If you are hiring an accounting or tax and business firm, it should go without saying that you have a CPA involved in looking over all of the work. However, not all accounting firms are created equal. Some accountants are aggressive, some are conservative, and some care about nothing more than just preparing your taxes. With the tax bomb right coming right around the corner over the next decade, isn’t it time you asked your CPA these important questions?
- Question #1: Do you believe I’m paying too much, too little, or just the right amount of tax?
Beyond simply preparing tax forms, an accountant should be involved in business planning throughout the year. Typically, you should be planning a tax review in the beginning of the year to ensure you create the most efficient tax strategy possible. If your CPA just gives you the “we are doing great” speech, it could be time for a move - Question #2: Do you consider yourself tech-savvy?
Small business accounting software has made powerful accounting tools available to everyone. But these accounting packages (most notably QuickBooks) are only as useful as the person who installs and runs the application. For this reason, a proficient CPA will help you install and set up a set of books, while also requesting them for review. A CPA who can’t run these programs is of no use to you or your business. - Question #3: What kind of creative tax advice will you offer me?
Advising clients on what they can do to grow and set goals, as well as discussing issues, are all part of a proficient CPA’s services. CPA’s should be able to immediately show you how to find alternative strategies within your tax return whether it be pre-tax strategies, tax-deferral, tax-shelters, or tax credits. - Question #4: How much professional education do you get annually?
Just passing the test to be a CPA or an EA isn’t enough. With the tax code and interpretations of the code changing every year, continuing education is really essential. EAs are required to have 72 hours of continuing education in a three-year period; each state sets its own requirements for CPAs. In Oregon, for example, CPAs must take 80 hours of continuing education within a two-year period.
Many tax professionals take more than the minimum requirement for continuing education. Although more training doesn’t necessarily mean the tax pro will be superior, it’s certainly not a bad sign. The real big question in here should be to ask three new strategies that they have learned over the past year. - Question #5: Are you available outside of the tax season?
Some tax preparers are seasonal, especially at the strip mall center shops. You don’t want a part time gym teacher doing your taxes. They are available only the first four months of the year, or their offices are close for a few months each year. If you expect year-round access, you need to make sure the tax professional is available. This is important especially as you look at year end tax-credits or other business strategies that may be available. - Question #6: How are your fees calculated? Will you be charging me for every phone discussion?
To avoid friction later, it is essential to discuss the CPA’s fee structure. Tax professionals may bill by the hour, form, overall return or some combination. I think getting an engagement letter and some flat fee is what you should be looking for in a CPA. Hourly people tend to hire junior accountants and focus on billable hours versus your account. After reviewing your previous returns and interviewing you, a tax professional should be able to give you a good-faith estimate of costs. If the CPA uses a time-based system, discuss the hourly rate of the accountant and staff, overhead expense reimbursement (what is the cost of a fax?) and whether certain time is not billed. Find out now whether a simple two-minute phone call or a one-page fax means an hour of billable time. If that’s the case, run for the door. - Question #7: Do you perceive any conflicts of interest? This is especially important for business owners.
CPAs work for dozens of firms and scores and sometimes hundreds of individuals. You should inquire if any of your direct competition is represented by the firm. If so, inquire as to how this conflict is handled. - Question #8: How long have you been a Certified Public Accountant, and what other licenses do you hold?
You should inquire with the state CPA organization to discover if there have been any disciplinary actions entered. Can the CPA (or firm) handle things like bookkeeping, part time CFO services, business valuations, due diligence, transaction work, etc., or will they just simply be a form preparer? - Question #9: Are you licensed to sell financial products or do you have a referral arrangement with another firm?
Do you want your CPA to come up with tax advice and get your forms to be accurate and timely, or do you want them to be running your portfolio. If you CPA is also your money manager, insurance agent, etc., you should inquire how much of their revenue is derived from tax work versus their other businesses. Ideally, you want your CPA to making 100% of their income from the tax and business related services they offer. - Question #10:You will have all our financial record in your computer system. What if we part ways? Will we be given all of it?
You must get a positive answer to this. What if the Accountant sells his business and you don’t like the successor? The records are yours and you want to hear a “yes” here.
Written by:
Ted Jenkin
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Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin. >
