No surprise: working with accountants is expensive. Their average rate can start at $145 per hour, and go as high as over $800 per hour for complicated filings. You read that right: $800 per hour. Right now you’re asking yourself two things: 1) Should I become a CPA immediately? And 2) How can I not pay that much to my accountant come tax time? Well, here are 5 tips that will help your business save a ton of money when you’re working with your accountant.
1. DO YOUR OWN BOOKKEEPING
Here is an excellent breakdown of how to go about bookkeeping, so let’s delve more into the why you shouldn’t leave this task to your accountant: because you’re literally paying someone else, at $145 an hour, to do something as simple as organizing receipts. When you have to figure out what Section 179 expensing is, that’s a great time to work with your accountant. When you need to jot down the cost of a ream of paper into Excel or an accounting software program, not so much. It’s simply not worth your accountant’s time, and your money, to perform end-of-the-year bookkeeping.
Instead, you should set up a routine at the end of each week (or month at the very least) to tidy up your books. If your income and expenses are fairly simple, using Excel to keep track of things should be fine, though it can quickly suck up your time. (For other options, see tip #4 below!) By the way, accountants do not like so-called “shoebox clients” (who hand over all their receipts in a shoebox for them to deal with), and they’ll be thankful to not have to deal with the hassle because…
2. EDUCATE YOURSELF ON DEDUCTIONS
Your relationship with your accountant may be long and storied. You may think he/she is as invested in your business as you are. But at the end of the day, professional accountants have their own business to worry about and you’re just another client in their books. So while your goal is to maximize returns to improve your business, the main goal of your accountant is to limit their own risk exposure:
“Inaccurate tax returns, bad investment advice, or other mistakes could lead to a professional liability lawsuit. Finance professionals could be sued for these errors and the losses their clients suffer as a result.” According to Accounting Web, “11 percent of all accounting malpractice lawsuits come from mistakes in bookkeeping and miscommunications with clients about their expectations for your work.”
The more knowledgeable about deductions, the more you can lead the conversation with your accountant. Instead of waiting for them to say “oh yes, you can deduct this,” you can be proactive: “I’m going on vacation. Here are a few ways I think I can write it off. What do you think of XYZ?” We’re not telling you to know as much as your CPA (although it’s honestly not rocket science!). Rather, knowing the broad strokes when it comes to deductions can empower you to make sure your accountant is working for your business, and not theirs.
3. SEPARATE YOUR PERSONAL AND BUSINESS ACCOUNTS
One of the biggest mistakes newbie entrepreneurs make is maintaining just one bank account and one line of credit for both their personal and business income/expenses. Not only does this make it difficult to keep track of your day-to-day financials, but it provides a big headache for your accountant as well which directly translates to more hours and more pay.
Of all the tips on this list, this might be the biggest no-brainer to do. All it takes is a small up-front effort of opening a new checking account and a credit card account. Then at the very least, come tax time you can hand over just the business side of your financials to immediate cut down on your accountant’s sleuthing time. There are other benefits too, including building up your credit score, fraud protection (if one card gets hacked, the other is safe), and extra bonuses and points depending on the type of business credit card you get. This is something you can and should do today if you haven’t already.
4. INVEST A LITTLE TO SAVE A LOT
Putting in the up-front effort of bookkeeping using Excel is definitely better than nothing, but luckily we now have much better ways to do your own business accounting. So, if you’d rather not deal with the hassle of cells and equations and want to automate this process as much as possible, accounting software almost always pays for itself in the time and money you’ll save.
While there are many flavors of accounting software to choose from (here’s a link comparing the top four options out there), it’s important to find what you actually enjoy using. Your accountant may recommend you buy Quickbooks, but if it ends up being so painful to use, you’ll never actually do the bookkeeping. The best software is the one where you will log into every week and not have a panic attack! Try a few free trials and look for “feeling” over function, as much of the software available will have similar features anyway. This way, you’ll remove the psychological barrier to tracking your expenses and logging your invoices, which will directly translate into hours saved when working with your accountant.
Whichever software you choose, you’ll be saving at least $1000 come tax time by not using your accountant for remedial tasks.
5. CONSULT YOUR ACCOUNTANT BEFORE TAX SEASON
If you’ve used a ride-share app like Uber or Lyft, you know that when things get busy, prices start surging. Suddenly, a $10 trip can cost you $40 at the wrong time. The same thing happens with CPA during their busy season: tax time. It’s common practice for your accountant to implement surge pricing because, well, they can. March and April are their peak busy months, and if you want to get their attention, you’ll have to pay up. Your best bet to save money is to solicit their time before their prices go up.
This doesn’t mean just to book time with them in February. Rather, if you’ve followed the above steps, you already have your books kept, educated yourself, and got organized. So rather than waiting until tax time to speak with your accountant, get their input throughout the year instead as issues come up. For example, say you’re going on a two-week vacation in August and you want to write off as much of that as possible. It’ll be much more cost-effective to have that conversation with your CPA before you travel, instead of handing over receipts in April for him/her to deal with. An hour of their time in August will be cheaper than an hour in April.
Every dollar saved from your accountant is another dollar in your pocket. These tips can save SMBs literally thousands of dollars with just a little bit of up-front work.
This article first appeared on Upwork.