Bad advice is an expense. Good advice is an investment. Sometimes though, no advice can be less expensive than the bad advice we see.
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We’ve got hundreds of examples of bad advice, but here are some of the things that really cost our new clients money in the past.
“You don’t have a real LLC unless you elect to be taxed as a corporation.”
What? First of all, when did bankers suddenly become experts on tax law? And, he’s wrong, wrong, wrong. In this case, his bank customer elected S Corporation treatment on his banker’s advice and got himself in a real mess with some properties. (Real estate should almost always be held in an LLC with default tax treatment. In other words, do not elect other tax treatment.)
From an EA (enrolled agent, licensed by the IRS – with no proof of accounting abilities):
“Any CPA can just sign their name to a financial statement to prove the statements are accurate.”
That, of course, is just flat wrong. But it took our client by surprise and that meant he lost valuable time. He had tried to save money by having the EA keep his books (which the EA assured him would be fine). The books basically had to be redone in order to get the proper compilation report that the lender needed by a CPA. Extra cost + extra time.
From a store front tax preparer:
“You don’t need to incorporate until your income is over $800,000.”
Again, I ask ‘what?” That bad advice will cost the taxpayer tens of thousands of excess dollars, put everything he owns at risk, eliminate his ability to build business credit and increase his audit risk to 33 1/3%.
“Distributions from an S Corporation need to be reported on Schedule C.”
I’m still scratching my head over this one. It’s just flat wrong, a CPA gave that advice and it almost cost my client thousands of dollars. My guess is the bad advice came about because it was the middle of tax season and the CPA didn’t have a system to keep her from getting buried and overwhelmed.
From a CPA:
“Owners can take salaries from an LLC (taxed as a partnership).”
No they can’t.
And the stories go on and on. Want to find out if you’ve got the best tax strategy? Call us. USTaxAid: 866.829.2368, extension 1 or 2.