‘Standard’ Tax Advice

Tax accountant, tax planner, tax preparer: What’s the difference?

Tax accountants, like other professionals, spend time crowdsourcing information and advice among peers in limited-access online social media groups. The advantages of this crowd sourcing are obvious: fast, free, draw upon wide range of experiences, etc. The disadvantages are also obvious: you often get what you pay for in the fountain of eternal social media wisdom.

I often notice that my approach to addressing a question is driven by a background as a tax planner. In contrast, many tax accountants approach is driven by a background as a tax preparer.* My approach is more academic and based on intangibles, theirs is more mechanical and based on rules and regulations. I’m not saying that one approach is better than the other but rather that my planning perspective is often lacking in tax conversations.

It seems like a ‘standard response’ would be useful to tax preparers’ questions that I hear often:

First, tax treatment is driven by core tax accounting principles. For example, one over-Arching principle is the matching of revenues with associated expenses. It is difficult to evaluate and apply rules and regulations without first understanding the tax accounting principles.

Second, it is important to consider the intent and the available tax benefit. Too often tax preparers ask “What is the effect of…”. Instead, I would start by asking “What did the taxpayer hope to accomplish?”

We usually find that the intent is to maximize tax benefit: a worthy goal. In that case it may make sense to make some type of calculations. It may be useful to consider multi-year impact. That means estimating projected tax rates and adjusting for the time value of money.

Finally, it makes sense to consider trends. For example, the trend is to write off small business expenses rather than endure the burden of carrying depreciation schedules for small business assets.

* The terms “tax accountant”, “tax adviser” and “tax preparer” all have distinctions that are important to the discussion but these differences are not addressed here in this post.