How To Find A Good Tax Advisor

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As you know, one of the few certainties in life is taxes. Every April, you wade through the frustrating – and often confusing – tax laws, hoping to not owe too much to Uncle Sam…and that’s just for those filing a 1040EZ!

If you deviate from that with investments, freelance income, rental property, a small business, or even just an itemized deduction, it can quickly get overwhelming.

So, what are you supposed to do? After all, you don’t make enough money or have a big enough investment portfolio to warrant hiring a tax advisor…or do you?

What Is a Tax Advisor?

A tax advisor can be any number of tax-certified professionals, including

  • tax consultants
  • certified professional accountants (CPAs)
  • tax attorneys
  • financial advisors
  • and IRS enrolled agents

They are well-versed and certified in tax law. While some of them may also be certified to prepare your taxes, they aren’t the same base-level preparers that folks rush to see on April 10th each year at their neighborhood Walmart.

Ideally, you’ll want to choose a tax advisor that is an enrolled agent.

Enrolled agents are certified to represent their taxpayer clients in an unrestricted manner before the IRS. They are either former IRS employees or have passed a comprehensive IRS exam that requires extensive knowledge of both individual and business tax returns. They can represent their clients from tax woe start to finish: through the entirety of the examination, collection, and appeals levels.

Your tax advisor can either be an enrolled agent only or another tax pro (such as a tax attorney or CPA) that has also become a certified enrolled agent.

Who Needs a Tax Advisor?

If you’re a single 20-something who makes $50k a year, rents an apartment, and doesn’t save for retirement, you might not need a tax pro just yet. However, if your financial situation is a little more complex, you may want to consider one at least.

Taxes are complicated! In fact, it’s estimated that the U.S. tax code is currently a whopping 74,608 pages. Your favorite online tax software may have a few tips and tricks for saving money. However, it is nowhere near as thorough and helpful as a professional could be when covering everything that the current laws include.

Tax software may not be your best option if your return is anything outside of “simple.” In fact, a tax advisor should be on your radar if you:

  • own property, especially for rental or business purposes
  • hold investments
  • have a small business
  • receive K-1s each year
  • have foreign investments
  • are self-employed
  • expect to earn capital gains on the sale of a property
  • are looking to sell your home and buy another within a matter of months
  • expect to have a large capital tax gain
  • want to give a large gift, especially if it exceeds the annual gift tax exclusion (currently $14,000 per recipient)
  • are contributing, or plan to contribute, to education plans or trusts for your children
  • make more than $200k per year
  • are contributing, or plan to contribute, to a special needs trust, especially for someone who receives government assistance.

While this list isn’t complete, it gives you a good idea of whether hiring a tax advisor would in your best interest. Not only can they ensure that you are checking each box necessary and avoiding IRS penalties, but they can also often save you thousands of dollars.

Yes, hiring a tax professional is an added expense (often, a notable one). However, they are very proficient in our country’s tax laws and regulations -even the newest ones – and know how to make the system work for your particular situation.

They will be able to suggest business or trust structures, to reduce taxes.

They can break down exactly how to calculate depreciation for your property.

They can save you thousands of dollars over the course of many years with tax-loss harvesting.

They can show you strategies for timing asset sales to reduce or avoid capital gains taxes.

And they can even just ensure that you are taking advantage of every applicable credit or deduction.

Sure, you may be spending a few hundred dollars to consult with a tax advisor, but that’s an investment well-spent if they can save you thousands.

How to Find a Good Tax Advisor

There are a few things you really don’t want to mess up. One of them is your taxes. Hiring a reliable, certified tax professional is a very important part of this process.

You’ll ideally want to choose someone who is also a registered agent. Registered agents are certified to represent you before the IRS, were you ever to be audited or have an issue that requires you to deal with the Department of the Treasury. They can defend their work, and your taxes, from start to finish, and even submit appeals on your behalf if the outcome is not what you believe it should be.

My CPA handles all of our IRS questions and taxes. Several times he is the one that’s been on hold with the IRS for HOURS waiting to speak to someone and ask for clarification or a question about our tax situation. – Scott

First and foremost, decide which kind of tax advisor you need. If you run a small business, you’ll want someone who is an expert in business taxes, for example.

To find an advisor you can trust, start by asking around. Do you have friends who are investors, business owners, or are wealthy? See who they have hired and ask whether they are happy.

You can also look up local companies and then review their Better Business Bureau ratings. If they’re a certified accountant, be sure to cross-check them with your state’s board of accountancy.

For enrolled agents, visit the National Association of Enrolled Agents.

Once you’ve found a few potential professionals, be sure to interview them. Ask if they have ever represented any clients before the IRS. If you plan to have your advisor also prepare and file your taxes, ask about their procedure if you get audited.

No matter who you choose, be sure to ask about their certifications, licensing, education, professional affiliations, and even references. You’ll want to have a good rapport with whoever will be advising you – after all, they could play a significant role in your finances for years to come.

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