Small Biz Flocks to Tax Pracs

But is it for the right reasons? Busy season 2008 is right around the corner. How are CPAs adding value? Join the survey. Get the answers.

September 10, 2007
by Rick Telberg/At Large

Tax professionals could be making a stronger case about the value they bring to small-business clients.

Need proof? Take a look at a National Federation of Independent Business (NFIB) survey that found 88 percent of businesses with fewer than 250 employees using tax professionals to prepare their most recent federal tax returns. But very few cited this decision as a cost-effective move.

Only about five percent of all small business, including three percent of those with more than 20 employees, said that it’s more cost effective to use a tax professional than to do it in-house. Also, only 11 percent of small businesses, and nine percent of those with 20-plus employees, said their tax professional is most likely to determine the lowest legal amount of taxes.

Busy season 2008 is right around the corner.

How are CPAs planning to add new value for clients?
Join the survey. Get the answers

(Free. Confidential.)

Fear and ignorance — not the “value-add” of a learned professional — drive small business into the arms of tax practitioners. More than half of those who used a professional said they did so to assure compliance, and a surprisingly high number confessed lacking tax code knowledge.

Nearly 47 percent of all small businesses admitted they don’t have a good understanding of even one of the 15 portions of federal tax code and the one state tax code portion covered by the NFIB study. Just one in six (17%) said they have a good understanding of one of the sections and only eight percent reported good understanding of two codes.

What do they worry about the most? Methods of accounting rules, depreciation, expensing, employment/payroll taxes and capital gains/losses. What do they worry about the least? Corporate dividends, pension plans/profit sharing, R&D tax credits and estate and gift/taxes. Do you think they’re worrying about the right things?

Just 31 percent said they have good or moderate understanding of depreciation provisions, while 28 percent said they have good or moderate understanding of methods of accounting rules and of capital gains rules. More than 43 percent have good or moderate knowledge of expensing rules, but only 17 percent have good or moderate knowledge of the Alternative Minimum Tax.

Businesses with 10 or more employees are more likely to use tax professionals than are businesses with fewer than 10 employees. Those with 20 or more employees are far more likely to identify compliance as a reason.

Small businesses’ perception of services from the IRS seems to be improving. Fifty-three percent of small business respondents gave satisfactory ratings to their dealings with the IRS.

Further illustrating the need for tax professionals’ knowledge, only 31 percent of small businesses believe that notices and other correspondence from the IRS are clear and understandable. Also, just 38 percent have visited the IRS Web site for tax-related information over the least three years, and the majority of that group visited to download tax forms.

On the positive side, the study also indicates that tax professionals are doing at least an adequate job of cross-selling. Only 23 percent of the small businesses surveyed say they do not rely on tax professionals for anything except tax preparation, and most of those businesses seem to be among the smallest and least able to afford to pay for professional services.

Sixty-one percent of all the small business surveyed said they typically consult with their tax professionals when making major business decisions. Larger companies cited this far more often than companies with fewer than 10 employees.

As long as the tax code is what it is, tax professionals should be in high demand. Just make sure it’s for the right reasons. Relying on fear and ignorance to drive your business can’t be a good long-term strategy. Or can it?

YOUR TURN: Busy Season 2008 is right around the corner. How are CPAs planning to add new value for clients? Join the survey. Get the answers.

COMMENTS: questions, rants or raves? Write Rick Telberg.

Copyright © 2007 Bay Street Group LLC. All Rights Reserved. Used by Permission.

About Rick Telberg

Rick Telberg is editor at large/director of online content.

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Disclaimer: Any views expressed in this article do not necessarily reflect the views of the AICPA or CPA2Biz. Official AICPA positions are determined through certain specific committee procedures, due process and deliberation.