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Can your CPA address these issues?

08/30/2016  |  By: Paul Burris, CPA, Shareholder, Tax Services

When I play golf, a range finder is a must, since it allows me to know the exact distance to my target and enables me to select the right club. You normally have14 clubs in your bag, so you shouldn’t be using the same club for every shot. If you don’t use the right club, you’re almost certainly are not going to hit your target.

I find that a range finder is especially useful on courses I’ve never played before where my knowledge of the course and my sense of the terrain are lacking.

This same concept applies to all growing businesses. Using the right tools or resources could save you a lot of money.

Too often I see companies that are expanding into new states, generating new revenue, but operating under the same old tax strategy and missing significant savings to the bottom line. This is especially true in the management of state and local taxes.

As you grow, your professional support network — including your CPA — should grow with you.

It’s important to periodically assess your CPA’s ability to provide you with a comprehensive tax strategy based on their experience and focus on your industry sector.

For example, each state has its own set of tax rules. Most states have incentive programs that offer tax credits for certain businesses to either retain them or attract them to their state. These can change quickly and may not be obvious.

Some CPA firms specialize in multistate work and constantly track laws and other incremental rule changes that can add up for a client. Some firms don’t have the time or capacity to develop this expertise, and it could cost you money.

How do you know if you are missing your targets or opportunities? Are you using the same club for every shot or do you need to adjust to the right club to hit your target? Here are some reasons to pause and ask whether you are getting the insight you need to play your best game.

  • Tax incentive credits. If you are starting up operations in new states, you should make sure your tax adviser/CPA firm has expertise in your industry and with multistate taxes. For example, if you are in manufacturing and distribution, retail, or construction, many states offer tax credit incentives to attract these businesses. You want to make sure you are enjoying the full benefit of tax laws unique to your sector.
  • Apportionment of income. If you do business in more than one state, the apportionment of income can have a dramatic impact on your state income taxes. Apportionment of income is usually determined by three factors: sales, property and payroll in each state. Some states have special apportionment rules for certain industries to help attract and retain those businesses in their states. These special apportionment rules can be very beneficial to the companies that qualify for them.
  • Filing method. Do you have the correct business structure to make sure that you are doing business under the most efficient tax system? Some states allow consolidated or combined tax returns, which could be beneficial if you have one company turning a profit while another is not. How you file will depend on multiple factors in your business and you need to understand which method is best for you.
  • Constantly changing tax laws. State lawmakers continually tweak the tax laws to maximize revenue for their state and these changes need to be monitored. If a state changes its law, an unaware company risks errors that can lead to paying back taxes with significant penalties and interest.

Are you using the same club for every shot? You may be missing your target and not even know it until it’s too late.

Can your CPA address these issues?