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Do they have expertise in areas relevant to you?
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How many years of individual tax experience do they have?
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What license(s) do they have?
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Do they have an advanced degree?
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Will they represent you if you are audited?
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Will they review your past tax returns at no charge?
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What fees will they charge?
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Is there anything I can do to keep fees down?
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Are you comfortable with your prospective accountant?
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Who will actually work on your return?
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Does the advisor need to be local?
Do they have expertise in areas relevant to you?
If you work for a technology company that issues stock
options or RSUs, then make sure your accountant has worked with plenty
of other clients in the same situation. Better yet, make sure she has
clients who work in more senior positions than you because with
seniority usually comes more complexity. A true professional will tell
you if she is not appropriate for the job, either because your return is
too simple to warrant her help or too complex due to her lack of
relevant experience (a common example where a lot of experience is
needed would be the area of oil and gas partnerships).
An appropriate tax advisor should have a minimum of five years experience doing individual tax returns. Experience with a large firm is usually better than a small firm because she will have been exposed to a broader set of issues and her training should be better.
What license(s) do they have?
It would be preferable for your tax preparer to have a CPA
(Certified Public Accountant license) although it is not technically
required. Tax Attorneys should have a LL.M in Tax (an advanced tax
degree for an attorney).
A CPA can do tax work even if she hasn’t had any special
training in tax. I know that sounds crazy. That’s why it might make
sense to look for someone with more advanced training like a tax
specialty within an MBA. My tax advisor, Bob Guenley
(who has written a number of guest posts for us), told me he only took
one tax course in college and learned a lot on the job, but getting his
MBA in tax made a whole world of difference. His MBA included
individual, partnership, corporate and fiduciary tax, which is more than
one needs if she wants to specialize in individual tax, but it’s
awfully nice to have someone advise you who has that broad perspective.
An advanced degree isn’t necessary if your accountant has taken advanced
classes in personal tax as part of her ongoing Continuing Professional
Education requirement. There is no correct answer to this question. I
just think your tax advisor/preparer needs to have taken several courses
emphasizing personal taxes.
Will they represent you if you are audited?
A professional tax preparer should stand by her tax return and
represent you in the unlikely case you are audited (for an additional
fee). It’s a real red flag if she is reluctant to engage on this issue.
Will they review your past tax returns at no charge?
An outstanding tax advisor should because it typically
takes as little as 15 minutes on most people’s prior returns to
determine if she would be comfortable preparing your return. Advanced
cases might take 30 minutes. A capable professional should ask you to
send your prior returns in advance of your meeting so you can spend your
meeting time more productively.
What fees will they charge?
I believe the only fair way for a tax advisor to charge is
by the hour. Your hourly fee will vary by location (i.e. San Francisco
clients will pay more than Sacramento clients). A senior
advisor/partner from a large firm in the Bay Area will likely charge
$600 - $700 per hour, and a senior advisor/partner from a small firm
will likely charge half that much. That translates to a total bill of
approximately $2,000 – $3,000 at a large firm and $1,000 – $1,500 at a
small firm if you assume your advisor spends an hour with you discussing
your situation prior to preparing your tax documents and an hour
reviewing your return once it has been prepared and a lower cost staff
member handles the data input and operates the software that calculates
the return. You should expect a higher bill if you have a lot of K-1s
and/or income from more than one state (because each state requires its
own return). You might only want to spend this kind of money the first
time you exercise your options to ensure you don’t run afoul of issues
like the Alternative Minimum Tax
(AMT) and quarterly estimated taxes. But if you’re like most people,
once you hire an accountant to prepare your taxes (and are happy with
the job they did), you will likely want them to do it every year.
What can the client do to keep their fees down?
The better organized you are, the less time your accountant
will need to search for information which translates to lower fees.
Don’t dump a bunch of crap on your CPA that she has to decipher. If you
own your own business, send a spreadsheet or a Quicken, Mint or
QuickBooks file that contains all your income and expenses rather than
all your invoices; give list of charities vs. copies of all
letters/canceled checks; provide most of the data at one time and not in
pieces, because the more your accountant has to pick up and put down a
file, the more the clock runs.
Are you comfortable with your prospective accountant?
The odds are you are going to face a number of difficult
tax-related decisions over time, so you need to feel comfortable asking
your accountant what you may feel is a stupid question. When it comes to
taxes there are no stupid questions, because the tax code is not always
logical. Make sure you select someone you can ask anything and with
whom you are willing to share everything.
Who will actually work on your returns?
If you talk to someone who works in a large firm then you
need to determine who will actually work on your taxes and who will be
your point of contact. As we explained in the previous point, you need
to be comfortable with the person actually providing the advice, so make
sure you’re not going to be shunted over to a more junior person when
you need to talk to someone. You also don’t want to have to pay for time
spent with an “account manager” who always has to go to the expert for
the answer.
Does your advisor need to be local?
This is really a question for you and not your potential
tax advisor. It is not necessary for your accountant to be local given
the ease with which you can send documents via email and Dropbox. It
really comes down too whether you need to actually see your accountant
to get comfortable with her advice.
Obviously the right answer to most of these questions
depends on your individual situation and needs. Hopefully these 11
questions will help you select the right advisor when the time comes.
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