Choosing an Accountant

I like varied projects, and the very, very part time freelancing I do provides me with quite a bit of variety. This week, I met with someone who needed to get his accounting system in order for his small business to have his taxes prepared. He showed me an old return. The others are sitting in the IRS office under audit. After seeing the current return, it was no mystery why he was flagged for audit. It was obvious that the former accountant pulled numbers out of a hat. Worse yet, the accountant didn't even use the correct forms. Nor did he advise this client of 3 years regarding what expenses were deductible and which were not. Unfortunately, this man was under the impression that buying himself a burger from McDonalds while on the job qualified as deduction, since he was self-employed (ouch!). Plus (I kid you not), the form was handwritten. I've worked with a handful of people who have small business and work as consultants and I'm always saddened when previous accountants have never given them proper guidance.

So, here are a few tips if you are choosing an accountant:

1. Software: This might seem obvious as it is 2008, but the accountant you go to for any service should use software. The handwritten return filled out by a CPA is not the 1st return I've seen where software was not used. Another case I saw was a CPA who typed up a 1040 and missed a basic tax credit. One look at the form told me software was not used because software automatically ties up certain loose ends. Another mistake I saw recently, a W-2 with the incorrect amounts paid to social security and medicare. If you are paying for a service, make sure the professional uses software.

2. Garbage In, Garbage Out: I have seen tax returns where no expenses were taken for a contractor. I find it hard to believe there were no expenses. But, I do believe that no personal attention was given. Anyone with self-employment income should be looking for some personal attention because that additional 7.65% in FICA hurts badly. If the accountant can't prep you on record keeping and bookkeeping, you might want to keep looking.

3. Long Term View: There are some accountants out there who I am convinced just want to make sure that the clients pays as little taxes and/or receives as big a refund back so they client will feel good about the work they paid for. But, the idea of being in business is to maximize profit. If a business is growing and the proprietor has cash flow, the proprietor should look for an accountant who is forward thinking. There is nothing worse than seeing equipment expensed to the max in year 1 and nothing left to expense when the tax bill is going through the roof. Of course, a person could always re-file, but if you are paying for a service, you should only have to pay once.

4. Added Value: One of the accounting publications I receive addresses the subject of keeping the client's overall financial picture in mind. An accountant that has more than your refund on his mind, but can help point you towards financial tools that might be of interest to you (Retirement accounts, Coverdells or 529 plans) will prove far more valuable. While it is fair to charge a fee for time, you probably don't want someone who is going to nickel and dime you, like a friend's former accountant.

5. Yashrut: You have probably seen or heard advertisements lately for certain tax services. One ad claims that this company finds a large amount of missed deductions on average for previous forms brought in. One should know that not every mistake is worth fixing and in tax $1000 might not equal $1000. Don't get taken for a ride if an accountant recommends amending a return. If you pay $200 to get back an additional $100, you are now $100 poorer. Know what to ask. In addition, I've unfortunately seen reconciliations, general ledgers, taxes, etc, where it is clear that numbers were pulled out of a hat. Financial professionals are not magicians. If something doesn't seem right, it may not be. And, if you don't recognize a number, ask.