Do you know what a good accountant should be doing for you and your practice? If you don't, you could be losing money and opportunity. Here's how to make sure everything adds up when it comes to your financial counsel.
It's tax season: Do you know what your accountant is doing for you?
Family practitioner Josh Umbehr does. Concerned about what health reform and other industry changes will mean for physicians' long-term financial futures, Umbehr opened a concierge medicine practice in Wichita, Kan. With a radically different practice model, he and his wife/business manager, Lisa, quickly learned their team of advisers would have to think differently, too.
When Umbehr set up his practice during residency, he says, "I had one accountant who did specifically everything I asked of him," regarding business equipment deductions. "But the new firm came up with a more elegant solution" to maximizing deductions than Umbehr had thought of on his own. Instead of using a complex system for proving his new business equipment was in use, the new firm - Wichita's Kennedy and Coe - helped him set up a rental arrangement that accomplished the same goal in a simpler way, he says.
On the personal tax side, Umbehr has also replaced a tax expert who had set up trust accounts that didn't allow for passing on the couple's wealth to their three children in the way they intended. They have one child with Down syndrome, so they are keenly interested in making sure finances are in place for their kids' well-being.
The couple now uses the same firm for both their medical practice and personal accounting.
"There's tremendous value in having one person familiar with both sides," Umbehr says.
Of course, that one person needs to be vetted thoroughly and fit strategically into the rest of your financial team, experts say, which should also include a trusted attorney and financial adviser.
Balancing personal, practice finances
A good accountant should keep you from worrying about your returns at this time of year, make sure you are taking the deductions you deserve, and perform long-term tax planning for your financial future, says Chuck Jaffe, author of "Getting Started in Finding a Financial Advisor."
Like the Umbehrs, lots of physicians use their practice accountant to handle their personal taxes and financial planning. That can work fine, but there are some caveats, Jaffe says.
"The fact that someone is great with your business doesn't mean he'll be great with buying a second home or going through a divorce or advising on your spouse's personal tax issues," Jaffe says.
A great tax pro will know when you're asking about something she isn't especially knowledgeable about, and refer you to someone who is, either within or outside of her own firm.
Whoever is doing your personal taxes should also know about tax-advantaged retirement plans and other savings strategies. And his personality should also fit with your overall philosophy, Jaffe says.
"While tax preparation seems like one of the easiest roles to fill on your financial team, it is also one of the most subjective spots, because the right relationship depends so much on the two of you having the same approach to dealing with Uncle Sam," Jaffe wrote in an entire chapter of his book dedicated to hiring a tax pro. "If you want to minimize taxes and are willing to risk the proverbial "red flags" that can increase your chances of an audit to do it, you'll want a preparer who is comfortable taking those same risks."
The accountant should also be charging you fairly for precisely the work of advising you on the personal side of your taxes, says Jaffe.
"If you're using one person for both, chances are you're overpaying on the personal side for services that are underdelivered," he says.
Still, Jaffe and others agree that depending on your individual situation, paying for advice - even from the same person who knows your practice - can be worth the expense in terms of having a consistent counsel on all aspects of your money.
A qualified accountant should not only be helping set up your business, but then making sure the proper tax-advantaged retirement accounts are being set up and actually funded, other tax planning specialists say.
And don't forget ongoing changes. With tax law changing frequently, a good adviser should be evaluating new strategies based on the newest rules, notes Matthew Kelley, whose firm, Gold Medal Waters, provides tax planning and other investment services.
When Congress was debating last-minute changes to 2011 tax brackets and capital gains treatment late last year, Kelley was on the phone daily with clients who were mulling the sale of large blocks of stock before the end of December. The changes didn't materialize, but clients would have been prepared if they had, he says.
Another example is ongoing personal changes. Kelley had a client who sat down at his annual review meeting who mentioned he had just purchased a home one month earlier.
The client knew he needed to mention the purchase in the meeting, but hadn't thought about calling the firm before the sale to see if there were some tax implications on the timing of the transaction, Kelley says.
"Now I automate regular communications during the year" to jog clients' memory that some things shouldn't wait until the review period, he says. "Things change so much today, we just want everyone to be in touch at least quarterly."
Getting the most for your money
• Hire right. Contact your state CPA society or check out these Web sites:
• Ask the right questions. Get clear on what you want this professional to do. Ask about credentials and industry specialization.
• Ask for what you want. Does the fee include ongoing consultation throughout the year for questions that arise about tax planning? Does the person only provide tax preparation services, or also the proper paperwork for the coming year to help you organize next year's taxes?
• Look for savings. Don't be embarrassed to ask a prospective tax adviser to explain some ways you might save money through the relationship. If the adviser is only interested in taking your pile of saved receipts and turning them into a return, don't expect much forward thinking.
Source: Chuck Jaffe, author, "Getting Started in Finding a Financial Advisor."
Janet Kidd Stewart is a freelance writer based in Marshfield, Wis. As a contributing columnist for the Chicago Tribune, she writes a weekly, syndicated retirement column called "The Journey" that appears in Tribune newspapers across the United States. She holds a bachelor's degree and master's degree from the Medill School of Journalism at Northwestern University. She can be reached via firstname.lastname@example.org.
This article originally appeared in the March 2011 issue of Physicians Practice.