Your Accountant Suggests Illegal Activity. What Do You Do?
Question: My accountant is suggesting things that I know are not legal. What should I do?
Answer: I would find a new accountant right away. You do not want to be tainted by the accountant’s lack of ethics and end up owing additional taxes, penalties or worse.
There is a difference, however, between income tax avoidance and income tax evasion. Tax avoidance is the legal use of the tax code to minimize what you pay legally to the government. There are also shades of compliance, and some accountants will suggest pushing the edge of the envelope to pay as little tax as possible, but raising your audit risk significantly. I always suggest erring on the conservative side and not waiving red flags at the IRS unnecessarily. I cringe when I hear an ad at tax time that a tax preparer will have you pay the least tax of any preparers. There is a balance you need to achieve with this, and having confidence in your tax accountant is paramount.
Income tax evasion is completely illegal, and should be avoided in every circumstance. It involves not reporting income or recording expenses that are not allowed or other manipulation of your net income for tax purposes.
Please email your questions to Harriet at Ask The Accountant.
QuickBooks Premier and Enterprise can be modified to better serve ad specialty distributors. Harriet Gatter is a QuickBooks ProAdvisor, a former accounting professor and a former ad specialty distributor. She advises ad specialty distributors to use QuickBooks Premier and Enterprise, often in conjunction with other industry-specific software, to manage the complexities of the ad specialty business, with the results being time saved, errors eliminated and an overall accurate accounting of your business. Contact her at firstname.lastname@example.org