4 Questions to Ask Your Accountant Before You File Your Taxes
You don’t know what you don’t know, so get the most out of tax time by asking the right questions. The answers could help you save this year and in the future.
Your accountant can be one of the most critical members of your financial team. The main reason is obvious: No matter who you are, how much money you have or what goals you hope to accomplish, everyone pays taxes.
At a minimum, a CPA can ensure you file your taxes the right way every year so you avoid penalties and fines. But a good CPA should also be able to help you minimize what you owe, take advantage of opportunities to claim credits you’re entitled to, and even help evaluate how the other professionals on your financial team are performing.
But even the best accountant can’t read your mind — which is why to fully utilize how much they can help, you need to know the right areas in which to request their help.
When you send in your tax packet to your accountant this year, make sure to ask these questions to get the most value from your relationship.
Written by Paul V. Sydlansky, founder of Lake Road Advisors. He has worked in the financial services industry for over 20 years. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network (XYPN). In 2018 he was named to Investopedia's Top 100 Financial Advisors list.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
How Do My Investment Fees Stack Up?
Accountants see a huge variety of investment types and accounts. That makes them uniquely positioned to offer you a view into what they are seeing in terms of fees and tax-appropriate investments across all of their clients.
Making sure the fees your adviser charges are in line with the industry standard can provide some peace of mind that you’re not overpaying for advice — especially considering such fees are no longer deductible under the Tax Cuts and Jobs Act.
If you want to learn more about how your fees compare and how overpaying destroys your ability to build long-term wealth, click here and then on our resources page for our free infographic “How Fees Erode Your Wealth.”
Am I Paying Unnecessary Taxes from Distributions?
Conceptually, mutual funds and ETFs (exchange-traded funds) are very similar in that they are both baskets of securities designed to offer diversification and exposure to many different types of investments through one product. One of the main reasons I believe in using ETF’s instead of mutual funds is because of the tax advantage nature of their structure.
Generally, a mutual fund makes a capital gains distribution at the end of each year. The distribution represents the proceeds of the sale of stock or other assets by the fund's managers throughout the course of the tax year. In contrast, ETFs rarely distribute capital gains because of their underlying structure.
With mutual funds, you have zero control over this — but you’re still responsible for paying the taxes that could be generated by realizing long-term capital gains. Mutual funds also pay out income earned, which can cause tax bills in a year you don’t sell any of your mutual fund holdings.
Even in a year where you have an unrealized loss (which could happen if the market, in general, goes down), you may still owe taxes on the realized gains that your mutual fund took.
Ask your accountant if you’re paying unnecessary taxes because of your mutual funds. If so, you may want to consider allocating more of the funds in your portfolio to more tax-efficient ETFs.
Should I Accelerate or Defer My Taxable Income?
For the most part, there’s no getting out of paying taxes on money you earn. But you do have control over when you pay it.
The default for many people is usually to take advantage of tax-deferred vehicles first. They might max out 401(k)s or traditional IRAs in order to reduce their taxable income today.
But you don’t want to throw all your tax burden into your future. Your accountant can help you look at your current tax bracket and where you may fall in the future, and help you balance out how much in taxes you pay now versus what you’ll be obligated to pay later.
What Else Can I Do to Reduce What I Owe? Or, What Changes Can I Make Now for Next Year?
If you usually owe taxes each year, it’s worth asking your accountant if there are any options for reducing how much you’re obligated to pay to the IRS.
A good CPA should be able to lay out specific actions you can take and evaluate if it makes sense to pursue certain strategies. They can also look at what changes may be coming, and if there’s anything you can proactively plan for in order to take advantage of tax savings in the future.
Your CPA may also be able to connect with your financial planner to analyze the options. Together, both professionals should have the full context of your financial situation, and would be able to recommend if there’s anything specific you can do (or plan to do in the coming year) to lower your tax bill.
Paul Sydlansky, founder of Lake Road Advisors LLC, has worked in the financial services industry for over 20 years. Prior to founding Lake Road Advisors, Paul worked as relationship manager for a Registered Investment Adviser. Previously, Paul worked at Morgan Stanley in New York City for 13 years. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network (XYPN). In 2018 he was named to Investopedia's Top 100 Financial Advisors list.
Beware Tax Rules When Donating Stays at Your Vacation Home: Kiplinger Tax Letter
Tax Letter Beware Tax Rules When Donating Stays at Your Vacation Home: Kiplinger Tax Letter Tips
By Joy Taylor • Published
A Grandparent’s Guide to Today’s Popular Music
A guide for grandparents to today's popular music, including how to stream music online.
By Steve Hochman • Published
10 States With the Lowest Sales Tax
Don't rush to a state with low sales tax if your goal is to save money.
By Katelyn Washington • Published
How 12 Types of Retirement Income Get Taxed
retirement Don't forget about taxes on your pensions and other retirement income while planning for your golden years.
By Joy Taylor • Last updated
10 Least Tax-Friendly States for Middle-Class Families
state tax It can cost your family thousands of dollars each year if you end up in one of the worst states for taxes after a move.
By David Muhlbaum • Published
10 Most Tax-Friendly States for Middle-Class Families
state tax If a move from one state to another is in your future, you could save big bucks by relocating to one of these states where the tax bite is light for middle-class families.
By David Muhlbaum • Published
15 States That Tax Military Retirement Pay (and Other States That Don't)
retirement Taxes on military retirement pay vary from state-to-state. How generous is your state when it comes to helping retired veterans at tax time?
By Sandra Block • Published
5 Tax Deadlines for October 17
tax deadline Many taxpayers know that October 17 is the due date for filing an extended tax return, but there are other tax deadlines on this date.
By William Neilson • Last updated
States With No State Sales Tax
Tax Breaks A handful of states don't impose a sales tax, but that doesn't necessarily make them the best states for low taxes.
By David Muhlbaum • Last updated
Penalties for Filing Your Tax Return Late
tax deadline Stiff penalties await those who didn't file their return (or pay any tax owed) by the tax filing deadline.
By Rocky Mengle • Last updated