Your CPA Has Cost You More Than $1 Million; If You Think That’s Impossible, Read On

Posted on September 28, 2011 by Bill Faiferlick

CPAs routinely cost their clients millions of dollars and here’s why.

  • In 2008, Congress passed more than 500 changes to the tax code. Few tax preparers actually take the time to learn about changes in areas they are less than familiar Since hundreds of new tax laws are released every year, it isn’t possible nor efficient to read up on every particular section so they tend to focus on what affects the majority of their clientele. 
  • Since the beginning of 2001, there have been more than 3,250 changes to the tax code, an average of more than one a day, including more than 500 changes in 2008 alone. – (National Taxpayer Association Annual Report)
  • In this industry, it’s what you don’t know that costs you money! There are literally volumes and volumes of laws that can potentially affect the amount of taxes you pay or investment opportunities available for consideration – and those laws change constantly. Most taxpayers don’t realize that even small changes can affect your taxes and investment opportunities in a big way. 
  • 70% of small business owners either don’t have an accountant (40%) or get little help from their accountant (30%) in identifying strategies to improve cash flow or profit.  
  • Between February 1st and April 15th, the average tax preparer completes about 480 returns. 
  • According to Money magazine’s annual tax test(as noted in, March 1988, March 1989, March 1997) fees, it turns out, are no clue to accuracy or competency. There was no correlation between the size of preparers’ fees and how well they scored. CPAs who routinely serve wealthy individuals and corporate clients, charged fees that far exceeded those of the other preparers. However, CPAs from some of the Big Six national accounting firms, who participated in the first two years of the tax tests*, were generally beaten for accuracy and affordability by the competition*After the second annual tax test all of the Big Six accounting firms declined Money’s invitation every year to participate in the test. In fact, a spokesman for Arthur Andersen stated that his firm had a lot to lose by performing poorly and little to gain by doing well.
  • Congress can cut taxes all it wants, but if your tax preparer doesn’t know all the rules – and Money’s tax test shows that most don’t – you might actually end up paying more. (Money, March 1998). A report released in April 2003, by the Government’s General Accounting Office (GAO), revealed that most taxpayers believe they benefit by using a paid preparer, but millions, in fact, are poorly served.
  • The Average American Works 4 Months Out of Every Year Just to Pay Their Taxes.  The last thing you want to do is pay more than you have to! Paying your fair share of taxes is your responsibility, but overpaying is not. Unfortunately, a substantial number of taxpayers are unknowingly overpaying their taxes – some by as much as 25%.
  • In 1990, the IRS processed some 335,000 amended returns. By the end of 2004 that figure grew to more than 4.2 million corrected returns.
  • “The IRS returned about $18 billion to small businesses over a two and a half year period due to mistaken assessments,” according to a General Accounting Office report. “18 billion is hardly chicken feed,” says Sen. Kit Bond (R-MO). “It’s real money related to errors that could be avoided in many cases.” (Entrepreneur Magazine, June 2002)

What’s become glaringly obvious to me during my more than twenty years working with professionals, business owners and affluent individuals is that CPAs are the greatest roadblocks to financial success.

There is a myth that accounting professionals know everything there is regarding taxes, including every investment or deferral opportunity. Using CPAs as gatekeepers, evaluators of opportunities or first lines of defense is costing you more money than you would ever care to imagine. You’re inadvertently dismissing suitable, misunderstood opportunities which results in needlessly overpaying your taxes.

The overpayment of taxes limits your accumulation of accelerated wealth to which you are legally entitled. Case in point:

  • Did you know that you’re entitled to a fully deductible pension plan contribution depending on your age of $300,000 annually and more if you’re over fifty-five?
  • If you computed only the annual tax savings applying a 30% tax rate, this alone will save you $90,000 a year immediately.
  • In some states with a combined tax rate of 50%, that would be an enormous saving of $150,000 each year.
  • You have two choices; take $300,000 and give Uncle Sam $90,000 to $150,000, OR defer the entire amount into a pension plan.
  • In ten years and you will have accumulated more than $3 million not even taking into consideration any potential investment return.
  • Add a conservative return now you have real money in a real account – there for retirement or however else you choose to spend it. Can’t afford it you say, you can’t afford not to!

CPAs are better viewed as driving forward while looking in the rear view mirror!

CPA’s are more accurately viewed as historians of facts than they are as visionaries with foresight. They are generally conservative, detail-oriented and focus on opportunities at the end of a year. Hindsight planning is not strategic planning. Basically, they tend to have all the characteristics we would desire of someone handling our tax reporting, but not as our insightful forward thinking advisor. They are not generally strategic forward looking thinkers.

Their licensing and credentialing prohibits them from acting and advising in many areas capable of providing significant new income tax deductions. The Small Business and Work Opportunity Act of 2007 now requires them to be ultra conservative because if deductions are declined they can be held financially responsible for fines and penalties along with the client.

We believe we hire CPAs to manage one of the most sensitive personal issues; our money. Many of us, including myself, have long histories with our accountants. If we’re forced into the sobering reality of taking the CPA’s advice with a grain of salt, then where does that leave us other than a little or a lot more confused?

Who is the decision-maker? 

Entrepreneurs succeed because they are constantly looking ahead, planning, anticipating and projecting into the future. When talking about CPAs, they are not entrepreneurs. Few have actual hands-on experience outside the accounting world when it comes to operating a successful non-accounting enterprise. It is this familiarity in operating businesses which shapes our choices and propensity to risk tolerance. Seldom are they comfortable in taking the type of perceived risk independent business people customarily engage in.

As successful entrepreneurs, we decide on salaries, hiring, schedules, deliveries, pricing, inventory levels, etc. We decide who to hire, how to motivate and attract key personnel , and determine pay scales or benefits. In effect, we are responsible for all the day-to-day operation decision-making. We are ultimately the captain at the helm of our ship.

The decision to adopt a strategy is a business decision not an accounting decision which often becomes clouded with the CPA. This distinction is crucial to understand even if your CPA doesn’t. I’ve heard CPAs recommend against strategies which were beyond a doubt very beneficial. If the deductions are valid, then the decision like everything else is yours to make.

The money you earn needs to be retained by you and not the IRS. You are entitled to the profits of your labor, dedication and perseverance. Correct usage of the CPA professional as with any other professional is critical if we do not want to bypass opportunities or strategies we are legally entitled to and could directly benefit from.