Schedule C, Tax Preparer vs. Tax Accountant

by C. Ingraham, RTRP
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Too often, the difference between a tax preparer and a tax accountant can mean the difference in you owing the IRS or paying the IRS, when filing a Schedule C.  It's a matter of having the necessary experience to understand each of the Schedule C tax write-offs, and how the IRS may react to each of these write offs based on tax codes.

Giving your information to a tax preparer who has served you well for years on your personal income taxes, isn't the same as employing a tax accountant or a CPA who will dive into your charter accounts or your shoe box expenses and dig out the legal deductions. (When dealing with an tax accountant, they will ask you a lot of questions the first time, and the investment for services is usually less then a CPA)
  
The new business owner has lots of work, and lots of expenses, so he will often times opt to do his own taxes, like he did "before he was self-employed."  In many cases, this is a mistake.  There are certain decisions (elections) which must be made on the first year Schedule C, which will affect the business for years to come.

Example:  You aren't sure if you want to use the actual miles or the actual miles deductions for business use of your auto.  Does it make a difference?  YES.  One of the differences is that one method allows depreciation of your auto, while the other method does not.  Depending on your intent for the future of your business this could be a positive or a negative.

Too often the tax preparer who understands individual taxes, doesn't have the experience necessary to pull a rabbit out of the hat when it comes to lowering tax liabilities on individual tax returns with Schedule Cs (Profit and Loss from Business)   Anyone who understands and knows the tax codes can pull a rabbit out of the hat, but then the question becomes, is the rabbit legal?  Will the rabbit cause the IRS computer to take a double look and report the deduction(s) to an IRS Human, who will then allow the IRS computer to make (written) contact with you via a CP-2000? (Paper audit)

Example:  An experienced tax accountant will answer questions "before" the IRS ask.  How?  By adding detailed information which explains certain line items within your tax return.

Another Example:  An experienced tax professional will compare your national averages and explain, to the IRS, any overages.

There are many 'little numbers' which make up the big picture for an acceptable tax return which includes a Schedule C.  This form, is one of the top forms audited by the IRS because of the fraud involved in using the Schedule C to lower taxes using a home based business.

Yes, a Schedule C is all that and more.  Answering a group of questions on your consumer tax software may not be your best solution for creating a positive relationship between yourself, your new business and the IRS.  You may answer the questions correctly and produce a legal tax return, but you have to ask yourself: "Did I get all of my tax benefits?"

Every year Congress votes in hundreds of new tax laws, and many of these laws must be interpreted correctly in order to maximize the taxpayer's benefits.  (Example:  health insurance laws for small businesses!)

Correct interpretation of new tax laws is crucial.  Interpreting the new tax laws is usually taken care of for tax professionals.  Tax professionals can use IRS attorneys, and the attorneys employed by the professional software company who provides their software.  Either way, experienced tax professionals usually get it right.  Taxes is law, and tax law is no picnic when it comes to business.

I personally enjoy the challenge of a Schedule C.  Its the one form which tells me that a taxpayer has laid the foundation for potential wealth. Taking advantage of the tax benefits for a tax client comes with experience and knowledge of the tax laws. Many Schedule Cs evolve into small corporations, which then have the foundation to become big business and are referred to CPAs who are licensed by the state.