure you don’t.
Not sure if you need to make quarterly tax estimates? Your CPA can help with that.
Need help with bookkeeping? Your CPA will make sure your books are current and accurate.
…The list goes on. Don’t let your brand new business become an unexpected tax liability — If you’re thinking of becoming a business owner, let us know!!
Tell Us if You Plan on Retiring Soon
Retirement changes everything when it comes to taxes — clients who typically have received a W-2 for their income all their life now have to deal with numerous income sources and their various tax laws.
Retirement income sources are usually a combination of Social Security, 401(k), other nonqualified investments. Each of these sources are taxed differently, which can get confusing. Retirement might also shift tax payments from simple withholdings to quarterly estimates.
If your CPA isn’t aware that you’re retiring, we won’t be able to help you prepare for these major tax changes. Aside from avoiding the headache of figuring it out on your own, involving your CPA early on could also save you some money — sometimes there’s a window of time that’s best to convert your 401(k)/IRA to a Roth IRA.
When you involve your CPA in your retirement process, you can avoid missteps like taking from the wrong accounts, paying more (or less in taxes) than needed, or being surprised by unexpected penalties. When you loop us in, we become your advocate and will help you avoid these speed bumps, making sure your transition is as seamless as possible.
Let Us Know if You’re Consider Selling an Investment Property
Do you own investment properties that you have been renting out for years? If you plan to sell it, understand that it can have a huge impact on your taxes.
When involved in the planning process, though, your CPA can help you strategize ways to minimize that impact. These strategies might include things like contributing more to charity to offset the income, or, if you’re in retirement, pulling less money from your other income sources.
Want to sell your current investment property, but have your eye on another? You CPA could help you do a like-kind exchange (AKA a 1031 exchange) to defer capital gains taxes.
When it comes to selling investment properties, there are many ways to help reduce the taxes owed, and your CPA can be your go-to source for information. At the very least, your CPA will make sure you know exactly how much will be owed so you can avoid underpayment penalties.
Let Us Know When You’re Getting Married (or Divorced)
When a person gets married, their filing status has to change to either “married filing jointly” or “married filing separately.” Either way, their spouse’s income will affect their tax returns — and has the potential to change their tax brackets significantly. Make sure your CPA knows your plans so they can help you anticipate any major changes to your tax situation.
But that’s not the only reason to keep your CPA in the know. Marriage often involves a name change or address change. If your CPA doesn’t have the correct name/address on your tax return, the IRS won’t accept the filing.
These days, many couples are choosing to continue to file their returns separately for a variety of reasons. One of the main motivations for this is so they can qualify for reduced student loan payments. While the reduction in student loan payments make this option worth it, there are a number of implications that most people aren’t aware of, including:
- A higher tax bill
- No longer eligible for certain deductions (i.e., the student loan interest deduction)
- Not being able to contribute to a Roth IRA
Discuss your plans with your CPA so they can help you make an informed decision.
On the flip side, if you’re planning on getting divorced (and if there are children involved), that has equally large tax implications. To make sure you’re not making a difficult process even more complex, get your CPA involved so they can help you navigate it.
Make Good Bookkeeping Your New M.O.
Good bookkeeping is essential. Just because you’re using software like Quickbooks doesn’t mean your books are automatically going to be accurate. If you don’t learn the basic principles of accounting first, mistakes will be made, and the consequences could be costly.
Here are some terms you should know when doing your own bookkeeping:
- Balance Sheet: The balance sheet shows the full story of the company, including its total assets, total liabilities, and total equity.
- Total Assets: Total assets refer to how much the business has in cash, receivables, inventory, etc.
- Total Liabilities: Total liabilities refer to how much the business owes to vendors, its credit card balances, loans with banks, etc.
- Total Equity: Total equity refers to what the business is worth to the owners – the difference between the assets and liabilities.
Many business owners believe that if they pay their bills and still have money left in the bank account, then the business is doing well. But that’s not always an accurate way to assess the strength of the business. While cash flow is extremely important, the P&L (AKA Profit & Loss Statement, AKA Income Statement) is just as important. Your P&L shows your revenue and expenses, resulting in your net income.
Other common mistakes we see include:
- Clients not understanding that some expenses can’t be classified as an expense — that they need to be capitalized and depreciated over time.
- Clients who think an entire loan payment is a deduction. The reality is that only the interest portion of that payment is deductible, and the principal reduces the amount of the loan on the balance sheet.
These errors can be extremely expensive for business owners. That’s why it’s so important to be proactive in communicating with your CPA, or even having your CPA do your bookkeeping for you — we’ll catch these mistakes before they end up costing you.
What Happens When You’re Not Upfront With Your CPA?
When you’re not keeping your CPA in the loop, lots of things can go wrong. No matter what, it’s always in your best interest to talk to and listen to your CPA. Here are a couple examples of situations we have seen in our industry:
The Secret Seller
A client had some rental properties that he owned 100%, so the rental property income and expenses were all reported on this personal tax return. One day, he sold part of his ownership in the properties to someone else — but failed to notify his CPA. In the dark, his CPA filed his return assuming that he still had 100% ownership, as he had in years past.
A year later, his CPA found out what the client had done when the client received a K-1 for rental properties. This was a problem, because once another owner is involved, the tax reporting changes to a partnership. This requires a completely separate return than the one the CPA had already filed.
The CPA immediately had to amend the client’s return to show a capital gain for sale of a portion of his investment, reduce the rental income and losses reported on his personal tax return, and include a K-1 for the new ownership. These were massive, time-consuming changes that ended up costing the client. It was an expense that could have been easily avoided if the client had just communicated with his CPA upfront.
A CPA’s 2 Cents = Your $20,000
A CPA who worked with a realtor client for a couple years had continuously encouraged him to change his business entity from Sole-Proprietor to an S-corp. This client was very hesitant to do so — for many business owners, it’s tough to wrap your mind around being considered an “employee” of your own business. And so, the client put it off for years.
But after running the tax projection for him, his CPA found that the client would save over $20,000 in taxes by making that switch.
As CPAs, we understand that what we do is complicated. We don’t expect clients to fully understand what we do — we just want them to trust our advice and follow it, because we know it will benefit them in the long run!
Need a CPA? Wood CPA Wants To Work With You!
At Wood CPA, we do more than prepare tax returns; we’re proud to offer a wide range of business advisory services. There are costs associated with these additional services, but each kind of advice will save you time, money, and headaches down the road. The knowledge we share with you and the guidance we provide are an investment that pays for itself!
If you’re interested in having a Certified Professional Accountant (CPA) by your side, contact us today to set up a meeting! Wood CPA brings a wealth of knowledge and skill to the table that can take the tax preparation, tax planning, and business ownership from stressful to simple.