11 Questions to Ask When You Choose a Tax Accountant

Andy Rachleff for WealthFront wrote a great article titled, "11 Questions to Ask When You Choose a Tax Accountant"

IF you are considering early exercising of a significant number of options or are thinking about selling options in the public market for the first time we highly recommend retaining a reputable tax accountant. We realize this means you will incur a fee, but it is highly justified given the risk you take on incurring significant unforeseen taxes if you don’t consult a great tax accountant.  It is not as easy to quantify the savings from hiring a tax accountant as it is from hiring an estate planner (see our recent post by Abe Zuckerman regarding Estate Planners), but it’s just as necessary. Like most people, you’re probably not sure how to choose a tax accountant.  Here are the top 11 questions (not in priority order) we think you should ask:

• Do they have expertise in areas relevant to you?
• How many years of individual tax experience do they have?
• What license(s) do they have?
• Do they have an advanced degree?
• Will they represent you if you are audited?
• Will they review your past tax returns at no charge?
• What fees will they charge?
• Is there anything I can do to keep fees down?
• Are you comfortable with your prospective accountant?
• Who will actually work on your return?
• 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).

How many years of individual tax experience do they have? 

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).

Do they have an advanced degree?

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.

When Oscar de Vries changed accounting software packages it cost him a small fortune. He's warning others not to make the same error.

Nina Hendy for The Age writes: Not asking for a written quote has cost Oscar de Vries dearly.

The founder of shaving preparation brand Oscar Natural hired a Sydney accounting firm in July last year to convert his accounting software from MYOB to Xero, favoured by a growing number of Australian small business owners.

He was told in an email it wouldn't cost more than $9000, and de Vries was given the impression it would take a week or two.

But months on, he's still waiting for the conversion to be finalised and has been trapped in a cycle of bill payments.

The frustrated business owner is speaking out to warn others in business to be wary of the subscription model offered by Xero, which he says can effectively lock business owners out of their own accounting system.

He's accused the accounting firm he hired of holding his financial information to ransom. He receives regular bills for services rendered, so far forking out around $20,000 to the firm.

De Vries didn't realise the firm would take out the Xero subscription in its own name, instead of his, meaning he's effectively wedded to the accountant.

“I'm effectively being held to ransom and they refuse to transfer the subscription into my name, so I'm stuck with bills I never signed up for. This could amount of restraint of trade, but I've so far been unable to get the issue resolved,” he says.

“I should have insisted on a formal quote, as I clearly didn't sign up to have this firm continually bill me for ongoing support.

“I've been stung, and it's taken an enormous amount of time to try and resolve this. I want other small business owners to be aware that they need to take a Xero subscription out in their own name, and not let their accountant hold the subscription,” de Vries says.

He admits he hired the accountant in a hurry because his business couldn't afford any downtime.

A subscriber has to give authorisation before a subscription can be transferred, he says.

“I have a new accounting firm lined up, which has given me a written quote and is ready to take over. However, while the current firm continues to control the subscription, it has full insight into my financials and could delete all other users, including me. It truly is an outrageous situation.”

He's not alone. Andrew Simpson is the owner of Sydney industrial design firm Vert Design. He's been stung in exactly the same way.

“Xero offers great software and I love using it, but the bookkeeper makes a margin if the subscription is in their name, and continued to send me bills.

“The thing that really worried me was that I was having a financial dispute with someone that had control over my invoices.”

The bookkeeper appeared to be logging in and seeing payments made by his clients, then would send a bill, he says.

“I've got another client in exactly the same position at the moment. I had a quote for the work, didn't keep it, and the costs just keep rolling in, so spent more on bookkeeping than I ever bargained on.”

Simpson applied pressure to his bookkeeper to convert the subscription to his name, but wanted to warn others.

Rival accounting software provider MYOB has heard of similar cases from small-business owners who have concerns with the Xero subscription model, according to general manager of the business division, James Scollay.

“For example, a Xero customer's ex-business partner went bust and the subscription licence belonged to the other party, so that customer wasn't able to access their data.

“As in any industry, but especially in technology, early adopters sometimes like to try out shiny new toys and applications.

“We've had accountants and bookkeepers bringing groups of clients back to MYOB in their hundreds because they're unhappy with the competitor's experience, and have realised they were on to a good thing with MYOB.”

Xero Australia managing director Chris Ridd says the company is aware of the case between de Vries and his accountant, and has attempted to help resolve the dispute. The accountant is not acting as an agent for Xero, he says.

He advised small-business owners to consider who they wish to act as "subscriber" when signing up to Xero.

“If necessary, a small business owner can register for Xero and assume the subscriber role, and limit the accountant's involvement to that of 'invited user', which is a user with certain rights set by the subscriber,” he says.

A growing number of accountants are being recruited to sell online accounting software, including Xero, MYOB, Reckon, Intuit, Saasu and Freshbooks, Melbourne CPA accountant Simon Wilson says.

Accountants are being enticed with reduced subscriptions, extra software and marketing support, he says.

Business owners need to read contracts carefully, he says.

“While you can subscribe to these packages directly, the preference is that it goes via an accountant, who can offer set-up and ongoing support,” Wilson says.

If you want to change accounting software, firstly speak to your existing accounting firm to get their advice, he advises. 

You can follow the author Nina Hendy on Twitter Here.

Flying Solo - Micro Business Community 

Flying Solo in Australia had a conversation about this article, you can read it below.

Cloud Accounting users - Beware! Just a reminder to be very careful with your subscriptions and your data with cloud accounting providers. http://www.theage.com.au/small-busin...417-36u7a.html smurf1 likes this.

#2 (Link to this post)    6 Days Ago

KarenC  Forum devotee Join Date: Nov 2008 Location: Australia Posts: 1,556 Thanks: 15 Thanked 177 Times in 166 Posts

Re: Cloud Accounting users - Beware! As with anything, check it out first. Personally, I changed from a traditional package to an iCloud package at the beginning of the last financial year, and haven't looked back. But I am the subscriber and I can give authority with reduced access for either a long time or a very short time to certain people, when needed, including accountants. I can remove that access at any time. The person/firm in question who are not allowing the business owner subscriber access to their files is obviously the main problem, not the provider of the software, iCloud or otherwise. Every business owner should have a vested interest in checking their own accounts and balances regularly, despite whether another person has access to do the accounts and payments for them. Geronimo and estim8 like this.

#3 (Link to this post)    5 Days Ago

arrowwise  Forum regular Join Date: Dec 2013 Location: Melbourne Posts: 60 Thanks: 0 Thanked 8 Times in 8 Posts

Re: Cloud Accounting users - Beware! Good article. Your book keeper or accountant shouldn't hold the master account for your cloud accounting in their name. It should be in the name of your business and from here you can grant access to whoever you choose under your terms. You should be able to drill down and give these helpers rights to only view or edit specific sections you open up to them. With a system like this in place, this issue wouldn't of happened to Oscar. While the popular cloud accounting solutions do create a level or vendor lock, a clued up book keeper can easily migrate an entire business from one to the other within a few hours. PerfectNotes-Kathy likes this. __________________ Evolved Sound - evolve your business with on hold messages & in store background music. QW Direct - made to order promo, security, identity & new concept products.

#4 (Link to this post)    3 Days Ago

SmallBusinessWorks  Forum regular Join Date: Jun 2010 Posts: 312 Thanks: 0 Thanked 18 Times in 16 Posts

Re: Cloud Accounting users - Beware! $20,000 for a Xero conversion! Unfortunately there are plenty of people who are charging too much for Xero conversions at the moment as it is so popular. Best like everything in life to get 2 or 3 quotes. Some of the other conduct sounds like a dodgy firm of accountants less about the dangers of cloud based software... __________________ Alan Maddick - Accountant & Financial Adviser Small Business Accountants  Self Managed Super

#5 (Link to this post)    3 Days Ago

Tim B  Forum newcomer Join Date: Apr 2014 Location: Brisbane Posts: 3 Thanks: 0 Thanked 0 Times in 0 Posts

Re: Cloud Accounting users - Beware! Great article an unfortunately, an easy mistake to make but can easily be avoided. There's no problem with having a professional set the Xero subscription up for you. I do it for clients all the time. What's happened in Oscar's case is the accounting firm set themselves as the Subscriber. There's no reason for this to happen as it sounds like Oscar intends to use (and pay for) the Xero subscription himself . An accountant or other external party can have an Adviser Role, but this is something different.. Without delving the depths of O-O programming, you have to bear in mind that both companies and users are distinct "objects" (entities or things) in Xero and other similar systems. They are linked together by object "attributes" (e.g. user Roles) and a system of permissions that only allows certain people to do certain things in a given company object. Xero users have a range of attributes described collectively as Roles which has been standard database practice since Adam was a lad. Many users can be in Read Only, Standard or Adviser Roles all at same the time but only one User can be the Subscriber. The Subscriber attribute is set during the company setup process and once it is set - it is set, until the Subscriber chooses to pass it on. I would emphasise that from a systems design perspective this is not an experimental or new innovation from Xero. It's a widely used sensible way to control multiple users across multiple locations. The setter-upperer can allocate the Subscriber role to a current Xero user or have an invitation to join Xero sent to any email address if the Subsciber is not yet a Xero User. The Subscriber should always be the person who intendes to literally "own" the subscription - usually the person authorising the bill payment. From reading the article, I have great sympathy for Oscar's plight and others caught in the same trap. Once you're stuck, there are potential methods to get around the problem without a great deal of hassle or controversy, but it's better not to get in the situation at all. Accountants and bookkeepers all have their own (free) subscriptions to accounting software. There's no need for anyone outside the company to own the subscription. What really surprises is the $9,000 quoted by said accounting firm to do the conversion - and the fact that Oscar was willing to pay it. Database conversions should only be done by I.T. professionals with appropriate skills and experience. You wouldn't ask your accountant to upgrade your network or switch you from Windows to Linux, and it's the same for database conversions. Don't forget, at their core - Xero and are big, fancy databases with flashy web-browser interfaces. If Oscar, Andrew or anyone else concerned by this article would like ideas or advice, feel free to get in touch. Particularly if you have $9k to spend on a small business conversion. __________________ Tim Burrows Customer Conversion Lead | Principal K2G Know 2 Go - business software conversions http://know2go.com.au Last edited by Tim B; 3 Days Ago at 05:59 PM. Reason: readibility

#6 (Link to this post)    2 Days Ago

eStrategyPro.com  Forum enthusiast Join Date: Apr 2012 Location: Sydney Posts: 365 Thanks: 5 Thanked 24 Times in 22 Posts

Slightly tangent to the discussion, I feel uneasy about Xero. Your business's financial data is on their server and they control your access to your own data via the Internet. I would feel safer if the data is sync to a local copy on my computer. That way, if anything happens to the cloud (eg Xero goes bust, their server got hacked/wiped, Internet connection outages), my business can still function by reverting to the traditional computing. Of course, keeping backups of my computer is still important. __________________ Terence Kam eStrategyPro - Internet Business Strategy Consultants Google+ Profile

#7 (Link to this post)    2 Days Ago

nighttax  Forum regular Join Date: Sep 2013 Posts: 109 Thanks: 1 Thanked 13 Times in 12 Posts

Re: Cloud Accounting users - Beware! At an ATO webinar yesterday the ATO said they are still not satisfied that cloud is safe enough to keep any more than the most basic of information on. Yet here are Aussie businesses signing up for it in droves and storing all their info on it. Food for thought. regards Evan __________________ Night Tax & Accounting Public Accountant & registered Tax Agent http://www.nighttax.com.au

#8 (Link to this post)    1 Day Ago

StellarScott  Forum regular Join Date: Apr 2010 Location: Sydney Posts: 233 Thanks: 1 Thanked 15 Times in 15 Posts

Re: Cloud Accounting users - Beware! Nighttax ... Is this an official or personal view.. Surely this would be on the ATO web site or in correspondence if an official view I believe the most important point of the original article is that when agreeing to a major change to your business practices such as changing accounting packages is to understand all the costs and implications..including reading the engagement letter __________________ Scott Wastell (B. Bus) CPA, BAS Agent SAASU Partner Stellar Profits Your Business Partner

#9 (Link to this post)    1 Day Ago

Marc D  Forum regular Join Date: May 2011 Posts: 65 Thanks: 1 Thanked 11 Times in 9 Posts

Re: Cloud Accounting users - Beware! Hi, For a firm to be considered as a bronze, silver or gold partner with Xero they need to have 3, 25 or 100 clients. To qualify the firm must be the subscriber. It is not enough that the firm is invited in as an advisor, to qualify they must be the subscriber. So how the article gels with the basic underlying business model of Xero will be interesting to watch I think. It seems designed to minimize Xero's risk to cashflow if nothing else Its a great program but has a number of weaknesses (as do the majority of cloud based accounting and other programs) particularly the ability to take a local backup. To my mind, to satisfy safe and easy record keeping, there needs to be the ability to archive, backup and sync and while sync is well addressed, the inability to created archived copies and running backups is, in my opinion, as serious flaw. __________________ Marc Taylor MCom(ProfAcct) MIPA Small Business Management Services www.acclaimbookkeeping.com

#10 (Link to this post)    16 hours ago

nighttax  Forum regular Join Date: Sep 2013 Posts: 109 Thanks: 1 Thanked 13 Times in 12 Posts

Re: Cloud Accounting users - Beware! Quote: Originally Posted by StellarScott  Nighttax ... Is this an official or personal view.. Surely this would be on the ATO web site or in correspondence if an official view I believe the most important point of the original article is that when agreeing to a major change to your business practices such as changing accounting packages is to understand all the costs and implications..including reading the engagement letter Hello Scott The advice was presented as the ATO's current official position on cloud hosting. When you think about it the banks and credit card companies and google who have a lot more money to spend on protection from hacking than xero, saasau, myob etc and certainly a lot more money than the cloud hosting companies and yet the banks, credit card companies, google etc all still get hacked. How is that people think cloud hosting is safe? Of course if I was selling xero or saasau or myob or whoever - of course I would be totally convinced that it was all the safest way in the world:-) regards Evan __________________ Night Tax & Accounting Public Accountant & registered Tax Agent http://www.nighttax.com.au Re: Cloud Accounting users - Beware! Quote: Originally Posted by nighttax  How is that people think cloud hosting is safe? Of course if I was selling xero or saasau or myob or whoever - of course I would be totally convinced that it was all the safest way in the world:-) Just a consumer opinion here. I'd say a lot safer than the typical home or small office computer linked to the internet, if they're using desktop applications. The stats on botnets and systems open to control by others are a lot scarier (and more prevelant) than Cloud hacks. Good Cloud companies have some of the smartest people on the planet working to secure their data. Your average business and personal PC user has little or no clue ... there's lots of articles about various businesses getting their non Cloud data hijacked. If you connect to any network you are at risk, better to connect to one where the other end is a least trying to stay secure. Don't know about anyone else but I have no desire to go back to reconciling cheque butts in a paper and pen ledger. I do think the option to download the data as backup, is a good idea though (essential in fact, if you're sensible). All innovation has bugs, it's whether the cost benefit (and ease of use) outweighs the risk. Currently consumers seem to be voting with their feet and wallets ... I don't think even the ATO can reverse this trend. Does anyone have any actual stats on how often these services get hacked? I've not seen one reported. My bank seems to trust them enough to let them access data, via transaction API's. Speaking of banks, they seem to wear the costs associated with hacking without too much public complaint ... guess they figure the cost benefit is worth the risk, I've never known my bank to be doing anyone a favour at a loss.