Should I have a CPA?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
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vrr106
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Should I have a CPA?

Post by vrr106 »

I am curious to hear how many Bogleheads use a CPA vs DIY. Mid 40s couple with 2 middle school aged kids. Have used TurboTax pretty much my entire life since our income has been almost exclusively W-2 based with the only complex situations being Restricted Stock and Employee Stock plans. Investments have largely been index funds. Cost of CPA is not a concern to me, but with our net worth now being much higher than 5 years ago (around $5M), I am considering using a CPA, mainly for the following reasons:
1. Continuity in case anything happens to me, spouse generally manages day to day expenses while I manage taxes and investing
2. Better coordination with estate planning attorney
3. Building trust over time with a CPA who we will hopefully continue to use when we get close to retirement (currently targeting in 7 years) and need to consider things such as sequence of returns risk
"It is not necessary to do extraordinary things to get extraordinary results"-Buffet| "Anytime that something is romanticized, you have to really question whether it exists"-Unknown
SubPar
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Re: Should I have a CPA?

Post by SubPar »

There are always mixed reviews on various professional service providers on this site, so these questions are often accompanied by a slew of personal anecdotes. Also, this site is tailored to the financial DIY'ers of the world, so there's also some inherent bias, IMHO.

If you don't have a complicated tax circumstance, may or may not be worth it...I certainly wouldn't go into it with an expectation that a CPA is going to magically save you boatloads in taxes. But, if it's a responsibility you'd like to get off your plate, might not hurt to interview some firms.

Where it can be most beneficial, in my opinion, relates to #2 in your OP: nowadays, a lot of firms bundle multiple service lines under one roof. In a past life, the firm I worked for had a couple estate & trust attorneys, a investment management practice, business succession, M&A, SOX consulting, etc. to complement the basic attestation and tax services, which are mainstays of most all accounting firms. They will also be much more in tune with ever-changing tax legislation, which could reap benefits in the long-term. That could be a solid case to at least kick the tires.

Of course, not all CPAs are created equal, and holding a CPA license doesn't automatically qualify one as a tax expert. If I were on this quest, I would avoid the Joe Schmo, CPA tax preparer type places and start with some decent-sized local firms, personally.
niagara_guy
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Re: Should I have a CPA?

Post by niagara_guy »

It sounds like you are considering using a CPA for your taxes. I did my taxes for years but have used a CPA several times for help with special issues. I talked to my CPA before I retired to make sure I wasn't doing anything stupid (was well worth a few dollars). If I was at your net worth I would probably want a relationship with a CPA even if I did my own taxes. I can see the value for the three things you mentioned. I avoided bothering my CPA during tax season as they are all very busy.
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Stinky
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Re: Should I have a CPA?

Post by Stinky »

I’ve always done my own taxes and never used a CPA.

However, in hindsight, it might have been good for me if I had a relationship with one in the past (especially when I was in my 40s and 50s). There were a few times that “I didn’t know how much I didn’t know”, and the CPA might have been able to set me straight.
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Dave55
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Re: Should I have a CPA?

Post by Dave55 »

I have used the same CPA for taxes since 1980. They also did my corporate taxes for more than 25 years.

Dave
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AnnetteLouisan
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Re: Should I have a CPA?

Post by AnnetteLouisan »

I have very few regrets in general but one is not having gotten a CPA early on because I was trying to save myself the fee.
runninginvestor
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Re: Should I have a CPA?

Post by runninginvestor »

We use a CPA. Much lower NW and a decade younger. But for similar reasons:
1. if something happens, surviving spouse will have a person we've built a relationship with to handle taxes. We spend ~$200/year, but CPA will answer questions throughout the year and run estimated payment projections if circumstances change.
2. Peace of mind. One spouse is disabled and the other is not financially inclined. We review the returns and ask questions before CPA submits. But it's a high likelihood that I'd have several typos that may or may not be caught if we did them without a CPA (I know this because when I compare results between myself and our cpa, differences are always traced back to input errors/transposing numbers/missing numbers on my end).
3. Life has enough complications in it, hiring a CPA at a reasonable fee to deal with taxes is an expense that we pay for one less headache.
desiderium
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Re: Should I have a CPA?

Post by desiderium »

I used a CPA for years
One year I got a letter from the IRS regarding a brokerage account with dividends/capital gains that I forgot to tell the CPA about.
They charged me $140 for the amended return but found an error in their previous calculations so I actually got a refund
Since then I have used TT and saved $800 or so annually. I could shop around for a better relationship but it hasn't been a priority
Sahara
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Re: Should I have a CPA?

Post by Sahara »

The CPAs I’m familiar with would not understand sequence of return risk. Can you clarify how you hope a CPA might help with that issue?
delamer
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Re: Should I have a CPA?

Post by delamer »

Maybe you are thinking in terms of a firm rather than an individual CPA.

But since you said “a” CPA, I’d caution against any future plan that relies on one individual. Even someone substantially younger than you could drop dead, retire, relocate, etc. and simply not be available when most needed.

SubPar’s comment about a firm that provides a variety of services seems worth exploring.

Just anecdotally, the couple CPAs who I know aren’t people from whom I’d take investment advice.
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tesuzuki2002
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Re: Should I have a CPA?

Post by tesuzuki2002 »

It sounds like you have some valid reasons for getting one... and you have time to vet them out till you find the one you want... I've thought about it myself... but the continuity situation goes away when your CPA also retires... So find a young one... or one that won't retire.
neverpanic
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Re: Should I have a CPA?

Post by neverpanic »

DO use a CPA to simplify your life.

DO NOT use a CPA for investment counseling. You're doing great on your own in that department.

Anecdotally, my CPA is 15 years younger than I am.
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.
Topic Author
vrr106
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Re: Should I have a CPA?

Post by vrr106 »

Sahara wrote: Mon Sep 27, 2021 4:45 pm The CPAs I’m familiar with would not understand sequence of return risk. Can you clarify how you hope a CPA might help with that issue?
That's a good point. I am not at that point yet, but my hope was that a CPA could help me transition my current equity heavy portfolio into short/medium/long term buckets over time in a way that was most tax efficient. But now that I think about it, that is something I can probably do myself and I wouldn't expect a CPA to give me real investment advice
"It is not necessary to do extraordinary things to get extraordinary results"-Buffet| "Anytime that something is romanticized, you have to really question whether it exists"-Unknown
Sahara
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Re: Should I have a CPA?

Post by Sahara »

Right now, CPA firms are taking on asset management, and asset management folks want to take on tax planning.
I have an ex-student who is a CPA and CFP. He was just highly recruited from his CPA position by a local Brokerage firm looking to increase revenue.

We have another local fee-only firm I feel is ethical and provides a good value. They bought out a tax practice and work closely with them. PM me if you want more info. As you said, the portfolio transition is something DIY-able.

There's a nice presentation by Christine Benz on the BH Youtube channel about the bucketing strategy.
Shallowpockets
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Re: Should I have a CPA?

Post by Shallowpockets »

I am curious if any BHs have ever compared a CPA prepared return with a TurboTax or HR Block computer generated return?
Was it the same, and if not, why?
Do CPAs have some magic sleight of pen that gets you a return in your favor?
Sahara
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Re: Should I have a CPA?

Post by Sahara »

I worked for a firm with 5 CPAS, in an entry-level part-time position.

Local college interns did most of the tax returns, all the data entry. Each intern had a junior accountant mentor. Some of the mentors took the time to educate them, others did not and it was a very top down culture. The CPA would look the return over, print and sign. Another employee would staple everything together and get it out the door. The CPAs would communicate with clients as needed via email or phone, applying appropriate fees. Many clients simply dropped their returns off, waited for completion, signed and returned the efile forms. The lowest tax preparation fee was $250 and I saw many returns that could have been prepared by the client in TT or other software in less than 30 minutes.

We had a lot of small business owners and the services provided to them seemed very valuable.
livesoft
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Re: Should I have a CPA?

Post by livesoft »

Shallowpockets wrote: Tue Sep 28, 2021 8:24 am I am curious if any BHs have ever compared a CPA prepared return with a TurboTax or HR Block computer generated return?
Was it the same, and if not, why?
Do CPAs have some magic sleight of pen that gets you a return in your favor?
Years ago, Money magazine would send the same tax info to 50 different places to prepare a tax return. They would get back 50 different answers. Many of them were wrong. Things are probably better now with everybody including tax preparers using tax-prep software. I think in general, CPAs have no magic at all and make as many mistakes as everybody else. The IRS has published information about the error rates in professional prepared returns and taxpayer-prepared returns.
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fabdog
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Re: Should I have a CPA?

Post by fabdog »

I am curious if any BHs have ever compared a CPA prepared return with a TurboTax or HR Block computer generated return?
Was it the same, and if not, why?
Do CPAs have some magic sleight of pen that gets you a return in your favor?
They don't have a magic pen. What they may have, is the knowledge of your situation to make sure you get all the deductions you are allowed to claim. TurboTax works great for most folks with uncomplicated situations, and works well for folks who know their situation and what things they should be entitled to and will make sure those get entered.

Some folks also just like to offload the tax work to someone else

That doesn't mean the CPA is a magic panacea.. I have seen returns from CPA firms that were missing items (maybe the client didn't tell them everything or did not deliver all relevant docs, who knows)

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SubPar
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Re: Should I have a CPA?

Post by SubPar »

Shallowpockets wrote: Tue Sep 28, 2021 8:24 am I am curious if any BHs have ever compared a CPA prepared return with a TurboTax or HR Block computer generated return?
Was it the same, and if not, why?
Do CPAs have some magic sleight of pen that gets you a return in your favor?
My $.02 as a CPA that made the transition to industry (i.e., I no longer practice in public accounting)...no, no sleight of pen and a CPA/accounting firm probably wouldn't be appropriate for most people that have "Turbo Tax" type returns (e.g., a couple W-2s, standard deduction/basic itemized deductions, etc.) from a cost-benefit perspective.

That said, there comes a point where it's inappropriate to NOT engage an accounting firm. The guys that own my current employer have 25+ K-1s feeding their personal returns. There's a huge amount of tax strategy involved in how we structure our deals (real estate), how the operating businesses themselves pay taxes, etc. They (our CPAs) work closely with myself and the owners' wealth managers to project taxable income/loss to allow the owners to get a jump-start on Roth conversions in years where there are NOLs. The list goes on. That level of expertise and interpretation of relevant IRC provisions is something you'd never get from TT. For that reason, I am more than okay writing checks for their services. The partner on our account bills at >$600/hr.

Moreover, a lot of people just want the peace of mind to know that someone else taking care of that stuff for them. And, again, I would like to reiterate that not all CPAs are created equally. Huge disparities in the level of knowledge between a local tax preparer that primarily hammers through straight-forward 1040's and a regional or national accounting firm that deals with more complex businesses, HNW individuals, business owners, etc. I shepherded our transition from "local tax preparer CPA" to a top 20 national firm three years ago when I was hired (and the business was really starting to take off) and I've spent >$10K amending prior year returns prepared by the old CPA because they were hot trash and the guy was operating miles outside his area of expertise.
Hannibal Barca
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Re: Should I have a CPA?

Post by Hannibal Barca »

I would suggest getting your spouse more involved with tax and investment planning. If you get hit by a bus, a CPA won't be able to replace the investment planning you do, or provide the same level of TLC you probably apply to your investment and tax optimization.

I always use TurboTax. If you have complex estate or small business needs, or esoteric investments (e.g., private equity investments), maybe a CPA could help out. But for most people it feels like the CPA is used to provide a false sense of security (CPAs screw up all the time, and you'll be held responsible, not them).
vinhodoporto
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Re: Should I have a CPA?

Post by vinhodoporto »

I’ve done it both ways. I found it saved very little time and the CPA did not find any magic deductions or strategies.

With the CPA I still had to gather up all the documentation and submit it to them. Also had to do a questionnaire. Then there was the time spent answering their questions and reviewing their work and asking some questions myself.

Of the reasons you listed, #1 made sense to me, although in that case spouse could just hire a CPA at that point. I don’t really see a tangible benefit from #2 and #3 that you couldn’t get from a one time consultation. I think you need to be more specific about exactly what you want them to do for #2 and #3 to see if a CPA is even the right person.
delamer
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Re: Should I have a CPA?

Post by delamer »

Sahara wrote: Tue Sep 28, 2021 8:32 am I worked for a firm with 5 CPAS, in an entry-level part-time position.

Local college interns did most of the tax returns, all the data entry. Each intern had a junior accountant mentor. Some of the mentors took the time to educate them, others did not and it was a very top down culture. The CPA would look the return over, print and sign. Another employee would staple everything together and get it out the door. The CPAs would communicate with clients as needed via email or phone, applying appropriate fees. Many clients simply dropped their returns off, waited for completion, signed and returned the efile forms. The lowest tax preparation fee was $250 and I saw many returns that could have been prepared by the client in TT or other software in less than 30 minutes.

We had a lot of small business owners and the services provided to them seemed very valuable.
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