Why hire an accountant?
June 30, 2022
It would be logical to assume that financial planners want clients to spend less than more each year. While logical, that assumption is not absolute. Rather, there are occasions where we encourage clients to spend money as/if necessary, to include paying life insurance premiums to safeguard against loss of income, premiums for long-term care insurance, paying fees to an attorney to draft updated wills and related documents, et al. Last, but far from least, is paying fees to an accountant to prepare tax returns and do tax planning.
Of course, not every tax filer requires the help of an accounting professional. Options for a taxpayer with a simple return (e.g., one or two sources of income along with standard deductions) for example, might range from an online program like TurboTax to a tax preparation service from a national chain (e.g., H&R Block). Anything more complicated, however, deserves the time and expertise of a more experienced accounting professional.
When it makes sense to do so, we’ll often ask accountants to do tax planning each fall. Why? There may be steps clients can take to reduce their tax burden for that year, or even defer income to the following year. Tax planning also helps us to manage investment accounts, as there are times we can control which year taxable gains will be generated or taxable losses should be accumulated. There are even years where distributions should be considered for IRA accounts, even prior to the time otherwise required by the IRS.
Taxpayers who have stock options, own their own business, or commit a lot of time (and money) to charitable causes should all utilize accounting professionals who can help them control their tax burden. Calculations on Roth conversions would also fall into the same category.
Further, having tax returns completed by a professional reduces stress, increases the probability that a return will have fewer errors, and may even present the taxpayer with previously unknown opportunities. In recent years, for example, we’ve had multiple clients who engaged an accountant and were rewarded with refunds from previous years even though tax returns had already been completed and filed. In those instances, accountants actually generated tax savings for our clients, as opposed to costing them money.
A good accountant takes the time to learn his/her client by reviewing prior returns and asking a lot of questions. As financial planners, it’s a pleasure to be able to ask a tax professional a tax-related question that may directly impact a client. When we can compare notes and have an accountant run end-of-year tax projections, the beneficiary, of course, is the client.
There is an obvious cost to paying a tax professional. If you currently don’t use a tax professional and you’re uncertain as to whether or not it might be beneficial in your situation, please call us and ask.