Tax Advisor

[JinCO]

How does one go about finding a tax advisor? I'm not looking for someone to prepare my taxes but rather someone who can provide tax advice. Does this mean I need a financial planner? I don't know anyone in my community that uses a financial planner so I'm not sure how to identify someone. Any idea how much tax advisory services cost (ballpark)?

[jIM_Ohio]

Not sure.

IMO it is tough to give financial planning advice without knowing significant details about the tax return- to point where the planner would probably need to re-crunch the numbers anyway.

Let me ask you a question- how much would you be willing to pay for tax advice? Think about that...

Then ask yourself how much do you pay to prepare your taxes?

My guess is you will pay between $500 and $1000 for the advice and you pay $30 or so to have taxes done. That might be "penny wise and dollar foolish" to insist that someone else prepare your taxes. But I don't know what financial advisors charge, so that is why I asked the question.

I would look up financial advisors or financial consultants in the yellow pages. They might have a CPA or CFP designation, but my understanding is the financial advisor field is not regulated. The regulations come in when a person starts buying and selling securities on behalf of clients.

[disneysteve]

I came by mine naturally. My father and uncle had their own accounting firm, so until his death, my father was my accountant and tax advisor. After he died, my cousin (he and his brother took over the firm) assumed my account and I've gone to him ever since (16 years now).

As to how to find one, I'd ask around among friends, family and co-workers to find one that people you respect use and are happy with. Then schedule a meeting to meet the person and discuss your personal situation and needs and see if you feel comfortable that the person and you would mesh and work well together.

[JinCO]

Steve - Have you ever thought about not using a financial advisor? You seem to be very educated in terms of investment strategies. I'm trying to figure out if the benefits will outweigh the costs. What do you see as the major benefits of using an advisor vs. managing things yourself?

[jIM_Ohio]

There is more than one kind of advisor.

If you are talking about going to one each year, then I would assume they would make significant money and the person receiving the service would need significant help.

If you talk about going to an advisor maybe once every 5-10 years while accumulating to make sure the right decisions have been made along the way, that is something else.

In the first case, the advice might be confirmation of current year tax bracket and verification allocation is not out of whack with risk tolerance. Or it might to make purchases depending on type of advice.

In second case it could be to make sure the allocation has not changed and possibly confirm if the person seeking advice has enough saved for college, retirement, vacation home etc...

I will probably seek an advisor out right before I retire (within 12 months of making decision) to verify I have accounted for proper retirement expenses and situations.

I can do it myself for free, but a second opinion is welcome for critical life changing decisions.

[disneysteve]

Steve - Have you ever thought about not using a financial advisor? You seem to be very educated in terms of investment strategies.

My accountant is not my financial advisor. He is my accountant. He prepares our taxes and I go to him when I have questions related to tax issues either work related or investment related. I don't consult with him about investment decisions except as it applies to tax issues.

Thanks for the compliment, by the way.

[bankaround]

JinCO, if you are using a CPA on a yearly basis, they are typically pretty good at providing tax advise.

What helps most is to become educated yourself about taxes by just reading and talking to people so that you'll be able to talk to the CPA on little higher level and even provide counter-points if you don't think his advice is the best.

[JinCO]

We used a CPA a few years back to file our taxes. I didn't feel like we got a lot of value from the services. It was about $1000 and we ended up getting audited which was a pain to deal with. There wasn't a lot of advice, just information sharing to file the paperwork. Since then I've just been filing via turbo tax.

What I'm looking for is someone who can advise us on investment strategies that will limit our exposure to taxes. For example, at what point does it make sense to invest in munis. Should we look into investment properties at some point? Should we look into starting a side business? I guess I'm concerned that I could be missing an opportunity to reduce taxes. I'm sure that I could do some research and read some books to help answer these questions, but I didn't know if it would make sense for me to seek some professional advice, and if so what type of professional advice.

[bankaround]

$1,000 for a CPA seems awfully high unless it was for both personal and business? It cost me about 900 for personal and business tax returns. My returns aren't exactly easy either.

Yeah, some CPAs will not be able to offer much. I've switched CPAs a few times and learned when looking for a CPA, you want to find someone who is an investor as they tend to have more experience with strategies in helping to reduce taxes.

Investment properties can help reduce your taxes if your combine income is under 150K, although the benefits start phrasing out between 100-150k AGI. One of the ways around this limit is if one of you guys meet a set of criteria set by the IRS.

Rental properties help reduce taxes by being able to deduct depreciation on the property.

[JinCO]

I think the reason that the fees were high was that we had to file in 5 or 6 different states that year and he charged us per state. There were no business taxes to consider.

It sounds like we should try to find another CPA in the area for tax consultation. I agree with your earlier comment about educating ourselves prior to the consultation to maximize the value.

[jIM_Ohio]

JinCo- how old are you?
How much of a muni investment are we talking about?
Why do you want bond investments?

Generally the way to compute equivalent yield is if (1-tax bracket %)*bond interest>muni interest

means the after tax return of a taxable investment makes more sense.

[JinCO]

Jim - I am 32. I'm not currently planning a muni investment, I have just read that if you are in a high tax bracket it sometimes makes sense to invest in munis. I haven't done enough research at this point to say one way or another if it would make sense for us. It sounds like you are suggesting that it would not make sense.

Our current strategy in dealing with taxes is to both claim 0 dependents and hope that we don't have to pay too much to the IRS in April, which is to say that we don't really have a strategy. I'm hopeful that there are steps that we can take to lessen the amount of our income that goes to Uncle Sam.

[jIM_Ohio]

Jim - I am 32. I'm not currently planning a muni investment, I have just read that if you are in a high tax bracket it sometimes makes sense to invest in munis. I haven't done enough research at this point to say one way or another if it would make sense for us. It sounds like you are suggesting that it would not make sense.

Our current strategy in dealing with taxes is to both claim 0 dependents and hope that we don't have to pay too much to the IRS in April, which is to say that we don't really have a strategy. I'm hopeful that there are steps that we can take to lessen the amount of our income that goes to Uncle Sam.

You don't need an accountant or tax advisor for the second issue. There are enough online calculators to do this for you. A quick yahoo search for "paycheck calculators" found me these links:

PaycheckCity.com | Paycheck Calculator

I have used the one above before.

For withholdings I might suggest:
Federal State Withholding Calculator


For the first issue- look at the following table (tax rate schedules- scroll down):
Reference Room

Then compare this to the "summary" turbo tax gave you. What is your taxable income (and filing status- I assume married filing jointly?).

Munis will help if you are just UNDER one of the bracket ceilings (for example if you are married filing jointly with taxable income of $66000, another $100 of interest kicks you from 15% taxes to 25% taxes on additional dollars earned).

IMO this remedial tax planning requires access to forums like this (I could suggest other forums with better tax advice than I would receive here). There are also some bloggers I trust with this information too (see one of my recent blogs in August- there was a reply by an individual which gives great tax advice).

[JinCO]

Thanks Jim. I'll take a look at the links you provided and your blog from August. I would also be interested in the forums you mentioned that deal with tax issues. We file married filing jointly and our taxable income was around $200K last year.

[JinCO]

Hi Jim -

I've seen some of your other posts about the importance of staying within a specific tax bracket and that in your case it saves you 10%. When I look at the tax table from the link you provided below I am having trouble making this math work. In your example, $62K in taxable income falls within the 15% bracket. Based on the tax table it appears that someone with taxable income of $62K would pay $6892 in taxes: 1605 + ((62000 - 16050)*.15). This would mean that you are paying 13.7% of your taxable income (6892/62000). If your taxable income went up to $68K which is in the 25% bracket, it looks like your tax would be $9687: 8692+ ((68000 - 65100) * .25). As a percentage of your taxable income this would be 14.2%. How does this equate to a 10% savings? Am I thinking about this incorrectly?