There’s a huge difference between meeting IRS requirements for your tax return and filing strategically to maximize your deduction. If your CPA doesn’t take the time to get a good understanding of how your business functions and where your money goes over the course of each year, they can easily miss tax deductions that would bring your taxable income down significantly. So what do you do if you think a deduction is missing?
First of all, if you’ve found a mistake on last year’s return, it’s not too late to file an amended return. The IRS accepts amended tax returns up to three years after the original deadline, and it’s worth noting that it may take up to three months to get a response. But first, you need to determine if the missed deduction would make a large enough difference to move you into a lower tax bracket.
There are several other considerations to make as you decide to file an amended return and start planning ahead to communicate with your CPA more efficiently—or start exploring other options. Here’s what we recommend in this situation:
Talk With Your CPA
There may be a good reason why your CPA didn’t include a specific deduction on your tax return. Certain categories of itemized deductions are subject to limits and rules: for example, some itemized deductions that fall under “miscellaneous” must exceed 2% of your AGI to be claimed, and when your income exceeds certain thresholds, you incur limits on overall itemized deductions. Tell your CPA that you’re wondering about a specific deduction and ask if there’s a reason why they didn’t include it. If it leads to a great discussion and you’re satisfied with their approach to your problem, that’s great! But if they brush you off or you feel more confused than before, it might be time to start exploring other options.
If you’re not seeing eye to eye, review the scope of your CPA’s tax services to make sure they are a good fit for your company’s size, yearly revenue and industry. Many accounting firms will claim to be “industry-agnostic,” but the truth is that the operational differences between, say, a retail brick-and-mortar and a manufacturing plant, translate to big differences in accounting and tax preparation. If you use industry-specific accounting software, like many manufacturing, wholesale and construction businesses do, your CPA needs to be at least familiar with its functionalities or possibly the specific program you use. Find out what kinds of businesses your CPA primarily serves and determine if they have a good understanding of your specific needs.
Plan For Next Year
Your CPA should know exactly which business expenses make the biggest deductions for companies like yours, such as advertising and marketing, insurance and use of your car, as well as interest, state sales tax and charitable donations.
There’s a lot more to tax planning than projecting what your quarterly tax payments should be. You can proactively reduce your tax liability by making big purchases and key investments at the right time. Tax code is always changing, and it’s your CPA’s job to be on the lookout for new legislation that might impact your tax filing. If you don’t feel comfortable asking your CPA for insights on big decisions, or if it seems like they’re not asking you the right questions, they might not be the best partner for your business.
Consider Your Alternatives
If you have a good working relationship with your CPA, it’s definitely worth sorting through your concerns with them to try to find a solution. However, if you don’t feel you’re getting the level of service you deserve or the conversation reveals even more issues, there’s no shame in seeing what else is out there. At the very least, you’ll know a bit more about your tax planning and preparation needs and what questions to ask.
Our team at DHJJ includes specialists in tax laws and accounting for specific industries like manufacturing, distribution, industrial, professional services and more. Because we are a mid-sized firm, we have the flexibility to do research when we need to and take a truly customized approach with each client.
Get to know our team of tax experts and contact us today to find out if we’re a good fit.
