Chapter 5

Last month I had an unexpected visitor from California, Miss Swati, a friend of my daughter, who has been working as Pharmacist on 1099 contract in CA. My daughter introduced me as her CPA dad. I offered free help for any tax questions. She informed me that her uncle, who is CPA, has been preparing her returns. I just asked her if she claimed certain items. She was surprised and said, Can she claim this? How my uncle CPA never told me this. Did he not know this?

Such things happen many times. With all due respect to the profession I belong to, let me tell, that just as all doctors and lawyers are not alike, all CPAs are not alike. It is not that they are not knowledgeable, but specialization of each CPA differs form the other. Some CPAs specialize in Finance and Investment, Some in Corporate Audit, Some in Government Audit, Some in Corporate Governance, Some in Foreign Currency, Some in Amalgamation and takeovers, Some in International Trade, and a few in Tax Planning.

For me tax planning is specialization filed. If I have some have some complicated finance or investment question, I too go to other CPA. Similarly, I am doing tax return and tax planning for many CPAs. I even did returns for employees Deloitte & Touche. In fact, I also did last year, tax return and tax planning for one Tax Preparer, who does more than 500 tax returns, in Dallas.

TAX RETURN PREPARATION AND TAX PLANNING ARE TWO DIFFERENT THINGS

Many people again think that a CPA, who prepares thousands of returns, must be expert in Tax Planning too. This may not be true. Perhaps so much burdened CPA may not get time to go into depth of Tax Planning.

Tax Return Preparation and Tax Planning are totally different things. Tax Return starts after end of the year, while planning starts at start of the year and must be done, by any means, before the year ends. Tax preparer asks what you did, and tax planners tell you what to do.

Preparing 1000 returns done in stereotyped way, without attempting to take any challenging position, will not make one a good tax planner. But one return done with total mindfulness and thorough study, with all preparedness to challenge IRS, can provide tax planning experience.

Tax planning requires in depth study of Tax code, Federal and of all 50 states. It is a matter of great responsibility. It requires in depth study of all situations and cases declared as scam by IRS, so that you are not caught into any misleading attempt. It also requires regular study of court judgments on various tax issues. It is all more like being a tax attorney rather than being a CPA. In fact, I have been fortunate to study the subject under guidance of highly senior tax attorneys and tax planning CPAs in my career.

Let us assume that CPA has required knowledge, experience and ability to help you in Tax Planning. But even then, there are 5 blocking reasons, why he would not go into tax planning details with you.

(1) You have approached him, after end of the year, when implementation of none of the tax planning ideas would be practicable. So no professional would discuss at this time with you, what if scenarios, for which you cant do anything now.

(2) You are assigning him work of tax return, his standard fees (say $ 35 or $135), which not cover values for spending time of 5 to 10 hours after your case or to taking any IRS risk for you for tax planning advice.

(3) You are approaching him in most busy season, with overstretched working hours, during which days his blood pressure graph is rising sharp, with pressure of returns piled on his table for review. So he may not even be prepared to take up such specialized things in those days. In fact, we also take up planning work, after tax season only.

(4) Many CPAs are not proactive or motivated to try to save taxes and hence, they study whatever papers you submit, and reply questions you ask but do not tell or inquire from you for unasked or untold matters.

JUST TO ILLUSTRATE, I GIVE BELOW 7 ITEMS OF MY CHECKLIST, TO SEE YOURSELF, HOW MANY OF THESE ITEMS YOUR TAX PREPARER CPA EVER TOLD YOU.

(1) In some cases, C Corporation offers more benefits than S Corporation

(2) Concept of Charging order makes some LLC of certain states, more safe to protect assets than any other entities

(3) Direct Investing in securities can offer more tax benefit, than investment in tax deductible IRA in present situation.

(4) You can claim cost of your personal Gym and Cost of your Trip for Fun to Disney world or Cost of your meals or cost of your India trip, as business deductions.

(5) While mostly CPAs play around 25 deductions, there are over 300 deductions offered by IRS Codes.

(6) You children of just 1 day old can offer your tax benefit of $ 5000 in addition to normal child tax credit or Daycare credit.

(7) You can claim, in certain cases, your parents as dependents, even if they stayed less than 183 days during the year and your children, even though they never lived for a single day with you.