Three simple questions to ask your next tax advisor

Physician families undoubtedly pay way more than their fair share of taxes. Most of the exemption and deductions  that other families enjoy are "phased out" for physician families, and many doctors are subject to the highest tax brackets. If paying taxes is not bad enough, your tax advisor (aka "your accountant") may compound the problem by surprising you with a larger-than-expected tax bill, or worse, they may put your return on edocxtension and prepare your taxes at the very last minute.

This week, I learned that one of my clients' CPA's had not finished filing their 2006 return (yes, I did say 2006), and 2008 is almost here. What a headache!

If you're fed up with your tax preparer, NOW is the best time to shop for a new one- before the next tax season begins.

Ask your colleagues for the name of the person who does their taxes, ask your financial advisor for a referral, and ask business-owner friends who they use. Once you have your list in hand, get on the phone and ask your prospective preparers these three questions:

  1. "Please explain to me how the alternative minimum tax works." The alternative minimum tax (or "AMT" in the tax trades) was set up long ago to force the ultra-wealthy who paid no taxes into paying their fair share. Nowadays it's tripping up families who are part of the middle class, particularly those with children. The point of this question is NOT to test your tax preparer's knowledge. The point IS for you to "test drive" your tax advisor's ability to explain complicated subjects to you. After they've answered the question, ask yourself, "Did I really understand what they said?"
  2. "What happens to my tax file in your office after our annual interview?" Every tax advisor has a process for preparing your return, and some have better processes than others. With this question, you're trying to find out how organized they are, and how well they leverage their expertise. Ideally, you'll find out that your tax advisor DOES NOT prepare the return herself but that she has a skilled staff who handles the grunt work while the advisor applies the finishing touch.
  3. "What do you do for fun when you're not preparing taxes?" The point of this question is to establish some non-tax-based common ground and build rapport. The answers will vary widely, but you will learn a great deal about what kind of person you are dealing with. Taxes touch every aspect of our lives, and it's a good idea to feel comfortable discussing life issues with the person who will know some fairly intimate details of your personal situation.

Once you've narrowed the list to two candidates, go meet with them personally and see which one is a good fit for your family. Writing a big check to the IRS every year is a chore, but a good CPA or tax preparer can make the process easier and less taxing.