7 Signs Your CPA Is Costing You Money

The problem with a bad tax relationship is that it does not look like a problem. The returns get filed. The numbers tie out. Nobody gets a notice. Everything appears to be working.

Meanwhile the strategies that would have saved you $60,000 were never mentioned, because nobody was looking for them. Here are seven signs, each one checkable against documents you already have.

1. You Only Hear From Them Between January and April

Almost every strategy that meaningfully reduces a tax bill has to be implemented before December 31. Retirement plan adoption, entity elections, cost segregation studies placed in service, accountable plans, salary adjustments, gain timing. All of it.

By the time your return is being prepared in March, the year is closed. Your preparer can classify accurately, and that is all they can do.

If your entire relationship consists of a January organizer, a March signature, and silence for eight months, you are buying compliance. That is a legitimate product. It is just not the one that changes your tax bill. See tax strategist vs. CPA.

2. Every Strategy You Have Implemented Was Your Idea

Think back over the last three years. The S-Corp election, the cost segregation study, the solo 401(k). Who raised each one first?

If the honest answer is that you read about it, brought it to them, and they said "sure, we can do that," you are directing your own tax strategy and paying someone to execute it. That works only to the extent of what you happen to read.

A proactive advisor brings you strategies you had not heard of, because that is the service.

3. They Have Never Asked What Next Year Looks Like

Planning depends entirely on forward information: expected revenue, planned acquisitions, hiring, a possible sale, a spouse changing jobs, a large capital gain.

An advisor who has never asked those questions cannot be planning, because they have no inputs. If every conversation is about documents from a year that already ended, that is diagnostic.

4. You Own Real Estate and Nobody Has Mentioned Cost Segregation

This one is close to automatic. If you own a rental property, a short-term rental, or a commercial building, and no one has raised cost segregation with you, that is a serious gap.

Cost segregation reclassifies 20% to 40% of a building's depreciable basis into 5, 7, and 15-year property. With 100% bonus depreciation permanent under the One Big Beautiful Bill Act, that is a first-year deduction commonly in the six figures on a single property.

It is not obscure. It has been supported since Hospital Corporation of America v. Commissioner, 109 T.C. 21 (1997), and the IRS publishes its own audit techniques guide describing how studies should be performed.

Related signs from the same blind spot: no one has explained IRC Sec. 469 passive loss rules to you, no one has asked about your average rental period, and no one has asked how many hours you spend on the property. See five signs your CPA does not understand real estate tax and the complete cost segregation guide.

If you have owned the property for years, this is still recoverable. Form 3115 lets you claim all the missed depreciation in the current year without amending. See lookback cost segregation.

5. Your S-Corp Salary Has Not Changed in Three Years

Pull your last three W-2s from the business. If the number is identical, or moved by a token amount, nobody is analyzing it.

Reasonable compensation should track the business: revenue, your role, hours, market wage data, and how much of profit is attributable to your labor versus capital and employees. It should also be modeled against the IRC Sec. 199A QBI limitation and your retirement plan capacity, both of which depend on the W-2 number.

A static salary is either too high, costing payroll tax, or too low, risking reclassification and capping your retirement contribution. Either way it is unexamined. See reasonable compensation analysis.

Related: if you have an S-Corp and no accountable plan, you are losing home office, vehicle, phone, and equipment deductions entirely, because unreimbursed employee business expenses are not deductible. See accountable plan setup.

6. Your Retirement Plan Is a SEP IRA and You Earn Over $400K

A SEP IRA is simple, which is its entire appeal. It is also, for a high-earning owner, usually the worst available option.

It has no employee deferral component, no catch-up contribution, no Roth option, and no loan feature. It cannot be paired with a cash balance plan as effectively as a 401(k). And if you have employees, it requires the same contribution percentage for everyone, which is expensive.

An owner earning $500,000 with a SEP is often leaving $150,000 or more of annual deduction capacity unused compared to a 401(k) plus cash balance design. See cash balance plans for S-Corp owners and which plan gives the largest deduction.

7. Your Fee Is Low and You Think That Is Good News

This is the uncomfortable one.

A firm charging $800 for a business return has budgeted a few hours of professional time. That covers accurate preparation. It does not cover modeling entity scenarios, computing reasonable compensation from wage survey data, or analyzing whether your short-term rental clears material participation.

You are not being cheated. You are getting exactly what you paid for. The mistake is expecting a compliance fee to include an advisory service.

The right comparison is not fee against fee. It is fee against documented savings. A $12,000 planning engagement that produces $70,000 of savings is a better purchase than an $800 return that produces none. See the hidden cost of cheap tax preparation and how much you should pay for advisory.

How to Check

Pull your last three returns and look for four things:

1. Form 8582. Suspended passive losses sitting unused mean deductions you paid for and never received.
2. Depreciation schedules. One line per property with a 27.5 or 39-year life and no component detail means no cost segregation was ever done.
3. Retirement contributions. Compare what was contributed against what your income allowed.
4. Your W-2 from the business. Compare it against revenue and against the QBI limitation.

If several of these look wrong, the good news is that IRC Sec. 6511 generally allows a refund claim within three years of filing. Much of it may still be recoverable. See the three-year lookback strategy.

Frequently Asked Questions

How do I know if my CPA missed something on prior returns?

Check four items on your last three returns. Form 8582 shows suspended passive losses that are sitting unused. Depreciation schedules with a single line per property and a 27.5 or 39-year life indicate no cost segregation was performed. Retirement contributions can be compared against the capacity your income allowed. And the W-2 from your business can be tested against the IRC Sec. 199A wage limitation.

Is a low tax preparation fee actually a problem?

It is a problem only if you expect planning to be included. A low fee buys a limited number of professional hours, which is enough for accurate preparation and not enough for entity modeling or strategy analysis. The relevant comparison is fee against documented savings, not fee against fee.

My CPA has never mentioned cost segregation. Is that unusual?

For a client who owns rental or commercial real estate, yes. Cost segregation has been supported since Hospital Corporation of America v. Commissioner in 1997, and the IRS publishes its own audit techniques guide on how studies should be performed. Not raising it with a real estate owner generally reflects a practice focused on compliance rather than planning.

Can I recover deductions my CPA missed in prior years?

Often. Under IRC Sec. 6511, a refund claim generally must be filed within three years of the return's filing date or two years of payment, whichever is later. Missed depreciation is a special case: Form 3115 allows the entire cumulative catch-up to be claimed in the current year without amending prior returns, which reaches back further than the three-year window.

Should I fire my CPA over these issues?

Not necessarily. Start by asking directly whether they offer a planning engagement, what it costs, and what the deliverable is. Some firms do this work but never proposed it because you never asked. If the answer is that planning is included in your return fee, it almost certainly is not happening, and that is the point at which a change is worth considering.

---