CPA Vs Quickbook Vs Tax Lawyer

[Retracomp]

Hi guys, it's the first i write on this forum.

I am a psychotherapist in California, and my business is slowly starting to take off. To ensure that i don't miss any tax deadline and to comply with all the regulations, I was wondering if you'd suggest a CPA or simply Quickbooks.

My practice is very basic: clients come in on a weekly base for psychotherapy, i bill the insurance, the insurance pays. I do not have a secretary or anybody else in the office. The expenses are somewhat standard: rent, phone bill, car leasing, marketing, health insurance,...

So, in your opinion, should i buy Quickbook and learn how to use it or do I need to hire a CPA (or a tax lawyer)? The cost for a local CPA is $70-$200/month.

Thanks

[vangogh]

Welcome to the forum Retracomp.

It's really up to you. It's not overly difficult to learn what you need to do when it comes to paying your taxes. I assume you're a sole proprietor. That means you'll pay estimated taxes on the 15th (or the first Monday after, if the 15th is on a weekend) of April, June, and September and one last time in January. It's less about what you have to pay on these dates as it is paying enough so you aren't hit with a big tax bill come April. Once you've been in business a year or two it's easier to know what to pay.

You'll know after filling out taxes a time or two, which I admit can be confusing at first and there are going to be more forms to fill out. Where you've probably been filling out a 1040EZ you'll now fill out form 1040 or 1040A. You report income using a 1040 Schedule C (instead of the W2 an employer gives you), which also lists expenses like rent and phone, marketing, etc. For one of the more challenging things was figuring out what could be deducted as a business expense and where on the form to list it.

Beyond those two forms there are additional forms you may or not need/want to fill out based on your specifics. For example I work out of my home and can deduct a portion of my utilities and mortgage. I knew to look for these other forms by working my way through the 1040 and Schedule C. Some of the fields say the number should come from some other form like an 8829 (business expenses for home) or 4562 (depreciation). There's also a form for how much estimated taxes to fill out along with how much you have to pay. It's based on how much you paid the previous year and it's minimal in the first year since there is no previous year.

Having said that, filling out the forms was a pain in the first year or two and depending on how you feel about tax forms, could be a pain for many years after. An accountant is also likely going to know more deductions than you will and save you money.

My brother happens to be an accountant so now I keep my records, have a good idea how much to send in each of the four months, and then turn my records over to my brother to fill out the forms. However, the first year or two I did everything myself so I could understand what was involved. it was more work, but I thought and still think I'm better off for having put in the work.

One last thing. My mom is a psychologist and her practice as far as the business side sounds similar to yours. She sees patients, bills the insurance company, etc. She uses Quicken, not QuickBooks to keep records of everything and then my brother takes the Quicken files and uses the data to fill things out in TurboTax.

Taxes are confusing at first, but they'll become easier each year. Don't stress over the deadlines and regulations. They aren't as hard to understand as they first seem. At the same time an accountant will likely know how to save you money, possibly enough to offset their costs depending on how much you make. I think it's worth trying yourself to understand what's going on and then hiring an accountant. Ultimately it's up to you. The good news is no matter what you decide, you can change your mind the next year.

Hope that helps.

[tallen]

Quickbooks will help you keep track of your income and expenses, but it is not going to help you meet deadlines and ensure compliance... for that you need expertise familiar with the deadlines, forms, and requirements.

[PZagotti@ZnBcpa.com]

Ok so I get questions about the bookkeeping all the time and most small business owners can and should do their own bookkeeping, (at least at the beginning) because you should know how your business is preforming. One thing I see many people do is not setting up their QB or other accounting software as efficiently as possible. As a result they end up spending more time then they should doing work they did not have to do in the first place. For instance if you have a business bank account and a modern accounting software package you should be able to import all your business banking transactions from your bank account to the accounting system. Most systems will allow you to setup rule so that when the software encounters a transaction for something like Office Depot it auto codes the transaction to office expense. So really get a good understanding of the efficiencies available in the software and impalement accordingly.

Now onto the CPA part of your question:
CPAs are generally degreed accountants with a minimum of 5 years of college, one year of study under another qualified CPA and one year of testing, (4 separate tests normally take on average a year). So they have 7 years wrapped up in getting those letters after their name just like attorneys spend 4 years for an under grad and then 3 years in law school. Just like lawyers CPAs specialize in a subset of accounting so audit, accounting, fraud, tax, financial planning, valuations, etc.. So for the purposes of this discussion we will examine CPAs specializing in business tax. These CPAs will have a very strong understanding of tax and how it effects your business and how to manage your business from a tax / profit standpoint. They generally give guidance and assistance on business formation strategies and can represent you in front of the IRS.
*** If you are going to a CPA just to get a few pieces of paper filed out you are missing the value of the CPA which is accounting and financial guidance. A good CPA firm has a few hundred business clients so the problems you are encountering are nothing new to them and they know how to help you solve them.

Tax Attorney generally do not do tax returns. These kinds of attorneys give guidance on tax law related to business formation and deal structure. They can represent people in front of the IRS.

Above all stay away from the H&R Block type store front tax shops. The people there are barely qualified to turn on the computer and outside of taking basic information and typing it into a space on the computer screen, they have little to no understanding of tax law and have no experience or basis with which to give you business or accounting advise as they will be a plumber or store clerk after April 15th.

Based on the description of your business I would suggest you spend sometime with a CPA or attorney to make sure your business structure makes since and everything is in line. Most CPAs will give a free consultation so take advantage of it and find one you want to work with.

As for doing your taxes yourself if it was a simple W2 person return I would tell you to go for it but business returns are something different. I have had too many people come into my offices over the years and show me their work and then an IRS letter asking me what they did wrong. You see its what you don't know that is important and tax law being what it is, there is a lot that most people don't know. I have seen situation where someone overpaid taxes and was not aware of the tax breaks they were eligible for and then I have seen the other side where people think they can take deduction that they actually can't. If tax law was based on common since then everyone could do it but...

In the end CPAs are cheaper then you think and generally are well worth the cost.

[jamesray50]

Congratulations on your growing practice! I suggest to all my clients that they have a professional do their taxes. Of course, they don't all follow my advice. My other advice is to use an accounting program to record all your transactions. If you want to learn how to use the program, there are classes that will teach you. There are also people who specializes in different accounting programs. QuickBooks has proadvisors and certified proadvisors and advanced certified proadvisors. Their services range from a simple setup, training, reviews, and complete bookkeeping. Their goal is to help the business owner with their financial information so that they spend less at the end of the year for tax preparation.

You are smart to start off wanting to do it now rather than waiting and doing everything after the fact. Good luck!

[TAAccounting]

Retra,

Congrats on growing your business! To answer your question, I would say that you need both - Quickbooks and a CPA to prepare your taxes.

The reason that I say you need both is because, these two functions are entirely separate of each other. As an Outsource CFO, I always recommend my client to never have their CPA/Tax Accountant be their bookkeeper. This isn't because the tax accountant/CPA isn't capable of keeping a set of books. But rather, tax accountants tend to take the reactionary approach to a managing financials. Generally, the process requires you to send the tax accountant/CPA your bank statements every month, they input the numbers, and send you back a set of financials to look at.

Here's the issue with this - 1) Your financials are a month old, if not more, by the time you get around to looking at it. That limits any decisions/changes you can make to head off a developing problem. 2) If the CPA/Tax Accountant inputs everything on the last day of the month to s (ie all transactions for the month of January, regardless of their date are booked on January 30th) it will ruin all ability to use your financials on a managerial basis to determine weekly cash flow & working capital. Lastly, 3) you will only see your financials 12 times a year. That is generally not enough to understand the flow of your financials or even understand what all gets logged into certain expense categories.

I would recommend getting a good bookkeeper (or doing it yourself with some initial guidance from a CPA/bookkeeper until it becomes too much of a burden). But the key is to become proactive in your bookkeeping - so keep that in mind. A good bookkeeper will be able to keep your financials up to date on a weekly basis. It is advised that you review your financials at least twice a month so you are familiar with the trends, cash flow, and financial progress of your business. Then, send it all to a CPA to prepare your taxes come year-end.

Lastly, the one thing you want to keep in mind is "You get what you paid for". My going rate for bookkeeping is a $500 a month. For my Outsource CFO expertise, it's $1,000 a month for every $1 million in revenue. My clients are willing to pay this because they know that my firm focuses on quality over quantity. At my higher rate, I need far fewer clients to stay in business than a firm charging $200 per month. By having a lower number of clients, I can give each client more quality time, answer their questions faster, and be available when an emergency pops up.

So keep that in mind about picking a low price accountant as well.