Financial advisors get trained in taxes, of course, but they often just get a basic framework for how to structure investments. A CPA can bring a much deeper level of understanding to a client’s tax situation, here’s four reasons how:

1. Let’s face it – taxes are complicated.

From the Medicare surtax to the new, higher top tax rate, wealthy clients face a tax picture with widening complexity. Knowing how investments impact the tax picture — in ways that are not always obvious — can save clients big money.

For Example, will selling an investment this year produce gains big enough to trigger the Medicare surtax? Should municipal bonds be pursued as a source of tax-free income? A CPA can define this for you, avoiding unnecessary surprises come April 15..

2. Asset location is critical.

Investment professionals know that asset allocation is important, but so is asset location. The tax treatment of assets varies by which type of account they’re housed in. Bonds, for example, are better held in tax-sheltered accounts because their income is taxed at the ordinary rate of up to 39.6%. Stocks fare better in non-retirement brokerage accounts because long-term gains can be taxed at the favorable capital gains rate of 20% rather than the higher ordinary income rate.

Where assets are housed is a key component of Morningstar’s gamma factor, a way to calculate an advisor’s value. Proper asset location can boost returns by 20 to 50 basis points a year, Morningstar researchers have concluded.

3. Boomer clients are retiring.

You know the stats: 10,000 baby boomers retire each day, a pace expected to continue for the next 19 years. If your boomer clients haven’t already made the shift to retirement, they soon will.  Boomers need financial advice on how to minimize taxes and generate enough income.

Retirement withdrawal strategies are complicated. The rules of thumb around which accounts to tap, and when, may not work in all circumstances. For example, Some clients may be better off depleting their tax-deferred accounts early on in order to avoid a big tax hit late in retirement. Accountants take a holistic approach to retirement planning.

4. Tax returns show what you’re missing.

A talented accountant can spot not just missed opportunities for tax savings, but also potential gaps in a client’s financial picture. A CPA can review a tax return and understand where a client should be going with their wealth management.  Can your clients defer income to take advantage in a federal subsidy for health insurance on the new exchanges?  Are they contributing too much – or too little – in tax-deferred retirement accounts?

Doing your own taxes is frustrating: finding the forms, deciphering the instructions, finding your paperwork, doing the math, figuring out what needs to be attached, worrying about a tax audit.   

What you may not realize is that doing your own taxes also costs you money. It costs you money because you don’t know all the credits and deductions you are entitled to, so you end up paying more tax than you truly owe. (After all, when was the last time you settled down for a quiet evening with the Internal Revenue Code?)  

But besides missing opportunities to lower your tax bill, it also costs you money just to fill out your tax return. The IRS does projections for how long it takes the average taxpayer to complete each tax form. These projections are presented below (in hours:minutes). Referring to this table you can see that if you only have wage income (Form 1040) and some bank interest (Schedule B), the IRS calculates it will take you 3 hours and 33 minutes to learn about the law and the forms and 6 hours and 41 minutes to actually fill out the forms: a total of 10 hours and 11 minutes. If you have capital gains from a mutual fund, the total jumps to 15 hours and 5 minutes.                                                                                                                                                                                                       

Form               Description                             Education          Preparation       Hours:Minutes

 1040               Basic form                                  3:25                  6:16              9:41

Sch A              Itemized Deductions                   :39                  1:34              2:13

Sch B              Interest Income                            :08                    :25               :33

Sch C & E      Small Business &                         1:41                  2:52              4:33

                        Self-employment Tax

Sch D              Capital Gains                              3:04                  1:50              4:54

Sch E              Royalties and Rents                   1:01                  1:25              2:26

2106               Employee Business Expenses     :12                   :24                :36

2441               Child/Dependent Care Credit     :25                   :50              1:15

4562               Business Depreciation               5:10                 5:59            11:09

 So, how much is that time worth? If you get an hourly wage, say $10 an hour, multiply your wage by the estimated time. Fifteen hours and five minutes is 15.08 hours (the .08 comes from dividing 5 minutes by the 60 minutes in an hour, which gives you the decimal fraction.) Ten dollars an hour times 15.08 hours equals $150.80, your cost for doing your own taxes. 

If you receive a salary, you can calculate your hourly wage by dividing your salary by 235 (365 days minus weekends, holidays, vacation and sick days) and then dividing that figure by 8 (for an 8 hour workday). If you earn $35,000 a year, the calculation is $35,000 divided by 235 (148.94) divided by 8 (18.62), which gives you your salary-based hourly wage. Multiply $18.62 by the IRS time estimate for each form and you will know how much it costs you to do your taxes. The same tax return as above (Form 1040 with Schedules B and D) would cost this salaried worker $280.74 in terms of the value of his own time (or, more correctly, in terms of how much his employer values his time).

 And this does not include all your time or costs. The IRS does not count the time it takes to do record keeping, the major headache in figuring capital gain basis for a Schedule D. The IRS also does not count the time it takes you to assemble, copy, and mail in all the forms – or the hours it takes to learn the latest computer program that promises “to do it all for you” (after you have entered in all the numbers).

 Furthermore, you cannot deduct the value of your time spent preparing your return.  Only money spent for professional tax preparation is tax deductible.  If the salaried employee found someone to prepare his taxes for the same $281 it costs the employee to do it himself, the after-tax cost would be only $202 ($281 minus the 28% tax deduction). Not only would this taxpayer get professional help with his taxes, it would cost him $79 less than doing it himself!

 Finally, remember that all the time you spend doing your taxes comes from your own personal time: weekends and holidays. This is time you spend with your family and friends; time for yourself. How much is that time worth?

 Article written by a fellow Alliance of Comprehensive Planners member,

Robert Reed, Columbus Ohio