Accountants are the people who do the books for almost every business in America, including yours. And they have a lot of power.
Accountants have power because they have secrets. They know how to legally reduce your tax bill with so many tricks that it is hard for anyone else to compete. And they are not shy about using their knowledge, even when it costs their clients money.
A smart accountant can eliminate about half of your tax bill. That is, with enough time and expertise, he can find legal ways to cut your tax bill in half** below what you pay now. If you are in the 25 percent bracket, that means saving you 12.5 percent of your income, or about $4,000 each year**—money you can invest in something likely to make you even more money.
The U.S. tax code is so complicated that no one has ever counted how many crazy little loopholes there are. But I think it’s safe to say there are millions** of them**—enough to keep accountants busy helping their clients for decades to come**.
There are a few things an accountant can do to save you money on your taxes. First, they can advise you on what kinds of deductions and credits you can take. For example, did you know that if you have a home office where you do business, you can deduct the costs of running it? And that if it’s a daycare center, there are tax credits for that too?
Your accountant should also be able to find deductions that your employer is missing from your paycheck. You would be surprised how many people don’t pay any attention to this; in fact, the only time my wife or I talk to our accountants is when we get our tax forms in the mail and discover they’re missing something. Or when they send us something in the mail like “oops, we forgot to tell you about this.”
The third thing an accountant can do is find deductions for you in other places. For example, if your employer owns the building where you work, they probably aren’t charging you rent, but the IRS thinks of it as income. If your car isn’t paid off yet (and let’s hope not), your accountant should be able to find a deduction for depreciation. I’m sure there are other examples; just ask.
When you pay for something with a credit card, the credit card company charges you interest on the money it has loaned you.
That interest is taxable, and the credit card company sends you a 1099-INT at the end of the year.
If you are in business for yourself, the 1099-INT will be one of your business expenses. And if your total expenses are more than your total income, then when April 15 comes around, you will owe income taxes.
The good news is that there are several things an accountant can do for you to reduce or even eliminate your tax liability.
Suppose, for example, that while you were busy working, you also spent some time buying toys on Amazon.com with your credit card. That means that rather than paying off your balance every month, you have been racking up debt.
A chartered accountant, or “CA,” is a human bean-counting machine. They will examine your assets and income and recommend changes to your finances that will save you money.
Contrary to popular belief, it doesn’t take a lot of money to save on your taxes. According to the National Taxpayers Union, an extra $100 in deductions will save you $40 or $50 in taxes.
Now imagine you’re a CPA and you discover a way to increase your clients’ deductions by $100 per year. That would be worth $40,000 over the life of their careers, and you’d charge them maybe $200 for the advice. They’ll come back next year and ask for more advice that will save them another hundred bucks. You can see how this can add up to a nice living.
Who wouldn’t want to do that?
Except there’s a catch: lots of other CPAs are doing the same thing. And if they’re all recommending the same thing, then presumably those deductions are already being taken by a lot of other people. The potential market is big, but it’s not infinite.
If you want to make a killing as a tax specialist, you need to find something new. Not just new — better than what everyone else is recommending.
I work for a multinational corporation, and we have many employees in different countries. Each country has its own tax laws.
So when an employee wants to go from, say, the United States to Canada, we have to make sure we pay the appropriate taxes. Simply sending our employees across the border is not good enough; we must be sure we are paying the right taxes in both countries.
The U.S. and Canadian tax systems are different in several ways:
1. The U.S. has a progressive income tax; Canada has a flat tax (though there is a small surtax on high incomes).
2. In the U.S., personal exemptions and deductions lower your taxable income, but in Canada you get a deduction for each dependent you have — child or spouse — and there are no exemptions for dependents.
As a general rule, people who are motivated to use their brains in order to get rich will figure out ways to do it. People who are motivated to be poor will find all sorts of reasons why they’re helpless.
If you’re good with money, you’ll find all sorts of ways to make more of it; if you’re bad with money, you’ll dream up reasons why you can’t save any.