Managing your financial affairs is a big job.  You have to keep track of your income, manage your assets for long term growth, pay taxes, and arrange for your estate to be distributed after you die.

You can do some of these things on your own.  But others, like writing a will, are jobs you’ll probably want to hire a professional for.

Since we’re in the middle of tax season, I thought it might be helpful to cover exactly what to look for when hiring an accountant.  Paying taxes is a fact of life.  But if you can find creative ways to reduce the amount of tax you pay, there will be more left over for you and your family.  It’s for this reason that an accountant is often one of the professionals families hire for money advice.

You can certainly prepare your own taxes if you prefer.  Programs like TurboTax and TaxAct provide quick and affordable ways to compile your financial records and file your taxes.

There is no program that can help you with tax planning, though.  TurboTax and TaxAct are great for tax compliance, where you’re reporting on transactions that’ve already happened.  But if you’d like to know how you might reduce your tax burden in the future, you’ll need some help making decisions on transactions that haven’t happened yet.  This is tax planning, and something that many accountants are very good at.

I covered in a recent post how you can tell whether you need to hire a CPA.  Today’s post will cover how to go about hiring one if you do.

 

Where to Start

Before you start looking around, it’s helpful to know what’s out there.  There are several different types of professional accountants, and several different types of accounting firms.  You’ll notice I’ve used the term ‘CPA’ somewhat synonymously with “accountants.”  Really, there are many professional accountants out there who are not CPAs.

Types of Accountants

Enrolled agents (EAs) are also legally allowed to represent you in front of the IRS.  But, the bar to become an enrolled agent (EA) is much different than a certified public accountant.

To become an enrolled agent, you’re required to pass a series of three exams, adhere to certain ethical standards, and undergo continue education.  You do not need a minimum amount of work experience or a college degree.  Anyone who passes the exams can become an EA.

The road to becoming a certified public accountant (CPA) is a little longer.  The requirements to become a CPA vary from state to state, but generally you’ll need to pass a tougher series of exams, have a bachelor’s degree and minimum amount of experience, abide by strict ethical guidelines, and undergo a certain amount of continuing education.

If you’re looking for help with your taxes, you’ll probably want hire a CPA if you own a small business.  CPAs tend to be more business focused, whereas EAs are typically more focused on tax prep and resolution.

Otherwise, if you just need some tax prep and planning help for you and your family’s finances, either an EA or a CPA could work just fine.

Types of Accounting Practices

This may sound surprising, but accounting practices are actually quite diverse.  Some will specialize in working with individuals, while others typically work with businesses.  There are four main “disciplines” that accounting firms typically practice:

• Tax advice.  This is where tax planning comes into play.  Regardless of whether an accounting firm predominantly works with individuals or businesses (or both), most will help their clients find ways to legally reduce their tax burden.  For many people this is the main reason they seek help from an accountant.
• Business advisory services.  Many firms that specialize in working with businesses can be very helpful with business planning and strategic decision making.  Since they already have an intimate knowledge of a business’s financial status, they’re in a great position to advise on other areas as well.
• Accounting & recordkeeping.  Keeping the books can be pretty onerous for small business owners.  Many accounting firms offer this service to small businesses.  Some will also help you set up an accounting & recordkeeping system (like Quickbooks) and teach you how to use it.
• Auditing.  Usually, when a business wants to borrow money from a bank, the bank will require that their financial status be verified by a third party, through an audit.  The SEC requires companies to do this when issuing securities to the public as well.  Many accounting firms specialize in audits.  And while this probably doesn’t mean anything to you if you’re looking for help with your personal tax situation, it speaks to the breadth of expertise an accounting firm has in working with businesses.

If you’re looking for tax help for a business, you’ll probably to want to find a firm with specific experience in your industry.  Make sure that the firm you engage can help you navigate tax issues not just now, but as you and your business grow and run into new challenges later on.

On the other hand, if you need tax prep & planning help for your family’s finances, an accountant or firm with expertise working with individuals will fit the bill.

 

Where to Find Referrals

Once you know what type of accountant & firm you’re looking for, where do you find them?  Google is most peoples’ search engine of choice, of course.  You can find several appropriate candidates pretty easily using Google and local directory’s like Angie’s List or Yelp.

Personal referrals are also helpful.  Asking other people whether they know any competent accountants is a great way build a list of candidates.  If you trust their judgment, getting feedback from anyone who’s worked first hand with an accountant or a firm can be very helpful.

Asking friends and family is a good start.  Your attorney, financial planner, or other complementary professional can probably point you in the right direction as well.  And, if you’re unsure, you can always consult the directory of your state’s society of CPAs.

 

Interview Them

Once you’ve compiled a list of 2-3 potential accountants, it’s time to interview them.  CPAs will almost always offer a complimentary meeting so you can get to know one another.

When you meet, you’ll want to determine whether they’re competent and have experience serving people with needs similar to yours.  Ask about their experience, credentials, and education.

You’ll also want to get a feel for their personality.  Remember – a good accountant is an important relationship to have.  You’ll probably see them every single year.  If you can’t stand spending 45 minutes in their office during the initial interview, it’s probably not a good fit.

Also, think long term.  Are there other services you might need in 5-10 years?  If you’re thinking about starting a business down the road, you might want to find someone who can help you navigate the waters, in addition to helping with your personal finances now.

Here are some good questions to ask:

• Are you a CPA?  An enrolled agent?
• Are you licensed to practice in your state?
• How long have you been in business?
• What types of clients do you typically work with?
• How often are your clients typically audited?
• Do you have an area of specialization?
• What’s your typical response time for tax return prep or year-end financial statements?
• Can you give me a few names of your clients I can chat with?
• Where did you go to school?  What degrees did you earn?
• Do you belong to professional organizations?
• What does the process look like if I decided to become a client?
• Would I be dealing with you directly, or one of your colleagues?
• What are your fees?

 

What to Pay an Accountant

Good advice can be hard to find.  And any time you hire a professional, you have to believe that the value you get from their service exceeds the amount you’re paying out of pocket.  At least for me, I find that professional help with my personal and business’s tax preparation is extremely valuable.

That doesn’t mean you should seek the best CPA you can find at any cost, though.

To give you an idea of what typical accountants charge, here are the results from a 2014 survey administered by the National Society of Accountants.  In the survey, the society polled accountants across the country on what they charge for various tax prep services:

• For the preparation of a standard 1040, along with a state return and no itemized deductions, the average fee was $159.
• For a 1040 with Schedule A (itemized deductions) and a state return, the average fee was $273.
• For a 1040 with Schedule A, Schedule C (business income) and a state return, the average fee was $447.

These fees don’t include any help with tax planning, but you get the idea.  You can always save a few dollars by using TurboTax or H&R Block.  But, if you think you might need some planning help over the next several years it’s helpful to build a relationship with a professional who will know your financial situation when the time comes.

Not everyone needs to employ an accountant for help with tax preparation and planning.  But, if you prefer spending your time doing things that don’t include studying the tax code, a good accountant could be well worth the money.