By JOHN CANTER
Until I owned my business, I had always prepared my own income-tax returns. No longer. I’m glad to say that I have an accountant.
Finding the right person wasn’t easy. It took me time and some personal evaluation to decide on the best one for me. Here’s the process I went through.
First, I considered doing my own taxes — for about a nanosecond. I had always prepared my tax returns. Since I had only my income, and then my wife’s, to report, the process was straightforward. A couple of hours using tax software, and I was ready to file with the Internal Revenue Service.
That changed when I bought my hobby-and-game store. The complexities of owning a business and all the tax rules that come with it made the job much more difficult.
I realized this after spending hours on the phone with various city and state agencies trying to compile the tax-identification numbers needed to apply for a bank loan. I was astonished by how many taxes a small-business owner has to pay. Assessments may be levied at the city, county, state and federal level, and the rules and regulations change frequently. Complicating matters, a separate identification number is required for each tax. Failing to file just one of the returns triggers a penalty, something I didn’t dare risk.
In short, I quickly concluded this was no job for an amateur. Plus, for small-shop proprietors like me, time is money, and unless I hired a professional, I’d be doomed to taking the latest tax-preparation class instead of focusing on my business.
To find the right accountant, I first considered hiring a friend. I knew one accountant personally. He’s someone I hung out with during college, but he lives in another state. So I initially dismissed the thought of hiring him since I felt it would be better to have someone local.
I then interviewed several firms in my area. These ranged from independents to local offices of the Big Four. My criteria for choosing a firm were the amount of service I’d receive, the fees involved, their general philosophy and approach, and something I’ll call the “personal touch.”
Most of the firms offered similar services, such as federal-tax preparation and filing monthly local and state taxes, with a couple specializing in particular areas such as payroll taxes. The range seemed somewhat dependent on the size of the accounting firm, with the larger firms offering “one-stop” service — they’d do all my tax work — compared to the small outfits, which would do only payroll taxes. But hiring a big firm didn’t necessarily mean I’d be working with the most experienced people. Although I was meeting with the partners of the large firms, I learned lower-level staffers would do the work, and the “senior” accountants would simply sign off on it.
As for fees, I’d be charged by the hour, at rates that also varied by size of the firm. Although I expected some variance in the fees, I was surprised by the disparity. The larger firms charged between $150 and $300 per hour, while smaller ones cost between $75 and $100 an hour. For a small company like mine, paying $300 an hour isn’t an option.
In regard to tax strategies, I looked at how aggressive the firms would be. One accountant asked whether I had children. When I said I’d just had a baby boy, he started to pitch me on a tax shelter for my son. He said he had just read about it, and although the IRS had not ruled on it yet, he told me he thought it would likely get a favorable ruling. While I’m all for accountants being aggressive about seeking deductions, I wasn’t sure that my then-one-month-old son should be involved.
Finally, and most important, there was the personal touch. Financial decisions are touchy. Consider that disagreements over money are among the top reasons for divorce in the U.S. If discussing money is so difficult with your spouse, how are you going to talk candidly about finances with a stranger?
I sensed that my accountant would be my closest business confidant, and that when all was said and done, I needed to work with someone I could trust. I decided to forgo my prior requirement for proximity and hire my friend from college. John Reasbeck (a.k.a. Reas) and I have stayed close since graduation even though he lives in West Virginia and I’m in Kentucky. We’re the same age (32) and at the same point in our professional lives. He has been an accountant since leaving college and consequently has years of experience to offer me.
An accountant can — both directly and indirectly — drastically influence the success of a business. I already trusted and confided in Reas and knew he had my best interests at heart. Never mind that he wasn’t a “senior tax partner.” Those people weren’t going to be doing my work anyway. And the price is right at $100 an hour.
One year later, I know I made the right decision. My accountant-friend is a key member on my advisory team, not someone who just keeps track of my statements and prepares my year-end taxes. We talk by phone once or twice a week, but not necessarily about taxes. Often I seek his feedback on business ideas, such as possible expansion opportunities.
Some might question the wisdom of hiring an accountant from out of state. But West Virginia and Kentucky are adjacent states, so their rules tend to be similar, and my accountant has several other out-of-state clients. Still, if I weren’t comfortable with reading tax documents, I might feel differently, because agencies send notices and coupons directly to me, and I handle some of this work myself. But I have a finance background, and I already take care of tasks like bookkeeping and reconciling bank statements on my own.
I dislike organizing the paperwork (mostly receipts) necessary for me to properly file my taxes. But after seeing the results, I’m more than happy to pay my accountant’s bill because he’s saved me time and minimized my year-end taxes.
Westchester CPA Paul Herman is here to assist you with all of your personal finance needs. Please contact the White Plains financial planners here Herman & Company, CPA’s, for all inquiries.