Working with an expert can save you from learning from your own mistakes. And having a tax advisor is a smart choice that can lead to a lot of benefits for your business. Aside from tax preparation, a tax advisor can provide guidance on multiple areas of your business, and help steer you towards optimum financial health. When hiring a tax advisor, it is important to select someone who is a good fit for your business. Here are some tips for finding the best tax professional for your business.
When Hiring a Tax Professional Can be Best
Everyone has a unique tax situation and a unique perspective on what they need. Some clients want to be 100% hands off, others want to learn deeply from an expert. In general, people value creating a long-term partner who can provide feedback on their financial health. Someone who doesn’t judge their finances, but works to understand their goals and desires. For example, we have clients that sign up, provide their information and only want to hear from us when we complete their tax return. These clients know what they value most: delegation. Then, we have clients who want to walk through their information, talk through mistakes they want to avoid and get feedback on where they are. The balance that you must strike in hiring a tax professional or accountant is: how much do I want to learn versus delegate. While you may have your own views on what is more important, we recommend clients to seek an element of both.
Are My Taxes Complicated?
Some may be simple and straightforward, while others may be more complicated. It’s often the questions you’re not asking that create problems down the road when symptoms of bad financial habits or unaddressed tax issues become very apparent.
These issues can be financial. Taking on a business with too much leverage can create burdensome debt obligations. If not careful, these obligations can hamper growth, as we’ve seen with many upstarts who struggle to service debt based on overly positive projections.
These issues can also be structural. We’ve advised partners who took an old LLC in their Airbnb property management business, only to learn that the partner had basically contributed his previous assets and business income, legally, to the new business and to the new partner. When you’re in the ring of business, you don’t have time to do the research. In these situations it makes sense to rely on people who are in the thick of these issues and have experience advising clients on very similar matters. Chances are your challenges are new for you, but not for a seasoned finance, tax, or legal professional who is familiar with your business.
In addition, taxes are complex. On top of financing your business and having the proper structure, navigating the complex landscape that is the tax code is extremely challenging. As a tax professional myself, I can find myself contemplating which interpretation of the Internal Revenue Code is most applicable and can be safely defended for my clients’ businesses. The code was not written with short-term home sharing or car sharing in mind. So often, a few of us will string together a series of emails on a particular issue, for example the Schedule C versus E debate for home-sharing and triangulate our views based on different treasury regulations. Coupled with other questions, figuring out how to handle tax — not just a year end but throughout the year — can be daunting.
Do have questions regarding your tax compliance? Do you conduct business in other states and cities? Are you taking advantage of all of the possible tax deductions available to you? Do you have multiple streams of income? If you answered yes to any of these questions, it may be in your best interest to work with someone who can make sure you have the right to-do list. Knowing what you should care about (and not care about) is a powerful first step in handling your finances.
Working with the right tax advisor should be very beneficial for several reasons. For starters, you can save money on your taxes. Those are savings you can measure in dollars. A tax advisor can help you with a comprehensive tax planning strategy, which can help you save money by timing purchases, timing income, leveraging deductions, and incorporating to lower your tax liability. A tax advisor can also help save you time on your taxes. They specialize in the tax code, so that you don’t have to. This saves you time learning all the specific tax regulations that pertain to your business, and it also ensures that your taxes will be filed correctly and on time, warding off excessive unnecessary fines and any extra scrutiny from the IRS. In our experience, saving money and time when it comes to taxes is a proven way to reduce stress over time. Even if you don’t get the answer you want from us, knowing the truth about taxes will benefit you over a lifetime of paying them, no matter what tax bracket you’re in.
Tax Professional vs. Accounting Specialist: Understanding the difference
A tax professional varies from an accounting specialist. While a professional may choose to specialize in both, not all tax professionals or accounting specialists are the same. Some tax professionals choose to focus on tax preparation, while some focus on tax planning and tax compliance. Likewise, some accounting specialists focus on bookkeeping services and don’t handle tax preparation or know the nuances around the code. Just because someone is a CPA, doesn’t necessarily mean they know the tax code. The CPA exam is heavily focused on financial audits with only one section of the exam focused on federal tax. Be sure to understand your advisors background. We’ve had unfortunate circumstances where we have had to amend multiple years of returns because a client assumed that their bookkeeper was able to handle all things finance. Not only were the taxes incorrect, but their accountant failed to warn them about certain tax requirements around owner compensation that cost the owner way more than going to a tax specialist.
While there is nothing wrong with working with a professional who does both, make sure you understand your professional’s strengths. Up front and clear communication is key, but always ask your CPA or tax advisor: (1) how much of their work is accounting or bookkeeping versus tax and (2) how much of their tax work is compliance (filing returns) versus consulting. This will first highlight how tax-focused the accountant is. Secondly, you are asking how well they know the tax code. A tax firm that does all compliance is very rarely as technical and sophisticated as one that does consulting, i.e., planning how you can lower your taxes in real time. Of course, if you can find a firm that has dedicated bookkeepers and dedicated tax professionals who do both consulting and compliance (like how we are structured at Shared Economy Tax), that is a home run since you can get the best of both worlds. But be weary of the one-man/woman shop who is a jack of all trades. That is the opposite of specialization and often, does not equate to expertise.
Finding the Right Tax Professional for Your Sharing Economy Business
When trying to find the best tax professional for your business, it is important to make sure you have a clear understanding of what you want and need from your professional. Are you looking for someone to handle both your tax preparation and your accounting processes? What about tax planning and business planning? Outline your goals first so that you can ask the right questions when hiring a tax professional for your business. As a general rule of thumb, look for a tax advisor who specializes in your field and knows your industry.
If you’re an Airbnb host, or successfully freelance on Upwork, or rent your car out on Getaround or Turo, there are tax advisors that specialize in the sharing economy, who know the specific tax regulations that affect you and can help you strategize, plan, and save for your taxes. We find what clients enjoy most is finding out what they should care about, and what they can pass on.
For example, for the:
- Freelancer, you want to have a plan around your self-employment taxes on earnings whether that’s deduction maximization, making estimated quarterly payments on time, or setting up a business structure to lower those taxes.
- Airbnb Host, you want to make sure you’re correctly splitting business versus personal expenses and correctly taking credit for deductions that many if not all other accountants miss (depreciation, subscriptions, travel for “research” when visiting other Airbnbs, etc.)
- Turo Fleet Owner, you want to make sure you’re logging miles and trips in a way that correctly represents business use so that you can take full advantage of new depreciation rules.
And these are just some quick tips. Ultimately, the real value for any business operator is in learning from others’ mistakes. You can learn it on your own. It will take longer and it will involve more pain. What you really should be figuring out is, what is a similar business owner doing with twice my revenues? And that’s what you can stand to gain working with a firm in your industry. That is, learning from our most successful clients on Airbnb, Turo, and Upwork and hearing the stories of what they have struggled with and overcome. That’s a huge plus of working with a firm that is focused on your niche.