Adrian talks about a recent case study on poor accounting practices by a client’s previous accountant that cost the client $31,500.00 in overpaid tax, that the client would have never recovered (or even known about!).
Is cheap accounting really worth it? Overpaid tax might be the result.
Today, I wanted to share a real-life example of how much a cheap and poorer quality accountant cost one of our new clients in overpaid tax.
It was into the tens of thousands of dollars!
We have permission from the client to share their experience but have changed their name and won’t be mentioning the accounting firm that produced the shoddy work.
“Trevor” runs a business and has a turnover of approximately $160,000.
He joined Float Accounting after deciding it was just time to change accountants.
He told me his previous accounting fees were cheap; there weren’t any alarm bells with his existing accountant.
Still, he just felt the relationship had become stale.
There was minimal communication with his accountant, who was very hard to get hold of when he had to ask essential questions.
As we do with all our new business clients, I looked back at Trevor’s financials and tax returns from the previous financial year to see if there were any errors or tax planning opportunities.
These are the three errors I found by the previous accountant and what extra tax it cost Trevor.
1: Double reporting of a debtor accounts receivable.
A simple oversight on his debtor account meant Trevor was paying twice the tax on his debtor income, which resulted in $20,000 in overpaid tax, which is no exaggeration.
2: No depreciation applied on a new vehicle.
The previous accountant did not apply depreciation on a new vehicle that Trevor purchased and used an ineffective depreciation method for existing assets on the books.
This one resulted in $3,000 in overpaid tax and would have kept continuing in future years.
3: Missed deduction of postgrad university fees.
The previous accountant was unaware that Trevor’s postgrad university fees were tax-deductible.
This one resulted in Trevor overpaying $8,500 tax.
Fortunately, in Trevor’s case, I could amend these tax returns with the ATO within the allowable timeframes.
This resulted in him receiving $31,500 back into his bank accounts.
As you could imagine, Trevor was grateful I’d picked up on all the issues.
In the end, his bargain accountant cost him a lot more, but fortunately, in his case, I could fix the errors in time.
Although this may seem like a unique situation, it isn’t.
I see new clients all the time who are consistently overpaying tax or haven’t been appropriately structured.
This exposes them to enormous risks and potential issues getting finance.
What’s worse, they aren’t even aware.
You want to ensure your accountant is spending the time to collect the right information from you, accurately report all your information to the ATO, and get you the best possible tax result.
You do a tax return once a year and want to ensure you’re getting the best result year in and year out.
I’m happy to advise that we now offer a free review of your previous year’s financials to ensure your accounting work is being done correctly and your tax is being minimised.
It’s obligation-free, and your existing accountant won’t be aware, so there’s no need to feel uncomfortable.
If you feel you need any assistance, click on the link below to book a free review to see if you are overpaying tax or missing out on other opportunities.