Optimize with a Good CPA

Optimize with a Good CPA

I’ve already started organizing for tax time, but it only means gathering my receipts and organizing my bills.  I have a great Certified Public Accountant (CPA) on my team who will be doing the actual preparation and filing for me, which means a little less work on my end.  I consider my CPA to be an MVP on my team, but not just because he will be preparing and filing my taxes.  No no no, he will be busy optimizing my return now that we’ve strategized all year

How I Found My CPA

I asked my neighbors who they used (those are the perks of living in the “cheapest house on the block”).  I was referred to him by multiple neighbors, and he lives in my general area, so I had high confidence in him going in.

A couple notes…

  • Always be 100% honest. No exceptions.
  • Make sure they have experience in your area. (If they’ve never done real estate and you’re building a real estate empire, it’s a no-go.)
  • All CPA’s are qualified to represent clients before the IRS in the event of an audit, but not all accountants are. Find a CPA.
  • Make sure you are comfortable with their style. (Are they cautious, assertive, or aggressive about taking deductions?)

First Meeting

We set up our first meeting in June 2016.  The summer/fall is generally less busy for CPAs everywhere, so I knew I’d have his full attention.  I was armed with my binder, my notes, and my numbers.  During our initial meeting, we talked about:

  • My prior year’s tax situation (I had done my 2015 taxes myself since it was simply a standard deduction and a 1040A)
  • Where the current year’s numbers would be falling
  • Major events like selling my first house and buying my second
  • How I was renting out the main part of my house, where the rest of my income was coming from, and what I was expecting it to be
  • What my overall tax situation looked like for 2016
  • How to minimize my tax liability
  • Whether a Roth IRA and Roth 401k or a traditional IRA and traditional 401k would be more appropriate (the answer was still a Roth!)

He passed the test.  As expected, he was extremely knowledgeable and had great insight into how we could best strategize to minimize tax liability for the year.

This was a very important conversation to have well before tax time, because it’s a lot harder to make any tax moves in December and harder still to make them in the new year.  Additionally, it’s important to make the connection with a good CPA as early as possible because then they will have a better idea come tax time of how to fit you in among all their clients.  When they are knee deep in the middle of tax time, they may not be able to take on new clients or offer you the best advice.

First Tax Time

We had firmly established the strategy and the plans during the meeting over the summer.  I did reach out again around the holidays just to touch base, but nothing had really changed with my situation.

I got all my paperwork together (receipts, bills, etc.) and brought it to his office in March.  Since we had kept in contact up to that point, he had me on his schedule and only needed a week to fit in my return.  He sent me back a copy, I was able to look it over so we could address any issues, and then he filed it electronically for me.  I ended up with an extremely low tax liability and stuffed the refund into my Roth IRA.  I had done a back-of-the-napkin calculation of my taxes based on what we discussed, but he beat them by $2k.

Because he is a specialist, he knows far more than I will ever care to learn, and he can optimize every aspect of my taxes.  Because we had established a strategy already, we both knew what to expect and were ready to go.

This year…

He’s gunning for a trophy.  I have been navigating a lot of changes between the house bookings picking up, a new partner, starting a blog, and now starting a third side hustle (which I will be sharing in a couple weeks!) and he’s been available at every turn, ready to answer any and all questions so that we can optimize my businesses and limit my tax liability.

Topics to Discuss With Your CPA

He’s not just a tax preparer.  If that’s all your CPA amounts to for you, you’re doing it wrong.  Don’t go an entire year without contacting them.

Can we legally reduce my tax liability?  Is there anything I should be doing differently?

You want the final tax number to be as low as possible so that you save as much of your money as possible and can allow your wealth to grow.  Your CPA will know the ins and outs of the tax code, and will be able to address this.  They may recommend some changes to how you’re investing, suggest tax loss harvesting, or have other ideas to help save some cash.

Are we maximizing the retirement plan/tax deferrals?  Are there other opportunities?

There is the basic “Roth vs traditional” discussion for 401ks and IRAs.  There are also a lot of other tax-advantaged accounts that your CPA will be able to advise on, especially if you own your own business.

Purchases/Sales of Assets – is this a smart move?

If you are thinking of buying or selling any asset, your CPA will be able to steer you in the right direction.  Whether it is stocks, real estate, a business, or anything in between, a CPA can provide insight on tax liabilities and potential risks.  When you buy an asset, the asset may trigger taxable events (like mutual fund dividends) so a CPA may recommend purchasing it in a tax-advantaged account instead based on your overall portfolio.  When you sell an asset, it can trigger gains that result in higher taxes.  Your CPA can help you find ways to offset this, or can make recommendations about when/how to sell.

If you don’t know the value of an asset, a CPA can help with that, too.  (For example, buying or selling a business.)

You might even want to enlist your CPA’s help in negotiating the deal for you or reviewing a contract, since they are likely to have far more in the way of experience.  (In some cases, find a lawyer.)

Purchase of Fancy “Toys” – do I need a reality check?

Sometimes you need someone to tell you when that expensive purchase just isn’t smart.  (Remember, there are certain areas where recklessness is just not allowed.)  Your CPA should have a good handle on your finances, and will be able to advise on whether or not that fancy car or that vacation home in Puerto Rico makes sense.  (Spoiler alert: It did not.  It was tempting, though.)

Do you have a recommendation for a person who can…?

My CPA has a network of people, ranging from lawyers to other business owners who I can ask for advice in my field.  He recommended a lawyer for my prenup.

Am I growing my business effectively?

Even if it’s just a side hustle, a CPA can offer valuable advice for things to be doing or looking at.  They can advise on deductions you can take or how to best manage your inventory.  They may recommend structuring your business differently by incorporating or using an LLC.

Do you need a CPA?

It depends.  I’ve done my taxes on my own before during the years where I only had a standard deduction.  I’d still recommend you meet with one.  Worst case, they tell you there’s nothing more they can do to help you.

I’m not making six figures, but I’m smart enough to know that a good CPA makes a huge difference toward building wealth.  A CPA can be one of the most helpful tools you have considering how much of your income is eaten up in taxes.  I will never scoff at hiring a CPA, because the value of their knowledge is worth every penny.

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