Is CPA designation important? I found someone...

[RockSplat]

Question: I found a person for my taxes but she's not a CPA. She seems to be good but not sure if I should stick with her since she's not a CPA.

My story:
I work full time making about $95K a year. I also have a side business LLC that produces $50K a year.

I met with a friend's tax accountant who he says has saved him a large amount of money.

I met with her and she suggests that I change the filing status of the LLC to "filing as S-Corp" so I will save 15% from not having to pay self employment tax on the $30K. My salary in the $50K is $30K so this sounds like I'd save $4500 a year. Her cost is $2000 for corp filing and $200 for individual then $100 per quarter for payroll [Total of $2600].

So my salary of the business is $30K and it's producing $50K. How is the money above $30K taxed?

Also for the information of this post - my income should increase about 10-15% per year hopefully.

She has already identified areas where I can save money and made some good suggestions. I am worried that she is not a CPA. Is this something I should be concerned about or is it just a few letters? Also - does this sound like the right route to take with the filing to save self employment tax?

Should I stick with her even though she's not a CPA but charges like a CPA?

 

[LOL!]

How many other people have you interviewed for this job and what would they charge you?

 

[RockSplat]

I had another guy in mind and he would charge me about $1100 to do my personal taxes. That was assuming he keeps me as an LLC. This guy is a CPA. He said that unless I am making $200-300K then I should not worry about changing out of the LLC structure. He said it was a headache to deal with payroll, etc. that comes with filing as S-Corp.

From my research it is very advantageous to get rid of that self employment tax.

Anyway this guy was a CPA. I imagine that his rates would go up if I filed as S-Corp and he helped with payroll. By the way the lady that i am using that is not a CPA would only charge $600 a year instead of $2000 a year to file my taxes if I were simply an LLC.

 

[RockSplat]

I forgot to mention: My friend that recommended her got audited recently for the past 3 years work with this accountant. I know this could probably happen to anyone but wanted to put the info here.

Is the CPA certification important?

 

[RonBoyd]

Of course it matters. Remember how the Wizard solved the Scarecrow's problem.

YouTube - Wizard of Oz-- If I Only Had A Brain

Yes, you would be better off if she "only had a brain."

 

[walkinwood]

I forgot to mention: My friend that recommended her got audited recently for the past 3 years work with this accountant. I know this could probably happen to anyone but wanted to put the info here.

Is the CPA certification important?

I don't know if the CPA certification is important, but if your friend passed the audit with no problems, it says good things about the accountant.

On the other hand, if he got into trouble....

 

[Kabekew]

I thought the self-employment tax was the same as FICA taxes you'd be paying as an S corp? So you don't pay less tax, it's just called something different?

And doing payroll and its taxes (and paying someone to do them) seems like a lot of overkill for a one-person company.

 

[Bikerdude]

Should I stick with her even though she's not a CPA but charges like a CPA?

If she is an "Enrolled Agent" I would not have a problem paying as they specialize in taxes. If she is not an EA I would look around and see if I could find one and get quotes.

My concern would be if she is not a CPA or an EA then she must have learned taxes at a "jiffy tax" school like Block. The others have a much more rigorous exam to pass than jiffy tax people.

 

[Bestwifeever]

Meet my tax specialist: TurboTax® Tax Preparation Software, FREE Tax Filing, Efile Taxes, Income Tax Returns

There is a business version for $109.95. I had self-employment income for several years and TT worked well for it.

 

[DangerMouse]

My tax agent is not a CPA however she is an EA as well as a JD and can represent if things go wrong. I have been with her for 10 years and she has never steered me wrong yet.

I had a friend who was using a CPA for her rather uncomplicated business and was getting charged outrageous amounts for what was basic tax work.

I know others have recommended TurboTax, but I would use an agent of some kind due to your LLC work.

 

[Nords]

RockSplat

Very compelling visual/audible image for what could happen to you in this situation.

I forgot to mention: My friend that recommended her got audited recently for the past 3 years work with this accountant. I know this could probably happen to anyone but wanted to put the info here.

I'm not sure how "I got audited but wasn't fined or indicted!!" can be a résumé bullet for a tax preparer. It's quite possible that some of the decisions on the tax return (corporate structure, deductions) raised the IRS flags that triggered the audit.

Either your friend needs a new tax preparer... or maybe you need a new friend.

Is the CPA certification important?

My brother in law is a tax CPA. The exam was pure hell the first time and even worse the second time-- but he stuck to it, studied his assets off, and passed. The CPA exam is a Darwinian filter that will help you choose a knowledgeable and credible accountant who will be worth the extra fees they can charge for getting it right the first time. My BIL has the tax-code knowledge to guide his clients through just about any situation and the experience to know the consequences. Just having him tell me where to go (to look up questions in the tax code) has saved me thousands of dollars in taxes & penalties.

No shame if the accountant is taking the CPA exam within the next year, even if it's for the third time. But if they don't feel that a CPA is necessary to earn their living doing other people's taxes, it'd be understandable if you didn't feel that they were eligible to do your taxes.

 

[Martha]

I met with her and she suggests that I change the filing status of the LLC to "filing as S-Corp" so I will save 15% from not having to pay self employment tax on the $30K.

Whoa. Not so simple. The LLC pays self employment tax and the S corp pays FICA. I think what this person might be getting at is calling some of your income from the business not salary but a distribution or dividend. The problem with that strategy is that the IRS says such distributions and other payments by an S corporation to you as an owner/officer must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation. If the business is a personal service business with only you as an employee it will be hard to argue that any part of the earnings are not in the nature of wages.

EDIT: please see my signature.

 

[Scrapr]

Nords

Your BIL had to take the CPA exam 2x's Did he let it lapse? I thought you only had to keep up on the CE.

I took it like 25 yrs ago. Passed it first time. Then quit the accounting biz.

 

[Nords]

Nords
Your BIL had to take the CPA exam 2x's Did he let it lapse? I thought you only had to keep up on the CE.
I took it like 25 yrs ago. Passed it first time. Then quit the accounting biz.

He graduated from college in the 80s (with a degree in... accounting) and stayed there for a couple months of the intensive CPA-exam review seminars. Took the exam, failed one section. Went back through another session of the review course, retook that section of the exam, and passed.

He's been working for tax-accounting firms ever since. He's good friends with about 8-10 guys who keep shuffling their partnerships and he's moved among them 3-4 times. I think he's a partner with them now and he's running a branch office closer to his home. We keep in touch but I never hear from him between Feb-May.

He wants to work on tax returns without having to talk to the customers or supervise his staff. He does returns for people like "Cisco employee #25", brain surgeons, and litigators. These people have W-2 income in seven figures and pay more in Medicare taxes than I ever earned in salary. If the customer has questions, they either research the basic tax stuff at the firm or farm them out to boutique accounting/investing/law firms for more esoteric services. He says he prefers to be a workerbee rather than a schmoozing customer-finding rainmaker.

He's seen all kinds of customers... screaming law partners straight out of a Grisham novel, gazillionaire tech geeks who write great e-mails but who freeze up and can't speak a complete sentence in public, trust-fund adolescents in their 40s who manage to show up to review their tax returns while both drunk and stoned, admin staff who quit during tax season to follow the latest Rolling Stones tour. Bless his heart, he even does the tax returns for his parents. Somehow he's retained a sense of humor, cynical and skeptical though it may be, and he's reeeeally looking forward to retiring at age 55.

 

[Buckeye]

I agree with the poster who said EA (enrolled agent) is more important than CPA. Many CPA's know little about taxes. All EA's know a lot about taxes. If you choose a CPA, I would make sure he/she also has an EA designation.

Be skeptical of tax preparers who say "I can save you money." Find one who says "I can do your taxes correctly." For the last couple of years, friends have their taxes done by the "I'll save you money" kind of preparer and they are toast if they are audited and the lies only get more convoluted as other life events transpire. My knowledge of taxes told me the shenanigans save them very little, if any, money in the long run. I tried to talk (scare) them into doing things the right way but it fell on deaf ears. "But the accountant said...." The accountant doesn't pay the fine or do the time.

My advice is to learn enough about doing your taxes to do them yourself and use a pro to check your work for at least the first couple of years. The tax prep software these days is excellent and can guide you through relatively difficult returns. The linked Help is very helpful. Your situation doesn't sound extremely complicated. When I owned rental property, I took the HR Block classes which prepare people to work for them. It gives you a good foundation upon which you can add and it will let you know whether the tax preparers advice is potentially putting you in a precarious position with the IRS. If you want to be aggressive tax-wise then do it but be sure you know that's what you are doing and you are prepared for the consequences.

There is always the possibility your return will be pulled out for a random audit. It's not hard to get yourself in a "pay me now or pay me 10 times more later with penalties and interest and lawyers fees" like my friends possibly have.

 

[Gone4Good]

A CPA (Certified Public ACCOUNTANT) does not "certify" that the individual in question knows diddly squat about taxes. Here are the general requirements to become a CPA . . .

Requirements:

• A bachelor’s degree;
• 24 semester units in accounting-related subjects;
• 24 semester units in business-related subjects;
• 150 semester units (or 225 quarter units) of education;
• Passing the Uniform CPA Exam;
• One year of general accounting experience supervised by a CPA with an active license; and
• Passing an ethics course.

And here are the four sections covered in the CPA exam . . .

Auditing and Attestation (AUD). This section covers knowledge of auditing procedures, generally accepted auditing standards and other standards related to attest engagements, and the skills needed to apply that knowledge.

Business Environment and Concepts (BEC). This section covers knowledge of general business environment and business concepts that candidates need to know in order to understand the underlying business reasons for and accounting implications of business transactions, and the skills needed to apply that knowledge.

Financial Accounting and Reporting (FAR). This section covers knowledge of generally accepted accounting principles for business enterprises, not-for-profit organizations, and governmental entities, and the skills needed to apply that knowledge.

Regulation (REG). This section covers knowledge of federal taxation, ethics, professional and legal responsibilities, and business law, and the skills needed to apply that knowledge.

While someone can specialize in tax related issues, just having a CPA doesn't mean they have.

 

[Texas Proud]

I agree with the poster who said EA (enrolled agent) is more important than CPA. Many CPA's know little about taxes. All EA's know a lot about taxes. If you choose a CPA, I would make sure he/she also has an EA designation.

Be skeptical of tax preparers who say "I can save you money." Find one who says "I can do your taxes correctly." For the last couple of years, friends have their taxes done by the "I'll save you money" kind of preparer and they are toast if they are audited and the lies only get more convoluted as other life events transpire. My knowledge of taxes told me the shenanigans save them very little, if any, money in the long run. I tried to talk (scare) them into doing things the right way but it fell on deaf ears. "But the accountant said...." The accountant doesn't pay the fine or do the time.

My advice is to learn enough about doing your taxes to do them yourself and use a pro to check your work for at least the first couple of years. The tax prep software these days is excellent and can guide you through relatively difficult returns. The linked Help is very helpful. Your situation doesn't sound extremely complicated. When I owned rental property, I took the HR Block classes which prepare people to work for them. It gives you a good foundation upon which you can add and it will let you know whether the tax preparers advice is potentially putting you in a precarious position with the IRS. If you want to be aggressive tax-wise then do it but be sure you know that's what you are doing and you are prepared for the consequences.

There is always the possibility your return will be pulled out for a random audit. It's not hard to get yourself in a "pay me now or pay me 10 times more later with penalties and interest and lawyers fees" like my friends possibly have.

Buckeye has some good information... but I will disagree with a couple of things he said...

You do not need to get a CPA that is also an EA.... when I was doing taxes, nobody I knew that had a CPA was also an EA.. it was a waste of time to get it... you had the CPA, why get the EA

He is right that having a CPA does NOT mean they know enough about taxes to do anybody's.... most CPAs go into corporate accounting or something else... and do not know taxes... so get one who does it for a living, not on the side...

As for his last statement... I do not think that the IRS has had a random audit program for 15 to 20 years.... now a day, ALL audits are because of something... you forgot a 1099... your sold stock and did not put down the sale... you claimed a deduction that they think should not be used much so they look at them closer... (example, home office deduction... very abused as the rules are pretty hard)...

 

[Buckeye]

Buckeye has some good information... but I will disagree with a couple of things he said...

You do not need to get a CPA that is also an EA.... when I was doing taxes, nobody I knew that had a CPA was also an EA.. it was a waste of time to get it... you had the CPA, why get the EA

He is right that having a CPA does NOT mean they know enough about taxes to do anybody's.... most CPAs go into corporate accounting or something else... and do not know taxes... so get one who does it for a living, not on the side...

As for his last statement... I do not think that the IRS has had a random audit program for 15 to 20 years.... now a day, ALL audits are because of something... you forgot a 1099... your sold stock and did not put down the sale... you claimed a deduction that they think should not be used much so they look at them closer... (example, home office deduction... very abused as the rules are pretty hard)...

I agree with you it would be a very expensive to get a CPA/EA preparer. I wouldn't bother with a CPA if I had an EA preparer but some people are determined to have a CPA do their taxes.

I also understand what you are saying about a "random" audit. I was thinking more about a missed document triggering a look by the IRS. I had this happen to me this year as something didn't show up (1099R?) at the IRS and they were double-checking to see if I needed to send them another $40,000. I would have been having a heart attack when that letter came if I had done something funky on that year's tax return.

Buckeye is me and a she!

 

[Texas Proud]

I agree with you it would be a very expensive to get a CPA/EA preparer. I wouldn't bother with a CPA if I had an EA preparer but some people are determined to have a CPA do their taxes.

I also understand what you are saying about a "random" audit. I was thinking more about a missed document triggering a look by the IRS. I had this happen to me this year as something didn't show up (1099R?) at the IRS and they were double-checking to see if I needed to send them another $40,000. I would have been having a heart attack when that letter came if I had done something funky on that year's tax return.

Buckeye is me and a she!

Yes... the IRS is good at matching up all those 1099s and W2s to your return... and if you sold stock and did not put it down, they assume 100%taxable as ST gain... this happened to a friend who is retired and makes like $30k.... the IRS wanted an additional $20K taxes from mutual fund sales that were a loss they did not put down...

 

[saluki9]

As a CPA I will verify that the CPA exam curriculum has very little to do with taxes and even less with personal income taxes.

 

[Leonidas]

I'm not sure that all enrolled agents are the same. There is a test, but former IRS employees are automatically EA's if they worked there for 5 years and were in a position that involved interpreting and applying tax regs. Former BiL was a revenue agent, which means he applied liens and froze accounts on folks who had a tax bill they weren't paying voluntarily. He qualified as an EA and he came in handy when the IRS tried to capitalize on something dumb my wife did the year we got married. He got it fixed, but when I used him to prepare our return the next year I found he wasn't as good as Turbo Tax and a good tax guide book.

 

[RonBoyd]

"If I finish second in the country at Notre Dame, everybody calls me an idiot. If a guy finishes last in medical school, they call him a doctor" -Lou Holtz-