Giving contractors tips on taxes, good or bad idea

If you are not a tax professional or an accountant you should never give other people tax advice directly. This is because you are not licensed in that profession, would you want a lawyer giving you advice on what kind of surgery you need? But you can give suggestions to where contractors can go to get tax advice. For example you have a tax professional that you think very highly of, it would not be considered harmful to tell your contractors about the tax professional and how happy you are about his work. What you want to stay away from is professional advice, but if contractors have general questions about generic tax questions then you could probably offer advice on what you have done in similar situations, but you should always tell them to consult with a tax professional for expert advice.

Some topics that are safe to talk about that both you and contractors might share in common are:

Topic one:
The structure of the business. How a business is organized can have a major impact on the amount of taxes that a company has to pay. Sometimes restructuring your business can give you certain tax breaks that your previous structure did not include. Being that you have formed a business and now some general information about the different structures and some of the tax breaks talking to a contractor about some of the pros and cons for each type of structure would not be considered professional advice.

Topic two:
What kinds of accounting methods you are using. There are different types of accounting methods and the different types involve different tax benefits. One type of accounting is called cash basis accounting, here you report income as it is received and deduct expenses as they are paid. Another type of accounting is called accrual basis, this is where you accrue your expenses as they occur rather than when they are paid. Some companies use a combination of the two accounting methods. But one thing you need to know is that whichever method you choose to use when filling your tax return you can not change from that method without a valid reason and wanting to get tax breaks is not a real valid reason.

Topic three:
The various kinds of deductions you might be able to take. This is a tricky topic because it can involve tax advice that can be given by a professional, but you can still talk about some of the more common deductions. For example if you have a contractor who wants to compare notes about common tax deductions you can tell them what deductions you take, but make sure that you tell the contractor that that tax deductions vary for every company and he should talk to a tax professional.

Topic four:
You can also talk about different tax software that your company has used. For example if you have tried different tax software and found you like one more than any other you can give your opinion on why you liked this software versus the other software. You can explain how the software has benefited your company or anything else that you liked about the software. Since anybody can buy tax software you are not giving professional advice about the software itself, you are simply offering your opinion on why you thought it was better than the others.

Just remember to inform the contractor that you can offer professional tax advice because you are not a tax professional and if they have any questions about specific items they need to contact a tax professional for advice.

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Categories: Taxes,

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