Want to get a room full of business owners fired up?
Just mention the word taxes and everyone has an opinion. It usually is a strong one, and frequently includes the words “too much”. But, strong opinions or not, all business owners have to pay them. Death and taxes…everyone knows the saying.
So, what are your options?
You may be in a position to benefit from the services of a tax attorney. Let us take a look and see if you need one.
What is a tax attorney?
In order to practice law, a tax attorney has a Juris Doctor (JD) degree and has passed the bar. She has additional training in tax law, much like a medical doctor who specializes in a certain area. Some also may have training in accounting.
How are they different from accountants?
Imagine an accountant’s and tax attorney’s knowledge as two side by side circles overlapping in the middle. They bring different experiences and skills to your business – while also having some of the same ideas and goals for your long-term financial strategy.
A tax attorney’s main focus is on the legal aspects of your financial situation. Some examples: business negotiations, navigating court systems, IRS legal problems, representing you in civil or criminal claims, initiating lawsuits, complex tax reduction, and other duties. You use them for short-term, specific legal problems, concerns and issues.
An accountant is focused mainly on basic financial management and tax preparation. Some examples: bookkeeping, employee compensation and withholding, preparing and filing routine tax paperwork, reducing routine tax liability, issuing W2s and 1099s and other duties. Your relationship with an accountant is long-term and focuses on your overall financial health.
Do you need a tax attorney and an accountant?
The short answer is – it depends. Tax rules and regulations change every year. Companies grow, shrink and get sold. Owners retire, stock changes hands and new management takes over. Sometimes you will need and benefit from a tax attorney. Other times you will not. Your individual situation will determine when and if you need both.
Most successful, growing companies can use an accountant and a tax attorney on their team. Remember, while some of their services may overlap, each one has special knowledge which will help you reach your goals. Accountants typically focus on compliance, not minimization. Tax attorneys usually look at minimization, while staying compliant.
For example – an accountant’s tax planning advice is to buy something big that you can write off if you have money left at the end of the year. You will get the 179 accelerated depreciation and save on taxes. This is a good plan for some companies.
An attorney’s advice is to write off as much as you can pretax. He looks at how much you can take as unearned income (i.e., rental income or sub lease arrangements which are not subject to Medicare/Medicaid, FICA, SSI). He also looks at what you can claim at a lower percent of tax, such as dividends. Then what is left is taxed at full earned income rates. This is a good plan for other companies.
When do you need a Tax Attorney?
Again – it depends. Your situation is unique, and there are many factors to consider.
One of the guidelines is – if you are paying over $50,000 a year in federal taxes it may be time to think about using a tax attorney. If it is lower, the ROI is not usually a good value. Obviously, the more federal taxes you pay, the more likely the ROI will be worth it.
Here are some other reasons you might need a tax attorney.
• If you are in a situation which requires attorney-client confidentiality.
• When you have complex tax issues (international law, subsidiaries, mergers, sale of company, etc.).
• You have to answer a civil or criminal complaint from the IRS.
• You are negotiating with the IRS for owing back taxes or have balances due.
• When specific issues require knowledge of the law (how to classify workers, estate planning, exit strategies, stock distributions, etc.).
• Reclassifying your business for the optimum tax advantage.
Tax planning is complicated and the rules are always changing. You need good people on your team, an accountant and/or a tax attorney can help you. Spend the time and do the due diligence to find the right expert to help. Your future is worth the effort.
At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:
