A badly prepared tax return can mean an audit. Here are five signs your CPA may be costing you an audit.
#1: Dramatic reporting changes on your return.
This past year, one of my clients got tagged for audit. We’ve been practicing audit defense for our clients and their returns for so many years, that I was actually a little rusty in defending a return. In this case, the year under question had not been prepared by us so I had to first see if I could spot what caused the audit.
The auditor gave us the answer to that one. The audit came because there had been a change on the reporting on the return. An expense item was moved from one line item to another. That’s a big no-no if you want to slip under the IRS radar.
Luckily, we prepped using some Audit Survival handbooks we’re currently developing and other than a little bit of hassle getting ready for the audit, the whole experience didn’t cost my client a dime.
#2: You feel you have to educate your CPA instead of the other way around.
If you find yourself educating your CPA and asking more questions then you’re being asked, you might be working with a very hard working CPA. And when it comes to tax strategies, that’s not a good thing. The average CPA tax preparer works hard in his business. He is buried with tax work, especially at tax time.
There’s a reason that I only take 12 clients at a time as my personal clients. That’s because I want to take the time to keep current on tax laws so that my clients are getting the most forward-thinking tax strategies possible.
I’m currently not taking any new clients and there is a waiting list started. If you’re interested in learning how you can be a client of our firm (and work with one of our specially trained CPAs), please contact Contact Us.
#3: CPA is using outdated information, someone else’s information or information completely at odds with what you’ve heard here or other places.
One of the things I’m constantly running into is people using my old tax information. There are two things wrong with that: (1) it’s often illegal and (2) it’s old.
I think the 2nd one is really the biggest problem, at least for you. I’ve been active on the Internet since 1993 and in that time written probably thousands of articles. Most of them are out-dated because tax law is constantly changing. But the Internet has a long, long memory and so they are in the public domain. People take my stuff all the time, attempt to spin it so it’s fresh but they often do it wrong and what’s left is information that may or may not have my name. The one thing it usually has is information that is just flat wrong.
Here’s a partial quote from a free ebook that was just published a few weeks ago on another site that I discovered:
“…there are times when holding your investments in an LLC will result in significantly higher taxes vs. in a Corporation or a Trust.”
Wrong!! Since an LLC can elect how it wants to be taxed, there effectively is no difference between an LLC-C and a C Corporation. And at any rate, never never never put appreciating assets inside a corporation, especially a C Corporation.
And as far as Trusts go, unless this is a complex trust (with it’s own separate rate of 35%), it all flows through to an individual return anyway. You don’t gain a thing tax-wise, have potentially created a nightmare audit situation and might have poked a hole in your asset protection plan.
This is a great example of what could be the most expensive tax information you will ever get. And it’s ostensibly FREE tax information.
#4: CPA is sole practitioner, but promises you EVERYTHING.
For years, investment companies and life insurance companies have encouraged CPAs to get their securities license so they can sell products and make more money. Some CPAs do a great job of giving investment advice, but that’s because that’s their specialty! They aren’t trying to do everything else as well.
Watch out for the one man show who is trying to do everything – financial planning, tax preparation, bookkeeping, retirement planning and tax strategy work to boot. If there is a big firm behind him, with different departments handling different pieces of this, then great. Otherwise, you’ll likely find someone who is overworked and fragmented.
Avoid the guy who promises financial planning, accounting, bookkeeping, retirement planning, tax preparation, tax strategy and a set of steak knives.
#5 CPA is using risky brand names or illegal-sounding strategies.
There’s a reason that I switched to the name US Tax Aid for my tax information company. I knew the current firestorm of auditing was coming. More than ever, taxpayers need TAX AID that is easy to follow and clearly legal and tax compliant. It’s also a non-confrontational name. You don’t want to risk anything that looks dodgy these days.
I just received an email from a potential new client who has been with the same tax preparer for two years. She just found out that the IRS was trying to shut him down. I had one question for her:
Have you gotten your IRS notice of audit yet?
And, if not, let’s get ready for the audit, because it’s coming.
The first that the IRS will do if there is someone that is giving bad tax advice is shut them down. And the second thing will be to grab the customer lists (including anyone who attended a seminar, in some cases) and then start sending out audit notices.
The IRS has doubled their audit force. Don’t make yourself more of a target by a few bad decisions or a poorly prepared tax return.