Don’t negotiate your taxes with an Accountant; they don’t have the authority!

I have interviewed several hundred operators in the last couple of months. Too many of them simply did not understand the basics of personal income taxes. I had several who stated that if the taxes are too high, they argue with the accountant until they reduce it. Others say, if it’s too high, they just move to another accountant who gives them a lower amount. That’s not how Canadian income taxes work. It’s not like haggling with a vendor on the beach in Jamaica… well… not at the initial filing level anyway. Sometimes, when someone goes through an audit and there are a bunch of discrepancies, for the sake of simplicity, a “compromise” can be made with the auditor. However, it’s never that way year after year.

When someone “haggles” with their accountant to reduce their taxes, they do not understand what they are doing. Firstly, what saves taxes as an operator is not the accountant, it’s the system the accountant uses. For instance, the TL2 simplified method produces a certain result while the non-taxable benefit system will produce a very different (lower) taxable amount. What is necessary is to interview the accountant to find out what system they use BEFORE you hire them. Too many tax preparers who serve operators have no idea about the non-taxable benefit system. The TL2 and the NTB system both use some of the same terminology such as “Per Diem” which is simply Latin for “Per Day”.

If you have two accountants and they both use the TL2 system, they should get the same dollar figure (if both their calculators work properly). If there is a difference it has to do with missing documents or documents in dispute.

Historically (meaning in the 1970’s and prior) there were many more discrepancies between accountants. It was BEFORE most desktop computers and software used standardized methods. I remember my parents’ Accountant coming to their business and clickity-click-clicking an adding machine to spit out a narrow roll of paper with numbers on it. Accountants used to defend most or all tax returns as a professional policy. So, when they were liable, they tended to have their own standards of expenses. If they didn’t want an audit, they were very conservative. One Accountant I know always held back a few thousand dollars of invoices so that when an audit came, they produced more deductions and the auditor had to start from a negative position. In effect that Accountant had the client pay for his own tax insurance policy by not using legitimate invoices. It is a very old and cruel system Accountants used to use. The idea that Accountants guard the tax gate is still out there, but the reality is (especially towards an independent operator) there is basically nothing to “negotiate”.

What happens when a client “haggles” with an accountant to lower the amount owing is assuredly some form of fraud. I wish it wasn’t but I’m afraid it probably is. Especially based on the amount that it’s reduced. Maybe a few hundred dollars is “negotiable” through home expenses, auto expenses or so… but a few THOUSAND dollars? That requires the re-engineering of major expenses. Since most operators use private, home-based tax preparers, the operator will be carrying all the liability in case of reassessment. In effect, if the client pressures the tax preparer to falsify the return on their behalf… they do it to themselves. From an ethical perspective, it makes no difference. Not knowing how someone lies for them doesn’t absolve them of the lie; they are still complicit.

If someone wants to be an independent operator they must understand at least the basics of taxes. Taxes for an independent operator are one of the simplest businesses to prepare. Revenue, less expenses equals taxable income. Understand what expenses can be used. Make sure you understand how non-taxable benefits work, and then use them… save taxes. Blindly delegating is a very poor business model.

About the Author:
Robert D. Scheper is a leading Accountant and Consultant exclusively serving the Lease/Owner operator industry in Canada. His first book in the Making Your Miles Count series “taxes, taxes, taxes” was released in 2007. His second book “Choosing a Trucking company” is the most in-depth analysis of the independent operator industry today. He has a Master’s degree (MBA) in financial management and has been serving the industry since he and his wife came off the road in 1993. His dedication, commitment and strong opinions can be read and heard in many articles and seminars.

You can find him at www.makingyourmilescount.com or 1-877-987-9787.