The topic of finding a qualified tax professional is common in my mailbox. There is no pat answer for each request so I generally ignore them. Another common request is for a referral if I am too busy. It is true I only accept a small fraction of the requests for service, but the good news is I have more staff this tax season and have been accepting more new clients than last year. The bad news is that I don’t have someone to refer you to in your area.
Yesterday I received an email that touched me. Long emails usually die before I read more than three sentences due to time constraints. This email was different. The sender asked to remain anonymous and I will honor that request. He asked: How do I go about finding a good local accountant? He wants someone local he could shake hands and sit down with to discuss his tax and financial matters. I get it. He continued: I am hoping for an idiot-proof, step-by-step guide. I don’t know where to start searching, never mind narrowing the choices.
Finding qualified professionals is a difficult task. I wish it were as easy as an idiot-proof guide, but there is no such thing. My goal today is to share ways to increase the odds you have a good tax professional on your side.
Good tax professionals are a busy group, especially this time of year. The industry has consolidated over the last few decades and many top notch accountants have retired. Making matters worse is fewer people entering the field. CPAs frequently seek employment in government and large corporations or large accounting firms. The small and mid-sized accounting practice is a dying breed. These are the same firms serving the average American family’s tax preparation and planning needs. Finding an awesome tax professional to work with you is getting harder by the day. I have a few ideas to help you land a good one, but you might not like what you here.
The most dreaded words a salesperson can here are, “I need to talk it over with my accountant.”
Accountants have a reputation for breaking deals. Behind the scenes we are actually called ‘Deal Breakers’ as a derogatory term. But the name isn’t fair. What we really are doing is protecting our clients.
The investor or business owner already thought of all the things that can go right. Accountants throw cold water on the deal by examining the numbers. They don’t always stand up to the hype.
And then there is my last blog post where I play a Sad Gus with robo-investing and Betterment. I think a lot of people really believed the tax benefits were much higher than they really are. There are real benefits, just not as many as some would have you believe.
Sophisticated investors have been harvesting losses manually for decades to acquire tax benefits. Betterment and Wealthfront made harvesting losses easier and more efficient than ever since 2008. Betterment alone has reached $5 billion under management.
Personal finance bloggers tend to love tax-loss harvesting without much mention of risk. A few bloggers have expressed doubts over the whole process, but their numbers are few and their voices drown out by the scream of the crowd. Betterment’s affiliate program has caused concern positive reviews are biased. Betterment’s affiliate program has tightened for bloggers investing with the company and with published reviews due to recent SEC rule changes. As a result, many bloggers must end their affiliate relationship with Betterment or take down their reviews of the company.
The truth about TLH is not as clean cut as some would have you believe. Taxes and performance are two issues every investor needs to consider prior to investing with any company engaged in TLH.
How TLH Works
Tax-loss harvesting is when you sell a security at a loss for tax purposes. The IRS knows this strategy can be used to generate substantial phantom tax losses by taxpayers. There are rules to prevent doing just that.
Sales of a security at a loss are not deductible if you buy a substantially identical stock/security within 30 days of the sale. This includes the purchase of options to purchase a substantially identical security. Disallowed loses from a wash sale are added to the basis of the purchased substantially identical security.
Wash sales in a traditional IRA are lost forever! Using Betterment or other similar programs increase the risk you will have a wash sale. When Betterment sells a security at a loss and you buy a substantially identical security in your IRA unwittingly, the wash sale loss is disallowed forever. The taxpayer’s basis in the IRA is not increased by the amount of the disallowed loss. Understand now? No? Then you either must allow Betterment to handle all your investments or don’t use them at all. It is the only way to steer clear of this pitfall.
During the 1980s and 90s I owned a lot of real estate. It started slow and exploded into a 176 building pain in the ass. To be fair, most of the investment properties we owned were either single family homes or duplexes. A few multi-family buildings, a boarding house and a storage facility rounded out the mix.
With so many properties running through my personal accounts and a partnership with dad and brother, I learned a few things along the way. One hundred seventy six buildings is a lot of buildings. Good thing I didn’t own all of them at the same time. Mistakes were sure to happen.
By the early 2000s the real estate empire was gone. I was burnt out and sick of working with tenants. Countless property managers helped us over the years, but it was not enough. Managing over a hundred units much of the time over a footprint covering most of NE Wisconsin took its toll. To complicate matters, I also ran my accounting practice with double the employees I have today (during tax season).
Starting slow was my greatest idea. It felt good to see the passive income filling the checkbook. Our teams of contractors allowed us to buy fixer-uppers and increase the property values significantly. Our best deal was the purchase of an upper-lower duplex in my hometown for $8,000. Hard not to make a profit on those.