When we came to tax time, he told me he was going to use his regular tax guy. I certainly couldn’t complain. I did caution him about being certain he filed state returns and a few other things.
A few years pass, and I hear through the referral source that my buddy is being audited. I thought to myself “wow, that was fast!” and suggested I’d be glad to help out.
A couple of months later, I meet with him and pick up the stack of documents necessary. His regular tax guy had:
* never filed state tax documents
* filed the LLC return on a Schedule C when the LLC had TWO members
* in my opinion, made up deductions until my buddy got a refund
* refused to assist him in his audit review process
* allowed the LLC to become suspended as to its corporate privileges
The solution is quite easy and only somewhat more costly than doing things right the first time would have been. However, my pal has endured a considerable stress from being audited, flagged himself for scrutiny for a few years and gotten his spouse wound up angrier than a hornet.
“I told you we should have used Douglas!!!”
Starting a small business is challenge enough; be sure on the front end that you have the right tax guy/gal. You want someone who is willing to work with your crappy book keeping, answer questions and alert you to things you probably didn’t even know could go wrong. Interview this person before you hire them and check references. Don’t make your decision based solely on their fee schedule.
The most important thing, though - is ASK QUESTIONS. If you don’t understand something on your tax return, ASK WHY IT’S THERE. When you sign your tax return, you are telling the IRS that everything on it is true and correct. Periodically, ask the question “is there anything I might be missing?”
Telling the IRS auditor that you have no idea where a number came from is not a good plan.