The role of a CPA is to help clients manage their finances and taxes. As an expert in accounting, you’re expected to have answers for your clients when they have questions about their future, their business, and what to expect come tax day. The following is a list of some of the most common questions CPAs get asked when taking on a new client.
What entity should I select for my business?
Such a question that can be tricky to answer. The short answer depends on your needs, goals, and preferences. There are four main types of entities: sole proprietorship, LLC, partnership, and corporation. The first three are pass-through entities. They don’t pay taxes themselves but pass their profits through to their owners, who then pay taxes at the individual level. Corporations offer more structure than these other forms of businesses because they not only tend to impose stricter rules on how companies are run but also require them to keep better financial records.
Can you articulate the cash flow statement?
The cash flow statement is a tool to track the funds coming in and going out of your business. Regarding cash flow statements, CPAs are often asked: How can I generate more cash in my business? The answer depends on what you mean by cash. If you’re talking about actual physical currency, the answer is easy: deposit it into your bank account. But if you mean the amount of money available for reinvestment, then we need to talk about profits first.
What is the tax impact of this transaction?
The tax effect of a transaction depends on the type of transaction. The tax impact can be positive or negative, depending on whether the person is in a higher or lower tax bracket. The timing of the transaction affects its tax impact, not its type. For example, selling stock to pay off credit card debt will result in a capital loss (a negative tax impact), while buying an expensive watch would result in an income gain (a positive tax impact).
CPAs live for these type of inquires, so come prepared with questions because we’ve got answers. At Huddleston Tax CPAs, we’re eager to be challenged and ready to help you with our collective expertise.