Blog | Personal Finance

Why You Should Fire Your CPA Today

Bad Advice That’s Costing You Money

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You may not realize this, but it’s true: The tax laws are written to reduce your taxes, not to increase them. In the United States, for example, there are over 5,800 pages of tax law. Only about 30 pages are devoted to raising taxes. The remaining 5,770 pages are devoted entirely to reducing your taxes. In other words, 0.5 percent of the tax code is devoted to raising taxes, and the remaining 99.5 percent exists solely for the purposes of saving you money.

Think about it. If 99.5 percent of the tax law is written to help you reduce your taxes, then the government must really want you to do just that. If that weren’t true, why would they enact so much legislation aimed at helping you do so?

Accountants, those with less education and understanding, will only take the most obvious deductions and tax benefits when they prepare your returns. They’ll tell you to prepay expenses at the end of the year. Or they’ll suggest waiting until a later year to receive some income that you’re owed.

What terrible advice. Did you notice how this advice is about saving taxes now at the cost of having to pay them later? These accountants are all about tax savings now at the cost of your future.

One of the reasons most tax preparers don’t focus on permanent tax savings is because they are only focused on the past and the present. They aren’t taking into account your future.

Bad Advice #1: “You Must Earn Less Money”

This one just boggles my mind. I just interviewed a woman, an attorney, who has her own successful law practice, and we were talking about ways she can keep more of her own hard-earned money. Her current accountant advised her to “earn less money” to decrease her taxable income.

Here’s a rule. If your accountant tells you that your business is making too much money and that you should earn less, fire them on the spot. That is bad advice. The worst advice.

Bad Advice #2: “You Must Increase Your Expenses”

I hear so often from people that their accountant told them to, “increase my expenses before year-end.” This is very bad advice. Your accountant is basically telling you to spend a dollar to save 30 cents. That doesn’t make sense.

Almost any expense can be deductible in the right circumstance, including food, entertainment, travel—even your house, if you change your facts so that the expense is a business one. So, if you’re doing it right, you shouldn’t have to buy a billboard at year-end to have, say, higher marketing expenses just to save on taxes.

It all starts with good tax planning. When you start a business, your options for deductible expenses skyrocket. And making your expenses deductible is easy—make sure that when you spend money your intention is to make even more money.

The U.S. tax law calls this having a business purpose for your expenses.

Hire the Right Advisor

One of the most important things you’ll ever do to protect your wealth is find not just a good but great tax advisor and preparer.

The best tax advisors have a vast understanding of the tax law, can think non-linearly, are passionately concerned about your needs, and want you to build massive wealth by permanently lowering your taxes.

To get my checklist for how to hire the right accountant, get my book “Tax-Free Wealth”.

Original publish date: December 16, 2019

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