• One W-2: Don’t make me pay more to do my taxes than I earn in a year! First and foremost, consider the scope of the work you need done. Nothing is more important that this consideration. If you are a college student and have one W-2 (I’m surprised you’re reading this and not playing HALO) you SHOULD NOT PAY SOMEONE! Absolutely not! Your return is way too easy. There are multiple places you can do this return for free, including the IRS website www.irs.gov. If you do it for free online through one of the national box-accountant stores (see below), you will get annoying email reminders to do it with them again. They figure that eventually you’ll make enough money to pay them for it – and pay you will (also see below)! In many cities the VITA –Volunteer Income Tax Assistance - program is alive and well. This is a program where college accounting students prepare your return for free if you have income below a certain level, usually $50k. I participated in this program and was surprised at the complexity of the returns we could handle accurately – probably more accurately than the services described below.
• If someone’s shaking a sign in front… well… you know where this is going. If you can get your taxes done where someone is shaking the sign or the green snake is blowing up and down with a gigantic fan, you could probably get your taxes done online for free or through VITA (see above). If your income is too high or your return is too complicated, a software solution might be best (see below). The qualities of free or software solutions are just as high and you won’t get slaughtered with wanna-be-CPA-in-a-nationally-advertised-box price. These institutions can be predatory with their advertising, rates, and especially with the incentives they offer to give you a refund as you walk out the door. This will usually only cost you something like 800% APR (that’s NOT a good interest rate to pay, for those of you who are wondering. Eg. Home 4.5 – 7.5%, Car 8 – 12%, Credit Card 15 – 20%, Loan Shark 50% - an “accident”). Please, consider another option before succumbing to the tantalizing sign shaking or snake dance.
• $100 Software vs. $500 CPA – time to go with QuickieTax™. Okay, there is no such thing as QuickieTax (we can’t get anything by you guys), but you know what I’m talking about. The brand I am referring to, or its competitive equivalent, can be an excellent solution for the right level of taxpayer. The trick is knowing when to go to the next level. I estimate that 50% of software-using self preparers could receive more tax benefit from a CPA than the cost of the fees. As soon as you start working with business deductions, unreimbursed employee expenses, tax credits, multiple itemized deductions, or any items you’re unsure of, it’s time to start looking around (you probably have a bunch of tax tricks you don’t know you have, you just need an expert to spot them). Also, if you make more than $100k a year, and you don’t understand how to compute the Net Present Value of an unequal stream of cash flows, you should be looking for financial guidance.
• Where do I put in my K-1, 1099-Misc, Keogh Plan, HSA, and all these other forms I received into QuickieTax™? As mentioned above, it’s definitely time to find a good CPA. Congratulations! You have reached a level of financial achievement where you need help! Either that, or, like most of our old college relationships, you’re finances are surprisingly complicated for their lack of depth. Here’s how to find a great CPA for you as an individual:
o Brace yourself for the fee! Probably between $500 - $5,000. But, as mentioned earlier, they will probably save you more in taxes than you spend on them. This isn’t just some conspiracy tagline to improve the industry (we have so much damn work we can barely bathe regularly or write in my newsletter! We don’t need to lie online to try to get some CPA, somewhere, one more individual tax return). If you are price sensitive, ask if you can get a reduced fee for submitting data in a specific way to save them time (eg. electronically in excel).
o Ask lots of questions. Time is money for your CPA, but they should have the decency to spend 10 – 15 minutes and answer your questions. You should ask: Have you worked with anyone in my industry/with my type of job before? Did you get them some tax breaks? What do you offer in terms of audit support? What do you offer in terms of planning/advice? How much do you charge for this?
o Ask for references. Even for a small, individual return, you are trusting this person with very important info and you may pay them a lot of money over multiple years. If they can’t take the time, or are unable, to give you a person or two to call about their services, they don’t deserve/want you as a client badly enough.
We hope this has been helpful for those looking for CPAs on the Individual Tax preparation level. Our next posts will focus on choosing a CPA in the following circumstances:
• Individual Wealth Planning (Financial Advice)
• Business Taxes
• Attestation
