One of the most important steps in building a tax strategy or wealth strategy is choosing the right tax advisor who can help you formulate and execute those strategies on an ongoing basis. Every dollar you spend in taxes is a dollar that you cannot spend personally or invest. The right tax advisor will help you keep more of your own money.
It’s a complex challenge. In the U.S., the federal tax code plus all of the related regulations and case law spans tens of thousands of pages. Add state and local taxes on top of that, plus other countries’ taxes if you’re doing business internationally, and it’s easy to see why a tax advisor is critical.
How do you choose a tax advisor? Here are 5 steps for selecting the right tax advisor and making the most of the relationship.
1. Find High-Caliber Advisors
Tax advisors are everywhere. There are Enrolled Agents and Certified Public Accountants, plus a host of others with a Preparer Tax Identification Number, which allows them to prepare federal tax returns for compensation.
Unfortunately, not all tax advisors are created equal. Every year at tax time, new tax preparers pop onto the market promising to help people with their returns and then disappear on April 16. Forty-six states allow people to work as independent tax preparers without testing or continuing education requirements. According to The Pew Charitable Trusts, that makes tax preparation a less-regulated service than hairstyling, which requires licensing in all 50 states.
While it’s relatively simple to screen for basic qualifications, it’s far more challenging to identify the best of the best. That’s the primary reason we created The WealthAbility Network®. We’ve assembled a community of passionate accounting professionals who are vetted and trained in our proprietary system for permanently reducing taxes. This way, WealthAbility® clients can work one-on-one with a tax advisor who is guaranteed to follow the WealthAbility System® and support you in your ongoing financial education.
2. Choose Wisely
When you interview potential tax advisors, be on the lookout for a few key characteristics. First, you want to find a tax professional who is passionate about how you can apply the tax law to support your financial future. And by passionate, I mean this person should be as intense about tax as you are about your business. He or she should be bursting with ideas. You don’t want a typical accountant who thinks in a straight, orderly line. You’re looking for someone who seeks out creative ways to legally save your money from the tax collector.
You’re also looking for someone who is a good fit for you. Your tax advisor will have access to some of your most personal information, and it is essential that you feel comfortable working with them. As you meet with potential advisors, think about whether they are someone you'd enjoy having as part of your wealth team and with whom you'd be comfortable sharing details about your family, business and income.
Next, ask potential advisors about how they approach handling IRS audits and request specific examples. Some tax advisors will caution their clients not to take certain legitimate deductions in order to avoid “raising a red flag” with the IRS. That's not good tax advice; that's a sign that the advisor is afraid of the IRS. You're looking for a tax advisor who will handle all communication with the IRS on your behalf. After all, the IRS knows a lot more about taxes than you do. You’re looking for an expert who will represent you and knows more about taxes than the IRS.
Finally, be sure to check their qualifications. While not all tax professionals are Certified Public Accountants, or CPAs, the best ones have this certification. CPAs are the most knowledgeable about reducing taxes and are best positioned to provide you with a thorough analysis of how you can create a tax plan that will lead to significant savings. You can check a tax advisor’s credentials through CPAverify.org.
3. Create a Long-Term Strategy
Once you’ve selected a tax advisor, you should work with them closely to create a long-term tax strategy. This process typically takes several months. You’ll define your goals, explore various opportunities and then map out a plan that will allow you to create permanent tax savings. It is a comprehensive review of both your current situation as well as where you’d like to be 5, 10, even 50 years down the road.
Governments incentivize certain types of activities through tax law. In the U.S., business owners, real estate investors and commodity providers, for example, are eligible for significant tax incentives because lawmakers recognize their work as drivers of the economy. Your tax advisor can help you evaluate these and other opportunities that can become part of your overall wealth-building strategy.
Remember: You’re not just looking for one-time deductions to reduce your taxes this year. You’re seeking a tax strategy that generates lasting savings that will allow you to build your wealth faster than ever before.
4. Meet Regularly
If you see your dentist more often than you see your tax advisor, something is wrong. You’re either dealing with some unfortunate dental problems, or you’re not being strategic with your finances.
Too many business owners meet with their advisor once or twice a year, typically just in time to prepare a tax return. The problem with this is that it’s nearly impossible to create and maintain a comprehensive tax strategy in this way. You should expect to talk with your advisor regularly to discuss your goals, provide updates on your business and make strategic moves to support your financial dream.
The tax strategy that you created in your initial work with your advisor is not a static document. Expect to make adjustments and updates regularly as your life and business goals and the tax law change.
5. Build a Team
Your tax strategy shouldn’t exist in a silo. It is one piece of your overall business and wealth strategy. That means your tax advisor needs to collaborate and coordinate with other members of your advisory team, such as your bookkeeper, attorney, investment professional and banker.
It’s also important to recognize that tax strategies are not one-size-fits-all. There is a lot of flexibility in how you structure your business and other transactions, and you will want to create a structure that fits you and your desired lifestyle. By positioning your tax advisor as part of your overall advisory team, you’ll be able to shape your own financial destiny.
Bottom Line for Choosing a Tax Advisor
Choosing the right tax advisor potentially can mean the difference in millions of dollars over your lifetime. Take the time to find a top-notch advisor who understands your vision and tax strategy and make them a part of your overall team. Your future self, and your future bank account, will thank you.