business owner doing my own accounting - bad?

kellyengJuly 16, 2006

I have owned my own business (graphic design) a little over six years now. It's doing great and profits have steadily increased yearly. I have always done my own accounting and taxes using Turbo Tax. I felt my taxes were pretty straight forward, I don't have a lot of deductions: home office, and supplies are really the major ones. I don't advertised for myself, I don't travel, I don't use other professional services and I don't have any employees. I pay thousands in federal taxes but I thought I was doing a pretty good job of accounting until I talked to a couple of other friend business owners recently - they get refunds!

One friend is a GM at a car dealership and he said he received a $2k refund! I know he makes at least $250k yearly, and he has a side photography business (really just a money losing hobby) and he said that he chooses to have the max in taxes taken from his monthly paychecks. Then I have another friend who is a house designer, basically same setup as me with home office and she makes about $60k yearly. her refund was $800! Both said they have genius accountants.

I think I need to look into an accountant but don't even know where to start. Both friends above live pretty far from me so I can't use their accountants. I now feel like I've been cheating myself this whole time.

How do you find an accountant? the car dealer friend said his accountant receives a bonus based on the size of refund he can get. Is this ethical? How do you know your accountant is doing a good job?

Thank you for reporting this comment. Undo
weed30

I can only comment on one thing:

he said that he chooses to have the max in taxes taken from his monthly paychecks

His "refund" of $2,000 was actually money that belonged to him that he loaned the IRS for free. If he only had the amount needed taken out, he could have invested that $2,000 ($167 per month). He could have put that into his 401K, bought a Roth IRA, etc. Even at a basic 2 or 3% CD return, he would have made money. Or if he used that money to pay down credit card debt, he would have made/saved up to 21%, depending on his interest rate.

    Bookmark   July 16, 2006 at 11:26AM
Thank you for reporting this comment. Undo
quiltglo

Kelly, just start asking every business owner you know for referrals. Call during non-busy tax times and talk with them. DH is a CPA and he has several clients who do their own taxes. They essentially pay him for an hour to review stuff. You may be missing some deducations, or you may not. It totally depends upon your situation. With email and faxes, you really don't have to have someone close to you as long as they understand your local or state tax situation.

Gloria

    Bookmark   July 16, 2006 at 6:39PM
Thank you for reporting this comment. Undo
vivian31

I've never heard of giving an accountant a bonus based upon the size of the refund.

I'm self-employed working out of my home office, too. I have a "genius accountant" and he's worth his weight in gold. I highly recommend finding somebody--and asking business associates is a good place to start.

    Bookmark   July 17, 2006 at 9:50AM
Thank you for reporting this comment. Undo
blurt

Firstly, I'd just like to re-iterate what's already been said here. A refund means that you've paid too much taxes - a genius accountant wouldn't let that happen. The bigger the refund you get from the IRS the worse you're accountaning practices are.

Giving a bonus to to an accountant based upon the size of a refund shows a fundamental misunderstanding of what a refund is and what an accountant does. I would be leary of taking any financial advise from your GM dealer friend or his accountant.

A tax preparer will go through your box or receipts once a year looking for deductions, an accountant should do much much more than that. There are many ways to receive renumeration from your business; pension plan, salary, dividends (if you own a schedule C corporation), etc. An accountant should be able to show you how to extract the maximum ammount of money from your business while paying the minimum in taxes.

I've had a small business for about three years now. I haven't had a single refund and I doubt that I ever will. However, my accountant has saved me tens of thousands of dollars in taxes as well as giving my invaluable advice on the financial aspects of running a business. Speak to an accountant, or better yet a CPA about your business and your wont regret it.

    Bookmark   July 17, 2006 at 1:26PM
Thank you for reporting this comment. Undo
quiltglo

I missed the bonus part in the OP. That's unethical, no question. The accountant should have nothing at stake with the outcome of the return. Stay away from that accountant and ask for other referrals.

Gloria

    Bookmark   July 17, 2006 at 9:06PM
Thank you for reporting this comment. Undo
jlhug

I believe that it is illegal for a paid tax preparer to receive a payment based on the size of a taxpayer's tax liability, balance due or refund.

A good tax preparer can help you with tax planning. You don't need to pay CPA fees to get the same service. Word of mouth is the best way to find someone to help you with taxes.

Also, a Schedule C buisiness is a sole proprietor, doesn't pay dividends or have stockholders and a C Corp is a company with stockholders that may pay dividends.

    Bookmark   July 17, 2006 at 10:41PM
Thank you for reporting this comment. Undo
rrobertson70

I don't know if the refund based bonus is "illegal" in your state, but it is certainly unethical if the person in question is a CPA.

As others have pointed out here, don't get fooled by the big refund your friends are getting at the end of the year. The object is not to get a big refund, but to properly plan so that you get no refund and owe no additional tax. The thing to concentrate on here is the tax deductions that are available to you and your unique situation. As a former CPA (I am still licensed, but have moved into industry), I would suggest you find a local CPA to provide you with the guidance you need. As for your friend's accountant with the "bonus" plan, I would steer clear of him. Your friend may soon find his "hobby" has become the hobby of the local IRS agent. Another thing to remember - no matter what type of tax advice you receive or who prepares your return, you will sign the return and you are ultimately responsible for its accuracy. Just ask Willie Nelson.....

    Bookmark   July 25, 2006 at 11:15PM
Thank you for reporting this comment. Undo
kellyeng

Thanks for all the responses. My goal isn't to receive a refund, I was just illustrating some extreme examples of people obviously doing a better job than me at maximizing their deductions.

I'm going to seek out a financial advisor. I probably need to have my investments and overall financial outlook checked as well.

Do financial advisors/planners also do taxes?

    Bookmark   July 26, 2006 at 9:05AM
Thank you for reporting this comment. Undo
vivian31

I would get a CPA. My CPA does everything, planning, taxes, invetments, etc. He's licensed with some sort of a broker's license for investments.

I am self-employed and don't have time to run from advisor to accountant, etc. He keeps everything straight for me--would even write checks if I wanted him to...LOL, although I still do that myself. I may give that up soon too, though. Time is short when you're the only one in the office!

    Bookmark   July 26, 2006 at 10:59AM
Thank you for reporting this comment. Undo
patches123

Yes, its illegal for an accountant to receive a bonus based on your refund. The IRS would be PO if they knew.

    Bookmark   August 4, 2006 at 12:57AM
Sign Up to comment
More Discussions
Do I need to give a 1099-misc to the lady who cleans for me?
For the first time ever, I began having a lady clean...
sogofan
refinancing a home
Just learned my interest is 5.25 on our home morgage....
victory_tea2085
Evicting
Don't know where to post this specifically. The thing...
Curt D'Onofrio
Tiny pension - Taking lump sum or monthly annuity payment
I just received a notice from a previous employer asking...
azmom
Buying a car
I am planning to buy a car, but my credit rating is...
HerscheLL
People viewed this after searching for:
© 2015 Houzz Inc. Houzz® The new way to design your home™