Archive for April, 2012

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Where Should I Go To Get My Taxes Done?

April 16, 2012

This is a question I get asked a lot by friends, clients and other entrepreneurs. I have an easy answer for my clients: Mike. I’ve known Mike since my Coopers & Lybrand (now PwC) days. He’s honest, dependable, smart and fair-priced. If a client were to get audited three years from now, I know he’s still going to be in business. He’s going to stand by his work.

When a new client asks me, with a tilt to her head, “Is he…creative?,” I say “On a scale of 1 to 10, Mike is a 5.” What I mean by that is that he’s a middle of the road guy. He’s going to get you the tax deductions you deserve but he’s not going to stretch any rules too far, make anything up or do any funny math. And I believe that’s just the kind of tax preparer you want.

My staff asked me to focus this blog on how to maximize tax deductions; to share some secrets and tricks. The truth is, it doesn’t work that way for “the 99%”. (More accurately, probably 90%) For low and middle income wage earners that don’t own a home, the deductions are fairly standard, pardon the pun. For home owners, there are more deductions, but they are still fairly standard: interest, property taxes, etc. As your income rises, it’s likely that there are more opportunities as you’re likely spending money in areas that are indeed deductible. But I’m not talking rising from $40,000 to $80,000. I’m talking rising well into the six figures.

For consultants and small business owners, it’s a bit more complex, but not much. Deducting office supplies, employee’s payroll and auto mileage isn’t rocket science. If you spend money on your business, it’s most likely deductible.

I think many business owners suspect they’re missing out. They suspect that if they had the RIGHT tax preparer, they would maximize their deductions. That myth gets perpetuated by radio commercials that inform us we’re missing out if we don’t incorporate and by home-based business experts that declare you can deduct the cost of your dog because it protects your home office. Really? I suppose it could be argued, but I wouldn’t want to sit across from an IRS officer trying to explain why I wrote off dog food, unless I was a professional breeder.

The simple truth is that, until you amass significant wealth or own complex businesses, the choices for tax preparation are fairly simple. They boil down to software like Turbo Tax, retail tax preparation companies like H&R Block, or choosing a tax professional ranging from an Enrolled Agent to a Certified Public Accountant to an attorney that specializes in taxation.

And here’s my opinion of the options:

Turbo Tax (or any other reputable tax software):

Pros – This is a great option for those that are comfortable with computers and don’t have any situations that are too complex such as multiple businesses, uncommon deductions or specialty credits. I often recommend this as the best option for someone who is newly in business, but only when I’m certain the person will use the power of Turbo Tax and not just blow through it as quickly as possible. The value of Turbo Tax for a new business owner is that when you follow it down the paths of its questions, it then educates you on the convoluted rules of business deductions. It synthesizes the 72,000 pages of tax code into user-friendly questions, and then, if you ask, it tells you the rule behind the question.

Cons – There is no human review function. For my clients that use it, I glance at their return before they send it in. An educated second set of eyes is always good practice, whether using Turbo Tax or a $300/hour tax accountant.

H&R Block (or any other reputable retail tax preparation company)

Pros: The cheery green and white balloons you’re greeted with.

OK, seriously. I must admit I’ve previously disparaged this option because I believed H&R Block to be mostly staffed by intermittent near-minimum wage employees. But I’ve changed my perspective over the past few years. I’ve had the opportunity to work with a long-time H&R Block tax preparer who knows her stuff and has handled one of my clients with some complexities very well. H&R Block also has a solid training and review process in place. If you don’t have the time or inclination to use Turbo Tax and have a typical tax situation, H&R is a smart and economical choice. (Many tax accountants will disagree with me, but that’s my opinion based on years of listening to others experience.)

Cons: Most of their storefronts close for over half the year. If you’re a business owner, I believe there’s great value in checking in with your tax accountant a couple of times throughout the year. That’s not possible when they aren’t there.

Enrolled Agents, Certified Public Accountants and Tax Attorneys:

There is a wide gamut of professional options to getting your taxes completed. They can run anywhere from $50 per hour to $500 per hour, and more. I’ve seen really good ones in each of the categories and really bad ones. There are some qualities that are important to find in your tax preparer:

  • For wage earners: do they talk to you and teach you about your options, do they ask questions about your life that might impact your return, do they return your calls and do they finish your return in a timely manner? How long have they been in business? If all they do is have you fill out a form and don’t have any meaningful conversation with you, find someone else.
  • For business owners: All of the above questions, with a much greater emphasis on education. Do they walk you through the honest decisions involved in corporate or sole proprietor status, or do they automatically tell you to incorporate…always a red flag. Do they connect with you a few times throughout the year to see if your profitability has significantly increased or decreased; a trigger that could potentially change your need to squirrel money away for a large tax bill on April 15th.
  • For high wage earners, individuals who own multiple businesses, and any other complex tax situation: The more complex your tax situation, the more you’ll benefit from a more experienced, more licensed professional. Decisions for this group are beyond the scope of this blog, but what I will say is, by hiring the right professional, you will almost always see a definite return on investment from the tax planning you receive. Joel Stein wrote a humorous article Joel Stein Has Four Accountants on Bloomberg Businessweek last week and he said it well: “What a higher-end accountant does is look a my financial situation holistically and think long-term.”

In the research for his article, he discovered that not all tax preparation options are equal. His remaining taxes due/refund ranged from $4,544 due, to $2,387 due to a refund of $469. That’s not including the $119,554 refund he calculated from TaxSlayer.com, surely an operator error.

What he clearly points out is that all the options are not equal, and who does your taxes can be an important decision. Over the years I’ve seen some horrible outcomes from some ‘great accountants.’ If your neighbor or colleague tells you about their really great tax guy (or gal) that always gets them a refund but they’re not really sure how, think twice before you bite. The after effects of tax accountants that push the envelope too far can be devastating. While the chances of you being audited are miniscule, the chances of one of the tax preparer’s many clients being audited are much greater. When the IRS sees a pattern with a tax preparer, they swoop in and look at the returns of his or her other clients.  I’ve seen perfectly upstanding, ethical business owners have back tax bills as a result of tax audits of this type, sometimes to the tune of thousands of dollars. And the tax accountants they used were seemingly ethical. They weren’t outright frauds; they just pushed the envelope way too far. And it’s the tax payer who is ultimately liable.

The final piece of advice I have, no matter who does your return: read it. It may read like Greek to you, but read it anyway. Every year, you’ll learn just a little more.

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Stacey Powell builds financial muscles at TheFinanceGym.com and shows off Financial Art at Facebook.

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The Secret of 1,000,000 Followers: Karen Hutton’s Story

April 5, 2012

Photo Taken by Scott Jarvie

I would be thrilled for any client to reach 1,000,000 followers, but it has been exceptionally thrilling watching photographer Karen Hutton reach the 1,000,000 follower milestone on Google+. While it is a great accomplishment, that’s not what has made it thrilling. The thrill has been that she reached the 1,000,000 mark without seemingly trying. It’s not your typical story, but not much about Karen is typical.

What does it take to reach 1,000,000 followers?

Most of the entrepreneurs I know believe that it takes the right investment, the right guru, the right system that will firmly place them on the path to entrepreneurial success. Most have invested tens of thousands of dollars into marketing, consultants and coaches. They’ve spent hundreds of hours of time implementing strategies, launching ideas and working, working, working very hard. Karen, much like her photography, has taken a different approach.

Karen’s path to 1,000,000 has been creative diligence and imaginative consistency. To be an amazing artist you have to be creative and imaginative, but there are thousands of amazing artists who never near critical or commercial success. To reach milestones of success in any field, diligence, persistence and consistency are qualities you must encompass. And it is just those qualities that have catapulted Karen on her path.

I’ve written a blog about Karen before: Creative Brain vs. Business Brain. It’s the story of how she ignited her long-smoldering passion for photography while bolstering her ‘real business’. The back-story is that, while her photography has catapulted her in the world of photography and Google+, it’s not her principle vocation. Karen is a well-known voice over professional: she’s the narrator of the Echoes of Creation film, the voice of the #1 GPS app, MotionX and she talks you through the world in Trey Ratcliff’s amazing Stuck in Customs iPad app.

Photo Taken by Karen Hutton

For the year of 2010, Karen made a strategic business decision to “live her life as an artist.” And while that may conjure up visions of a year of whimsy and impulse, to Karen it meant diligently, persistently and consistently enjoying, learning and growing her love of photography. Her goal wasn’t 1,000,000 followers. Her goal was to bring joy to her life through photography. And she met her goal with diligence, persistence and consistency. Twyla Tharpe’s inspiring book The Creative Habit tells you that creative success comes from doing exactly what Karen did.

She consistently stepped outdoors with her camera to connect with her creativity, she studied other photographers’ work and methods and she began amassing a large volume of work. When she joined Google+ she didn’t just join, she began diligently, consistently posting her photos coupled with her imaginative prose. She found joy in joining in the renaissance community of photographers that have convened on Google+, both online and traveling in person to the photowalks that have sprung from the online community. Admired photographers became friends, and then admirers of her work. The tipping point was when someone at Google noticed her body of work and added her to the Photography & Art interesting people to follow list.

The marketing gurus will tell you to do much of this: joint venture, build community, post regularly. The uniqueness, though, of Karen’s path was that she wasn’t seeking an outcome of 1,000,000 followers; she was using creativity to bolster her life. She was simply having fun.

Are you using creativity to bolster your life and your business?

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 Stacey Powell builds financial muscles at TheFinanceGym.com and shows of Financial Art at Facebook.