EP175: Five Questions to Ask Your Tax Preparer: Insights from Busy Bee Advisors

yep. For most people, especially business owners, that tax bill is their largest single expense. So if you think about that and that there's a way to cut that or trim that, it becomes a pretty interesting topic. Maybe not exciting and sexy, but at least interesting.

Yeah, absolutely.

Sure. It's a good story. So I came from a background in finance in corporate America. And our oldest was, oh, I think he was a junior in high school. And I was working 80 hours a week. And my husband was a nurse at the time. And I really just was, I don't know, becoming disgruntled with feeling like I was missing everything with my kids. and feeling like I never got to see my husband. We were like ships passing in the night a lot and we made it work for a long time. But there hit a point right around 2016 when I just started to feel that, you know, that that bit of discontentment. And we we actually he took me on a cruise for my. for my, I don't want to date myself, but for my 40th birthday. And while on the cruise, you know, of course, work knew I was going to be gone. But when you're in that executive position, it's difficult to take vacations. And I think it was probably the first vacation I had taken more than maybe a day or two off in five years. And so we were in Mexico, we get off the boat, we're at a bar in Puerto Vallarta having, I mean, we weren't, you know. belligerently drunk, but enjoying our pina coladas. And I made the mistake of deciding to call the office to check in. And it was, you know, it was pandemonium, I guess I could say. My employer at the time had decided to move money that was dedicated for payroll taxes and use them for purchasing equipment. I mean, it wasn't like misappropriation of funds. he wasn't spending it, you know, on a shopping spree, but it was still money that when they went to pull funds for payroll taxes, he got all kinds of alerts and calls and it was, you know, I I'm on the phone with him and you need to come back immediately. And so it was just a, you know, that. I was having a great time. I felt like the stress of life had finally left after three days on the water. And so I quit. I mean, just right there on the spot, I quit my job and I looked at my husband and he's like, OK. So, you know, we got home and I had a really nice month of summer with my kids, the last month of their summer vacation. And then they went back to school. And I decided, you know, I'm going to I'm going to go for a run. I'm going to clear my head and I'm going to figure out kind of what my plan is. Right. And so I went for a run. And in that run, I fell. And I say I fell, but I fell in such a glorious fashion that I I shattered pretty much all of my teeth in my mouth. I broke my jaw. I sprained a wrist. I'm sure I cracked a few ribs. It was awful. And so what happened was that recovery, which took, I mean, my jaw was wired for close to a month. So that month gave me this opportunity, right? See it as an opportunity. Gave me this opportunity to kind of build what my ideal business would be. and so we started the firm or i started the firm in 2017 as just a bookkeeping firm and what i realized within that first year when we had i mean ridiculous growth just crazy growth was that um there was a lack of tax professionals out there that really were advising their clients before the fact. So there were a lot of tax professionals that I was hearing from my clients at the end of the year that were saying, buy more stuff. But there was this missing link of there's all this knowledge that we have that the lay person or the business person who's not a tax professional doesn't necessarily know. And they weren't getting what I felt was the advice and the guidance. that they needed. It was, you know, kind of like in the medical system where the doctors are treating you after the fact, but there's not really any preventative medicine. And so it's 2018. It's just about to be New Year's. My husband is still a nurse at the time, which meant we never got to spend the holidays together. We had friends that were, you know, having this fabulous party that they did every year, which which either I would end up going to by myself or not going to. And I looked at him and I said, you should quit. And you should come and work with me. And I had it all, you know, as a numbers person, I had it all like detailed out for him. And he surprised me and he said yes. So he has a little bit of a background in finance. Actually, I should say he has more than a little bit. He has a strong background in finance. His family owned a construction company. He was part of that. He has knowledge of things, just the medical knowledge and the finance side of medicine. It was a different piece. It was kind of like that missing piece to the puzzle. So he went back to school. He got all of the education needed. He got his tax license. And we really have formed a partnership where we are. crazy passionate about advising our clients on how they can save on taxes, but it's before the fact. So we're working with our clients throughout the year. Generally, we'll talk to them three to four times before that tax return gets filed. And the savings that our clients are seeing, I mean, anywhere from 30% up to 60% off of what they were paying, you know, based upon their previous preparer, or if they were doing their taxes themselves. So that's kind of my, my, my origin story, if you will.

He was, you know, oh, that you won't stick with it. You'll come back kind of a thing. There were some, I think I would say, idle threats at the time. You'll come back, but your salary will be less than what it was kind of a thing. And it was unfortunate because I really did. I loved my job. And I think this is something that a lot of parents deal with. I loved what I did. I loved my career. But I hated that I was missing. so many things for my boys. You know, they were both involved in sports. I mean, you and I were talking about that my family's headed to Ole Miss next week for a college tour, right? So to not be able to be a part of that, it just wasn't worth it for me. But yet you still have to put food on the table, right?

Absolutely.

I think it really starts with, you know, it's, it's, it really starts with a conversation, right? It starts with a, you need to know that that tax professional that you're going to hire is someone who you feel that you can have a conversation with. Not everybody is going to. get along with everyone else. There are definitely people that I talk to and I say, you know, and I know at that initial conversation that they're not a good fit for just us and our personality and our style. But the first question you really want to ask is if they're familiar with your industry, because you say, you know, a contractor's business is very different than a dentist's office, and it is. But a contractor's business may be different than the contractor next door's business. A roofer's business is going to be very different than your general contractor that really kind of acts as a handyman, right? So you want to see if that tax professional is familiar with your, at least generally familiar with your specialty. So have they worked with contractors before? Do they enjoy working with contractors? Because contractors are a different breed. You guys and gals are, I will say, are some of the most appreciative individuals that we've worked with. But sometimes, because you're out there on the job, it takes a little bit of, I want to say, chasing to get the information that's needed.

Yes. Okay. So, yeah.

So, so I think that leads to the second question of how willing is that tax professional going to be to work with you at your level? So, so I've, I've worked with contractors that are probably the most meticulous people, probably more meticulous than a surgeon. We have several surgeons that are clients and. You know, I can compare these contractors to these surgeons and honestly say these contractors keep better records. Yet at the same time, there's other contractors that are out there and their businesses go in a thousand miles an hour and they are not organized, not with their finances. You know, they may know in their mind every single job that they have going on. With their finances, they look at their bank balance and they say, okay, I've got money in there, so I'm good to go kind of a thing. So really identify as a contractor or really any business, but identify what your style is and be honest with yourself and what you need from your professional and ask them if they're willing to do that.

Yep. So third question, I would say, you know, and it's kind of, these aren't necessarily in order, but the third question is, is how proactive are they? I used to say that the question to ask would be how aggressive are they, but I don't think aggressive is the correct term. And I also think when you say aggressive, it really, it kind of makes some people panic. So it's how proactive are they? You know, you deserve, as a business owner, you deserve your tax professional to be as proactive as possible. And then the follow-up question. So the fourth question to that is, What is it that you expect from me? You know, you need to, you need to know it's, it's kind of like a going on a first date. You're, you need to know what's expected so that you can say, yes, I can do that. Or, you know, no, that's, that's not what I can do. And there are certainly contractors and business professionals out there that, that don't want, they think they want a proactive tax professional, but they really don't want that level of involvement. You know, they don't want a tax person that they talk to four times a year. They don't want somebody that's maybe pushing them. And then the last question that I really urge people to ask is if they will work with you to help you either grow or downsize your business. So it's really all about the tax professional meeting you where you are at and helping you to go on the journey of where you'd like to go.

Talking about planning. Yep.

Absolutely. So if you know that you're going to need to purchase some large pieces of equipment, maybe in the next year, maybe in the next two years, three years, that's something that you should at least mention to your tax professional. It could work against you for them to be being, you know, incredibly, and I will use the term aggressive, being incredibly aggressive. And showing your business, even though they're legitimate write-offs, showing your business taking every possible deduction when you need to qualify for a loan for a large, very expensive piece of equipment in the next year or so.

So it's super critical to.

And sadly, I've found, and I'm certainly, you know, of course, I think we're the best, right? We're the best firm out there for contractors, but we're certainly not going to be a fit for every single one of your listeners. But what I can say is, is that that relationship with your tax professional. should be, there's somebody that you should feel that you can pick up the phone and call if you have a question. If you're looking at, you know, purchasing that piece of equipment, or if you're not sure about funding an educational plan for your kids and how that will impact your taxes, there's so many different, there's so many different pieces that your tax professional should really be. somewhat, and I love this because I get a lot of laughs when I talk to the talk to contractors at like conventions and things like that, but your tax professional should be intimately involved in the details of your life. And that always, that always gets a little bit of a chuckle from you guys.

The tax system is so fricking rigged. It's, it's written, you know, it's purposefully written to be. dull and dry and very wordy and it kind of meanders but doesn't get to the point. There's lots of things that are ambiguous about it. You know, if you were to read the full tax code from cover to cover, it would take something like 11,000 hours. It scares me when I meet a contractor who's running a multimillion dollar business and they've been filing their taxes themselves. I'll just say that. You definitely do not know all of the benefits that are out there. And it is most people's, you know, what, I don't know, inward compass to be conservative. that conservative nature is going to hurt you or at least have you spending a lot more money on your taxes than you need to.

So I'm going to answer you with a story. We had a client, and this was probably five or six years ago. He owned a small construction company. He did kind of jack of all trades, right? General contractor, did bathroom remodels, but would also come in and, you know, if you needed some handyman stuff done. And he had done incredibly well, owned a warehouse. And when he, you know, was probably three years, three years before he was getting ready to retire. Now, I'm going to say this. He was a friend. He was not a client. So we would watch all of this stuff and just kind of go, ah, we hope for the best for him. And he was the fella who definitely would go for the cheapest. So if he could find, you know, somebody who would do something in trade, that was his way to go. Right. So he used a tax professional that did work in trade for him. And it was at the same time that he sold his building. He taxes got done. He was thrilled. He got money back, all of that stuff. And. We ended up talking to him about this maybe two or three years later when he got a notice from the IRS saying, hey, you didn't pay anything on the gains from the sale of that, you know, multimillion dollar building. And that becomes an oh, crap moment.

So to answer your question and to follow up on your statement, yes, as a business owner and as a consumer, as a taxpayer, you do need to understand that the buck, so to speak, stops at you. Even though you have a tax professional that prepares the tax return, you still need to know and understand every single piece of what's been prepared. The review that you should be doing with your tax preparer is incredibly important. I think it's when it comes into play, the importance of feeling like you can have a conversation with that tax professional. I think a lot of blue collar individuals will, I mean, my dad was a mailman, right? Like I get it. He walks into his financial advisor and he initially was incredibly intimidated. He felt like. This person knew more than he did, so he shouldn't ask questions. And so my heart really goes out to the hardworking professionals out there, contractors, other professionals who feel intimidated by their tax preparer and don't ask questions. Everything that your tax professional is doing, everything that you're recommending, you should be having a conversation with them on and having a conversation with them until you understand it.

Well, a good tax professional will be able to break it down and explain it to you. I promise. If I can get my dad to understand it or my grandma to understand it, I can help just about anybody.

Yeah, absolutely. So be willing to ask questions and be willing to step outside the comforts, your own comfort zone.

So, uh, making sure you have a separate. business bank account is huge oh my god i i'm not sure why it seems so It's like a trend with the last few contractors that we've spoken with, that they're just kind of commingling all over the place because it was easier. And that's really the that's the reasoning behind it. So take the time, open up a separate checking account at the very least for your for your business. That's a number one. The second one, and this one may surprise you. You don't necessarily need to hire a bookkeeper. when you're first starting your business i know that that seems a little silly that you know somebody who half of our company revenue is is bookkeeping services but i am not for selling people something that they don't need if you are running your business and you have the time to Tend to your books at least, you know, once a month, once a week. Do it yourself. There's nothing wrong with doing it yourself. Your tax professional can help you and guide you on a good chart of accounts to set up. But the biggest, really biggest thing I would recommend is to invest in an accounting software. We use QuickBooks Online for all of our clients. That's who we recommend. It's easy to use. And I would say the other piece of it is when your business does grow and you're wanting to offload that task, it's relatively easy to find professionals out there that know how to use QuickBooks Online.

Absolutely. And so we'll have tax clients that we will set up there on the, you know, on the bookkeeping side of things. We'll go in, we'll make sure that their QuickBooks is set up correctly. We'll make sure all of their accounts are connected. And then maybe it's a quick training session. to make the client feel comfortable knowing what they need to be doing. But I do that. That gives me an excellent segue. So we just published or I just published a book that is kind of dedicated exactly to what you're talking about. And I would love to offer all of your listeners a free copy, a free electronic copy of the book. It's called The Four Hour Bookkeeper. And essentially, it really talks about the, you know, making an appointment with yourself to do the bookkeeping. I think there are a lot of. There's contractors out there that want to do it. They have a desire to do it, but when they go to sit down in that chair to do their bookkeeping or the book work, they feel so intimidated because they don't know what they're supposed to be doing. And they spend, you know,40 minutes just being frustrated and nothing gets accomplished. So we'd love to offer that as a gift to your listeners.

You know, I think, I think you get what you pay for. I think you'll end up paying more when you do decide to do the conversion over. You'll kind of, you'll kind of put yourself in a spot of. having to find a professional that's able to do that conversion and that can get pretty expensive. It's not that it's bad advice. I mean, it's better to have an accounting software than no accounting software. I really would recommend, I'm still going to go back to, I do understand it's an investment, but you're looking at realistically an investment of about 25 to $35 a month for a QuickBooks online subscription. And it was way

And well, so reach out, I guess. Let me say this. There are special discounts that certain firms have access to.

Right. So there's different ways to get that price down. So I guess I'll offer that too if any of your listeners would like to reach out just to get a significant discount. Yes.

Well, all kinds of surprises for you today. Perfect.

Yeah, absolutely. Reach out to us and we'd be happy to, to help you get that, get that discounted price.

So this is where I'll say my disclaimer of this show is, of course, for entertainment purposes only. I do highly, highly, highly recommend, if that's something that you're even curious about, to reach out. Reach out to us. I'm not going to say this is an open reach out to your tax professional because there are a lot of tax professionals that... cannot explain what we're about to talk about, reach out to us, schedule a consultation. We'd be happy to walk you through it so that you understand the choices that you have. That's my first quick piece on that. Every business starts out as a sole proprietor. That's kind of the default. If you don't make a choice, you're a sole proprietor. that income and those expenses are reported as a part of your personal tax return, right? There's no separation between you and your business. And one of the things that can happen with that is it can slow down your, you know, your opportunity to borrow money for your business. It also means that you're automatically hit with a lovely 15.3% self-employment tax. So that kind of sucks. You cannot put yourself as a business owner when you're a sole proprietor on payroll. So you can't have W-2 reportable wages, which can make it more difficult for you personally to get loans for anything. Right. So we're all taught. It's all really about money. And if you have the need to borrow money. But it's also the paying that 15% in self-employment tax that just stinks. Really the place that you want to consider becoming a corporation is if your business is maybe around the $80,000 profit line. And I say that because you do have. a payment, at least in California, you have a payment that's made to the secretary of state if you're a corporation. So you kind of have to balance the savings versus that standard payment to the state of California. If you're not in California, though, it's a little bit different. So really, if you've hit that, you know, $80,000 or more profitability, that's when I think it's definitely time to start looking at a corporation. a corporation will also give you personally a little bit of insulation from your business and your business's activities so that's that's the other piece but there's all kinds of benefits um i don't recommend that you utilize an online source for setting up your corporation there's lots of companies online that'll do quickie corporations and If you have knowledge of what you're doing, I would say those companies are fine, but they offer no guidance. And all of the benefits of a corporation can quickly go away if you're not doing things in compliance with the rules of operating a corporation.

essentially. So you've got a C Corp, which is a, you know, an option. You have an S Corp, which is generally our favored option for a whole bunch of reasons. And then you have the LLC, which is not necessarily a business entity type. That's just kind of the umbrella that is an added level of protection over your, over your business to protect. and separate your business from your personal.

Yep. So the way we handle it with clients or prospective clients is we actually have a law firm that we are partnered with. So we do all of the explaining, we take care of all of the paperwork, we take care of all of the kind of upfront and client interaction part. And they're the ones that, you know, make sure to manage all of the legal paperwork, articles of incorporation and compliance.

Yeah. We make it a little bit easier for, for, uh, for our clients.

I just want to go back and stress that if you are happy with your current tax professional, like if you love them and think they're a great guy or gal, that don't take this show as me or as Brad saying you should kick them to the curb. Have a conversation with them. you know ask them questions ask them if they're taking advantage of every you know possible tax benefit loophole whatever it is that could benefit you have that conversation if you're disgruntled then maybe it is time to shop around and and you know and and look around Of course, in the show notes is going to be a link on how to schedule a consultation with us. But, you know, reach out, shop around, take the time to have a conversation with maybe several tax professionals and find the one that you feel like you really connect with and that you're able to communicate with. And don't be afraid to take the leap.

Absolutely agree. Absolutely. Yes. Agreed. Agreed. Awesome.

Well, of course, my book, The 4-Hour Bookkeeper.

I just finished reading. Atomic Habits. And it was pretty eye-opening. Before that, it was Blue Ocean Strategy. So two really excellent books that really make you kind of, in both cases, I felt like they were telling me things that maybe I already knew, but it was stated in such a way that it... maybe changed some things that I've been doing. So Blue Ocean Strategy is excellent and Atomic Habits is another excellent one.