Many business and individual clients rely on their CPAs to make sense of tax implications and financial strategies. Clients also turn to CPAs with questions about all kinds of financial matters, particularly about their companies and accounting.
"Some ask many questions throughout the year, while others you may hear from only at tax time, or during year-end attestation fieldwork, depending on the level of service being provided," said Christopher Ward, CPA/ABV/CFF, president of DMLO (Deming Malone Livesay & Ostroff), in Louisville, Ky.
We tapped Ward and six other CPAs to find out which questions clients ask the most. Here are their responses:
How do I save on my taxes? Naresh Setlur, CPA, CGMA, who runs his own firm in Cypress, Texas, receives queries from clients about taking deductions and lowering their tax bills. "Everybody complains about paying high taxes," he said. He advises clients to max out their 401(k) plan versus banking on potential stock market gains. Robert Sinkewicz, CPA, CGMA, managing member at Catamount Accounting & Tax Services in Williston, Vt., also suggests clients put more money toward tax-deferred retirement plans and contribute more to charity. "I just go through their entire return with them and show them what more can be done to maximize deductions and lessen taxable income," he said. Ward also tries to help clients take advantage of certain credits, but explains that there often are no great options for reducing that dreaded tax bill, so he simply offers a shoulder to cry on. "Oftentimes, the tax liability is what it is," he said.
What entity should I choose for my business? Steven Landauer, CPA, owner of Steven D. Landauer, CPA, in Davenport, Iowa, said this is the most common question he receives, as small business clients—including farms—struggle to figure out their appropriate structure. "They don't understand the difference between an LLC, partnership, S corp., or sole proprietorship," he said. He describes the differences with new clients and reviews business structures with existing ones. Then he helps determine their projected business longevity and evaluates their industry to see which entity is best. Clients are also "usually unaware of the various ways an LLC can be taxed, or unsure if they even have obtained an employer identification number," added Mark Blumenfeld, CPA, at Angell & Blumenfeld CPAs, in Willits, Calif. Discussions about entities often begin during individual tax return preparation, if clients plan to create a business, he said.
Can you explain the cash flow statement, and how I can generate cash in the business? That's a question asked frequently of Bob Patterson, CPA, CGMA, founder and managing member of Patterson & Company in Louisville, Ky. His firm services more than 120 eating establishments in 10 states, and restaurants live on cash flow, he said. "Once they understand where their cash is going, I believe it allows them to be a better manager of their business," he added. "Once they feel comfortable that they know their business, both operationally and financially, it allows them to be an even better leader in their company."
How can I take advantage of gifting rules? Clients often want to transfer their wealth to children without triggering a gift or estate tax. Ward advises clients to discuss their financial picture with their adult children, so they "are better prepared to deal with the ramifications of what they are inheriting in the future," he said. Both attorneys and CPAs employ strategies to help clients minimize paying gift or estate taxes, and he encourages clients to meet with all of their advisers to "craft the strategy that will provide the largest impact."
How do I handle estate, trust, and inheritance issues? Children of deceased parents often pose the following questions to Dave Frome, CPA, managing partner of Frome & Company in Mesa, Ariz.: "When is a trust tax return required? When is an estate tax return required? How is an inherited IRA handled? Do I have to pay tax on inherited assets?" Frome's firm works with clients to address general tax rules around their basic questions and then will "zero in on their particular situation," he noted.
How much salary should S corporation owners take? Business owners want to know how much to pay themselves. While there is no exact formula for determining reasonable compensation, clients expect direction from their CPAs. "We typically have a business 'checkup' one to two times a year with S corp. shareholders," Blumenfeld said. During these conversations, companies reveal important information about their expectations, profitability, or other industry changes. These discussions can also "lead to planning opportunities to help our clients save in the long term," he added.
What is the tax effect of this transaction? Forward-thinking clients may question the tax outcome of a transaction they are considering. Frome gave a couple of examples of questions clients may ask, such as "What would the tax be if I sold my rental property?" or "What would the tax be if I cashed in my employer stock options?" CPAs can help address these queries, since answers are not always clear-cut.
What are you seeing out there? Some clients ask Ward how their businesses are performing compared with other similar customers he serves. While he will not divulge information about other clients, he addresses the query on a broader scale. "If the client asking the question is performing differently than most of my client base, this will lead to deeper discussions as to why they are performing better or worse than what I am seeing," he said. He also examines their respective industries and taps industry data "so that they may perform some benchmarking of their own."
How do self-employment taxes work? These taxes can "cause a rude awakening during tax time," and new self-employed clients often need direction, Blumenfeld said. He uses a sketch pad and flow charts to help them better grasp the ramifications of being self-employed.
Overall, Blumenfeld's firm encourages clients to call or email immediately if they have questions or are in the midst of life-changing events. "We found having this open-door policy allows us to better prioritize and plan their needs during tax time," he said.
Cheryl Meyer is a California-based freelance writer. To comment on this story, contact Chris Baysden, senior manager of newsletters at the AICPA.