Most business owners know to call their accountant when they’re filing their taxes or doing succession planning, but there are other times a CPA can benefit your business.
Whether it’s making a large purchase or crafting a benefits plan, your accountant can help you make the best decisions to save you money and keep you on the right side of the law, says David McClain, CPA, MBA, a manager in tax at SS&G.
“Too often, clients will approach their CPAs after the fact with what they have done, when calling before they made a move would have given them more options,” says McClain.
Smart Business spoke with McClain about when your first call should be to your accountant.
In what situations do people often wait too long to consult with a CPA?
One of biggest situations is when a client is starting a new business or buying an existing business. When you start a business, that’s the only time you have to set the rules by which you want to play.
If you talk to your CPA after your attorney has drawn up the papers and say, ‘I’m going to be a C corp,’ there are things the CPA can do, but at the end of the day, you’re stuck starting within C corp tax laws and working from there. You lose the flexibility you would have had if you had first talked to your accountant about what you want to do with the business, what your long-term plans are, and what option works best for you.
People will often talk to an attorney first, but the attorney and the CPA need to work together to balance the legal and the financial sides to come up with the best option.
How can a CPA assist when selling a business?
Structuring a tentative deal and then approaching your accountant is a mistake. There may be options that you haven’t considered, and the tentative deal you have considered may have negative tax consequences. At that point, if you then need to restructure the deal, the potential buyer may walk away because you are too far down the path to start over.
If you’re even thinking about selling, talk to your CPA about potential structures for a deal and their related tax consequences. Then you’ll know what potential framework would be best to work within. For example, if you’re structuring the sale of your business one way, you may potentially still be on the hook for legal liability versus an alternative that would avoid that potential future liability. There are also options to defer paying tax on the sale of a business, depending on how it’s structured, so contact your CPA as early in the process as possible when starting to think about selling your business.
Why should you talk to your CPA before making major purchases?
There are so many options for depreciation and there are state and federal incentives for things such as energy-efficient property. If you approach your CPA and say, ‘Here’s what I’m thinking about doing,’ then you can look at whether it makes sense to buy new or used. An owner may lean toward buying used to save money, but there are tax laws that allow you to write off the entire purchase in one year if you buy new. So it may make sense to buy brand new instead of used.
How can a CPA assist with retirement and succession planning?
Retirement planning is tricky. There are several types of plans, and each has its own set of rules. For example, there are plans where owners can put in more money than employees and there are plans where they can’t.
First, look at how much it costs to run the plan, as they can be very simple with minimal costs or very cumbersome and have a lot of requirements that increase the cost. It’s important to talk with your CPA about your needs for retirement to make sure your plan not only meets your goals, but is also cost effective and efficient.
With succession planning, business owners often don’t think about it until much later in their careers. Who is going to run the business? How is it going to get from you to that person? The value of the business is a nonliquid asset, so there may be estate tax. You have to determine how the person who inherits the business is going to be able to pay that tax and still have enough cash to run the business.
Business owners really need to start thinking about this earlier in the process. You may have children who are going to take over the business, so you need to figure out how they are going to get ownership. Do you want to start gifting to them during your lifetime to get that asset out of your personal estate? Do they even want to run that business? There is a whole litany of questions you need to ask to start planning.
This is an area where some people try to go it alone, but I would advise against that. With the uncertainty in the estate tax area, it could be a very expensive transaction for the person who takes over the business. If you haven’t planned correctly and that person doesn’t have the cash to pay the potential tax, it may be a significant enough tax to force the sale of that business.
The earlier you start planning, the more favorable results you will likely end up with.
Next month, learn about more ways that your CPA can benefit your business.
David McClain, CPA, MBA, is a manager in tax at SS&G. Reach him at (800) 869-1835 or [email protected].
