I’ve been in business for myself for more than a decade and have used a CPA to assist me with my taxes for much of that time. However, over the years I’ve come to realize two important facts about doing my taxes. First, I will never know as much about accounting and taxes as a good CPA. Second, my CPA will never know as much about my life and business as I do, and knowing those facts is important to ensure I can save the most money on taxes while legally and safely taking advantage of as many tax breaks and deductions as I can. A little time and research on your part can easily save you hundreds or perhaps thousands of dollars per year if you are small technology consultant. And remember to focus on deductions you can legally take, not just filling out tax forms.
Most technology consultants know that the correct answer to almost any question is ‘it depends’. The best tax and deduction strategies for your business often have the same answer. I’ve been wanting to write a blog on this topic for months but I keep putting it off for many reasons. Taxes can be a complex topic. I don’t want to give you advice that turns out to be wrong for your situation. Also, I don’t want to give you some tips that I’ve found to be really helpful for me but turn out not to be relevant to you, and have that process sour you on the notion of investigating tax and deductions strategies on your own. I’ve decided to break this topic up into a series of blogs that I will come back to every now and then on a regular basis. For now, I want to stick some with some high level advice that will hopefully motivate you to research on your own and not rely solely on your CPA.
1. I’ve used some very good CPA’s over the years and on more than one occasion I’ve found them to be wrong with respect to what has been best for me. Sometimes my ‘advice to myself’ has saved me hundreds or thousands of dollars.
2. You might not need a CPA to do your taxes. I’ve had years that my taxes were pretty complicated with multiple rental properties, numerous businesses, and some international presence. A CPA is probably a wise investment in that case. However, for the past two years, I did my own taxes. I’ve used Turbo Tax and Tax Act. I’ve found Tax Act to be just as good and ½ the price. Using a CPA can easily cost you $500 - $1000 or more even for a pretty simple business tax return. You may not need this if you have a simple LLC or s-corp.
3. You’re probably wasting some money if all you do is talk to you CPA once per year during tax season. Frankly, there is no way for them to keep up with your business and life to have been advising your well and to come up with creative, but legal, tax and deduction strategies. On the other hand, talking to your CPA on a regular basis can be expesnive. Over the years, I’ve invested time and energy in reading some tax tip and help sources designed for small business. I’d be shocked if doing this hasn’t saved me well over 20K USD over the past decade, and the number might be higher. I simply haven’t tracked it.
4. Currently, one of my favorite tax hint sources for small businesses is a newsletter from The Bradford Tax Institute. An annual subscription isn’t expensive. And no, I don’t get a referral fee if you sign up.
5. Don’t assume that an LLC or s-corp is ‘best’ for you without doing the math. Numerous issues can have a big impact on what type of entity is best for your needs, and there are probably more choices than you realize. For example, most people think of an LLC as a pass through entity. It can be, but did you know that you can form an LLC and then have it treated as a c-corp for tax purposes? You can also have an LLC treated as s-corp rather than the default partnership status. I find that an LLC treated as an s-corp for taxes can be a great model for many small entrepreneurs but most people have no idea that this is even possible. My experience is that many CPA’s won’t even bother to mention the option to you unless you bring it up.
Entrepreneurs are busy. I get that. But do your-self a favor. Find a way to read up on tax and deduction issues that affect small businesses. You can’t rely on your CPA to do this for you. A small investment can easily save you hundreds or thousands of dollars per year. This is a topic that I’m pretty interested in. I can’t promise to answer every question that comes to me, but I’ll try. Feel free to let me know if you have questions on specific topics related to you needs.