How to pick an accountant for your online business

Choosing an accountant for your business is always a delicate endeavour. It’s incredibly important for your accountant to understand your business thoroughly, inside and out, backwards and forward. So, for some non-traditional businesses (i.e. professional blogger), this can be tricky to say the least.

A post titled How to pick an accountant for your online business appeared recently in a blog called Fortuitous, which is written by one of the co-founders of MetaFilter, Matt Haughey. I thought the post had some great advice for web workers and bloggers in particular, but some additional insight could be provided from an accountant’s point of view.

I feel finances are important enough to warrant bringing in outside professional help. If you’re a geek, the temptation is to think “this is math — I know numbers!” but what you might be ignoring is the additional tax of having to learn an extremely complicated system. Leave it to the pros so you can focus on the thing you do uniquely well. […] A good accountant recognizes all the costs of running an online business, offers tips for good investments (that in turn, reduce taxes), and offers advice on how best to grow your business.

If you run a business as a sole proprietor or through a corporation, it will definitely save you money and hassle to hire an accountant to take care of the tax side of things. The article focuses on taxes, but your professional accountant will provide advice on areas other than tax, such as market strategy, operations management, financing options and retirement saving (which admittedly has a tax component to it).

The rules governing taxes on business are geared towards the traditional, capital-intensive types of businesses… If you don’t have to buy parts, pay a large staff, or purchase trucks to move products around, you don’t have a lot of options when it comes to built-in deductions against your revenue.

Built-in deductions are the typical ones certainly, and don’t on first glance seem to apply to a web worker. But logically any expenditure incurred to earn business income is deductible. As long as it can be reasonably proven to have a business purpose, deduct. I would argue an online business would have as many deductions if not more than a traditional one, especially if you work from home, where a portion of any expenses of the home are an expense of the business.

What I found after using several local accountants was that they just didn’t understand how the internet worked. They would ask me about equipment (minimal — just a laptop), how much I drove (none, I do it all online from my home office), and how many employees I had (zero, though I’ve paid programmers and moderators as contractors for the past couple years).

Your accountant is always going to ask you about the typical deductions, because that’s a good starting point to the discussion. They should start to give you an idea of the types of things that are allowed. In the case of an online business, equipment would be any peripherals for the laptop, the desk you worked at, the chair you sat in, and the whiteboard you brainstormed on. You can renovate a home office and deduct the cost. Plus, what was spent on contractors is clearly a deduction. Any driving done which is reasonably for the purpose of earning income – to a potential clients, for example – is deductible.

In the end, the big city accountant asked me the right questions and figured out a couple deductions I didn’t know I qualified for, and saved me $1500 below what TurboTax came up with. I probably could have gotten my TurboTax return to match but I probably mis-read one of the hundreds of questions lobbed at me during the online process. The local accountant I wasn’t a fan of turned out to be the worst option, coming up $1200 over my own TurboTax return. I suspect she left off a few business expenses I listed.

That’s a huge difference between the accountants. It would be interesting to know whether it was the local one’s conservative nature that contributed to the difference or something else. Regardless, it’s important to always examine your tax return even if it is prepared by a professional, and get explanations for anything you don’t understand or think is missing.

I’m glad someone wrote a post like this, as it seems the group of people earning their primary incomes from blogging is increasing, and we accountant bloggers frequently lament the dearth of accountants who “get” this sort of thing.

As a disclaimer to the above though, I should remind readers I’m a Canadian CA student, not too familiar with tax systems other than Canada’s and not a tax specialist.