One of the reasons that people end up paying more than their fair share of taxes is because they simply don’t understand the tax code. Who can blame them though. With hundreds of thousands of pages, the tax code is written in a language all on its own. If you think I’m joking, you should really try to read the tax code. If you think reading Shakespeare was hard in high school, you may want to stay away from reading the code. Even for someone like myself who works within the IRS code and regulations day in and day out, I sometimes find myself on the verge of a mental breakdown when I am doing research within the tax code.
On some levels, it’s kind of like the DaVinci Code with unnecessarily complex wording that sometimes appear to have been designed to simply confuse you. This happened to me just yesterday in fact. I was working on a client case where I was trying to find out about strategies help a real estate broker to be able to fund his retirement account without costing an arm and a leg to also fund for all his employees. After about an hour of reading through the various code sections, one referencing the next, and sometimes cross referencing other unrelated topics, I stopped myself when I realized that in the midst of trying to “decode” the tax jargon, I had actually forgotten what question I was trying to answer in the first place.
The reason that I share this story with you is to let you know that you don’t need to feel bad when you find that you don’t understand taxes. Most American’s don’t. It’s not a stretch to say that even some tax preparers don’t understand taxes either. Take me for example. I am a CPA who specializes working with small business owners and real estate investors. So I can say that I am fairly well versed when it comes to landmines and loopholes that small business owners and real estate investors face. Terms like Individual Ks, compensation planning, 1031 exchange, lease options, self-directed IRA, and real estate professional are strategies that I work with on a daily basis.
But give me a large manufacturing client and ask me to do their taxes? I may be as clueless as the next person.
You see, taxes is a very specialized field and has lots of specialties within itself….just like the medical field. A pediatrician goes to school and then through to residency to learn what he needs to know to treat kids. A heart surgeon spends years and years to learn everything he needs to know about how the heart functions so that he can take care of your heart in the most urgent situations.
So let me ask you: If you had a heart problem, you would not consider going to your dentist for treatment would you? I didn’t think so. So why would you work with a tax preparer that doesn’t specialize in your business?
It’s true that taxes are not usually a life and death situation as heart surgery. But it is your money….money that you work hard to earn day in and day out. So if you are not already working with someone who specializes in your business, make sure that you do so in the future. If you are in the medical practice, work with a tax advisor who specializes in working with small businesses. If you own a manufacturing company, work with someone who understands all the loopholes that are available to manufacturers. If you are a real estate investor, make sure that your CPA is someone who is well versed in real estate related loopholes.
If you don’t know whether you are working with the right tax advisor, here are a few tips that can help you to easily and quickly find out:
- Avoid the glazed look: If your CPA has a glazed look when you start talking about your business transactions, you may be working with the wrong person. If you find yourself explaining your transactions to your CPA year after year, then you may be working with the wrong advisor.
- Who is the CPA?: It is ok for you to tell your CPA about a tax new idea you hear from time to time. Who knows, maybe you just attended a seminar and learned a new cutting-edge idea that your tax advisors hasn’t thought of yet. But if you are always the person bringing ideas to your CPA (i.e.: you feel like you are the CPA), then you may not be working with the right person.
- Giving you leverage: Your tax advisor should be someone who can help you with more than just taxes. They should be able to also share with you what they see in the market, what other investors are doing that has been successful, or how other people have been successful in raising money. Your CPA should be able to let you leverage their knowledge and experience to supercharge your wealth building.
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Taxes and finances are topics that are very private and personal to each of us. In addition to finding someone who specializes in working with people just like you, also make sure that you identify someone you trust and are comfortable with. Your advisors should be your friends and you need to be able to have open and honest communication with them in order to get the most value for your relationship and your financial well-being.