I recently listened to a story my CPA recently told me about two accountants in his old firm and a discussion they had
One was bragging that he never had a client who was ever audited, let alone had lost a deduction. The other said that he had had some clients get audited, and in a few cases even had some deductions reversed/overruled. Which is the good CPA and which is the bad one?
After the 2nd CPA explained that he had lost a few deductions, he went on to say that by being moderately more aggressive he had probably saved his clients millions of dollars over the years, all for the cost of a few deductions, and worst case, some penalties on deductions that the IRS overruled. The more conservative CPA, most likely had left millions on the table, for the IRS to grab from his clients, that could have been successfully deducted
So which is the good CPA now? The one who saved you a lot of money over the years, at the cost of a couple run-ins with the IRS or the one who never got any attention from the IRS but probably wound up having you pay more in taxes than you should have
In the 20 years of running my company I was very conservative in how we managed our deductions. For example, I had a home office for years and never deducted the space. There were countless other things we could have deducted but didn’t. What happened? We got audited anyway!
We were put under the most severe/stringent IRS audit, which lasted about 6 weeks. We had site visits to our home and our sales office in Raleigh. We had to answer various questions. Ultimately, we were deemed “clean” and never had to pay a penny to the IRS, but the whole process cost us an enormous amount of time and approx. $3,000 in CPA expenses. Despite the hassle and aggravation, there is really nothing to be afraid of with an audit. It is just another part of doing business.
My future endeavors
Going forward I plan to be a lot smarter about evaluating all of the potential deductions and utilizing them. I’ve got a good CPA who can balance risk vs return to find the appropriate “sweet spot”.