Section I: What Is an Accountant?

Think of an accountant as a designated driver for your money—ensuring that you don’t overpay your taxes or get into hot water with the IRS.

Unlike a tax preparer—who generally just fills out tax returns—an accountant does your returns and provides on-going tax smarts and financial-planning advice year-round.

Since all areas of your financial life have tax implications, an accountant also can help you prevent financial mistakes, allowing you to keep and invest more of your wealth.

Of course, accountants aren’t for everyone. If you’re just starting out, an accountant is probably an expense you can avoid. Also, if you have a simple set of assets, an accountant probably isn’t required.

But, there are circumstances where an accountant makes sense. For instance, if you’re self-employed or own a business, an accountant can serve as your financial security guard—making sure your company’s books are ship shape and blowing the whistle when financial warning signs emerge, such as declining cash flow or embezzlement by sticky-fingered employees.

Technically, there are four different types of accountants. But most individuals and small-business owners who need one choose a certified public accountant (CPA). The other three types are trained primarily to audit the finances of companies.

CPAs must pass a rigorous exam in the state where they practice. They also must take a national Uniform Certified Public Accountant exam administered by the American Institute of Certified Public Accountants.

If Uncle Sam comes calling, a CPA is legally qualified to represent you with the IRS. An enrolled agent and tax attorney also can legally represent you with the IRS. But they don’t provide accounting services (unless they’re also a CPA). Enrolled agents are used most often for tax preparation while tax attorneys are used for audits and representation in tax court.

Section II: Do You Need an Accountant?

There’s no way to know exactly when you need to hire an accountant to handle your taxes and provide tax advice on your finances.

But here’s a simple rule: The more money you earn and have invested, the greater the risk of making costly tax mistakes—and the more likely you need an accountant – and specifically a   CPA -   to watch your back.

Just remember that a CPA is not a certified financial planner (CFP)—someone who evaluates all areas of your financial life and maps a course based on your goals and risk tolerance. However, many CPAs are also CFPs.

Three big reasons to hire a CPA:

• Financial handholding. A CPA can review your financial plans and offer year-round tax advice. A CPA also can work with your other financial advisors to ensure that your investment portfolio and estate plans are tax-efficient.
• Tax angles. The goal of every taxpayer is to pay Uncle Sam only what is owed—not a penny more. A CPA can provide strategies for holding down your taxes owed across all areas of your financial life.
• IRS protection. A CPA can help you minimize the risk of errors on returns and bad business practices that lead to IRS audits. A CPA also can represent your with the IRS or recommend legal representation in tax court if needed.

Section III: Choosing a CPA

If you decide you want to hire a CPA, the first step is to pick up the phone or rev up your e-mail. You need to compile a list of candidates by asking your financial advisors, friends and business colleagues for recommendations.

If you don’t already have a financial planner and feel you need one, you may want to ask for CPAs who also are certified financial planners (CFP)—so you get two experts for the price of one.

Just be aware that not all CPAs specialize in taxation and not all CPAs who are CFPs specialize in portfolio analysis and planning. You need to know what you want and need, and what the candidates on your list can provide.

Once you have a list of six or seven CPAs, weed them down to three by exploring each candidate’s qualifications, fee structure, references and availability:

• Qualifications . Check with the State Boards of Accountancy to verify that a CPA is actually licensed and check the site’s misconduct and discipline reports. The American Institute of Certified Public Accountants (AICPA) , a professional organization, also offers some disciplinary oversight.
• Fees. Call the CPAs on your list and ask about their fee structure. Some CPAs bill a flat annual or bi-annual fee while others charge by hour. Also be sure you know what actions on your part will trigger additional charges.

• References.   Ask the CPA for the names of three or more client references. Be sure to ask the references what they like and dislike about the experience. One telling question to ask a reference: “What’s the one thing you would change about your accountant if you could.”

• Availability. In today’s rushed world, you may prefer emails to phone calls when you need questions answered. In either case, test candidates on your preferred method of regular communication to determine their response time.

Section IV: Grilling Guide - The Questions You Have to Ask Your Accountant

What financial certifications do you hold? See if the CPA is also a financial planner and/or tax attorney. The more credentials the merrier, but the higher the fee will likely be. Be sure to think through in advance what expertise you need. There’s no point paying for expertise you won’t need or use.

Do you specialize in my needs? If a CPA holds multiple credentials, find out what areas he or she specializes in. For example, some CPAs who also are CFPs specialize in investment portfolio analysis rather than tax returns or tax planning.

Do you have other clients that are my size? CPAs represent clients of all sizes. You want to hire a CPA who is familiar with your needs and goals. Make sure a majority of the CPAs clients have your net worth.

Can I speak with three of your clients? You want to speak with a CPA’s clients who share your financial profile. Ask the references about the CPA’s availability, turnaround time on tax preparation, and any drawbacks to hiring him or her.

What tax services do you offer? While a CPA may only provide tax planning, he or she will likely have access to experts who can provide more.

How does your fee structure work? Many CPAs charge a flat annual rate for preparing tax returns and offering basic advice. You want to know whether there are additional fees for emails, phone conversations and in-person meetings.

Are there ways I can hold down fees? Some CPAs will reduce your bill if you gather and carefully organize the financial information they need to evaluate your needs. Others will reduce your bill if you can limit your requests to emails rather than office meetings, which tend to be billed by the hour.

How are my tax returns prepared? Have the CPA take you through the whole back-office process so you know and can ask additional questions. Increasingly, financial data is processed by computer in accounting firms and then reviewed by your CPA.

Who will represent me in an audit? While a CPA is legally authorized to interact with the IRS on matters related to your returns, a tax attorney must be hired if you are summoned to appear in tax court. Find out when a tax attorney would be needed and who the CPA currently recommends.

Do you carry professional liability insurance? You want to be sure your CPA is financially protected should an accounting error on the CPA’s end leads to IRS trouble and fines.