Every year, after the New Year’s hangovers are healed and the holiday decorations stored safely away, a dark cloud begins to form over the head of all Americans. Dread and suspense build as we deliberately procrastinate while turning our attention to other tasks that have been long neglected in hopes that the problem will vanish. Tasks like reorganizing every photo on your computer by date and who is pictured, doing the dishes 3 times a night to be absolutely sure they are clean, and ironing your bedsheets so they are totally wrinkle free. Across the country, errands are endlessly run and houses are spotless. Until, the inevitable finally arrives. Like a train barreling down the track with the bridge blown out ahead, April 15, and the tax deadline, arrives.
As CPAs, we are part of a highly trained alliance with a penchant for financial subtleties and an uncanny knack for interpreting the ancient language of the IRS; not unlike superheroes whose ability is to sift through unbelievable amounts of information and calculations to produce a single number. However, just as superheroes all have different powers, so do CPAs differ in their supernatural abilities. As auditors, we are often mistaken for our more capable counter-parts, the tax accountants. This can lead to many increasingly irritating quips from friends and family members at the holiday dinner table requesting assistance with their incredibly complex form 1040EZ. As an annual victim of this barrage, I have compiled the list of tips below to help guide fellow auditors in our never-ending mission to differentiate ourselves from our brothers and sisters in forms.
- The first and most effective tip is to keep your CPA status a mystery for as long as humanly possible. For obvious reasons, this tip is also the most difficult to execute. To accomplish this requires superb persuasion, charm, and free time. Namely, if you have any of these, it will be immediately clear that you are not a CPA. This will serve you well. Try also to pick up extreme sports such as BASE jumping or alligator wrestling; this will almost certainly prevent family and friends from suspecting you of being capable of basic financial capability. Thankfully, for the majority of us whose cover is blown and are unable to abide by tip 1, there are other options.
- The second best tactic is to be truthful. Often an overlooked and underutilized solution, being fully open and honest with friends and family about taxes can be highly effective! When confronted with the request for assistance, agree to help. As they are preparing their documents and thanking you endlessly, be sure to remind them of your hourly billing rate, followed by the fact that you know nearly as little about taxes as they do and that it will take at least several hours to familiarize yourself with new the IRS standards for the year. Do not forget to bill for the time spent gathering documents before they panic and call H&R block.
- Educate friends and family on the differences between tax and audit accountants. This will go a long way at preventing future misunderstanding and requests for help. The first thing people think when they hear “auditor” is that the IRS will come knocking on their door. Use this fear to your advantage! Inform them that as an auditor, it is your duty to meticulously record every last penny of wages, tips, and miscellaneous income they received during the year, down to the penny. This includes that quarter they picked up off the street last March, the birthday money from Grandma, and the $10 they made from pet-sitting for the neighbors. Once you request this outrageous amount of documentation, it is nearly certain that they will search for help elsewhere. If they persist, see tip #2 after they have spent hours painstakingly gathering their documents.
- The final tip is also the easiest: refer them to a personal friend who is a tax CPA. I find it advantageous to give out the contact information of my own tax accountant friends to other friends and family. It is especially effective if you mention that you are taking your own taxes to them as well!
As we draw near the end of tax season, I hope that these tips will serve auditors well in handling the endless tax requests for tax assistance. We must come together collectively to end the oldest misconception that plagues the earth: the idea that all CPAs know about taxes. This tax season, that change starts with you.
Ryan Barnes, CPA
Thomas Howell Ferguson, PA
Appendix: Actual (basic) tips for friends and family!
- Inform your would-be “clients” of services such as VITA – Volunteer Income Tax Assistance. This is a terrific IRS sponsored programs that teaches beginning accountants to prepare basic tax returns. Not only is it free, you will be helping a lucky aspiring young accountant to earn his wings! Do be sure to check over the final information.
- Be sure that your friends and family understand the nature and mechanics of tax brackets and withholdings. Too many tax payers are unaware that tax brackets are marginal, and this can be detrimental to their tax planning strategy. Similarly, many taxpayers think of their refund as an end of the year bonus. Explain that the ideal refund is $0, and that any large refunds (or tax payments) can be smoothed out by correcting tax withholdings on their W4. Inform them that the amount received as a refund could potentially have never left their wallet and spent a whole year earning interest!
- Encourage family and friends to take advantage of tax-advantaged accounts such as Roth and Traditional IRA’s and 401(k)’s. Discuss the importance of contributing enough to earn an employer match in the 401(k) and strategies for minimizing (not evading!) taxes, both now and in retirement.