By Kevin S. Matthews, CPA, PHR, MBA, MACC
Consider the two scenarios:
You have started your business and decided to NOT hire a CPA, EA or attorney to work with you. For 10 years, you have been working on your taxes with no problems until one day the IRS comes to ask you about the office deduction you have taken. They seemed to have no problem in the past, so why now, right? Likely it is just a misunderstanding, right? They ask for verification of expenses for the past three years. You send in a box of receipts for the past three years and figure that the problem is solved. They come back to you saying that nothing ties and they found additional receipts that don’t match what you put in other portions of your tax return. You get a tax bill for hundreds or thousands of dollars, penalties, interest and the most important two things you will never get back, stress and time.
The last one is what I call “scratching at the scab.” Once they find blood, they keep digging until there is no more blood (you are bled dry), or they have had their fill. The stress is bad and try running your business with the IRS constantly asking for more information. You will spend hours working on this and weeks of sleepless nights, not fun.
If you hire the CPA, EA or attorney at this point, (s)he has to go back and reconstruct what you did. Find out what you did that was correct and what you did that was not correct. What is salvageable? I have seen bills for this to run into the tens of thousands of dollars.
You have started your business and decided TO hire a CPA, EA or attorney to work with you. For 10 years, filings have been on time with no incident and you get a notice in the mail from the IRS. While you are concerned (who wouldn’t be), you call your tax person and they take the notice and respond to it for you. Your tax person, knows what is going on and does not have to “reconstruct.” (S)he sends documentation to the IRS, they are happy that everything tied. In other words, they scratched and there was no blood. They don’t go digging and they don’t drag on asking for more. Sure it costs some money, but you sleep well at night and can focus on what you do best: running your business.
CPAs, EAs, and attorneys provide valuable guidance in various situations. Starting a business, renting a home for additional income, selling your home, buying a home are some of the reasons that people would hire a CPA, EA or attorney.
Final point, ever since 1986 and with the increase of the use of computers, tax laws are becoming more complex, and I don’t mean just at the IRS level. California, Michigan, Massachusetts, New York and other states are increasing their complexity and as a result, experts are required to navigate the complexities of what is taking place.