Non-local CPA questions

[SeattleCPA]

Over at the Bogleheads forum, which I don't participate in any more, a thread discussed whether someone needs a local CPA.

Lots of good comments. But because @secondcor521 participates here and there and made an interesting comment (shown below), I wanted to respond. The question of whether you need a CPA in your state is a good one, Especially this year when it is nearly impossible for find CPAs taking new clients.

Here's Secondcor521's comment:

If I had small business needs, I'd be even more inclined to go with someone who was familiar with my state's business tax requirements, which would usually mean an in-state person. Also, if I ever had to deal with a complex issue, I have a personal preference for sitting around a table with physical paper and pens - although I acknowledge that kind of stuff can also be done with Zoom and virtual whiteboards and document sharing.

For small business stuff, I'm thinking of things like sales tax remittances, state income tax withholding on payroll, etc.

I'd keep asking around. I think many CPAs would be willing to do a 10-15 meet and greet so you can see if they are able to meet your needs. I was fortunate to find a CPA locally who is a partner in the CPA firm who used to do my Dad's taxes, and he does the kinds of things you're talking about (advice, tax planning) and is knowledgeable. I currently do my own taxes and just use him as a resource for strategy and complicated questions.

And here's my comment about this.. The thing to remember is that every CPA firm of a decent size and every CPA with an established business client practice works with multistate clients who file returns in all the big states. So every tax accountant does California returns, for example. And Texas returns for their business clients (not income taxes but that franchise tax).

The full Bogleheads thread appears here:https://www.bogleheads.org/forum/viewtopic.php?f=2&t=367770 FWIW...

[secondcor521]

CPAs are probably more talented than I am, which is where the root of my comments (quoted above) lay.

I'm personally able, more or less, to keep up with the annual federal changes and my state's changes, especially as they apply to my family and my clients as a Tax Aide volunteer preparer.  As not-a-CPA, that's all I need to do.  Even doing that requires me to read up on stuff throughout the year, and attend several weeks of training every January.

Keeping up with multiple states' changes as some real CPAs do would seem extremely challenging.  It would seem even more challenging to be good enough to remember all the quirks of all the states (especially the new ones from time to time) to ask all of the clients all the right questions to elucidate whether or not those quirks apply to them and collect the right data and prepare the return well.

I'm fairly certain that CPAs have continuing education requirements, and I'm betting that is the reason why.  I'm sure they also have colleagues who have varying degrees of knowledge and specialization about various states and various tax topics (that's the way it is in Tax Aide anyway - person X knows about education credits, person Y about disability pensions, etc.)  I think that's all well and good.

And I'm also pretty sure that a CPA could adequately and correctly prepare an out of state return, especially if they live in a nearby state (like WA) or if my state were an important one tax wise (ID, it isn't really).

But with all that said, I'd prefer an Idaho firm over say, a Tennessee firm because I think they'd be better equipped to remember, for example, that Idaho taxpayers for 2021 are supposed to add their $300/$600 non-itemizing charitable cash deductions to their standard deduction on line 16 - an errata published on the state tax commission's website but not in the Idaho state instructions (which I doubt they will revise).  If the Tennessee firm missed something like that, the tax return would still likely be accepted and no penalties would be applied, but the individual would still pay a bit more tax.

I also - again, this is just my personal opinion - would point out the second sentence of the quoted portion above.  I personally want to go in person, at a table, with paper and pencil/pen, to go over any topics that are complex.  You can do that over Zoom and so forth with a Tennessee firm, but it's not my preference.

And of course, to be clear, I like Tennessee as a state and Tennessee residents in general of the ones I've met.

[SeattleCPA]

@secondcor521 , for the record, I think your comment about preferring to get or have option to be "face to face" makes good sense.

Also, my default suggestion to folks is always to try TurboTax. See this blog post from our CPA firm which says, "go with TT if you can"... and "if your return is too complicated for TT try to simplify your finances so you can TT."

https://evergreensmallbusiness.com/your-cpa-versus-turbotax/

But again, I think you may underestimate how much multistate work CPAs do. For CPAs, the bread and butter these days are businesses, business owners and active investors who file in a bunch of states. (All the low-end 1040 work is withering away.) So firms are doing tons of state returns from other states. Especially probably the two dozen biggest states which represent probably 3/4ths of the population.

Example: Some small amazon FBA business with inventory scattered across two or three dozen states is supposed to be filing income tax returns in those two or three dozen states.

And this remark again... the reason I bring this up is there's a shocking scarcity of tax talent. The old guys seem to be retiring in droves. Even folks who aren't so old have joined the great resignation, it appears. So it's harder than ever to find a new CPA if you're looking. Lots of firms aren't ever accepting new clients.

[secondcor521]

No argument about how much interstate work they do.  I suspect you and I just move in different circles.  I see individuals botching their own returns, the Walmart tax people botching people's returns, and the only CPA who I would trust charging $250 an hour for consultations.  I volunteer for Tax Aide and do my and my family's returns, and I think they could all be done in TT (they are all done in TaxSlayer).  So just personally I have no need for an interstate firm of the kind you describe, and I don't know any firms like that personally, although I have no doubt they exist.

[SeattleCPA]

No argument about how much interstate work they do.  I suspect you and I just move in different circles.  I see individuals botching their own returns, the Walmart tax people botching people's returns, and the only CPA who I would trust charging $250 an hour for consultations.  I volunteer for Tax Aide and do my and my family's returns, and I think they could all be done in TT (they are all done in TaxSlayer).  So just personally I have no need for an interstate firm of the kind you describe, and I don't know any firms like that personally, although I have no doubt they exist.

Not surprised to hear you see low-skill unenrolled agents producing shoddy work. That's my observation too. And I guess my conclusion is, why pay $300 to have someone (sometimes someone not making not much more than minimum wage) to do what you can do almost as good a job doing yourself. Maybe for free using software.

And this comment one last time: I think it's easy to underestimate how much multistate apportionment and state-level allocation goes on on the sorts of tax returns that CPA firms do. I would bet every tax firm with multiple CPAs in Boise does lots of multistate return work. Also that most experienced solo practitioners (so guys with a decade or two of experience) have a bunch of multistate work.

[MustacheAndaHalf]

Another form of non-local: international.  That also limits my tax software choices, but I think Turbo Tax is one of them (which I bought for this year's taxes).

H&R Block allows it, but had the same bug 2 years in a row (fixed both times) regarding international addresses and U.S phone numbers - you simply couldn't file electronically until they fixed the bug.  So I've switched to TurboTax.

I'm not sure how international tax preparation costs compare with multi-state taxes.
 I think it's more complicated and things like FBAR are important to do correctly.  So I'm guessing the costs are higher.

[SeattleCPA]

Another form of non-local: international.  That also limits my tax software choices, but I think Turbo Tax is one of them (which I bought for this year's taxes).

H&R Block allows it, but had the same bug 2 years in a row (fixed both times) regarding international addresses and U.S phone numbers - you simply couldn't file electronically until they fixed the bug.  So I've switched to TurboTax.

I'm not sure how international tax preparation costs compare with multi-state taxes.
 I think it's more complicated and things like FBAR are important to do correctly.  So I'm guessing the costs are higher.

International elements in a tax return create massive complexity. And risk. BTW many tax accountants actually do avoid this area. Also the standard professional tax software doesn't do all the forms folks need.

[Sibley]

If you're going with a CPA firm that's got a dedicated or semi-dedicated tax practice, yeah, they're going to be fine with interstate taxes. At that point it boils down to personal preference.

[SeattleCPA]

If you're going with a CPA firm that's got a dedicated or semi-dedicated tax practice, yeah, they're going to be fine with interstate taxes. At that point it boils down to personal preference.

+1

[Michael in ABQ]

Example: Some small amazon FBA business with inventory scattered across two or three dozen states is supposed to be filing income tax returns in those two or three dozen states.

I did some rough estimates that my ecommerce business (selling off Amazon) probably meets the transactions threshold to collect and remit sales tax in about a dozen states. However, there's no way in hell I'm going to get on all those states radar voluntarily just because I did $10k in sales to customers in their state. Same thing with income tax. I'll stick with my one state where my business and employees are physically located. Maybe if I get to $5-10 million plus in revenue, I'll consider changing that.


I recently spoke to the owner of an accounting company specializing in ecommerce clients and he said of their 1,000 or so bookkeeping clients virtually none of them file in all those different states and they haven't been targeted by any of those states unless they have a bona fide nexus (employees, warehouse, etc.) not just the fact that Amazon kept a few of their products in a warehouse there.

[SeattleCPA]

Example: Some small amazon FBA business with inventory scattered across two or three dozen states is supposed to be filing income tax returns in those two or three dozen states.

I did some rough estimates that my ecommerce business (selling off Amazon) probably meets the transactions threshold to collect and remit sales tax in about a dozen states. However, there's no way in hell I'm going to get on all those states radar voluntarily just because I did $10k in sales to customers in their state. Same thing with income tax. I'll stick with my one state where my business and employees are physically located. Maybe if I get to $5-10 million plus in revenue, I'll consider changing that.


I recently spoke to the owner of an accounting company specializing in ecommerce clients and he said of their 1,000 or so bookkeeping clients virtually none of them file in all those different states and they haven't been targeted by any of those states unless they have a bona fide nexus (employees, warehouse, etc.) not just the fact that Amazon kept a few of their products in a warehouse there.

If you have inventory stored in Amazon warehouses, you have nexus for income tax purposes in those states. Because you have property in the states. (BTW I think Amazon will probably take care of the sales tax for you...)

BTW by the time you get to $5M or $10M, it's maybe too late. At that point, a firm can owe more in sales taxes and income taxes that the company is worth.

I would get compliant with the sales taxes... and file income taxes... The compliance costs get more bearable the larger you  get.

PS Remember you get NM tax credit for income taxes paid to other states if you timely file.

[MustacheAndaHalf]

BTW by the time you get to $5M or $10M, it's maybe too late. At that point, a firm can owe more in sales taxes and income taxes that the company is worth.

I would get compliant with the sales taxes... and file income taxes... The compliance costs get more bearable the larger you  get.

PS Remember you get NM tax credit for income taxes paid to other states if you timely file.

For others who are curious, is "NM tax credit" a New Mexico tax credit?

It used to be that state taxes reduced Federal income tax (SALT deduction: state and local tax).  Does this same idea apply to a business that pays state sales taxes?  Are those amounts a deduction from income, for Federal tax purposes?

[oldmannickels]

Example: Some small amazon FBA business with inventory scattered across two or three dozen states is supposed to be filing income tax returns in those two or three dozen states.

I did some rough estimates that my ecommerce business (selling off Amazon) probably meets the transactions threshold to collect and remit sales tax in about a dozen states. However, there's no way in hell I'm going to get on all those states radar voluntarily just because I did $10k in sales to customers in their state. Same thing with income tax. I'll stick with my one state where my business and employees are physically located. Maybe if I get to $5-10 million plus in revenue, I'll consider changing that.


I recently spoke to the owner of an accounting company specializing in ecommerce clients and he said of their 1,000 or so bookkeeping clients virtually none of them file in all those different states and they haven't been targeted by any of those states unless they have a bona fide nexus (employees, warehouse, etc.) not just the fact that Amazon kept a few of their products in a warehouse there.

If one of them is CA, they will.

[SeattleCPA]

BTW by the time you get to $5M or $10M, it's maybe too late. At that point, a firm can owe more in sales taxes and income taxes that the company is worth.

I would get compliant with the sales taxes... and file income taxes... The compliance costs get more bearable the larger you  get.

PS Remember you get NM tax credit for income taxes paid to other states if you timely file.

For others who are curious, is "NM tax credit" a New Mexico tax credit?

It used to be that state taxes reduced Federal income tax (SALT deduction: state and local tax).  Does this same idea apply to a business that pays state sales taxes?  Are those amounts a deduction from income, for Federal tax purposes?

Sorry for late response @MustacheAndaHalf ... Been adding K-2 and K-3 forms to the entity returns we'd prepared before IRS made that late-breaking requirement.

But, yes, sorry, I meant New Mexico.

And yes, you're right about the way this works.

Example: Say @Michael in ABQ makes a $100K in his business and say he pays New Mexico $5K in state taxes right now on this income. It might be that if he did his state allocations in way tax law requires, that California gets to tax $10K of the $100K and that tax is $1K. But probably that $1K tax reduces his $5K New Mexico state tax to $4K.

And here's the wrinkle that the folks who ignore this face. If someone blows off reporting taxes to California for 10 years and so owes then $10K of taxes, so $1K a year, I think the taxpayer won't get to use the full $10K as a credit against New Mexico. I think some of those years are "closed" for amended the New Mexico tax returns. So in that case, failing to timely file really whams you.

[SeattleCPA]

Example: Some small amazon FBA business with inventory scattered across two or three dozen states is supposed to be filing income tax returns in those two or three dozen states.

I did some rough estimates that my ecommerce business (selling off Amazon) probably meets the transactions threshold to collect and remit sales tax in about a dozen states. However, there's no way in hell I'm going to get on all those states radar voluntarily just because I did $10k in sales to customers in their state. Same thing with income tax. I'll stick with my one state where my business and employees are physically located. Maybe if I get to $5-10 million plus in revenue, I'll consider changing that.


I recently spoke to the owner of an accounting company specializing in ecommerce clients and he said of their 1,000 or so bookkeeping clients virtually none of them file in all those different states and they haven't been targeted by any of those states unless they have a bona fide nexus (employees, warehouse, etc.) not just the fact that Amazon kept a few of their products in a warehouse there.

If one of them is CA, they will.

I agree with @oldmannickels . The states and especially big blue states like nothing better than extracting tax from nonvoting nonresidents.

I have seen California go ape about $2--two dollars--in tax they think a partner owed them on K-1 income.

I've seen Massachusetts try to sue an attorney for $200 of tax state only thought nonresident owed.

And I've seen Virginia extract $40K from a taxpayer which all the tax accountants and tax atttorneys agreed the taxpayer didn't owe... but the state seemed to know that taxpayer would need to spend more than $40K in legal fees litigating and so would surely cave. Which is what happened.

My nightmare scenario as a CPA though... if an entrepreneur ever tries to sell her or his business to a sophisticated buyer and the business hasn't complied with state tax law stuff, the business may be unsellable. So I always worry a taxpayer in that situation will say, "CPAs should have told us this.. we didn't know!..."