Twelve questions to ask your CPA before December 31

Most contractors speak to their CPA once a year, in the spring, about a year that is already over. By then almost every decision that could have changed the outcome has been made.

A thirty-minute call in November or early December is worth more than any meeting in March, because December 31 closes the door on most of it. These are the questions worth taking into that call. We do not prepare returns or give tax advice — every one of these is for your CPA to answer — but knowing what to ask is most of the value.

Bring your year-to-date numbers. A conversation about a business whose books are four months behind is guesswork on both sides.

1. Based on this year, what am I likely to owe?

The single most useful number to get before the year ends, because every other decision depends on it. It also tells you whether your estimated payments have been close or badly off.

2. Is my last estimated payment right?

The final quarterly estimated payment for the year is due in January. If this year ran much better or much worse than last, the number your CPA set back in the spring is probably wrong. See quarterly estimated taxes.

3. Is my business structure still the right one?

Sole proprietorship, LLC, S-corp election. What suited a one-truck operation often does not suit the same business three years and four employees later, and an election can have a deadline attached. See LLC or S-corp for contractors.

4. Am I paying myself the right way?

If you are an S-corp, how your pay is split between salary and distributions has rules behind it, and getting it wrong is a common and expensive finding. Ask what your split should look like given this year’s results. See how much should I pay myself.

5. Is there a retirement plan I should set up, and when is the deadline?

Several retirement plans have to be established by a date, not merely funded by one — and the establishment deadline for some falls before year end even where contributions can come later. Worth asking in November rather than finding out in April. Which plan suits you depends on whether you have employees.

6. Should I buy equipment this year or next?

Not “should I buy something to save tax” — see buying equipment before year end for why that question is usually backwards — but, given a purchase you already intend to make, which year it belongs in. The answer depends on this year’s profit and on rules that change.

7. Should I still be on cash basis?

Most small contractors keep cash-basis books, and the tax rules around which method a business must use depend on size and structure. If you have grown, crossed into longer contracts, or started bonded work, ask whether that still holds. See cash basis vs accrual.

8. We worked in another state this year — what does that create?

The question contractors forget. Crews crossing a state line can create registration, withholding and filing obligations in that state, and the thresholds differ everywhere. Tell your CPA every state you worked in, even once.

9. Am I exposed on worker classification?

If people who work only for you are being paid as subcontractors, year end is when it becomes visible, because a 1099 is about to go out instead of a W-2. Ask before it does. See 1099 or W-2.

10. Is anything about this year unusual enough to need handling?

Things worth raising unprompted:

• A loss, or a much larger profit than usual
• Equipment sold or traded in
• A vehicle that is used personally as well as for work
• Debt forgiven, refinanced or taken on
• A partner or shareholder joining or leaving
• Money taken out of the business beyond normal pay
• Insurance proceeds from a claim

11. What do you need from me, and by when?

Ask for the list in November and you can produce it calmly. Ask in March and you are reconstructing a year. Our version of that list is in what your CPA needs from you at year end.

12. What should I do differently next year?

The question that actually changes anything, and the one almost nobody asks. A CPA who sees your numbers can usually name one or two things — how you take pay, how you track job costs, when you invoice — that would make next year’s answer better.

Before the call

Get your books current. All twelve of these questions are answered better with year-to-date numbers that reconcile than with an estimate, and the gap between the two is usually the reason the call gets postponed until it is too late to act on anything.

Related

• The year-end payroll checklist
• What your CPA needs from you at year end
• Your CPA says the books are not ready
• Monthly bookkeeping or once a year at tax time?

General information, not tax or legal advice. Every question here is one for your own CPA, who knows your situation and the current rules.