Role of CPA

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Investing Newbie
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Role of CPA

Post by Investing Newbie »

Hi everyone,

What exactly do you think I should be looking for in a CPA? The guy that my wife and I have been using for last couple of years sees us once a year for taxes, basically just inputs data into whatever subscription version of a Turbo tax like product that he uses. Maybe once or twice I've emailed him some basic questions.

Am I wrong to think that it'd be useful to have someone more involved? For example, projecting what my tax burden is likely to be next year and suggesting I make some donations or something else to try to avoid having to pay taxes? Basically, legal things I should/could be doing.

Should I be concerned that he doesn't seem familiar with a back door roth? I was asking him about contributing to a Roth IRA and he said I'm ineligible. Conversation ended there, he didn't even mention backdoor roth as possibility. Not sure if this is a red flag or not.

Happy New Year everyone!
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Tortuga
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Re: Role of CPA

Post by Tortuga »

IN:
I will be interested in responses to this as well. My experience with a CPA in a moderately sized firm is that they are not proactive with my tax strategy. The firm sends out published tax memos (not written by them) and my person will respond at length to any question that I ask, often with written research documents, but generally I have done a lot of leg work (much of it on Bogleheads) by the time I formulate the question. In the past I have requested proactive advice from them, but I don't think they have the time or possibly don't see that as their role.
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N1CKV
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Re: Role of CPA

Post by N1CKV »

I am answering as a person with an Accounting Degree. I am not a tax professional. I am a Financial Analyst by trade.
Investing Newbie wrote:Am I wrong to think that it'd be useful to have someone more involved? For example, projecting what my tax burden is likely to be next year and suggesting I make some donations or something else to try to avoid having to pay taxes? Basically, legal things I should/could be doing.
I'm sure your CPA/ Tax Professional would be happy to provide those services. Have you told him that you would like those services? As a "Tax Only" customer you are only doing business with him at his peak time frame. He doesn't have time to upsell you (like your mechanic) for other services. Attempting to get these services from December 1st through April 15th is not a good idea. You should be approaching him late April to early May when he has time to actually think. This is not a free service.
Investing Newbie wrote:Should I be concerned that he doesn't seem familiar with a back door roth? I was asking him about contributing to a Roth IRA and he said I'm ineligible. Conversation ended there, he didn't even mention backdoor roth as possibility. Not sure if this is a red flag or not.
This is not something commonly taught in school. I have never came across it in my continuing professional education. In fact, other than this site discussing it often, I rarely have even heard of it. If you were to mention it to him and give him a starting point to research the topic and he then said "no", then I would be concerned.
J295
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Re: Role of CPA

Post by J295 »

Here's the rub .... if you want your accountant to be proactive he/she probably will be at your request, but then your accounting expenses go up. I have no problem with that if you find value in it, which could certainly be the case. For the most typical individual income tax situations I perceive that the the general tax related information on this and other sites covers most of the bases, so our accountant ends up being a tax preparation person -- but that's fine because historically we didn't want the hassle of preparing the returns and sometimes there are nuances that he helps navigate. But, as far as tax planning that is really something we do (and can do because of our background and experience). Here was a post I had earlier this month on year end tax planning ..... viewtopic.php?f=2&t=178891&p=2707800#p2707800
ERISA Stone
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Re: Role of CPA

Post by ERISA Stone »

I find that my CPA is full of ideas when I ask him for advice.

As a retirement plan professional for more than 15 years, I had not heard of a back door Roth until I began frequenting this site. I also don't recall seeing an after-tax contribution in any plan that I've ever worked on. I believe overall the contributions are rare, and from a plan design perspective they add a lot of uncertainty to nondiscrimination testing. So in most cases, I would recommend that my clients not allow them.
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Hayden
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Re: Role of CPA

Post by Hayden »

I used to be frustrated with my CPA for not suggesting things that could help me, even though I asked for his advice. For example, in 2008/2009 I had large capital losses. He did not suggest TLH. I did not do any tax loss harvesting, which is now costing me :oops:

I finally decided that I am better off reading Bogleheads and posting questions here. The wealth of knowledge on this board cannot be matched by any individual.
profnot
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Re: Role of CPA

Post by profnot »

I have found tax attorneys to be much better at strategy than tax accountants.
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goingup
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Re: Role of CPA

Post by goingup »

We had the same CPA for 15 years. For the last 2 years we have had a new one, in the same city we reside, which is a plus.

I ask her questions anytime during the year and she responds the same business day. These are questions about exercising stock options, withholding, quarterly taxes, rental home expenses, etc. It's a very valuable service to us. She has yet to be pro-active with any strategies to help us in paying less in taxes, but I don't guess I expect that. I wouldn't expect her to recommend tax loss harvesting of our taxable investments, but I think she'll be pleased we harvested some this year.
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Re: Role of CPA

Post by jebmke »

Hayden wrote:I used to be frustrated with my CPA for not suggesting things that could help me, even though I asked for his advice. For example, in 2008/2009 I had large capital losses. He did not suggest TLH. I did not do any tax loss harvesting, which is now costing me :oops:

I finally decided that I am better off reading Bogleheads and posting questions here. The wealth of knowledge on this board cannot be matched by any individual.
I will comment based on my experience mainly on the corporate side. I found that the skills and experience to be an effective adviser were often not available on the compliance side of the shop and vice versa. That isn't to say that one was "better" than the other or smarter, just different.

I think you are right to take on the task of learning what you need to learn to self-advise. It is your money and you will likely pay more attention than anyone. That doesn't preclude getting professional advice but I do think that many individual investors can learn enough to be their own adviser.

With regard to TLH, surprisingly, it isn't as widely understood as it should be. I work in (volunteer) tax preparation and some of my colleagues are fairly significant investors with a lot of experience with investments. During the '08-09 downturn I explained how I was harvesting losses all the way down (without changing my fundamental investment positions) and they looked at me like I had invented the wheel.
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JDCarpenter
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Re: Role of CPA

Post by JDCarpenter »

We had a cpa do our taxes for three years in the early 90s when I thought they were relatively complex (rental property, multiple states, some K-1 income, etc.) . Finally realized that I was spending more time reviewing his assumptions, researching the validity of positions taken, and debating with him than I would in doing the taxes myself. Have not consulted with CPA or financial advisor since that time.

As others note, you can do it yourself, particularly with the resources on this site. There are not that many individuals who need that level of professional help on taxes. (Interestingly, a contemporaneous string was initiated by a graduate fellow who changed residency status mid-year and seems to be one of the rare individuals! E.T.A.: HERE it is: viewtopic.php?f=2&t=180743#unread )

And, IMHO, if not doing it yourself, you should educate yourself enough to oversee the work of the CPA--you are the one responsible for the positions taken on the return.
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DwightCD
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Re: Role of CPA

Post by DwightCD »

If you're just using someone to drop your numbers into Turbo Tax, you can either A) do that yourself or B) engage a tax preparer that will cost less than a CPA. Use the right tool for the job.

A CPA makes more sense when your life gets a bit more complicated. I previously worked at a firm that worked with high net worth individuals, mostly small and medium sized business owners and professionals such as attorneys, physicians, a dentists.

A few things I've noticed. When interviewing a CPA firm, be up front about your expectations. What are you looking for? Are you just looking for tax preparation? Do you want tax projections? How often? A bunch of different scenarios? It's a two way street, though. Be sure to discuss where you are, where you're going, and how you want to get there. Ask about their experience with what you're looking to do. Make sure they're a good fit. Also, keep them in the loop during the year. If you're thinking of selling a rental property, for example, call them before and ask for their advice rather than telling them on April 14th of the following year. CPAs can't help if they don't know and they can usually better help before rather than after. An attorney friend always says that his clients would save so much money if they called him before making a decision. Also, keep in mind that if you want a lot of hand holding through out the year, it's going to cost you. That's up to you to decide if it's worth it. At the end of the day, no one should know your personal business better than you. CPAs can help advise but it's your call, your money, and your life.

You may be better served by a CPA that has specializes in financial planning and/or estate planning. We had a few folks in the firm that specialized in estate planning and worked very closely with estate planning attorney, for example. There were quite knowledgeable whereas others in the firm that didn't work in that area were not and deferred to their expertise. CPAs with the PFS credential (Personal Financial Specialist - exclusive to CPAs) or CFP designation would likely be more knowledgeable and have more experience in areas that affect you. Think of attorneys. Many specialize in one or a few areas of law. Asking a divorce lawyer for advice on patent law isn't appropriate.

The role of the CPA has evolved a lot over the years. While there are certainly those still working in preparation, a lot of that work has been commoditized. The real value in the CPA is their expertise and their advise. If you're not getting it, vote with your feet.
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Lindrobe
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Re: Role of CPA

Post by Lindrobe »

I would be a little alarmed that your CPA has not heard of a backdoor Roth.

I am a CPA at a small firm. We do not focus on personal tax returns, but we do prepare the returns for the business owner clients that we have. The firm that I work for is focused on giving clients personal service and we usually help in any way that we can when are asked. We do not do tax planning for everyone, but if the client asks us to do tax planning for them, we do. The clients are also billed for this service.
Last edited by Lindrobe on Thu Dec 31, 2015 2:19 pm, edited 1 time in total.
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Epsilon Delta
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Re: Role of CPA

Post by Epsilon Delta »

CPA cover a lot of ground. Some do taxes, some do audits, some do financial planning, some do individuals, some do small businesses, some do corporate giants, some do things I can't imagine at the moment.

While CPAs share some common body of knowledge what makes them a profession is certain shared legal and ethical obligations.

So the role of some CPA can be pretty much whatever you ask for, although if you ask for certain things he will explain that his legal and ethical obligations prohibit that, and if you ask for other things he will explain that his ethical obligations require him to explain that he doesn't know and you should see a different CPA who does.
delamer
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Re: Role of CPA

Post by delamer »

This discussion has been of interest to me also. While my family's federal and state returns have been simple for me to do, with the help of Turbo Tax, for many years, I feel that I will need to consult with a CPA or tax attorney when I receive a large inheritance (likely within the next two years).

There are several issues that concern me, including that I am a resident of a different state than where the will and trusts of my family member were established.

How would you suggest finding a competent professional? I was thinking of checking with the attorney who did our wills, figuring he would have contacts in the field.
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Artsdoctor
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Re: Role of CPA

Post by Artsdoctor »

Delamer,

If you really like your estate attorney and you're starting from scratch with a CPA, the attorney should be able to make some recommendations. I've found that there is a thread that binds estate attorneys, tax attorneys, and CPAs--and if you have a team put together that hhas worked together in the past, so much the better.

A CPA should do more than just fill out forms. There's a educational component and a planning component that I've found essential when working with our CPA. They can also recognize something that is totally off the charts (for example, you may think that your extremely aggressive deductions are reasonable, but your CPA will tell you when there's a red flag). After all, CPAs do this kind of thing everyday so take advantage of that knowledge.

However, if you have a CPA, I'd still recommend having tax software for yourself. It'll really teach you about tax rules and laws, and the more prepared you are for your CPA meeting(s), the more you'll get out of them.

For disclosure, I'm a small business so my accounting needs are greater than someone without a business. But between Bogleheads and my CPA, I've come to actually like learning about IRS (and state) rules and regs.
delamer
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Re: Role of CPA

Post by delamer »

Artsdoctor -

Thanks for your thoughtful advice. It makes sense that the thread you refer to exists, and our estate attorney has an incentive to recommend a good CPA or tax attorney.

I think my biggest issue will be the timing of the sale of individual stocks that I will inherit. For some I will have a bumped up cost basis and for some I won't (due to them being held in an irrevocable trust). I want to be sure my capital gains rate is as low as possible, of course. While I am very conversant with our basic tax situation, large capital gains are not something I've had to deal with to date.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
rjc32000
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Re: Role of CPA

Post by rjc32000 »

profnot wrote:I have found tax attorneys to be much better at strategy than tax accountants.
+1. I've found that seeking advice from tax lawyer first and then taking plan to accountant for execution is best route. Accountants seems to be extremely risk adverse and hesitant to provide anything that could be construed as tax-law advice.

Add me to the list of folks who had to explain the mechanics and legality of the back-door roth to my CPA.
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retiredjg
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Re: Role of CPA

Post by retiredjg »

Investing Newbie wrote:Should I be concerned that he doesn't seem familiar with a back door roth? I was asking him about contributing to a Roth IRA and he said I'm ineligible. Conversation ended there, he didn't even mention backdoor roth as possibility. Not sure if this is a red flag or not.
I have not read the other answers yet, but I don't think this is necessarily a red flag.

Many people have reported their tax people had no idea what a back door contribution to Roth IRA is. But if you report what you actually do (a non-deductible contribution to tIRA followed by a conversion to Roth IRA) they should be able to figure out how to do the paperwork because both of those things are pretty standard.
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Investing Newbie
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Re: Role of CPA

Post by Investing Newbie »

Thank you. I agree that it's best to be as prepared as you can be prior to meeting with the CPA and then reviewing the work on your own afterwards. My finances/situation is not complex enough to even think about needing a tax lawyer, it is actually very basic, but since I am fairly new to all of this seems a bit confusing. For example, I was trying to use taxcaster just to get a look at some estimate information and I found out that I don't even know what to put for total federal witholding or state witholding. I assume based off previous years tax returns? It didn't say that though.

Thanks everyone for your help. I totally agree, the sum of the knowledge available on this forum far surpasses that of any individual CPA, tax attorney, or other financial professional.
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Re: Role of CPA

Post by bsteiner »

Investing Newbie wrote:... What exactly do you think I should be looking for in a CPA? ...
...
Should I be concerned that he doesn't seem familiar with a back door roth? I was asking him about contributing to a Roth IRA and he said I'm ineligible. Conversation ended there, he didn't even mention backdoor roth as possibility. Not sure if this is a red flag or not. ...
ERISA Stone wrote:... As a retirement plan professional for more than 15 years, I had not heard of a back door Roth until I began frequenting this site. I also don't recall seeing an after-tax contribution in any plan that I've ever worked on. I believe overall the contributions are rare, and from a plan design perspective they add a lot of uncertainty to nondiscrimination testing. So in most cases, I would recommend that my clients not allow them.
Even though the Roth has been around since 1998, and since 2010 anyone could convert to a Roth regardless of income, most accountants still don't understand the Roth. So I don't think that an accountant not being aware of the backdoor Roth is a red flag.

Plans with very highly compensated employees (for example, in the financial industry) often allow nondeductible contributions so that employees can do mega backdoor Roth conversions.

Many plans offer a Roth 401(k) feature. While they may not make sense for most employees, they make sense for some.
Lanseril
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Re: Role of CPA

Post by Lanseril »

A lot of non-accountants greatly underestimate the breadth of knowledge expected from CPAs, especially on the financial accounting side (corporate vs small business, auditing, governmental/non-profit, etc). Almost nobody at my Big 4 firm would've heard of backdoor Roths - nevermind the mega backdoor - even if they've done tax work for high net-worth individuals. This is more the subject area of CFPs than CPAs.

Echoing the previous recommendation of getting a referral from an estate or tax lawyer. Half of my tax classes in grad school were taught by lawyers, not accountants. Lawyers tend to be more comfortable with researching, taking, and defending a particular accounting position, and they can refer a CPA specialist to help corroborate and execute on the technical end.
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Re: Role of CPA

Post by abuss368 »

I would consider the services of a qualified Certified Public Accountant.

A tax projection is typically an additional service that is billed for each year. The tax projection typically allows for more planning.

Best.
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Toons
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Re: Role of CPA

Post by Toons »

"The guy that my wife and I have been using for last couple of years sees us once a year for taxes, basically just inputs data into whatever subscription version of a Turbo tax like product that he uses. Maybe once or twice I've emailed him some basic questions."

Here are a couple of suggestions.
Purchase TurboTax or the tax software of your choice and do the taxes yourself..its easy.
If you have few basic(and not so basic) financial questions,post them to the Bogleheads.
I guarantee you will get sound ,excellent replies to your questions. :happy
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FiveK
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Re: Role of CPA

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SouthernCPA
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Re: Role of CPA

Post by SouthernCPA »

Lanseril wrote:A lot of non-accountants greatly underestimate the breadth of knowledge expected from CPAs, especially on the financial accounting side (corporate vs small business, auditing, governmental/non-profit, etc). Almost nobody at my Big 4 firm would've heard of backdoor Roths - nevermind the mega backdoor - even if they've done tax work for high net-worth individuals. This is more the subject area of CFPs than CPAs.

Echoing the previous recommendation of getting a referral from an estate or tax lawyer. Half of my tax classes in grad school were taught by lawyers, not accountants. Lawyers tend to be more comfortable with researching, taking, and defending a particular accounting position, and they can refer a CPA specialist to help corroborate and execute on the technical end.
+1. I'm a CPA in tax practice at a local firm and while I'm aware of the backdoor Roth, that's because I'm also a boglehead. To be honest with you, most clients don't come near maxing their existing retirement accounts to even have a back door Roth on their radar. Not everyone saves like bogleheads.

If you want to get the best value from your CPA, I'd suggest meeting with them a few times a year or at least before you make any big changes (selling a rental property,buying out a partner in a business, etc). If you simply bring them your prior years documents from the tax year that ended 3 months ago and then only want to pay a few hundred bucks per year, there's simply not much they can do for stuff that's already happened or when the client doesn't want to pay for higher level of service.

A lot of CPAs aren't really client service types. They're compliance trained. If you ask them something specific they'll find the answer for you. I've found that clients simply don't even know what to ask to begin with so this is why with my clients I try to be proactive and send them tips or things I come across that likely apply to their situation.

Also a lot of the topics talked about on BH fall in the wheelhouse or a CFP/PFS more so than a tax only CPA. I'm currently working toward the PFS/CFP combo simply because the tax world and financial planning world overlap so frequently and I want more training in that body of knowledge to better serve my clients.

Asking a tax CPA about a backdoor Roth is sort of like asking a CFP about recognizing gains/losses on the liquidation of a C-Corp. If they've come across it they'll know about it, but it's not going to be in their wheel house regularly.
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Re: Role of CPA

Post by fishboat »

Interesting thread...and some CPAs / FPs have tuned in..

There's a general theme here where people are looking for someone to manage a tax strategy and can't find someone that'll do it.

I'm one of those people..haven't been able to identify anyone. As for income streams, I have a pension, a 401k, cash savings, an after-tax account, a small annuity, and SS eventually.

I've been researching 'retirement' for a while and just entered the ranks of retirement on the 1st of this year. One outcome of my research (no surprise to most here) is that the retirement-consumption phase largely boils down to short/long term tax management. My former investment adviser didn't do this work. I've interviewed other financial professionals & have gotten the same answer...we don't go there. I did mange to find one firm/guy that can do the work, but he wants to sell me the full boat adviser service at 1%. I don't want this. I don't need investment advise..I need someone to run tax management strategies and offer a general plan to follow. The one guy i found says he's never split out his services & wouldn't know how to split out just tax strategy nor would he know how to price such a service...so I didn't hire him. I'm left to figure it out on my own..which I can do..though I'm always at risk by not knowing what i don't know. This is a reasonable risk for me as this area is far from my field of expertise.

Nature abhors a vacuum. I'm surprised there's such an identified need & such a(n) (apparent) lack of a service industry ready to serve it. It seems to be THE question in the consumption phase.
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