(Pic: Me and my tax strategist, Jeff Socha)
Yesterday, I said that the #1 mistake entrepreneurs make with taxes is that they have a CPA, and that they don’t have a tax strategist.
The reality is that you need a guy who can do both.
Today, I want to dig into another common mistake people make when picking a CPA.
And that’s picking a CPA who says he’s “conservative”.
This is a mistake that I made over and over – probably about 3-4 times between 2011 and 2014.
And this really came to light in a recent conversation I had when I was at Jeff’s office (Jeff is my tax strategist).
Jeff and I were shooting the shit in his office, and I mentioned that I went through so many bad CPA’s when I first started making money.
“I think I had 3 different ones in a 3-year span” I said. “Each time I was hoping the new guy would be the one who would do what you do – bring me ideas and plan everything out for me – but they all were really conservative. They just did my taxes and told me what I owed”
Jeff smiled and laughed for a second.
Then looked at me…
“When a CPA says he’s “conservative” you should run for the hills”.
I laughed.
Nearly every CPA I had before Jeff told me he was “conservative”.
So I asked him what exactly he meant by that…
“A CPA who says he’s “conservative” is usually just code for “I don’t know what I’m doing”.
He went on…
“If you understand the tax code, there’s no need to be conservative. Because you know which strategies you can use, and which ones you can’t.”
He’s right.
The CPA’s I used before didn’t fully understand the complexity of my taxes.
They were used to doing small business taxes…
Or even personal taxes.
How the hell would they know anything about tax strategy for a high-earning entrepreneur?
They didn’t.
Which is why they were “conservative”.
By now my mind was racing with a million questions for Jeff…
So I blurted out…
“So if your CPA says he’s conservative, they’re basically not using strategies they should be using because they’re MORE worried about getting in trouble themselves than they are about getting you the tax deductions you deserve”
A big smile came across Jeff’s face…
“Yep”
It started to make sense.
“Honestly it’s like a conservative CPA works for the IRS more than they work for you!” I said.
Jeff chuckled…
“There’s a lot of truth to that” he said.
I walked out of Jeff’s office that day understanding a little more about why so many of my past CPA’s didn’t work out.
I was always hiring “conservative CPA’s” cause I thought that was the safe thing to do…
Turns out, they’re not safe.
In fact, they’re probably less safe, cause it shows they don’t truly understand the tax code.
A guy like Jeff uses all kinds of strategies to reduce my taxes that my conservative CPA’s never told me about.
I remember when he first set everything up, I was quite worried.
I thought he had to be doing something illegal.
Turns out, it was all legal.
It’s just that 99% of CPA’s (especially the conservative ones) don’t know this stuff.
I even ran all of the stuff by a buddy of mine who is a CPA at Price Waterhouse Coopers for a second opinion.
My buddy looked at me like I had 3 heads when I said I was concerned whether this was legal or not.
“What are you talking about? This is what every major company does.”
Honestly I felt like an idiot when I realized I could have been doing this all along.
And saving a whole lot more on my taxes.
But that just goes back to what I said yesterday…
There’s two types of taxpayers…
There’s the smart ones…
And then there’s the naive ones.
I was one of the naive ones for a long, long time.
So when I finally became one of the smart ones, it seemed too good to be true.
But it was true.
I just had never been exposed to it.
Anyways…
Hopefully this email was helpful for you.
And hopefully it helps you to avoid the pitfall of hiring a “conservative CPA”.
Over the next few days I’m gonna share a few more of the mistakes I’ve made over the years with my taxes.
So be on the lookout for an email tomorrow.
And since a lot of people have asked already…
I’ll do an email about Jeff (the tax guy I use) on Thursday.
I’ll breakdown what he does for me, what I pay him and all that.
And if you’re interested in talking to him, I can connect you with him via email.
I’ll warn you ahead of time…
Jeff is not cheap to work with.
And he only works with people who are making at least $600k a year or more.
I was referred to Jeff by Dan Roitman (the founder of the $100+ million dollar Pimseulr company)
And so far, he’s been incredible.
It’s basically like you give him $1 and he gives you back $5.
I’ll take that deal all day.
Like I said, I’ll give you all the details about Jeff later this week.
And if you want an intro to him, I will do that on Thursday as well.
That’s all I got for today…
Talk soon,
– Justin
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