Cutter Family Finances: How To Choose A Tax Professional

Jeffrey CutterRichard Maclone Photography - Jeffrey Cutter

Susan and I teach a course at Cape Cod Community College to folks in or approaching retirement who are interested in planning for a financially secure and fulfilling future. Learning how to implement a solid financial decision-making process, is essential to securing such a retirement.

We explain in our class that part of such a process involves tax planning. A student, John, approached me after class and asked if he really needs a tax professional and if so, how he should choose one. In the interest of full disclosure, while I do not prepare taxes, I am a certified public accountant (CPA) and so I am qualified to provide advanced tax planning.

To answer the first question, I asked John if he thinks there will be higher taxes in the future. I also asked if he wants to wait until the tax laws change to try to minimize his tax liability or if he wants to be prepared for those changes. John believes taxes will go up and he wants to be prepared.

I explained to John that planning for and managing taxes during retirement is the single most important factor in determining a retiree’s lifestyle and for this he needs the help of a tax professional. I also explained to John that what he really needs is a retirement planning team that includes a solid financial advisor and an estate attorney in additional to a qualified tax professional... and they must all specialize in retirement planning.

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My recommendation to John was to ask his family and friends for referrals. People usually choose their doctors, dentists, lawyers and other professionals because friends or family members recommend them based upon a positive experience. The same should be true for tax professionals. Often times, people are afraid to ask for advice from those closest to them when finances are involved, but picking the right tax professional is a significant decision, so it is important to ask around.

I also suggested that John ask for the credentials of any tax professional he is thinking about retaining. Not all tax preparers are CPAs. In fact, in many states, anyone can prepare tax returns and call themselves tax professionals. On the other hand, a CPA must complete the various levels of higher education, and then pass a rigorous two-and-a-half-day examination. I reached out to Bill Ferzoco, a CPA and partner from Lake & Ferzoco, with offices in both Falmouth and Marshfield for his thoughts: “CPAs must also maintain their certification annually with 40 hours of continuing education. Those practicing CPAs who specialize in tax compliance work will use the majority of these hours learning about any tax law changes Congress passes during the year or staying up to date with current tax law.”

Good point, Bill. In most cases, a CPA candidate must also work under a CPA’s supervision for a specified period of time required by the state’s Board of Accountancy and those specializing in tax work often have advanced graduate degrees in taxation and have worked for larger firms in their tax departments. Furthermore, while most serious tax professionals are either CPAs or EAs (enrolled agents), this does not necessarily mean that they are retirement specialists.

Education and training are extremely important, especially for retirement planning. Bill Ferzoco notes, “The tax laws governing retirement accounts are highly complex and are constantly changing. So, if a tax professional is serious about this area of retirement planning, he or she must stay up to date on the latest tax law changes.” Well said, Bill. I suggested that John ask any tax professional he may use about the last conference or continuing education class on retirement planning that he or she attended.

I also told John to ask the prospective tax professional what areas of tax compliance he or she specializes in and how much experience he or she has in the area. There is no substitute for experience.

Maximizing retirement distributions and transferring wealth cannot be accomplished in one transaction. Some of the most important decisions are made over the course of years, or even decades. So, I suggested that John ask a tax professional how he or she will ensure continued help and advice when it is needed the most, even if the tax professional is no longer in practice.

I also cautioned John to avoid two red flags. Always stay away from any tax “professional” who promises a certain refund amount or whose fee structure is based on a percentage of any refund. Tax preparers who say they can get X amount right out of the gate are not aware of the many complexities inherent in our tax laws.

Lastly, I reminded John to ask any tax professional he chooses for an engagement letter that specifies the services he or she will provide, the services he or she will not provide, and that clearly sets forth the fee structure.

Be vigilant and stay alert, because you deserve more.

Jeffrey Cutter, CPA, PFS is the managing partner from Cutter Financial Group, LLC (www.cutterfinancialgroup.com) which provides private wealth and investment management through low risk, low volatility successful strategies because you don’t have to lose in order to gain.  He can be reached at jeff@cutterfinancialgroup.com.

Investment advice is offered by Horter Investment Management, LLC, a Registered Investment Adviser. Insurance and annuity products are sold separately through Cutter Financial Group, LLC. Securities transactions for Horter Investment Management clients are placed through Pershing Advisor Solutions, Trust Company of America, Jefferson National Monument Advisor, Fidelity, Security Benefit Life, and Wells Fargo Bank, N.A

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