Hiring Our First CPA

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Last updated on March 6, 2008 Comments: 16

At the age of 32, with our household income breaking the $100,000 (US) mark for 2007, I was finally convinced by family and friends to take our tax preparation to a specialist, a Certified Public Accountant (“CPA”). I was always wary of the idea, primarily because since I started filing taxes at age 16, I would usually get a refund of about $200 to $500. And from asking around, I learned that the average price for a CPA to do your taxes was around $250. My taxes were never more complicated than looking at my W-2s (most years there are multiple W-2s, but don’t worry, I’ve never really been fired), and copying numbers from the boxes on the paper into the boxes on the screen.

When we filed our taxes for 2006, now that we were married and filing jointly, things got a little more complicated. We both purchased hybrid cars that year and were expecting the associated tax credits to supply us with a big refund on the order of around $6,000, but the refund we saw was actually closer to $1,200. In 2007, we became homeowners for the first time, which, along with marriage, is also supposed to give you some credit around tax time.

My wife reads. She devours information like Robert Redford in Three Days of the Condor, and she generally surrounds herself with brilliant people. So when she once again floated the idea of using a CPA to help us with our taxes, especially given that the previous year didn’t work out like it was supposed to, I finally conceded. We picked a local independent CPA based on location, and the fact that his web site was usable, accessible, and provided an RSS feed. We’re geeks like that.

Before I went to see our CPA, I took our tax information and plugged it into TaxACT Online, which doesn’t charge you anything until you actually hit the “file taxes now” button, to see what the numbers would look like. I got the shock of my life when I saw that we were projected to owe the IRS over $6,000. This is roughly the same number of dollars I was expecting to see, but in refund form, not as a debt. We’re married! We bought a house last year! How can this possibly be?

Well, I’ll explain in an upcoming entry what I learned about W-4 forms and marriage, but suffice it to say that I was even less inclined to go see a CPA and pay him (in our case it’s a man) hundreds of dollars to tell us that we owe the IRS $6,000. But I’d made a commitment, and there was always a chance that maybe I transposed a number or two, or misunderstood some part of the tax code, and he could fix it.

To make a long story less long, he wasn’t able to fix it, ’cause nobody had really done anything wrong. What I did get from him, however, was two hours’ worth of really good advice. He took a genuine interest in our finances, aligned himself with our point of view about how life should be lived, and gave us specific tasks to do in 2008 that would make filing taxes next year as painless as possible.

I wrote everything down, of course, and will be sharing bits and pieces of his advice with you in the future as it comes up. But the end result is this, unless you’re single and renting, with no investments to speak of, I think it’s worth the cost to hire a professional to help you with your taxes. As of this writing, it’s still early March, and there’s plenty of time to find someone to help you prepare for next year. Just try Googling “certified public accountant ” and poke around until you find someone trustworthy, preferably with a blog attached to their site.

My name is Smithee, and I’m an almost-total personal finance newbie. My wife and I bring in over $100,000 a year, and we have no savings at all. Just like Flexo when he started this site, we’re writing here in order to keep ourselves accountable, and to turn our lives around.

Article comments

Anonymous says:

I don’t have a $100k household income, but recently met with a tax preparer (ex-IRS auditor now tax-season freelancer). Though my tax situation is pretty straight forward (2 W-2s, purchased property last year, donated to charity, and have interest on CDs), I did not want to mess up the $5,000 first time homebuyer credit. As the CPA commenter above mentioned, the tax advice for the upcoming year was the best part of our hour long meeting. I agree with the commenter (John N.) that the internet is a great tax resource, so I pulled together my upcoming financial plans and ran them by my tax preparer. Since she’s not with H&R or Jackson Hewitt, she spent a lot of time answering my questions and charged $50 to e-file my fed. and state return. As a recent college grad who is just now dealing with financial matters, it was really helpful to go step-by-step through the tax return process with my tax preparer and next year I will feel confident in doing the return myself.

Anonymous says:

Agree with JD. I also think that 100K income is not a reason to hire a CPA. Complicated income – e.g. owning a business could be a good reason, but if you work for a company there is not much you can do. At really large income you start hitting limitations on deductions and other bad things, but tax software can handle these and at only 100K per family you are nowhere close to this amount. Nor are you close to AMT unless you exercised incentive stock options. Owning a home isn’t that complicated either: mortgage interest is tax deductible, real estate taxes are tax deductible. Just following the instructions on forms thoroughly gives you enough information even without tax software. The only place where deductions can be overlooked is miscellaneous deductions, but for most people who work for a company it’s difficult to get more of those than 2% of income limit. Besides, most of the work is gathering all of the documents together, and this you have to do anyway.

I earn over 100K alone, and I’ve always done my own taxes. Sure, I can get credit for replacing my windows – why is it complicated to subtract money from taxes? Besides, TurboTax specifically asks for it.

I’ve been doing my own taxes for over 20 years, including during the years I rented out a property and had to fill out schedule E and figure out depreciation. For most of these years I simply used the calculator and read all of the instructions thoroughly including a full publication about residential rental property. The year I sold this property was the first year I used TurboTax – I kept getting different results when I was adding taxes on all the worksheets: capital gains raised my income to the point where the deduction limitations and other nasty things kicked in. I narrowly avoided AMT thanks to patch, but I had to fill out a form. Which was a useful exercise since I learned a lot about AMT for the future. Still, since then I started using TurboTax exclusively and the amount of time it takes me to do my taxes went down from a day for federal and half a day for state to a single afternoon for both.

I do understand not wishing to spend time reading long publications like what I did when I was renting out; so I can see how someone might want to hire a professional when one deals with rental properties. But just working for a company isn’t that big a deal.

As to future advice – when you work for a company there isn’t much you can do for future. (With some exceptions – e.g. ISOs, or expected high capital gains that could raise income to where AMT exemption starts to phase-out). 100K per family just isn’t that high that you have to worry about it. I don’t know how you could end up owing $6000 but my guess is that what the politicians call “marriage penalty” (and what being single I think it is actually fair as the expenses of singles are more than half that of couples, but I’d imagine most married people disagree).

Anonymous says:

People need to get a dose of reality and realize that an income over $100K these days is squarely in the working/middle class, especially when it is the total household income. I’m in my late 20s and I don’t think there is a single working professional I know that doesn’t make more than $100K. To think you need a CPA just because your household income is over this amount is beyond ridiculous.

Anonymous says:

The best part of going to a professional is as mentioned getting tax advice for in the future. After the year is done very little can usually be done to fix whether you owe or get a refund. I think personally that most people that don’t mind using the tax software and keep somewhat up to date can do taxes themselves. However, for a lot of people it is not worth it to spend their time to complete their taxes which is why a CPA can be helpful. If your going to pay someone though go to a CPA rather than just an H&R Block or other corner tax store. A CPA should help you avoid taxes in the future and develop a plan that fits with your financial needs.

Anonymous says:

Smithee… You’re not the only stubborn one out there. As an engineer by training and mathematician by trade, my reluctance to get a CPA for tax prep was through the roof. However, once we started into real estate last year (rentals, flips, and tons of deductions) it started to become a consideration. The tipping point was when I did the Turbo Tax thing this year and got introduced to the AMT (which I think is just plain evil). Long story short, we hired a CPA ($400) and he proved to be tremendously helpful. The difference in his bottom line and mine covered the $400 plus some, and as you mentioned we also cashed in on some valuable advice.

As for your financial future, given that you’re teamed up with this website, I suspect your savings will be plentiful in no time. Best of luck!

Anonymous says:

I did my tax in 2 hours and verified the result with HRBlock online.

In general, we don’t get a CPA unless the tax form’s more complicated than married jointly+interest+capital gain/loss+deductiblemortgage tax…

Anonymous says:

I have been filing taxes for some 30 years and have been urged by well intentioned advisors to “take your taxes to a professional.” I’ve done it a couple of times and go through the exercise of comparing my results to the CPA’s. Each time – no difference or my result is marginally better. Last time through was quite complex w/ rental property, a business, a second house, a boat, investments, and more.

My advice is to keep your eye on the stories about what’s changed from last year and become intimate with tax software. Then research those niche questions where something doesn’t seem right. The web makes it possible to drill down on very specific corner case questions.

Anonymous says:

Great post, Smithee. As a CPA in private practice, I will be one of the first to admit that if all you have is a W-2, you can easily complete your return yourself. What most people do not realize is the valuable advice and planning that you can receive to save you time, money and energy in future years. I see a lot of people every year that pay a lot of extra money in taxes because they did not plan properly or get the proper advice up front. Once the tax year is over, there are only a few things you can do to lower your liability. The time to lower it is before December 31st – not when you are getting the taxes prepared. Unfortunately, far to many people ignore this fact.