Friday, April 17, 2009

How to work with your accountant on taxes

By Aneesa McMillan, ACBJ Wire Service

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Business owners need not be reminded of the headache that is tax season. April 15 is a fresh memory. Add to the mix an economy that has everyone scurrying to keep their business afloat in the midst of tough economic times and it’s easy to imagine the agony of preparing the books. However, in the midst of the madness, nothing is more important than a well-informed CPA.

Simply keeping your accountant abreast of all the issues facing your business throughout the year can give them the insight needed to make better decisions about how to proceed when next tax season approaches. Remember that while trying to control accounting expenses is a valid concern for business owners, limiting what you tell your CPA is not a smart idea. Abe Schneier, technical manager of taxation for the American Institute of CPAs (www.aicpa.org), said. “They fear the CPA runs the meter on them.”

Accountants say the more information a business owner shares, the easier it is for the accountant to provide assistance. Here are seven things every business owner should share with their accountant.

1. Report any significant changes in income expected for the year. Whether you’re having a difficult year or you launched a new product that has had favorable returns, it is important to make your accountant aware of these changes. Schneier explained that a CPA with advance knowledge of this information can help you make better decisions about how to handle this change going forward.

“Any business owner should have an idea of what his numbers are going to look like,” Schneier said. “In these times, there are concerns of cash flow and a CPA can help with that.”

2. Be sure to let your accountant know if you have branched out into trading or sales outside the United States. Entering the international arena “raises just a whole host of issues that need to be considered,” said Paul Beecy, a partner at Grant Thornton LLP in Boston. These expansions, he said, can drastically affect a tax profile.

3. Notify them of any life-changing events both professional and private that can alter the way you do business. According to Schneier, this is especially important with changes in ownership. This also includes taking on new partners or a divorce of owners.

“This can have an impact on tax returns and can present implications for how profits are distributed,” he said.

4. Reveal any business transactions that are not routine for the nature of your business. Schneier explained that this also should include whether you have changed the way you do business.

“If you have taken on a new line or expansion, it is important to expel any investment costs,” he said. “When it comes to something you haven’t done before, there are always tax implications for investing in people or new projects.”

5. Tell your accountant if you’ve been contacted by a tax authority. This includes audits, even if they’re just inquiries. Many companies, said Beecy, dismiss these tax communications and neglect to forward them to their accountants.

6. Talk about retirement planning. Is it time to consider switching to a Roth IRA from a traditional IRA? While a business could never technically have an IRA, this is a personal decision that a small business owner will face as the business return also affects the personal return for a business owner.

According to David Compher of national accounting firm Carr Riggs & Ingram LLC and member of the American Institute of CPAs, making the switch may be more advantageous for a younger business owner than an older one.

7. Let them know what your plans are for the coming year. For most business owners, looking ahead is not uncommon, but be aware of the implications that your goals can have on your company financially.

“When looking ahead, consider any changes, assets and purchasing,” Schneier said. “This includes growth or shrinkage ... the sooner the accountant is aware, the sooner they can help you.”  

Quick tips

• Report any changes in income.

• Reveal life-changing events that can affect tax returns and the way you do business.

• Provide details on any new business transactions preferably before they happen.

Lynette Cornell, Mass High Tech Editorial Intern, contributed to this article.