10 Reasons It’s Time to Hire a CPA

Man holding a sign that says Top 10One of the top questions people ask us and themselves, is “How do you know it’s time to move away from Turbo Tax and hire a CPA”?  I thought I would discuss 10 of the biggest reasons people come to our office looking to hire a CPA. Certified Public Accountants are advisers to individuals, businesses, non-profit organizations, government agencies and financial establishments on a wide range of financial matters.  CPAs are no longer number crunchers. Today’s CPA is well versed in financial planning, investment advice, estate planning, tax preparation, auditing services, and advice on effective accounting systems and modern technology.

Many people do not know the difference between a bookkeeper or tax preparer and a CPA.  The CPA designation is one the most widely recognized and highly trusted professional designation in the business world.  CPAs work very hard at earning this designation and complete many hours of continuing education each year to maintain this designation.  CPAs are distinguished from other finance professionals by stringent qualifications and licensing requirements. These qualifications and requirements make a CPA a well-rounded person who has knowledge in many financial areas.

You might be surprised by what life events and experiences can have a significant impact on your tax liability and personal financial goals.  So let’s look at what some of those ar

1.  You are making a large purchase such as a Rental House.

People often get into the home rental market to provide supplemental income.  With that decision comes some important first steps you should take that can significantly impact your tax liability.  From purchasing the house to maintaining accurate records of rental income and rental expenses, how you treat these activities will be very important. You will need to properly report all of this on Schedule E.  That’s right. You have now added a new form to your tax return. Hiring a CPA will help ensure this form is completed correctly.

2.  You have formed an Irrevocable Trust

Unlike a revocable trust, an irrevocable trust is treated as an entity that is legally independent of its grantor for tax purposes.  Therefore, any income the trust generates is taxable and the trustee must file a separate tax return on behalf of the trust.  Your trust will require an EIN number and the trustee must file Form 1041 to report income and deductions.  Whether it’s starting the trust or maintaining the trust records, you may want to hire a CPA to help.

3.  You have inherited a Retirement Plan

What do I do now? It’s never easy handling money matters after the death of a loved one. However, by making sure you follow the IRS rules governing inherited retirement accounts, you’ll avoid seeing hard-earned money go to the tax man rather than the intended beneficiary.   It is important you make the right move in order to avoid big pitfalls that could end up with the IRS taking a huge chunk of cash.  And there is a time limit to do this as well, so don’t wait around.  Speak to a CPA as soon as possible.   What you do will depend on the type of beneficiary you are: spouse, child, sibling, or friend.

4.  You have decided to sell some stock or other securities

This is a big one because you will be subject to either short-term gain, long-term gain or a loss. All of these gains and losses will trigger a tax event.  So before you go and sell anything it would be best to consult a CPA to help minimize your tax liability.  Another reason you would want to use a CPA when filing your taxes is to navigate your end-of-year brokerage statements and the basis and sales price that needs to be recorded on your tax return.  This adds yet another page or two (or many more) of forms on that 1040.

5.  You have decided to start your own business

This is probably the biggest area of advice we give to people. If you are going to start a business, hire a CPA to help you select an entity type, select an accounting program to use, set up the accounting program and complete some training on your new accounting software. And finally, get all of your payroll and payroll taxes in place.Often times, when a client starts this process on their own, they end up in our office behind on their filings with taxes owed, penalties and interest. Poor planning and execution on the front-end can derail a business before it ever gets started. We always suggest you start your new adventure with the services of a CPA.

6.  You want to expand your business or you have experienced rapid growth

Your business has taken off and you are wanting to open a second location, expand on your existing location, you have outgrown your accounting software, or you need more staff.  These are all areas a CPA can help with. Most CPA’s are well trained in more than just one type of software. Also, a CPA can help with a business valuation in order to obtain a loan, help create accurate financials, evaluate internal controls, monitor and assist with cash flow, and implement advanced accounting systems.   CPA’s also have partnerships with payroll companies and time keeping services. Whatever your growing needs are, a Certified Public Account can help your business ensure that the accounting and finance side of your business keeps up with your expanding customer base.

7.  You have become a 1099 contract employee

This type of transition will now require you to file a schedule C with your tax return. You will want to implement excellent record keeping skills so you can maximize your business expense deductions and keep track of things like mileage, travel expenses, and meals and entertainment.  A CPA can help you select an accounting program to keep track of these expenses, give advice on new time saving apps and technology, as well as clarify items that you can and cannot take as a deduction.  Clients that simply use their personal account for business expenses often times miss out on valuable deductions that cause them to report more income at the end of the year.   And more income means more income tax.

8.  You experience a Casualty loss due to a major event like a flood or burglary

The IRS has a very defined set of rules of what counts as a casualty loss and what type of deduction you can take. It also depends on the amount you were reimbursed from insurance.  This would be an excellent time to consult a CPA to take advantage of tax savings by claiming a deduction for any amount you were not reimbursed from insurance. Again, it is important to keep proper records of your out of pocket expenses or, in the case of a burglary, a list of items stolen and their value.

9.  You have become a partner in some type of business or investment and you will now receive a K-1.

So what is a K-1?  A K-1 is a statement of your share of the income that you have earned through your partnership.  This income must properly be recorded on your tax return. A K-1 also has many boxes that list your basis in the company, something that will need to be tracked each year, as well as partnership expenses. A K-1 can be very confusing. A CPA will have the experience and knowledge needed to properly record your K-1 on your tax return.

10.  And finally, you just flat out like to travel during tax time.

At some point in your life, you may hang up that towel and say the heck with taxes. I don’t feel like doing it myself anymore.  I just want to drop my stuff off and get a phone call later. At this point, you will want to establish a relationship with someone you can trust and return to year after year.  Ask around to your friends and family for a good recommendation. Your CPA should be someone you can call throughout the year for tax tips and advice.

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