Mastering the tax rules is a Herculean task, given everything else a businessperson has to do. Armed with the basics (from reading this blog entries 🙂 and other resources of course), it makes sense to get to know a tax professional. Form a long-term relationship, calling any time a tax issue arises. Just what are tax pros [tax adviser], how can you find and use one? Read on….
Types of Tax Advisers
Tax advisers are of many varieties, and not all professionals are created equal. Just about anyone can claim to be a tax expert. Looking for someone specifically knowledgeable in helping small businesses—not the storefront outfit that advertises rapid refunds or a Big Five national CPA firm. Ideally, pick a professional who already understands your particular type of business—whether you are a manufacturer, a restaurateur, or a retail clothing seller. Look for one of the following types of tax pros: Tax Return Preparer.
Surprisingly, people who prepare tax returns don’t have to be licensed by the IRS. Make sure your tax preparer has one of these three professional designations:
- Enrolled Agent (EA). An EA is a tax adviser and preparer who is licensed by the IRS. This professional designation is earned by either passing a difficult IRS test or having at least five years of experience working for the IRS. There are 24,000 EAs in the United States. Enrolled Agents are the least expensive of the true tax pros. Many EAs offer bookkeeping and accounting assistance.
- Tax attorney. A tax attorney is a lawyer with either a special tax law degree (LL.M. in taxation) or a tax specialization certification from a state bar association. If you have a serious tax or IRS problem, require legal representation in court, or need business and estate planning, go to a tax attorney.
- Certified Public Accountant (CPA) and other accountants. CPA s are licensed and regulated by each state, like attorneys. They perform sophisticated accounting and business-related tax work and prepare tax returns. CPAs should be considered by larger businesses or for complex business tax returns. CPA s are found in large national firms or in small local outfits (Some states also license Public Accountants, who are not as highly regarded as CPAs)
For typical small business tax [like most of us] I would lean toward EAs and small CPA firms. National CPA firms and tax attorneys are too costly. Interview several tax pros to get a feel for the right one for your business.
How Tax Pros Can Help?
A tax pro can assist you with the following:
Information and advice – A good tax pro can be a very effective teacher.
Dealing With the IRS – You are working with someone who respects your ability to help yourself.) She can help make key tax decisions, such as choosing the best entity for your business and preparing financial statements necessary for obtaining loans.
Record keeping – Some people would do about anything to avoid record keeping. That’s why God created bean counters and small business software that makes record keeping (almost) fun.
Tax form preparation – Once you get past the record keeping, you’ll face various tax filings.
Congress talks about tax simplification, but don’t hold your breath. Until that day, seriously consider professional assistance for your business tax forms. If you insist on doing it yourself, run it by a tax pro before filing it. For do-it-yourselfers, I would recommend a tax preparer software. However, a tax pro can point out tax deductions or other benefits that you and your computer might miss, as well as keep you out of trouble.
Advice in dealing with the IRS – For help in dealing with the IRS, a tax pro can be an on-call coach. Some thorny questions may be answered in a minute or two by a canny tax pro.
Representation – You don’t have to deal with the IRS at all if you hire an attorney, CPA , or Enrolled Agent to represent you. These folks know how to handle IRS bureaucracy. A tax pro can neutralize the intimidation factor the IRS knows that it holds over you. And if you have something you would rather not have the IRS see, a pro might be able to keep the lid on it.
Choosing the Right Tax Pro for Your Business
There are several ways to find a good tax pro; asking the IRS is not one of them. Instead, try the following:
- Personal referrals – Ask friends, family, your attorney or banker, business associates, or even competitors for the names of tax pros they know or have dealt with.
- Advertising – Trade journals, directories, phone books, and newspapers carry lists of tax pros. Look under “accountants,” “tax return preparers,” and “attorneys—tax.” Some offer free initial consultations. If they are advertising, they have time for new clients.
- Professional associations and referral panels – Check the phone book for local bar associations and CPA societies that can refer you to a tax attorney or accountant. A referral shouldn’t be construed as a recommendation or certification of competence. Find a CPA online at www.cpadirectory.com. The National Association of Enrolled Agents (800-424-4339 or www.nea.org) can help you locate an EA.
Once you have the names of tax pros, start weeding through them. Interview at least three pros to see how well you relate to each other. Break the ice by telling the pro where you got his name. Then discuss your situation, and ask if he has clients in similar businesses. Ask if he is too busy or has the experience you are looking for. If he doesn’t, ask him to recommend someone who fits the bill.
If you worked with a tax preparer before you went into business, maybe this is the person you want to stick with, but maybe not. Ask about her experience with any business lines that similar to yours.
Test a tax pro’s attitude toward the IRS and knowledge of small business taxes by pulling out questions from any sources you ever read [any textbook or website, or even blog like this blog 🙂 ]. Someone with prior IRS work experience is not necessarily desirable—they may have been permanently imprinted with the IRS point of view.
Ask if he/she has represented clients before the IRS, and specifically in IRS audits. If she hasn’t, she’s probably not as experienced as you would like.
Also ask yourself some questions as you go through the selection process: Does the tax pro give you a feeling of confidence? Is she knowledgeable? How long has she been doing tax work? Can you envision her going to bat for you in front of the IRS?
Finally, ask yourself, “Is this someone I would feel comfortable working with?”
Tip: Don’t be in a hurry to hire a tax pro. Looking for the right tax pro should be more like looking for a mate for life than a casual date. After all, complying with the tax laws is a key to whether your business lives or dies. The best time to look is in the summer or fall—not the January to May tax season.
Tax Pros Are Not Cheap
Good tax pros aren’t cheap. A start-up business without much cash flow may be tempted to price shop. But an expensive expert who saves you from getting in trouble is a bargain in the long run. Get a clear understanding of costs up front:
Does the pro charge by the hour or have flat (fixed) fees for bookkeeping, accounting, and tax form preparation?
Professionals working on an hourly basis charge from a low of $50 per hour up to $500 for top CPA s and tax attorneys. Ask for a written fee agreement so you have a basis for disputing a tax pro bill later on, if necessary. Tax pros can either be consulted as needed or hired to take over tasks from bookkeeping to IRS filings and representation.
Tip: Fees may be negotiable. Do you like the tax pro, but not her fee? Ask if she can do it for less. Try something like, “I am new in business and need to watch my pennies”. If she believes you’ll be a long-term client, or if you catch her in a slow period, she may discount her normal rates. The best time to hire a tax pro is after the tax season—meaning the summer or fall.
Where and How To Find Other Free Tax Information and Tips?
Use a pro if you don’t feel comfortable doing your own tax return. (Who does?) Everyone’s business and individual tax situation is unique; like your wardrobe, some custom fitting always works better than off-the-rack.
Keep professional fees under control by learning as much as you can on your own. The more you know about dealing with a tax pro, the better you can judge his capabilities. And, of course, the less tax advice you’ll have to pay for. I’ve tried to alert you to the occasions you’ll need professional help beyond post entries on this site.
Every tax code is a moving target; tax laws are always being reworked by Congress. Keeping up with changes affecting you, your business, or your industry can be a challenge. Small business owners [like most of us] can’t afford to call a tax pro with every question. Fortunately, good tax information is available for free [or close to it].
Trade associations put out newsletters and magazines covering tax concerns common to their members. General tax newsletters, books, and annual tax preparation publications are plentiful, and small business tax material is widely available in libraries. Of course, the Internet is a prime source of tax material.
The IRS has many free publications which explain the tax law, but these are always from the government’s point of view.
FYI: Advice from the IRS is not official and binding unless it is in writing.
If you ever tried to browse the IRS official website, but you could not find the specific issue you have, that was not your fault at all. They are too many compare to your issues. You just need IRS publication list on hand so that you can locate your topic easily. If the case that you haven’t got one, here is an IRS publication [the publication number come first in the bracket, followed by the topic]:
IRS General Publication
 Your Rights as a Taxpayer
 Your Federal Income Tax (For Individuals)
 Farmer’s Tax Guide
 Tax Guide for Small Business
 Tax Calendars for 2002
 Tax Highlights for Commercial Fishermen
 Guide to Free Tax Services Employer’s Guides
 Employer’s Tax Guide (Circular E)
[15-A] Employer’s Supplemental Tax Guide
 Agricultural Employer’s Tax Guide (Circular A)
 Federal Tax Guide for Employers in the Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands (Circular SS)
IRS Specialized Publications
 Fuel Tax Credits and Refunds
 Travel, Entertainment, Gift and Car Expenses
 Tax Withholding and Estimated Tax
 Excise Taxes
 Withholding of Tax on Nonresident Aliens and Foreign Corporations
 Social Security and Other Information for Members of the Clergy and Religious Workers
 Moving Expenses
 Selling Your Home
 Taxable and Nontaxable Income
 Charitable Contributions
 Residential Rental Property
 Miscellaneous Deductions
 Tax Information for First-Time Homeowners
 Reporting Tip Income
 Self-Employment Tax
 Depreciating Property Placed in Service Before 1987
 Business Expenses
 Net Operating Losses
 Installment Sales
 Accounting Periods and Methods
 Sales and Other Dispositions of Assets
 Casualties, Disasters and Thefts
 Investment Income and Expenses
 Basis of Assets
 Recordkeeping for Individuals
 Highlights of Tax Changes
 Older Americans’ Tax Guide
 Community Property
 Examination of Returns, Appeal Rights, and Claims for Refund
 Tax-Exempt Status for Your Organization
 Survivors, Executors and Administrators
 Retirement Plans for Small Business
 Determining the Value of Donated Property
 Mutual Fund Distributions
 Tax Guide for Individuals With Income From U.S. Possessions
 Tax-Sheltered Annuity Programs for Employees of Public Schools
 Pension and Annuity Income (Including Simplified General Rule)
 Tax Information for Private Foundations
 Starting a Business
 Business Use of Your Home
 Individual Retirement Arrangements (IRAs)
 Tax Highlights for U.S. Citizens and Residents Going Abroad
 The IRS Collection Process
 Earned Income Credit
 Information on the United States–Canada Income Tax Treaty
 Tax on Unrelated Business Income of Exempt Organizations
 U.S. Tax Treaties
 Tax Highlights for Persons with Disabilities
 Bankruptcy Tax Guide
 Direct Sellers
 Social Security and Equivalent Railroad Retirement Benefits
 Business Use of a Car
 How Do I Adjust My Tax Withholding?
 Passive Activity and At-Risk Rules
 Household Employers
 Tax Rules for Children and Dependents
 Home Mortgage Interest Deduction
 Real Estate Mortgage Investment Conduits
 General Rule for Pensions and Annuities
 How to Depreciate Property
 Practice Before the IRS and Power of Attorney
 Introduction to Estate and Gift Taxes
 International Tax Information for Business
 Information for Tax Practitioners
 Per Diem Rates
 Reporting Cash Payments of Over $10,000
 The Taxpayer Advocate Service of the IRS
There has been an explosion of tax information on the Internet. Surprisingly, the IRS itself has a good website, but it is definitely not the “last word” in tax research. Start your Internet search with the IRS home page at www.irs.gov. You can download over 600 IRS forms and publications and peruse summaries of 150 tax topics. Email simple tax questions to the IRS. Internet service providers give you access to search engines like Yahoo! and Google to find tax information from sources, including the National Association of Enrolled Agents and TurboTax. Some sites allow you to post tax questions to experts and receive answers, either for free or a relatively small charge. Keep in mind the person giving the answer doesn’t really know you and your tax needs. The right tax answer is usually the one tailored to your individual situation—and for that you need the personal touch of meeting with a tax pro.