Courtesy of Whittemore, Dowen & Ricciardelli, LLP
By Susan Elise Campbell
Accounting firms country-wide are having as much trouble as other businesses finding enough people to hire, according to Paul Dowen, CPA, a principal of Whittemore, Dowen & Ricciardelli, LLP. WDR is headquartered in Queensbury and provides accounting, advisory and tax services primarily for small businesses.
“Even the IRS can’t find enough people to help resolve tax issues,” said Dowen. “You can rarely get someone to answer the telephone.”
One reason for the shortage of qualified accountants may be the five years or 150 credit hours it takes to earn the degree.
“College students weighing their options wonder if they really want to take on an extra year of schooling and the extra debt,” he said.
For the last three years, the Covid years, Dowen and his associates have had to turn down income tax preparation for individuals, referring them and some smaller businesses who were not already clients “to the big box companies.”
“We’ve had to be selective, which we never had to do before,” he said. “We would be forced to raise our fees to price out those smaller returns, even though we would like to help them out.”
The client base at WDR is primarily businesses ranging from $250,000 to $2.5 million in gross receipts. Dowen said his firm wants to know each client well, “not just crank out tax returns.”
“It comes down to the relationship,” he said. “I want to know who you are, what are your life goals. Do you want to get ready to retire, sell your business or turn it over to family members?”
“I want the relationship for your lifetime, and I want to make sure you’re making money,” he said. “Not all accountants take the time to build that relationship.”
Once a company tax return is filed Dowen said he can analyze why a client may not be making the profits they expect and “see how we can get this fixed or increase improvements.”
“But if our practice is short on staff, these are the kinds of things I don’t get to, and I don’t like that,” he said.
The bottom line on the advisory side of an accounting firm is to not only help a business grow but also reduce the taxes it pays, for which there are different acceptable methodologies and approaches the professional recommends. Expensing versus depreciation is one area where advisor and client may not be on the same page, Dowen said.
“I always tell people, if you didn’t owe money on your tax return, this means you didn’t grow your business this year,” he said.
Profits can be legally reduced or eliminated using Section 179 expensing or bonus depreciation on qualified equipment. Dowen said he may recommend depreciating those items over a period of time if the client believes the business is going to be making more money in future years.
“Businesses pay typically 40 to 45 cents on the dollar between federal, state, social security and other taxes,” he said. “Making 50 cents or more is still better than making nothing. But some want zero tax liability now.”
Some businesses will purchase new equipment and write off the entire cost as a Section 179 expense for that purpose, which Dowen said “may not be the best move.”
“The idea is to pay the least amount of tax that you can over time,” he said. “So maybe we write off half of it now and the other half over five years, so that you’re paying some tax but at a lower average rate.”
Dowen said an additional $100,000 of profits the next year would be taxed at 22 percent or even 37 percent, whereas profits could have been reduced by using an applicable depreciation formula on that equipment, he said. Recommendations such as this help “smooth out” the company’s tax liability but the decision is dependent on the business owner’s view of future profit levels.
“We don’t want our clients to cost themselves money in the long run by pushing themselves into higher tax brackets,” he said.
Like a coach, Dowen encourages clients to ask themselves in the everyday course of their business if they are maximizing sales and minimizing the costs they can incur to order to make a profit, he said.
That may mean looking at where products are purchased, if they are negotiating the best price, and whether their marketing maximizes where they can sell to, he said.
“I’m not an expert in my clients’ businesses. They are,” he said. “But I can help them analyze the things that I see based on my other clients and what they’re doing.”
Dowen used the example of a restaurant business.
“We have the ability to look at our restaurant clientele to see what their food and beverage costs are and see if this business is on the norm,” he said. “There are also published industry standards to compare their average costs.”
If his client’s costs are higher on a percentage basis, Dowen wants to know why.
“I just want to guide them, and that’s what about 50 percent of my clients want,” he said. “That’s the kind of client we want.”
WDR conducted their annual tax seminar on Saturday January 28th, at which Dowen explained a new reporting requirement that affects nearly every business.