You may trust your accountants, but if they give you bad tax advice, you can end up in a world of debt with the IRS. Being self-employed and working from home poses a unique tax situation that many well-meaning accountants may not understand. Therefore, protecting yourself and understanding a bit about tax law is important to be able to identify bad tax advice.
Become Independently Informed
One of the best ways to stop yourself from falling for bad advice is to research your situation yourself. When you educate yourself, you are more likely to spot when something a financial advisor tells you seems inaccurate. Of course, you cannot know everything, but either before or after you receive advice, you should search online or at the library about tax code relating to your situation. This can provide you with a wealth of information very easily. Being informed also makes you more aware of the consequences and implications of your advice.
Ask Plenty of Questions
When dealing with a bad financial advisor or accountant, they tend to not be able to withstand a thorough examination. Even if you are just asking basic questions, you can often times uncover something that just doesn't seem right. Anytime that things don't line up, or they seem inaccurate, you are most likely getting bad advice. Asking the right questions can help uncover bad advice.
By comparing advice, you are less likely to make mistakes when it comes to your taxes. If you think that you are getting bad advice, seek advice from another tax professional. Look for someone that is experienced in dealing with self-employed business people.
There are many special tax circumstances that are available to self-employed people who work at home, and not all tax professionals are well-versed in this tax code. For example, if an advisor suggests not deducting expenses like a business line and other utilities from your income because you work from a home office, you need to look for a new advisor. This is one of the biggest areas of contention among home business owners. Finding someone that really understands what deductions are acceptable for your business is very important.
Bad Advice Often Lacks Context
If your accountant is telling you something that is absolute (not taking into account your unique situation), it may be bad advice. Typically, bad financial advice does not recognize your individual circumstances and needs. Be wary of any advisor that speaks in absolutes.
Look for Self-Interest
Is your advisor receiving any sort of commissions or cutbacks, or do they seem to have some particular bias? This may be a sign of bad tax advice. Follow your gut and ask lots of questions like "how will you benefit from this?" if you feel there is some ulterior motive at work in the advice that they are giving you.
By using a combination of these tactics to educate yourself and recognize bad advice, you can successfully protect yourself from costly mistakes. Bad tax advice can devastate your business. Practice due diligence, and select an accountant that you trust )and one that is experienced in small business accounting). Most of all, be sure to read up on your own specific situation so you are prepared to ask the necessary questions.