Just because one accountant suggests something doesn't mean that all accountants agree on the same approach to business finances.
There's something magic in being able to say, “My accountant says…” I've been saying that for years, ever since my accountant helped me set up my LLC. He's prepared and filed my taxes for me for years. It didn't really even occur to me to ask someone else about their theories of business finance. After all, being able to preface any business-related statement with “My accountant says…” automatically imbues it with authority.
Not Every Accountant Agrees
Now that I've moved, I've had to start looking for a new accountant. Between looking for a new accountant, and speaking with someone else about a point of business finances recently, I've become aware that accountants have differing theories of business finances. Different theories encompass:
- How much you should report as being your income versus your limited partner's income
- Whether or not you should write checks from a business account or just PayPal someone the money and sort it out later
- What to do about the 1099-K
- How you should classify your business (LLC vs. S-Corp.)
Mostly, It Comes Down to Reporting Style
In many cases, it comes down to reporting. If you are taking a somewhat “aggressive” stance on how much income you're assigning to your partner, as opposed to how much you're claiming for yourself (and what is used to figure what you owe in self-employment tax), a new accountant might not be comfortable recommending that you continue that course of action. On the other hand, and different accountant might view things differently, and tell you that you could slash your tax bill a little bit more by taking an even more aggressive stance.
In the case of paying blogger campaign participants not too long ago, I had my accountant recommend that I pay certain participants with a check, rather than PayPal, in order to keep the proper records. I had already paid some participants via PayPal by this point, but he was adamant that anyone I would need to issue a 1099-MISC to would have to be paid with a check from my business checking account. When I talked to a fellow business owner, he was surprised, since his accountant wouldn't have recommended such a course of action.
Different ideas about how to report tax-related information spring up and accountants apparently have conferences and get-togethers where they can talk about their approaches, and try to convince others of their own methods. I can't decide whether watching all this go down would be extremely interesting, reasonably amusing, or downright boring.
At any rate, it's important to understand that different accountants interpret tax laws and reporting requirements in different ways and that the advice you get from one accountant might differ a bit from the advice you get from another accountant. You'll need to take that in your stride as you look for the right accountant for your home business.
Spotting the Shady Accountants
In the grand scheme of things, it probably doesn't matter whether I use PayPal to make payments to other bloggers, or whether I write a check from my business account. At least, in terms of reporting. Using PayPal could actually make things easier since I wouldn't have to issue 1099-MISC forms. PayPal would take care of that with the 1099-K.
As long as I have proper documentation of what's happening, and I can demonstrate clearly what's being done with the money, it probably doesn't matter a whole lot which procedure I follow.
What really matters, though, is being able to spot the shady accountants, and staying away from those that encourage you to do something you're not entirely comfortable with. The biggest red flag for an accountant, of course, is that feeling in your gut that something's not quite right. Here are some red flags that might indicate you are dealing with someone a little shady:
- Encourages you to engage in questionable practices, such as claiming false expenses, or twisting things around to allow you to claim extra dependents.
- Won't provide you with a valid and up-to-date PTIN.
- Doesn't sign the tax return as your preparer.
- Isn't willing to let you look over the tax return and have a copy.
- Uses IRS Free File or some off-the-shelf software to prepare your taxes, rather than using professional or proprietary software.
- Isn't willing to clearly explain what is happening with your tax return, and the reasoning behind decisions.
I've been happy with my accountant for seven years, and I'm not excited to be combing through accountants in my new area to find someone else. I can keep my accountant for this coming tax season since my business is still located in Utah. But I may have to do something different when I move the business to Pennsylvania. It's a sad thing, really. I like my accountant. Even if he did make me write checks from my business account.
What do you think of your accountant? Have you noticed some small discrepancies between accountants and what they suggest you do?