Huddleston Tax Weekly

Certified Public Accountant (CPA) designation signifies that your accountant has undergone specialized training and passed rigorous education and examination requirements. Even so, not all CPAs are equal. When choosing a CPA, be sure to look beyond the acronyms and find out about his or her education, experience, expertise, and whether or not they meet your needs. To help you make this judgment call, begin by asking these five questions:

1. Have you met all the requirements to be considered a Certified Public Accountant in my state?

The first step when vetting a CPA is to determine whether or not they are a genuine CPA in your state. You can actually answer this question on your own via your state’s professional licenses website. You can find a list of CPA institutions by state at aicpa.org. Make sure your CPA is up to date with their requirements and are not suspended or inactive.

2. How many years experience have you had as a CPA?

The road to becoming a CPA is marked by years of education and training, so even a freshly minted CPA won’t be completely inexperienced. But it’s still best to choose a CPA who has considerable hands-on experience as a practicing CPA.

3. What is your financial expertise in?

There are a number of CPA specializations, including Assurance and Attestation, Corporate Financing, Corporate Governance, Estate Planning, Financial Accounting, Financial Analysis, Financial Planning, Forensic Accounting, Income Tax, Information Technology in accounting and auditing, Management Consulting, Performance Consulting, Tax Preparation and Planning, or Venture Capitalism. Make sure your CPA is well-versed in the area where you need the most help.

4. I need (state the requirements of your business) and I’m wondering if you have the necessary knowledge and experience to help me with this type of accounting?

Chances are, you know what part of your tax return is the most complicated and potentially problematic. Be up front about this issue and make sure they can address it with confidence.

5. What are your hours and availability? What kind of contingency is there if I am audited?

Lastly, you’ll want to make sure that your CPA firm will be there for you when you need them. Make sure they can meet with you when you are available (i.e. do they only operate during business hours when you are also at work? Are lunch meeting feasible?). You’ll also want to be sure that they’ll be accountable (no pun intended) in the case that you are audited. Otherwise, you’ll have to reverse engineer their work in order to answer all of the IRS’ questions.

These five questions should just get you started. Choose your CPA carefully and ensure that you feel comfortable and confident in their experience and expertise.

John Huddleston
Seattle CPA  

U.S. tax law is notoriously complicated both to laymen and those who work in finance but may not specialize in tax preparation. Because of this, it’s often worth it to enlist the help of a tax specialist who has an extensive breadth of knowledge regarding the tax code and experience handling different taxation situations.There are few basic options which tax filers in the U.S. choose when preparing their yearly tax returns: filing taxes on their own electronically with the help of tax preparation software, hiring a licensed professional such as a certified public accountant (CPA), or walking into a storefront tax preparation business.  All three prepare taxes for a fee in return for expert consultation.  And, of course, the higher the expertise needed, the higher the fees.In this case, purchasing tax preparation software is often the most affordable route. But in the end, it’s comparable to filing your own taxes. Because of this, many filers feel more confident having their taxes prepared by a real live person (other than themselves). To this end, many filers wonder whether it is better to get a CPA or hire a service like H&R Block. The answer is (as is typical with financial matters): “It depends.”

A CPA is someone who has had a rigorous education and has been trained to meet high professional standards and follow a strict code of ethics to get licensed by the American Institute of Certified Public Accountants. CPAs have extensive knowledge and years of experience with tax law, including state tax law (for example, a Seattle- or Bellevue-based CPA is required to pass examinations pertinent to Washington state tax codes).

On the other hand, someone who represents a business like H&R Block has only been trained for a few weeks on how to process different kinds of tax information.  They offer their employees short, intense training courses to orient them on the process for filing taxes for general purposes.  While most of these tax preparation firms tend to hire people with financial backgrounds, you’ll very rarely find someone here who is as experienced and knowledgeable as a CPA.

Bottom-line: with a CPA, you pay more but you’ll get more. But if you have a complex tax situation, a CPA may be able to pay for him or herself by finding you savings that an H&R Block employee might be unaware of. But on the flip side, if you have a very straightforward tax return, a CPA may be overkill. Your best bet is to describe your situation over the phone to both a CPA and a storefront tax preparation business and get a rough estimate before you decide.

John Huddleston
Seattle CPA  

A Certified Public Accountant (CPA) typically bases their rates at least partially on an hourly basis. Because of this, it’s in your best interest to be organized and efficient with your paperwork so they don’t have to spend a lot of time requesting pertinent documents and information from you. To help speed along the process and save yourself some money, make sure your bring all of the following to your first meeting with your CPA.A completed tax organizer - This is a form that has all your necessary basic information for your account. Some CPAs will have their own form for you to fill out. Otherwise, you can find basic tax organizers online.

Last Year’s Tax Return - This is essential for new clients. Always keep your returns on file so your tax preparer has a good starting point.

Form W-2 - Ask your employer for this if you haven’t received it yet.

Form 1099 - You’ll receive this from your banks and investment accounts or from anyone who’s retained you as an independent contractor.

Form 1098 - If you own a home or property, your mortgage company will forward you this information.

Brokerage statements - Bring these in for each of your stock, bond or investment accounts for the year.

Closing statements - If you bought, sold or refinanced real estate in the tax year, bring your closing documents.

Any notices from the IRS or other taxing authorities - If you received any letters about your taxes or tax situation from your city, county, state or the IRS, bring these with.

Schedule K-1 - This form is for income or loss form S-corporations, partnerships and other legal entities.

State specific forms - Some states require additional forms or documentations for exemptions and deductions. For example, Seattle and Bellevue businesses have to pay Business & Occupation (B&O) taxes according to Washington State tax law.

Aside from these documents, you’ll want to bring in any other supporting documents. That includes schedules, checkbooks, receipts for charitable donations and business purchases, information regarding deductible expenses and any documents relating to self-employment income or other miscellaneous income.

Being organized when it comes to working with a CPA pays off in many ways. You’ll save time and you’ll ensure that your tax return is filed in a correct and timely fashion, which decreases your chances of paying penalties or being audited. Ask your CPA what you should bring to your first meeting and get started off on the right foot.
John Huddleston
Seattle CPA  

With the proliferation of tax preparation storefronts that are here today and gone tomorrow, the prevalence of tax return scams or unscrupulous tax filing practices is on the rise. While the government is attempting to buckle down on tax scammers, it’s incumbent upon you to sort out the bad apples from the reputable tax professionals. To help you spot the phonies, take note of these warning signs:

The tax preparer won’t sign your return.

There’s a designated area on your tax return for your preparer to sign. No matter what, you will be responsible to pay fees and penalties if there are mistakes, so there’s no reason a tax prepare should refuse to sign the return. By doing so, they put their stamp of approval on it. By refusing to do so, it’s clear that they have something to hide.

The tax preparer promises you a specific amount on your return.

If someone says they can guarantee you X amount of dollars on your return, they are blowing smoke. No one can know for sure how much you will receive until they’ve done all of your paperwork.

The tax professional bases the fee on the amount of your refund.

This is also suspect, since it may motivate the tax preparer to artificially inflate your return amount. Tax professionals should charge according to the complexity of your return, not on how much you receive from the IRS.

The tax accounting firm doesn’t have a history.

The IRS may initiate an audit up to 7 years after you file your return. If that happens, you’re going to want to talk to your tax preparer - make sure they’ll still be in business if you have questions. Watch out for accounting firms that set up temporary store fronts or just suddenly appeared right around tax time. One last bit of advice: You may be better off choosing a CPA. Aside from being the best fit for complex tax situations, you can easily verify a CPA’s license online. For example, you can check the status of a Bellevue or Seattle CPA’s license at the Washington State Board of Accountancy website with just a few clicks. It’s illegal to call yourself a CPA if you aren’t one, and if they don’t show up in your state’s database, that’s a deal breaker.

John Huddleston
Seattle CPA  

Small businesses have a tendency to try to keep everything in-house. Most business owners agree that a tax professional is essential to running a profitable business but are less convinced that it’s worth it to outsource bookkeeping. But as your operations grow, so too does the benefits of having a scalable, efficient bookkeeping system in place. Here are a few reasons why:

Tax Pros Can Offer Year Round Advice

Most tax filers treat CPAs and other tax professionals as mere seasonal contractors. But in reality, there are actions you can take throughout the year that can save you money on taxes and make filing your annual return exponentially easier. A good CPA does more than just file your return - they are able to offer advice on ways you can save money and stay compliant year round.

Bookkeeping Can Make or Break Your Business

Keeping sloppy books doesn’t just hobble your day-to-day operations - it could even wind you up in jail. Bookkeepers make it their full time job to ensure that your business is accountable and compliant. Some tax professionals won’t even take on your account if you don’t have organized books and records and if your business is audited, your life will be much easier if you can retrace your steps. Some CPAs will be able to handle your taxes as well as bookkeeping, payroll and other accounting, which lets you focus on your core competencies.

Bookkeepers and Tax Professionals Should Work Together

When it comes to filing your taxes, the person who knows your books and accounts inside out needs to sit across the table from your accountant and explain the important details and answer all the financial questions. If this person is you, it means you’re going to have to devote your valuable time to meeting with your CPA. When you let your CPA handle your books or let them setup a custom bookkeeping system for you, this streamlines the process immensely, saving you time and money. There’s lots of overlap between bookkeeping and tax preparation. By getting both bases covered, you can focus your energy and expertise towards improving your business with the peace of mind that all of your financial ducks are in a row.

John Huddleston
Seattle CPA  

The services of a CPA are invaluable. Not only can they get you bigger tax returns and save you time and hassle, but they can also keep you out of hot water with the IRS and the state tax department. Many tax filers see CPA fees as an investment, since in the end, a CPAs services may pay for themselves. Nevertheless, you can get even more from your relationship with a CPA by being prepared and being a good client. Follow these money saving tips when hiring a CPA.Come Prepared

CPAs often based their fees on an hourly rate and a “hassle factor.” If you show up to your first meeting with a box full of loose papers and no idea how much you even made that year, it’s going to take considerable time and effort to even get to the beginning. You can save you and your CPA hours of hassle by getting your records in order before you meet, which translates into a lower overall cost for his or her services.

Get in Touch Early

Things get crazy for tax professionals come March and April. Of course, all CPAs will do their due diligence with every return, but if you want extra attention and a less harried pace, don’t get in touch right in the middle of crunch time. Instead, pick up the phone around mid-February so nobody feels rushed.

Rush Accounts Aren’t Ideal

You may think that CPAs prefer doing rush jobs because they get to tack on a premium for getting the job done quick. But in reality, most CPAs would rather take their time with your account to make sure everything is in order and may even refer you to another accountant rather than taking you on last minute.

Don’t Hesitate to Get an Extension

Instead of paying the rush fee, you might be better off filing an extension. Contrary to popular belief, filing an extension doesn’t necessarily flag you for an audit. In fact, by taking more time to go over your records and make sure everything is in order, you actually decrease your chances of getting audited.

As with any professional, being a good client means you get better value from the relationship. Follow these tips and you’ll pay less in fees and get more benefits from your CPA.

John Huddleston Seattle CPA 

Are you looking to start your own business?  Below is a quick checklist of things you will need to do when starting your own small business.  This is a starting point as there may be other steps required for the business type you select.

1.  Apply for your Employer Identification Number (EIN) with the Internal Revenue Service - this can be done online at http://www.irs.gov/

2.  Select a business structure.  You can choose to be a Sole Proprietor, an LLC, a Partnership, a Corporation, or an S-Corporation.

3.  Choose your tax year.  For most business types this will simply be a calendar year ending on December 31st.

4.  Register with your State and possibly your City or County. 

5.  If you are starting off with employees make sure you have them fill out the form I-9 and the form W-4.

6.  Make sure you file all required tax returns and pay all required taxes!

Often times new business owners find all of these steps to be overwhelming or will accidently miss a step.  Often times it will be in your best interest to hire a CPA or lawyer to help you in this set up process.  If you should be in need of help with starting your new business feel free to contact us at http://www.huddlestontax.com/.

When an employee gets a paycheck, he or she is quick to notice the difference between gross pay and net pay - the bulk of which is usually due to Social Security and Medicare taxes totaling 7.65% of their gross wages.  But what they don’t notice is that their employer also has to pay 7.65% on these wages.

Many business owners are hesitant to hire a new employee due to the heavy burden of payroll taxes.  To combat this, the government has passed a new law called the Hiring Incentives to Restore Employment (HIRE) Act.  This act provides two new benefits to employers who hire workers who were previously unemployed or who were only working part time.

The first benefit gives employers who hire qualified unemployed workers an exemption from paying Social Security taxes of 6.2% on wages paid to these workers after March 18th, 2010.  Employers would still need to withhold the employee’s share of Social Security taxes, and both the employer and the employee will still pay Medicare taxes.  The benefit will not impact the employee’s future Social Security benefits. 

The unemployed worker must be hired after Feb. 3rd, 2010 and before January 1, 2011 to qualify.  Each qualified employee must also provide a statement certifying that he or she worked no more than 40 hours during the 60 days prior to beginning work.  The IRS is working to create a form that employees can use to make this statement.

The second benefit is an additional business tax credit, up to $1,000 per qualified employee, that business may claim on their 2011 tax returns.  The workers must be retained for at least a year to be eligible for the credit.

These benefits are available to nearly all types of employers, with the exception of household employers.  Additionally, family members and other relatives do not qualify for the payroll tax exemption.

Employers will be able to claim the payroll tax benefit on the payroll taxes that they usually file with the IRS, beginning with the second quarter of 2010.  The IRS is preparing revised forms that should be available soon. 

Consult with your tax advisor to find out if you qualify for these tax benefits.

Tawni Berg, CPA
Seattle/Bellevue Tax Accountants

When choosing a professional to help you file your income taxes - whether you are an individual or are running a small business - choosing the tax accountant with the right credentials is key. Flipping through the phone book or browsing through online business listings, you’ll likely encounter a veritable alphabet soup of acronyms such as CPA, CFA, CFP, CMA, ABA and others. In fact, there are upwards of 46 different acronyms that relate to certifications in accounting, finance and business. Of these accountant credentials, you’re most likely to retain a CPA, ABA or CFP. Here’s what each means:

Certified Public Accountants (CPA)

CPAs are most well known for preparing taxes, but they can also advise you on how to structure your small business and setup a bookkeeping system as well as help you plan for retirement, college and organizing your estate. CPAs must undergo rigorous testing and continuing education to maintain their licenses. This means accountants who are CPAs are highly qualified with up-to-date knowledge of the latest tax laws in their local area. That means a CPA operating in Seattle or Bellevue is required to be well-versed in both federal tax law and Washington state tax law.

Accredited Business Accountant (ABA)

An ABA is an accountant who has undergone additional training and has passed the Accreditation Council for Accountancy and Taxation (ACAT) exam.  This is a voluntary accreditation and is meant to signify that this accountant specializes in accounting services for individuals and small- to medium-sized businesses.

Certified Financial Planner (CFP)

A CFP can help you with your investment goals. CFPs are a good choice if you are planning for the future, as they can offer a broad range of financial advice.

So,which financial professional should you choose? That all depends. Are you looking to file your individual income taxes? Are you starting a small business? Or are you trying to build a reliable investment portfolio for the next 30 years? Different professionals serve different needs.

The best way to determine whether a financial advisor is a good fit for your needs is to schedule an interview or consultation. Many accounting firms have multiple specialties that work in conjunction to serve your needs. For example, some CPA firms also offer business consulting for small businesses and can help you set up a QuickBooks accounting system or provide advice on how to incorporate your independently owned business.  So, take your time and interview at least three different accountants before deciding which one works best for you.

John Huddleston
Seattle CPA

As a small business or self employed tax filer, your chances of being audited are somewhat higher than someone merely filing a few W-2s.  Part of the reason is that the IRS applies greater scrutiny to certain subsets of tax filers who may be more prone to tax fraud. But it also happens simply because filing taxes for a business is much more complex and there are more opportunities to make a mistake or trigger a red flag. If you run a small business or have an unusual tax situation, it can be highly beneficial to hire a Certified Public Accountant (CPA), not only because he or she can get you more deductions, organize your bookkeeping and identify weak areas in your businesses finances, but also because they can reduce your chances of triggering an audit. Here’s how:

Credibility

There’s a spot on your tax return for your tax preparer to sign. By having a professional or an outside firm handle your tax return, it gives the IRS a bit more confidence that you haven’t made a mistake.

Depth of Knowledge and Experience

Obviously, a CPA is more experienced about the ins and outs of the tax code and what will be advantageous for you when you file your return. This is even more true if your CPA has specialized expertise in your area of business. Think of it this way: the U.S. tax code is over 14,000 pages long. While its unlikely that your CPA has read it cover to cover, you can bet that he or she has handled a situation like yours and knows which mistakes to avoid - especially if they’ve been practicing for many years.

Legal Entity Advice

CPAs are exponentially more helpful than run-of-the-mill storefront tax preparers because they are also qualified to give business advice. There are many forms that your business can take and a corporation, LLC or partnership is less likely to be audited.  A CPA will be able to take a look at your business and tell you whether the benefits of incorporating outweigh the costs.

Covering Your Bases

There’s a right and wrong way to make business deductions. And certain deductions, such as automobile expenses, travel to vacation destinations on business and home offices are more likely to raise an eyebrow at the IRS than others. A CPA will help you record all the proper documentation so that your deductions will stand up to an audit as well as steer you away from deductions which might not pass muster.

Better Bookkeeping

Good bookkeeping and timely, accurate and compliant tax returns go hand in hand. Many CPAs are able to set up efficient, reliable systems for year round bookkeeping that will help you streamline payroll, cash flow and other financial matters. Some CPAs can even handle your bookkeeping for you so when tax time rolls around, they already have an intimate understanding of your business’s financial picture and they already have all the information they need.

In spite of following all the best practices and diligently dotting your i’s and crossing each t, audits happen. And in that case, you’ll be much better off if you have a CPA to back you up. By retaining a CPA who knows how to maintain a clear audit trail and can help you explain or dispute contested items on your return, you’ll not only decrease your  chances of being audited, but you’ll be well prepared so when the government does come a-knocking, it’ll only be a minor bump in the road rather than an all out crisis.

John Huddleston
Seattle CPA