Capitalizing on a Legal System for Accumulating Wealth
By USDR Contributor Jerry Milano
The United States tax code treats W-2 employees much differently than it does business owners and those who are 1099 independent contractors. For some business owners, the thought of identifying, tracking and documenting deductable expenses may feel somewhat tedious, laborious and intimidating, but the financial rewards are significant. The truth is that business owners have been given the opportunity to devise a tax strategy that can help them grow business assets, keep more money and accumulate wealth.
The advantage of paying personal income taxes on the income you decide to pay yourself and being able to pay business taxes on net income after legally deducting a very broad array of business expenses is huge. As a business owner, our tax system provides you the opportunity to enjoy a greater portion of the money you earn if you run a successful business properly. It also gives you greater control over your retirement planning by allowing options pertaining to self directed retirement plans, etc.
In essence, business owners and the self employed have the potential opportunity to legally and legitimately keep more of their hard earned money. They can pay less in personal taxes and grow their net worth in ways that are not available to W-2 employees. Conversely, they can be penalized by the system by failing to understand it and use the rules to their advantage.
It is amazing how many small business owners don’t fully comprehend the tremendous advantage our tax system gives them. Some are aware of this opportunity but feel intimidated by a tax code that seems complicated and overwhelming. Others are overly conservative on their business deductions because they don’t want to be audited or get in trouble for making mistakes and deducting things they should not deduct. Another huge issue is that the rules and tax codes are always changing.
A Qualified Accountant is an Asset, Not a Liability-
Understanding which expenses are deductable, keeping accurate expense documentation and using the proper book keeping protocol will go a long way in making your business more profitable and keeping you out of tax trouble. Doing these things properly enables a business owner to keep more of their hard earned money. This is where the services of a really good accountant or CPA come in handy. As a small business owner there are some ways to be thrifty and cut expenses but proper management of accounting practices and tax strategies are not areas where one wants to cut corners. The money you spend on a qualified accountant is going to be worth every penny you spend. Consider it an investment, not a cost.
A sharp accountant or CPA is not just a bean counter. They are someone who probably has expertise in giving investment advice, helping with retirement and strategic financial planning, and doing effective tax return preparation. They are a business advisor. They are someone who needs to be a member of your wealth management team. They need to understand your big picture objectives and help implement the strategy and associated protocols to help you achieve your financial goals. The really sharp ones will analyze your business practices and make suggestions on how to improve things.
You need to identify one who specializes in helping people in your situation, people with similar types and sizes of businesses. They are going to be very knowledgeable about the current tax codes and the best ways for a person to keep their books and track their expenses. The better professionals are also always involved in CPE (Continuing Professional Education). In this ever changing world of business finance, CPA continuing education is critical for accountants and financial planning professionals.
Tips for Finding the Right Accountant or CPA
As you begin the search for candidates to interview, the best place to start is by getting recommendations from successful business people you know and respect. Find out why they like the accountant they use. Get recommendations from people who have similar businesses as you. Find at least three candidates to interview.
Ask the Right Questions and Listen Very Carefully to the Answers.
When you interview these candidates here are a few things you may want to consider asking them:
- How long have you been an accountant?
- Do you specialize in small business clients?
- How many clients with similar businesses to mine do you have?
- May I contact some of your past and current clients?
- What continuing education courses are you currently involved in?
- How many IRS audits have you been involved in and how did they turn out?
- What differentiates you from others in your field?
Feel free to bring your books and ask them a specific bookkeeping or tax question. The answers to the questions above can be very revealing. Don’t be concerned about the questions making the candidate feel awkward or uncomfortable; it is an important part of the process. You want to see how the candidate functions under pressure and responds to potentially difficult or uncomfortable questions. You are also using this interview to determine if the candidate’s personality and demeanor is one that you enjoy and will feel comfortable working with. Be sure to call and interview the past and current clients of the candidate you ultimately want to hire.
As important as the above questions are in identifying the best accountant for your needs, there are some other questions that are just as important. I am referring to the questions that the candidate should be asking you during the interview. If they are a really good accountant that wants to earn your respect and your business, they will be grilling you with lots of really good questions. They will make you feel like you are the one being interviewed. They need to be every bit as engaged in the interviewing process as you. See if they genuinely want to understand you, your business and your objectives.
Once you have identified and hired the services of the right person, you are well on your way to reaching your objectives. By implementing the right strategies and protocols, you can capitalize on a tax system that rewards successful business owners.