Top tips on how to choose the right accountant for you
FOR many investors this is the time of the year when they look forward to a tax refund. That is, once you have an accountant to do your annual accounts. There is so much attention paid to choosing advisers but very little paid to choosing accountants.
Here's a few key things that you need to know, particularly for 2018.
If you don't have an accountant or are considering changing accountants this year, there are a few things to consider.
Accountants can be victims of their own success. As they progress through their career, happy clients refer more clients and eventually the accountant can't keep up without more support.
Where you may have started years ago solely dealing with your accountant, you may find that you're now primarily dealing with an underling with only the occasional interaction with your beloved accountant. So make sure your accountant has capacity to take on your work, and has good processes and systems in place so you won't be pushed off to someone else at a later stage. Ask how many clients they have.
Timothy Ricardo, certified practising accountant with Ricardo Accounting, says there's a small trick that usually works to get your accountant to personally do your tax return.
"It's simple: book the appointment and physically go in to your accountant's office to do your tax return," Mr Ricardo says. "If not, the chances are much higher that it will be done by a junior. Even if it costs more, it's usually worth the expense to get in front of the senior accountant to prepare your tax return."
Technology can have a big bearing on accounting costs. The tech-savvy accountant will set up data feeds from your investment account or self-managed super fund into their accounting software. The old-school accountant will manually input hundreds of transactions to do what the tech-savvy accountant managed to do in less than five minutes, with a click on a mouse. Take a guess which accountant is probably going to end up giving you the larger bill?
The main checks are:
- Is your accountant a certified practising accountant or chartered accountant? To become a CPA or CA, in addition to an accounting degree you require three years' industry experience, passing an in-depth curriculum and undertaking an intensive mentoring program. Contrast this to the minimum requirement of becoming a registered tax agent; an accounting diploma and two years' relevant experience.
- There has been pressure on accounting fees over the past five years as more digital and outsourced accounting firms appear. Ask your accountant if they offshore any aspect of your taxation work. If so, ask what controls and measures they have in place to protect your information.
- Ask what the accountants lodgement rate is with the ATO. If an accountant does not lodge at least 85 per cent of all statements and tax returns on time, the ATO can remove their lodgement extension concession.
- Be wary of the high fees charged by instant tax refund firms. Although you will get your tax refund on the spot, they will usually charge a percentage of your refund in fees in addition to your normal tax return costs.
Avoid tax refund rush
If you're due for a refund on your individual tax return, get it done once the accountant has received all the data in a pre-filling report, which may be later in July or even August depending on the data sources feeding in. If you have additional tax to pay, delay lodgement until closer to the due date, which is October 31 for individuals, or May 15 if you use an accountant, but only if the accountant has a good lodgement history and has the lodgement extension concession.
As you can see, it pays to is be patient and not to get your tax return done at the start of July.
Ricardo says, "the first mistake accountants and clients make is to lodge the tax return too early. Accountants receive information from the Australian Taxation Office in what's known as a pre-filling report.
"The report contains information compiled from various sources on things like bank account interest, share dividends and investment distributions. The data can be automatically imported into the accountant's tax return software. However; the issue is that it takes time for this data to flow through.
"For those eager to lodge their tax returns early, the accountant must manually input data provided by the client … and if it does not match the eventual data that appears in the pre-filling report, the chance of getting audited go up exponentially."
Red button issue
When you do get your tax return done for the 2017-18 financial year, keep in mind that each year there is a "red button issue". This year be careful about laundry deductions. Ricardo says: "The ATO have flagged that they're keeping an eye on laundry deduction this year. If you don't have a uniform or wear protective clothing, don't claim laundry deductions. If you do claim, you're likely to get some attention from the ATO."
The difference between having an average accountant versus an exceptional one should not be underestimated. Not only will it potentially result in better tax outcomes, but you will enjoy less stress and hassle. The good accountant will be on top of things, making the tax process as painless as it can be from start to finish.
James Gerrard is the principal and director of Sydney financial planning firm FinancialAdvisor.com.au