When is an accountant worth it?

[stache-it]

A Taxes forum was an awesome idea. I created an anonymous account to avoid revealing my income to people who know me and read this forum.

In the last couple years our income has jumped quite a bit due to raises and jobs that grant RSUs that vest over time. We're on track to pay > $150K in federal income tax this year (exactly how much depends on stock prices) and we're trying to figure out if paying an accountant for tax advice is worthwhile, or if we can do as well on our own. The vast majority of our income is W2, as most of our investments are in tax-deferred accounts.

Here's what we're doing so far to decrease our taxes.

• We max two 401Ks
• We max our healthcare FSA
• We have two kids in day care and max our childcare FSA.
• We owe around 340K on our mortgage at 3.75%. We're not rushing to pay this off because the money not going here goes directly into our taxable investment account (vanguard)
• We don't have a HDHP or HSA available with our employers.

We put 60K into each of our kids 529s when they were born, so they should be on track for college which is still 15+ years away.

Is there some magic that a tax accountant is going to be able to tell me about? At our income many deductions are phased out, so part of me feels like we aren't going to find much more. Plenty of people have told me that we should just talk to an accountant and see what they say, but getting guidance like this seems like it's going to be rather expensive so I want to make sure we're getting our moneys worth.

-stache-it

edit: fixed bullet formatting.

[MDM]

The vast majority of our income is W2, as most of our investments are in tax-deferred accounts.

Given that, an accountant will not have nearly as many opportunities to help as there would be if you ran a small business.  Perhaps someone will have counterexamples, but in their absence your feeling about "aren't going to find much more" seems valid.

[johnny847]

I believe that rules surrounding RSU's can get hairy. But, I don't think it's anything that you can't figure out if you carve out the time to do it.

I believe virtually everyone on this forum should be doing their own taxes. By hand. Why? Because you don't learn anything otherwise. You don't learn about the AGI cutoffs for various deductions and credits. You can't properly plan ahead - there are things you can do that will lower your taxes now, but increase your taxes by a greater amount in the future.

People who should use an accountant are those like Mitt Romney. Ever looked up his tax returns? I kid you not it is literally hundreds of pages.

I'm pretty sure between the participants on this board, we could help you get all the deductions and credits you are entitled to.

[Axecleaver]

We're on track to pay > $150K in federal income tax this year (exactly how much depends on stock prices) and we're trying to figure out if paying an accountant for tax advice is worthwhile

Johnny's advice on doing your own returns is worthwhile, because you learn the mechanics of what affects your taxes. But that said, if you're paying 150k in taxes, I think it's worth $200-300 to have a conversation with a professional about your situation before the end of the tax year just to see if you're leaving anything on the table.

In particular with RSU's I think you need to watch the phase-outs and AMT pretty carefully. Actually, at that level, you're probably completely phased out at this point and just paying into the 39.6% top rate. Getting a little help on tax strategy can be really useful and worth a lot to you.

[Cpa Cat]

If you have a solid understanding of your tax situation, an accountant is rarely going to come up with insights that you haven't thought about. So two situations for an accountant:

1. You don't have a solid understanding of your tax situation OR you are having doubts about your understanding.

2. The alternative is that you spend $150 on tax software/filing and it takes several hours of your time to complete the return. Bonus points to the accountant if self-preparing means that you cry, fight with your spouse, or have to call the software's support phone line.

[stache-it]

Thanks everyone. I've always done our taxes using TurboTax, and I feel like I have a pretty good handle on it overall. Our preference is DIY whenever possible, but with some things we've agreed that we're better off hiring a professional. With our taxes DIY has always seemed best, but this year our income doubled and between 39.6% federal, 5.75% state and 2.35 to medicare we're getting pretty close to paying 50% on each dollar earned.

Johnny's advice on doing your own returns is worthwhile, because you learn the mechanics of what affects your taxes. But that said, if you're paying 150k in taxes, I think it's worth $200-300 to have a conversation with a professional about your situation before the end of the tax year just to see if you're leaving anything on the table.

If the cost is just a few hundred dollars, even a 0.5% decrease in our taxes would cover that.  What's the best way to go about finding an accountant to talk to about tax strategy? I contacted one I found online around March and they we're looking at $300+ per hour, which made me reconsider. Is this kind of advice a standard thing that accountants do which can be priced out?

Thanks again all!

[Axecleaver]

I found my accountant through my city's chamber of commerce when I opened my first business, 20 years ago. He is a CPA, runs a small tax prep business and charges $80/h. I tend to find my professional support through networks - ask my friends, if that's a miss, talk to the Chamber, economic development corp, Elks lodge, etc. You may want to hit up your HR department, if this is a common scenario where you work.

[seattlecyclone]

I believe that rules surrounding RSU's can get hairy.

No, they really aren't that bad. When your shares vest, the value of the shares is income that will show up on your W-2. This value is also the cost basis of the shares. Your broker should be keeping track of this for you. When you sell the shares you'll have a capital gain or loss just like with any other stock sale. That's it!

[johnny847]

I believe that rules surrounding RSU's can get hairy.

No, they really aren't that bad. When your shares vest, the value of the shares is income that will show up on your W-2. This value is also the cost basis of the shares. Your broker should be keeping track of this for you. When you sell the shares you'll have a capital gain or loss just like with any other stock sale. That's it!

Oh good to know. Maybe it was the rules around ISO's that were hairy.
Or maybe none of this is all that bad. *shrug*

[seattlecyclone]

Yes, ISOs are more complicated. The spread between purchase price and fair market value on exercise date is taxable for the AMT but not for the regular tax, which means you need to track cost basis differently for the two tax systems, fill out two separate Schedules D, etc. Also the AMT you pay in the year you exercise the options may be refundable years down the road when you no longer owe AMT, due to rules about "deferral items" vs. "exclusion items."

[Sibley]

Based on your attitude, it sounds like you're ok to do your own. I tend to recommend people talk to an accountant and work on self-education when they're terrified, lost, or dealing with a massive change in circumstances with little overall tax knowledge such that they won't be able to know if they did it wrong or missed things.

[Proud Foot]

Stache-it,

It might be worth it to have a consult with one to see if there are any deductions you might be missing. If your tax bill is going to be >$150k, a couple hundred dollars won't hurt.  As far as finding one, contact your state's accountancy board or society of CPA's. They cannot recommend one but can give you a list of ones in your area. You could then ask them for references. Obviously they will give you clients who will give them a good review but you can always ask the client if they know of anyone else who uses that CPA you could contact.

[foobar]

Stache-it,

It might be worth it to have a consult with one to see if there are any deductions you might be missing. If your tax bill is going to be >$150k, a couple hundred dollars won't hurt.  As far as finding one, contact your state's accountancy board or society of CPA's. They cannot recommend one but can give you a list of ones in your area. You could then ask them for references. Obviously they will give you clients who will give them a good review but you can always ask the client if they know of anyone else who uses that CPA you could contact.

You can spend the money but they are not going to find anything. What they might do is start suggesting poor ideas that reduce taxes but at the cost of other things. The only case I have EVER heard of an accountant saving money for a W2 persons was the guy who didn't know about cost basis. He was going to pay taxes on his cost basis.  You might find it worthwhile to do once but make sure you think about anything they tell you.

[BTDretire]

A Taxes forum was an awesome idea. I created an anonymous account to avoid revealing my income to people who know me and read this forum.

In the last couple years our income has jumped quite a bit due to raises and jobs that grant RSUs that vest over time. We're on track to pay > $150K in federal income tax this year (exactly how much depends on stock prices) and we're trying to figure out if paying an accountant for tax advice is worthwhile, or if we can do as well on our own. The vast majority of our income is W2, as most of our investments are in tax-deferred accounts.

  I'm pretty frugal, yet I paid $450 to my accountant even though I only paid $1500 in Federal taxes. (two years ago)
I'll pay more this year, lost a dependent, and college cost credits. Even my expert refers to IRS reg books when doing my taxes.
 I do have a simple business.
  btw, make sure you really aren't elegible for an HSA.
                       Mikek

[JennaF]

an accountant will not have nearly as many opportunities to help as there would be if you ran a small business

[clarkfan1979]

I sold some stock and bought a house, so my mom told me that I need to use her tax accountant. It cost me $500 to tell him everything over the phone that I could have done on my own, so it didn't save me any time. My parents are small business owners, so it's worth it for them. However, it was a huge waste of time and money for me.

[ChelseaBlair]

I always use an accountant because I'm an IC, always for more than one company, sometimes a mix of being paid as an employee and an IC.
This year I paid $350 for an accountant recommended by a friend because all of my work was as an IC. It was SO worth the money he saved me with my deductions.
This year, my contract pays me as an employee and I won't go back to this accountant because it won't be worth it. If I have another year where I am mostly paid as an IC, I will happily go back to him for $350 even though I know it's overpriced. I keep good records on my deductions, but I wouldn't trust myself to handle that.

[supomglol]

This is a great question.  As others have mentioned an accountant becomes more valuable the more complicated your life becomes!  Opening a small business was our "tipping point" where we began using their services.  Prior years we filed everything electronically. 

However, don't be surprised if you don't end up getting your money's worth in other ways.  I recently referred my accountant to a co-worker who typically took his stuff to H&R block every year.  After hearing of my good experience with them, he gave them a shot.  The accountant discovered that a relocation package he had recently received allowed the deduction of many items; he also came up with lots of deductions for education related expenses.  He second-looked his prior-year taxes and cost-effectively filed a correction resulting in even more money.  If this co-worker had gone to H&R block like he had the prior year with similar expenditures, it would have cost him about $200.  The accountant cost him about $450 but he got additional returns of over $3,000 he wouldn't have otherwise had. 

In the end, the accountant more than paid for himself; but he also provided my buddy with valuable financial advice free of charge, and even suggested intuitive ways to help him raise his credit and lower his future tax bills.  Obviously YMMV though, I was lucky to have a good one to refer. 

[forummm]

If you have a solid understanding of your tax situation, an accountant is rarely going to come up with insights that you haven't thought about. So two situations for an accountant:

1. You don't have a solid understanding of your tax situation OR you are having doubts about your understanding.

2. The alternative is that you spend $150 on tax software/filing and it takes several hours of your time to complete the return. Bonus points to the accountant if self-preparing means that you cry, fight with your spouse, or have to call the software's support phone line.

Or 3. You do your own tax returns using the forms and instructions the IRS provides for free. I've done this my entire adult life. Yes, it takes some time to figure everything out and make sure you get everything correct and to your advantage. But then that also helps you plan your future activities.

[ender]

If you have a solid understanding of your tax situation, an accountant is rarely going to come up with insights that you haven't thought about. So two situations for an accountant:

1. You don't have a solid understanding of your tax situation OR you are having doubts about your understanding.

2. The alternative is that you spend $150 on tax software/filing and it takes several hours of your time to complete the return. Bonus points to the accountant if self-preparing means that you cry, fight with your spouse, or have to call the software's support phone line.

Or 3. You do your own tax returns using the forms and instructions the IRS provides for free. I've done this my entire adult life. Yes, it takes some time to figure everything out and make sure you get everything correct and to your advantage. But then that also helps you plan your future activities.

+1 

(though I do it all by hand I still e-file with turbotax, for convenience I guess as well as a double checking)

I think one of the main advantages of an accountant isn't in actually filing taxes, but determining strategies proactively to minimize and optimize your tax situation. Fortunately for me, this forum does more of that than any accountant ever could!

[Blindsquirrel]

  We are landlords and had a CPA do our taxes for the first time about 14 years ago or so, before that, I had done them myself.  My initial view of that was that having someone do my taxes was the nicest thing I had every had anyone do for me with their clothes on and I stand by that. Only $1400 a year  and priceless.

[TheAccountant]

I would general echo the sentiments of those that have posted before me:

1) Doing your own taxes is a fantastic idea because you will be aware of the tax consequences of your decisions throughout the year.  Being tax-aware can save thousands of dollars throughout your lifetime, and preparing your own taxes is a great way to gain that knowledge.

2) Consulting with a tax professional AFTER you have prepared your return and done the grunt work may be beneficial.  Tax planning can be very valuable, and nothing can replace years of experience working with the tax code; if a few hundred dollars paid for a consultation can save you thousands in the long run, that's a great investment.  It is absolutely correct that operating a small business provides for many more tax planning opportunities than exist for an individual, but that doesn't mean an individual doesn't stand to gain anything from a consultation with an experienced professional.  For example, if you plan on leaving an estate to your children or others (non-charity): estate planning is highly complex and can save thousands upon thousands of dollars if executed properly.

You certainly save much more money on a risk-adjusted basis preparing your own return than you do by forgoing a consultation every couple years.  It comes down to personal preference, and it might be a bit of a crap shoot.

The situation you, and anyone else on this forum, certainly wants to avoid is paying a CPA to PREPARE your tax return if you can do so yourself.  The return will likely be offloaded to a wide-eyed new hire and billed back to you at 10x their hourly rate.

[NorCal]

Accountants usually help when tax issues are complicated, which isn't usually correlated to large tax bills.

Your situation sounds simple, even though the bill is large.  You're also clearly taking advantage of all the tax savings strategies commonly available.

Having an accountant review your taxes to look for savings probably wouldn't find anything.  If you wanted to add something complex to your life like running a small side business, an accountant could be helpful. 

[nawhite]

I've paid for an accountant for the past few years and my mantra every since on the matter is that if you only show up in March to do your taxes, you are using your accountant wrong. The benefits come when you show up in June and say "what can I do now to make things better next year." I've saved thousands by being creative with how we charge grad school costs. For instance, by taking one more credit hour, my wife became a full time student and the tax benefits improved so much it paid for the course, which eventually helped allow her to graduate early. By the time January comes around, it's too late to change your behavior.

[Reynold]

I did my own taxes first by hand then using software for years, until I was laid off from being a wage slave and set up a small business plus was collecting income in 2-3 states from 2 jobs.  Then I used accountants for several years , both to learn about the complexities of business taxes (the business tax software doesn't do nearly as much hand-holding as the personal, I found) and to handle the multiple state returns, until I moved to a new state and settled down again. 

I'm now back to doing my own, just working in one state with the side business, because I can use the ones the accountant did as a guide.  I also learned useful things from conversations with the accountants about how to handle the accounting for the business, which I found more confusing than doing the taxes, actually. 

I see why people recommend doing it by hand, by the way, having that background let me know to hunt for options in the software which I would otherwise possibly missed, and let me know to ignore certain things as not applicable.  The number of confusing or obscure options has easily doubled in the last 10-15 years.  I also found that doing by hand doesn't take much longer than using the software, most of it is finding the relevant information in your documents.  However, one big advantage of the software is when you find something you missed, a new rule, a new receipt, etc., and change an entry, everything recalculates.  I don't think I've ever had a year when I didn't change SOMETHING in doing the return.

The other advantage is that sometimes it raises an option you might not have found on your own, much like a (good) accountant.  A risk to doing it yourself with the free paper or pdf instructions is that there are some tax breaks which may be off in their own instruction book, not mentioned anywhere else, that you don't know to go look for. 

Finding a good accountant is not trivial, mind you, I recall a yearly Money magazine contest they used to do where they sent a fictitious family tax return to 50 tax accountants each year.  The most correct returns they got back I ever saw was 2, one year it was 0.  So somewhere between 0% and 4% of accountants are "good", sigh. . . :)  On the bright side, if you get audited, which you may have higher than average odds of with $150k of taxes, the accountant normally has to help out.  That could be worth something too, given that penalties could be pretty high with such a high tax bill. 

[Rollin]

Thanks everyone. I've always done our taxes using TurboTax, and I feel like I have a pretty good handle on it overall. Our preference is DIY whenever possible, but with some things we've agreed that we're better off hiring a professional. With our taxes DIY has always seemed best, but this year our income doubled and between 39.6% federal, 5.75% state and 2.35 to medicare we're getting pretty close to paying 50% on each dollar earned.

Johnny's advice on doing your own returns is worthwhile, because you learn the mechanics of what affects your taxes. But that said, if you're paying 150k in taxes, I think it's worth $200-300 to have a conversation with a professional about your situation before the end of the tax year just to see if you're leaving anything on the table.

If the cost is just a few hundred dollars, even a 0.5% decrease in our taxes would cover that.  What's the best way to go about finding an accountant to talk to about tax strategy? I contacted one I found online around March and they we're looking at $300+ per hour, which made me reconsider. Is this kind of advice a standard thing that accountants do which can be priced out?

Thanks again all!

Why not go to one once just to check to see if you are golden?  Because you wrote the post I'd say you have doubts on your current situation.  $200 is worth it I'd say.  Then if all is well go back to doing it yourself.

[tj]

I'm not sure how an accountant is going to find you things that you can't find yourself, unless you're completely oblivious to tax preparation..

[Jack]

I see why people recommend doing it by hand, by the way, having that background let me know to hunt for options in the software which I would otherwise possibly missed, and let me know to ignore certain things as not applicable.  The number of confusing or obscure options has easily doubled in the last 10-15 years.  I also found that doing by hand doesn't take much longer than using the software, most of it is finding the relevant information in your documents.  However, one big advantage of the software is when you find something you missed, a new rule, a new receipt, etc., and change an entry, everything recalculates.  I don't think I've ever had a year when I didn't change SOMETHING in doing the return.

That's why, for me, "by hand" really means using a spreadsheet and programming in the formulas myself.

[johnny847]

I see why people recommend doing it by hand, by the way, having that background let me know to hunt for options in the software which I would otherwise possibly missed, and let me know to ignore certain things as not applicable.  The number of confusing or obscure options has easily doubled in the last 10-15 years.  I also found that doing by hand doesn't take much longer than using the software, most of it is finding the relevant information in your documents.  However, one big advantage of the software is when you find something you missed, a new rule, a new receipt, etc., and change an entry, everything recalculates.  I don't think I've ever had a year when I didn't change SOMETHING in doing the return.

That's why, for me, "by hand" really means using a spreadsheet and programming in the formulas myself.

Or you use the free fillable forms linked from the IRS website, which will calculate everything for you. You of course still need to enter everything else yourself.

[kkbmustang]

I believe that rules surrounding RSU's can get hairy.

No, they really aren't that bad. When your shares vest, the value of the shares is income that will show up on your W-2. This value is also the cost basis of the shares. Your broker should be keeping track of this for you. When you sell the shares you'll have a capital gain or loss just like with any other stock sale. That's it!

No disrespect intended seattlecyclone, but not all RSUs are settled in stock. Some are settled in cash.
Also, it is possible to hold the underlying shares upon "vesting", but that vesting may not give rise to a taxable event. This can occur where the shares are still subject to a substantial risk of forfeiture related to a specific buy back or right of first refusal to the company provided in a shareholders agreement, for example. It's not common, but it's possible and making a definitive statement like the one you made reinforces the fact that sometimes the advice of tax counsel isn't a waste of money.

[Vinivedivichi]

I'm a tax accountant, but don't work with individuals - I would say in your situation it would be worth it to have an accountant look over and provide some insight.  You make too much money to not have someone look it over to make sure you are being efficient.  Not even from an RSU/current perspective but even for tax planning I think it makes sense. 

[Marus]

Interesting topic!  I did three years of taxes for a CPA firm right out of college, so maybe I can give a different angle on this subject.

One thing to keep in mind is that a lot of accounting firms rely on kids fresh out of college to do the actual preparation work.   Once they've gone over all the forms, entered the data and asked the taxpayer a couple questions the return goes to a CPA who reviews it for accuracy and tries to identify ways to lower the tax bill.  This ends up being most valuable for people who are self employed, since they'll often hold off on making retirement contributions until their accountant figures out what their net income can be (it's flexible when you start taking into account elective deductions like sec. 179 depreciation).

Another type of client where I felt we came in handy was for older folks with lots of investment income and itemized deductions (medical expenses and charitable contributions in particular).  There's nothing especially difficult about those returns, but for folks who aren't especially detail oriented I can totally understand why you wouldn't want to have to deal with manually calculating how much of your dividends are tax exempt, for example.

From what you've posted, I think it's a very real possibility that you will know more about taxes than the person who actually prepares your return. You'll almost certainly know more about tax-advantaged accounts.  It wouldn't surprise me if you're just as detail oriented as well.  I think an accountant could help out if you're looking to evaluate a specific tax scenario (what's the tax benefit to doing x vs y) but if you're just going to drop off your paperwork and say "give me tax advice" you're probably going to be disappointed.

Also, if you want to get helpful advice, don't wait until January.  Accountants are super busy by then and if you haven't already established a relationship your return is going to receive relatively little attention.  If you come in during the summer, everyone will lavish you with attention and go the extra mile when it comes to research.