We often have physicians on the communities posting seeking trusted accountants. While basic taxes are easy when you’re a resident without other sources of income, they can quickly become complicated as your financial situation evolves. Unless you've been very lucky, you know that it's not always easy to find an accountant that meets your needs and price point. Below, we cover things to assess and questions to ask when choosing an accountant for your personal or business taxes.
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Do you need an accountant?
For many physicians, the answer to this question is yes because they simply have no interest in learning how to file their taxes, or would rather spend their time doing something else. This is a completely reasonable approach. The fear of messing something up or the time it takes to learn to navigate the tax software may just not be worth it since the IRS imposes hefty penalties and fees, and even if these aren’t factors, we’re strong believers that physicians should always consider the opportunity cost of their time when deciding what to put on their plate.
If you are a W-2 physician early in your career without any complicated tax deductions or additional tax forms, though, completing your tax return may only take a few minutes or cost very little to outsource to a more generic service. This is a great way to save some money, especially early in your career. There are several quick options, including H&R Block, TurboTax and other online tax preparation tools. You may also be able to file for free using the IRS’s program called Direct File or sites such as FreeTaxUSA.com.
As you build your wealth and your situation grows in complexity, the desire for professional assistance can increase, as anxiety about forgetting to cross your ‘t’s and dot your ‘i’s becomes less worth it. Even accounting software can result in accidental entries leading to things like taking the same deduction twice without realizing it if you don’t have an understanding of the forms, and people often get confused with how certain questions apply to their situation. Often, we see posts asking for accountant recommendations when:
You receive an inheritance or bonus
You do a Backdoor Roth IRA conversion and are confused about logistics
You have a side gig and are hoping to maximize 1099 income deductions
You become a partner in a practice and have K1 income for the first time
You have a defined benefit plan, or other self-employed retirement plan
You have a corporation or an LLC taxed as a corporation
You have real estate investment properties
You have to file multiple state returns
Although many members of our community pride themselves on being DIYers, tax questions arising from these topics almost always lead to someone answering, “You should double check with your accountant,” and multiple people agreeing.
What role will your accountant play?
There are some physicians who prefer to have their hands held throughout the tax process. They don’t want to organize their records, be proactive about keeping track of different accounts or possible deductions and receipts, or otherwise think about taxes until tax time. There are accountants who will be happy to help you sort through your records and guide you to appropriate resources, but they will likely charge a premium for the extra efforts. Some accounting firms even have in-house bookkeeping staff that can help you tie up loose ends at year end to make sure you’ve got all your income and expenses accounted for, depending on the complexity of your finances.
If you know enough about taxes to keep your tax forms organized and deductions tracked, you can save money by essentially handing your accountant all the information they need to complete your tax return. This will be quicker and cheaper, with the added benefit that you will probably have to learn enough about taxes that you may be able to be a more proactive partner in tax planning and strategy.
If you have a business, invest extensively in real estate, have a complicated estate, file in multiple states, or implement a lot of tax strategy, picking the right person to handle your taxes is going to be much more important. Not only will they ensure that you file your tax returns correctly and minimize the chances of an audit, meeting with them throughout the year instead of just tax time opens up the possibility of more proactive tax planning. This will allow you to take the necessary steps such as entity creation, documentation, or payroll necessary to maximize your deductions at tax time. Note that tax strategy is expensive: prices can range widely from a few thousand dollars for a basic tax return to tens of thousands of dollars depending on the amount of tax strategy, entities created, and more.
What should I expect to pay?
Not surprisingly, the answer here is that it depends. Some big things it will depend on are how complicated your taxes are, whether you are W-2 or self employed, if you are just filing a corporation return, how many states you’re filing in, whether you need an accountant with expertise in a niche area such as real estate, where you live, whether you’re expecting just a tax filing or whether you want more active tax strategy, the size of your business, and what the experience of the accountant is and what certifications they hold.
If all that your accountant is doing for you is preparing and submit a Form 1040 and state return with no itemized deductions, the average fees according to the National Association of Accountants are just $200-300. If all you’re doing in addition to this is filing a Schedule C, it goes up by a few hundred dollars. In these cases where you’re only paying a few hundred dollars, if you ask for consultation or a last minute rush/overtime, the accountant will often charge extra for this. Hourly rates can range significantly depending on the accountant’s expertise and experience, starting from about $40/hour to much higher, such as $500/hour in the case of a tax strategist.
Tax software ranges from free to about $200.
When you start adding services such as tax planning and strategy, record-keeping, accounting on a monthly basis, audit services, etc., your bill will quickly increase. If you have an incredibly complicated tax situation which requires the maintenance of corporations, multistate filings, regular consultations, forecasting and other elements of tax strategy, you may find yourself paying many thousands of dollars a year, with some paying 5 figure amounts.
Keep in mind these are rates for yourself or your small self-employed business. If you run a private practice or a complicated business with more complex accounting, you could easily find yourself paying much more.
Also note that you can save money by running your own payroll instead of asking the accountant to do it. Accountants may charge $100/month or more to run payroll services, whereas using a service such as Gusto (PSG members get first month free through this affiliate link) to run your payroll will be significantly less and is still very user friendly. Again, ask yourself what you really need the accountant to do, versus what you’re already doing yourself anyways in one way or another.
Questions to ask when choosing an accountant
Depending on your individual situation, here are some questions to ask accountants you're considering hiring:
What are your fees?
What is included in the price that you quoted me?
How long have you been doing this and are there references that I could contact?
Do you consider yourself more aggressive or more conservative in tax planning and taking deductions? (Make sure this style meshes with yours)
How many times a year will you meet with me to discuss tax strategy and review implementation of tax savings measures we've put into place?
What deadlines do you have for me so that you will be able to get my taxes done in time?
If you have to research an option that I bring to you, will that cost me extra?
What things will trigger extra charges (for example, additional state tax returns, 1099s that are sent out, payroll services, etc)?
How comfortable are you with tax strategy and can you give me examples of some tax strategies you've implemented with clients that are similar to myself?
What accounting software do you use?
What does your typical client look like? (Ideally, this matches up with your profile, as they're more likely to be up to date on issues that affect you)
Who in the firm will be actually doing my tax work, and who will I be communicating with when I need something?
In the off chance that I am audited, are you able to represent me? (This may not matter to you but if for some reason you think you are at high risk of an audit, you may want to take it into consideration)
Are you willing to interface with my [insert other financial professional such as a financial planner, an estate planner, etc.]?
Do you offer e-filing or will I have to sign and mail a physical return?
Will you be signing as the paid preparer at the bottom of the return?
There are many other questions you may want to ask depending on your business, such as if they can help with issues such as sales and use tax, entity creation and maintenance, registered agent services, etc. Chances are, if you know about these things, you'll know what you need from them.
If you haven’t worked with an accountant before, interview at least two or three to make sure you are comfortable with their responses and to help you make the more educated decision. Using the same accountant every year can help simplify the process as they’ll have your previous records and know what to look for to help you optimize your potential tax strategies and make sure you’ve provided all the information that needs to be reported on your return.
Other areas to consider when choosing an accountant
Look into the certifications that they have. CPA (Certified Public Accountant) is the most common certification. You can verify someone’s status as a CPA on CPAverify.org.
If someone tells you they’re a tax preparer, this doesn’t mean they are an accountant.
If they are an Enrolled Agent, they can represent you with the IRS. Note, however, that this does not make them a CPA. CPAs can provide a wide range of accounting and tax planning services, while Enrolled Agents are specialized specifically in taxes.
Depending on the complexity of your personal finances, you may also want someone with additional expertise in tax strategy, financial planning, company accounting management, estate planning, etc).
It’s also worth checking what professional associations, if any, they belong to. Different associations require codes of ethics and requirements for professional conduct, which can help provide confidence in your selection if you don’t have a direct word of mouth referral.
The American Institute of Certified Public Accountants (AICPA) is the most well known.
A few others include the National Association of Tax Professionals (NATP) and National Society of Enrolled Agents (NAEA).
If you’re looking for a direct word of mouth referral and haven’t been able to find one from family or friends, ask your financial advisor if you haven’t already. They can often refer you to someone they work with regularly or whom their clients use and trust.
Final thoughts on choosing an accountant
Last, but certainly not least, ensure that you are confident that the accountant you choose will be responsive and that they have a team large enough to handle the workload.
One of the biggest frustrations we see on the communities is that people aren't able to get in touch with their accountants.
As a busy physician, you probably understand how busy tax time gets for accountants, so also ensure that you leave plenty of time for responses and plan ahead whenever possible. This will ensure a good working relationship and avoid the frustration of having to find a new accountant every few years.
Learn More
Learn more about taxes or to assess if you need professional guidance: