Dealing with taxes is just about the last thing anyone wants to do. That includes me and I write about them. That being said, there is one clear rule when it comes to taxes. If you plan ahead to deal with them, you will pay far less than if you just throw together a tax return at the last moment.
Why does planning work? Well, it is all about adjustments. When you plan ahead, you can still make financial decisions that can limit your tax liability. For instance, if you realize you are going to owe more than you thought when reviewing your tax situation in December with your CPA, you can make additional payments to the IRS to avoid penalties and interest or undertake alternative strategies to lower your tax liability. In contrast, there are no options available when you realize on April 7th that you owe a lot more than you anticipated.
The weakness in all of this, of course, has to do with the very nature of taxes. Simply put, the tax code is big. The regulations that control and interpret it are huge. Coming in at over 50,000 total pages, there is simply no way you can know how best to deal with your taxes. This is where a CPA comes in.
Let’s be very clear about the role of a CPA. The role of your CPA should be to guide you through tax situations. The role should not be to prepare tax returns for you. Yes, your CPA should handle the tax returns, but it should be secondary to undertaking tax planning with you. If you are showing up at the last moment before the filing deadline and dumping your financial figures on your CPA, you are not getting much out of your CPA.
A good CPA will save you far more than they will cost you, particularly since you can usually deduct their fees. Regardless, there are two types of CPAs. The first is a proactive CPA who forces you to come in and review your financial situation with them periodically throughout the year. The second type of CPA is one who just waits for you to send in your information and then has his or her assistants prepare the returns using tax software.
Guess which one you want? Paying taxes may be painful, but you can regulate just how much pain there is going to be. Find a proactive CPA and use them. They will save you money on your taxes each year and you will be thankful you retained them.
Richard A. Chapo writes about
federal income taxes for BusinessTaxRecovery.com.
