Last week I went to an on-farm seminar on taxes. We sat outside, in front of a barn on the ground and listened to a tax accountant talk about farms and taxes. There were about 30 people there. I have always been a bit skeptical about tax accountants providing much value beyond just filing taxes.
My conversation with clients usually goes something like this: What is the primary financial goal of you as a business owner? To maximize profits, right? What is the primary goal of your tax accountant? To minimize taxes; how do you minimize taxes, you minimize profits, right? Oops, we’re already at odds.
Not to mention that most accountants are TAX accountants, not business accountants. Many clients simply assume that by having their accountant look over their financials and doing their taxes that they’re getting financial oversight, review, support (insert a word here for feeling better that someone with experience and knowledge of your business is making sure you’re on track).
Here is the problem:
- Tax accountants want you to structure your financials in a way that makes it easy for them to file your taxes…. I’ve read literally hundreds of companies financials and looked over their tax forms; they are two VERY different sets of documents. One tells a story to the owner (or it’s not really telling us anything) and the other is set up to tell a story to the IRS… you tell me which you’d rather read.
- By the very nature of the tax accountant’s primary role of reducing your taxes, they are not pre-disposed to look at understanding how your business makes its profit, but rather how to reduce it, so the likelihood your internal statements are going to look the same as your taxes is slim to none, and slim has already left the building.
- Lastly, although not finally, most people only talk to their tax accountant 1x per year, at tax time, when the accountant has only on thing on their mind… I don’t have enough hours in the day to get all these taxes done, so I’ve got to work as hard and as fast as I can to meet the deadline.
So why did I start off with the statement, “I was wrong”… well that’s because I listened to an accountant that understood exactly how they added value. She had a specific list of how to approach reducing your taxes, she understood how she could work with her clients and she had REAL knowledge of how to work specifically with farms. That was really refreshing and valuable.
Here’s the moral of my story, regardless of if you’re an entrepreneur or just filing personal taxes.
- Don’t assume your accountant really understands your business. Take the time to talk to your accountant during the year.
- Remember that a tax accountant is a TAX specialist. Would you use a human doctor on your cows, or a vet on your child? (okay, maybe you would/have but you get my meaning)
- Don’t be afraid to change accountants, but if you do, interview and ask hard questions. The difference between having an accountant that knows you, your business and your industry can literally be $1000’s. I have personally seen it.
KTC hasn’t done any business with this firm yet, but we are certainly going to ask them some hard questions, specifically around farm related taxes, and we look forward to sharing more insights with our clients and friends.