A recent Los Angeles Times article discussed why emerging small businesses need to engage in tax planning. The article rarely alluded to CPA’s as the solution. Instead, the article attempted to educate the small business person with some facts that a CPA could tell them in five minutes.
As a CPA, musicians used to be that my biggest challenge. With the advent of new technology, and so many people going into business, the challenge has changed to “ma-pa businesses. Musicians, of course, have the reputation of wanting to play their music and not be bothered with the mundane business end. That is still true in my CPA practice, but at least some musicians ask questions and want to understand what is happening with their money, and why. As a CPA, I applaud this.
In regards to ma-pa businesses, they are experts at the service or product they provide to the public. They seen to focus on two things: “What are my sales?” and “Do I have enough money to make payroll?” They are too inundated to engage a CPA strategist to help them plan for the future. (Read the E-Myth for a good example).
As a CPA, another issue with ma-pa businesses, is that they may not listen to tax advice. Some business owners tend to think that a CPA is against them because we tell them that they cannot deduct personal expenses. These deductions can be very dangerous for the business owner, and CPAs since we sign the tax returns. Secondly, it is bad from a business planning strategy because the business owner can never know the true health of their business. Lastly, hiding personal expenses in a business also reduces the small business owner’s income when it comes time to qualify for a loan. There are legal ways which CPA’s reduce taxes.
CPA’s can make a huge difference in a new business if brought in early. That is why many new business owners have taken advantage of our free one hour consulting offer.
The use of S-corporations has been rising in recent years. However, the challenge is to operate them correctly so as to not create a fatal mistake invalidating your S-corp election, or other problems. Here are some areas to be careful