With the tax-filing season in full swing, it makes sense to take a good, hard look at your accountant and the work he or she has done for you over the past year. Is your accountant helping you save money? Is your business better off as a result of your accountant's recommendations? Don't let an old, familiar relationship lull you into a false sense of security.
Scrutinize all the services your accountant provides. Are you getting your money's worth? Perhaps your company has grown significantly from its start-up days and you now need a larger accounting firm that can provide more services than a one-or two-person shop.
When you're first starting a business, you typically need financial guidance with your daily operations. Once established, however, a business needs a tax professional who can perform a wider range of services, such as offering assistance in locating financing or upgrading your software programs.
To determine how your accountant stacks up, ask yourself these questions:
1. Can you easily reach your accountant when you need to speak with him or her? You should get quick responses to your calls, says Paul Thrasher, a CPA with the Alexandria, Virginia, accounting firm Halt, Thrasher & Buzas. If you have to wait several days to speak with your accountant, he or she is in danger of getting a failing grade.
2. Has your accountant given you guidance on which tax records to keep and how to organize them? Accountants with their clients' best interests in mind take the time to provide effective ways to organize your business records. In some cases, he or she may ask you to save tax-related information on a computer disk; that information can be downloaded into the accountant's tax return software. Maintaining organized tax records also means you'll save money you would have had to pay your accountant for organizing the confusion.
"A good tax professional should be able to [tell you] how you can automate your record-keeping so you can very seamlessly get your records into his or her system," says Susan Jacksack, a small-business analyst with CCH Inc., a provider of legal, tax and business information in Riverwoods, Illinois.
3. Are you satisfied with your accountant's ability to stay up-to-date on tax changes? You want to be sure your tax professional has a thorough understanding of all the latest tax law changes and their impact on your business. If your accountant provides you with a newsletter and offers periodic seminars on tax law changes, this is a good indication he or she is on top of things, says Thrasher.
4. Is your accountant doing everything possible within the law to lower your tax bill and offer you money-saving tax strategies? A good accountant continually volunteers possible strategies, especially with all the changes taking effect as a result of the Taxpayer Relief Act of 1997. "You shouldn't have to pull possible strategies out of him," says Jacksack.
For example, under the new law, there are a lot of tax breaks that depend on your income level and involve some shifting of income from one year to the next so you're eligible to take certain deductions. Your accountant should be offering you advice right now on how to take advantage of these tax breaks.
5. When your accountant offers advice and tax strategies, do you feel comfortable with them? Your accountant's philosophy should match your own. For example, is he or she always suggesting aggressive strategies to minimize the tax burden, even if it means being peppered with questions from the IRS? Conversely, you may feel your accountant is not aggressive enough and is ignoring deductions you may be able to take. If you find you're knocking heads too often, your accountant is failing the test.
6. Have you requested the results of your accounting firm's peer review report, which is supposed to be done every three years by an outside accounting firm? When firms are willing to share the results of this audit with you, they usually don't have anything to hide, says Thrasher. On the other hand, he adds, "a lot of hemming and hawing may indicate a problem."
7. If you use a large accounting firm, do you know where it ranks on the local business journal's most recent list of the top 100 accounting firms in your area? While these rankings are done according to the size of the firm, if yours is on the list, it indicates you are dealing with a quality firm, says Thrasher.
8. Do you feel the accounting fees you pay are what they should be? Take a close look at what you're paying for accounting services and whether you're getting your money's worth. Of particular concern are accounting fees that go up every year, without fail. If this is happening to you, ask yourself whether the additional fees you pay every year are worth it.
9. Does your accounting firm assign you a new staff accountant fairly frequently? If that's the case, watch out. This kind of revolving door means trouble for your business because it takes a fair amount of time to get a new CPA acclimated to the way you do things. In addition, it may mean your accounting firm is not being managed properly.
10. Is your accountant familiar enough with your type and size of business? Your accountant should be working with a fair percentage of businesses the same size as yours, says Jacksack. "The more clients they have like yours, the more helpful they'll be to you because they can tell you how your business is doing vis-a-vis the other ones they deal with," she says.
While industry knowledge is important, don't make more of it than is necessary, advises Thrasher. Raw ability often outweighs factors such as knowing a specific industry, he says. There are exceptions, however. Thrasher points out that if your business involves government contracting, you need an accountant who knows those particular accounting requirements. In addition, Jacksack notes that retailers need accountants who are familiar with the tax rules and requirements concerning inventory.
If, after answering these questions, you decide your accountant doesn't measure up, discuss your concerns with him or her. Give your accountant some time to work on areas that need improvement and keep the lines of communication open. In today's highly competitive marketplace, accounting firms, like most businesses, are making every effort to keep clients. Let this work to your advantage and make sure you get the most for your money.
Joan Szabo is a writer in McLean, Virginia, who has reported on tax issues for more than 12 years.
For the past several months, the IRS has been tirelessly working to make itself more taxpayer-responsive. Now we're starting to see the results of those efforts.
Following recent Senate Finance Committee hearings on the IRS and taxpayer abuses (see "Tax Talk," January), an internal audit was launched in one district office concerning the IRS' revenue collection procedures. The findings, presented to the Senate panel in December, point out that IRS managers' excessive focus on collecting money from taxpayers led workers in the Arkansas-Oklahoma district office to violate IRS procedures in seizing taxpayers' houses and other assets.
When he released the findings, new IRS commissioner Charles O. Rossotti noted that he was "concerned about the number of questionable procedural violations that may have occurred in the cases that were reviewed. I am especially troubled about the emphasis placed on improving collection statistics without an equal emphasis on customer service and the safeguarding of taxpayer rights."
In response to the findings, Rossotti announced several steps the IRS would take to tighten procedures and require additional high-level review before IRS agents seize homes. For example, if a taxpayer is told that his or her property is going to be seized, and the taxpayer informs a revenue officer that such an action will cause hardship, the officer is required to refer the case to the local Taxpayer Advocate for possible relief.
The agency is also revising Publication 594, "Understanding the Collection Process," so it's more useful to taxpayers who must deal with IRS collection personnel. The IRS includes the publication in all notices concerning IRS plans to seize a taxpayer's property or other assets.
The revised publication will include a detachable Form 911, "Application for Taxpayer Assistance Order." This form allows taxpayers to request relief from the Taxpayer Advocate if a levy will cause a hardship. Providing taxpayers with this form will ensure that they are able to exercise their rights to request Taxpayer Advocate assistance, the IRS maintains.
Treasury Secretary Robert E. Rubin also registered his concern about the audit's results, saying Rossotti's steps to tighten procedures "are an appropriate first response to the findings."
CCH Inc., 2700 Lake Cook Rd., Riverwoods, IL 60015, http://www.toolkit.cch.com
Halt, Thrasher & Buzas, 99 Canal Center Plaza, #230, Alexandria, VA 22314, (703) 836-1350