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A personal accountant possesses the necessary knowledge and skills to keep reliable financial records for an individual or company. There are a lot of pros and cons of hiring a personal accountant. Many individuals consider hiring a personal accountant to help them handle their taxes and investments. Although this is an ideal choice for some, recruiting an accountant does have certain drawbacks.
The pros of hiring a personal accountant include efficient tax management, organized bookkeeping, and professional guidance on future investments. At the same time, the cons consist of steep service charges, disclosing personal information, and the possibility of miscalculations due to human error.
Deciding if a personal accountant is right for you will depend on your financial circumstances. Read on to learn more about the advantages and disadvantages of having a personal accountant and if you should hire one to manage your finances.
The Pros of Hiring a Personal Accountant
There are many advantages of having a private personal accountant that everyone should consider.
Personal accountants track your cash flow. Individuals with significant savings, various sources of revenue, and a high average turnover typically pursue the services of personal accountants. However, regardless of your income level, hiring a personal accountant can be one of the better financial choices you make.
Your Financial Transactions Are Always Documented
It is prudent to maintain an accurate database of your financial transactions to assist with planning and budgeting in your daily life. A personal accountant compiles an accurate report of their client’s revenue, which they will use to budget for utilities, mortgage payments, and leisure.
Besides budgeting, an accountant’s records will also verify what you are spending your money on and your most reliable income stream. A person is often well aware of their financial situation through a private accountant, which guides them when making financial decisions.
A Personal Accountant Saves Time on Bookkeeping
Additionally, personal accountants allow their clients to conserve time.
Accounting activities necessary for reliable reports include expense tracking, bookkeeping, and financial goal-setting. Although these activities are critical for personal financial success, they often consume a lot of time.
Rather than doing your own accounting, you can save hours by hiring an accountant knowledgeable about correct bookkeeping practices. The only realistic solution for managing their accounts is to hire a personal accountant for very busy individuals.
The time saved can be constructively used to develop new projects or spend time with family and friends.
Accountants Ensure Everything Is Recorded Correctly
Accountants are outstanding managers of the books. They have an eye for revenue streams and can keep the financial structure in mint condition.
Failure to record all transaction details daily will throw the record-keeping processes into disarray when doing your accounting. Even if you believe you have the time and skills necessary to do bookkeeping independently, you would always need a bookkeeper to provide the groundwork for your accounting scheme.
Ultimately, the most rational action is to employ an accountant to oversee your daily expenses on your behalf.
They Provide Tailored Financial Advice
An accountant’s goal is to ensure that they assist clients with making financial arrangements that positively impact their lives. They can help determine if your proportion of loan balances to loan amounts is too high and help you make corrections.
An impulsive individual dramatically benefits from having a personal accountant who can dissuade them from purchasing something that is not a priority.
Objective feedback from someone familiar with your spending preferences is invaluable. They will help you increase your finances or scale your company by assisting you in making sound decisions.
You’ll Increase Your Chances of Loan Approval
Banks and financial firms often need comprehensive financial estimates before approving a loan. A personal accountant will help you prepare and organize this data before applying for a loan, significantly increasing your odds of approval.
Accountants play a critical role in assisting people in quantifying their needs and communicating the intent of the loan to the bank. They can even help with how to qualify for a mortgage with passive income for their clients.
Unnecessary Costs Will Be Reduced
A personal accountant is more likely to note when funds are used unnecessarily.
Monthly subscriptions may be something you haven’t checked in a while but embrace as an expense. An accountant will monitor all costs, guaranteeing that you never spend too much on services.
Hiring an Accountant Helps You Save Money on Taxes
Suppose you started a pooper scooper business and are a sole proprietor of a small enterprise that is closely tied to your personal finances. In this scenario, an experienced accountant will guide you on the most tax-efficient way to do business. They will discuss how to develop sound financial practices, including the following:
- Dividends as a means of pay
- Recognize what you should claim as business expenses
- Understanding sales tax
- Knowing your tax position
- Being aware of tax deductions
However, the privileges of a personal accountant are not limited to company owners. Individuals who pay taxes should consider finding an accountant to help them navigate the nuances of taxes.
Most accountants are experts in tax preparation. Through tax planning, one can ensure that all aspects of a financial strategy work together with tax efficiency in mind.
Your Tax Forms Will Have Fewer Errors
Accountants are qualified to work with taxes so they can fill out all of your tax forms correctly for you. Making a tax error may result in a financial penalty. However, recruiting a personal accountant will guarantee that you follow all of the tax authorities’ specifications.
Some accounting professionals will even represent you in front of the tax authorities while you are being audited.
Accountants Have Advanced Financial Software
Some believe that all that is required to conduct your accounting is an online accounting tool. However, these tools are often unreliable when it comes to accounting accuracy.
According to Investopedia, accountants spend about $6,000 for their technology, which is much more advanced than the tools offered to non-certified consumers. These more sophisticated applications are capable of properly organizing the data in forms.
Since most accounting is automated using high-quality software, the likelihood of you receiving a false report is reduced.
You’ll Be More Aware of Your Financial Standing
Accountants provide their customers with a clear understanding of what is and isn’t financially feasible. It is essential to consider the financial opportunities open to you at any given time. Getting financial awareness offers peace of mind, whether in a time of genuine crisis or when you need to invest.
They can also help teach you topics such as how to find your finance charge on loans among other topics.
Additionally, if you are considering a business venture, accountants can produce financial forecasts of your success.
A Personal Accountant Saves Money in the Long Run
Many people believe that it is unnecessary to hire an accountant, and it will entail additional expenses. Still, in the long run, it will save you money.
Working with a competent and experienced accountant lowers the chances of committing expensive mistakes in financial statements. You will also use their records to steer your future choices toward the most cost-effective option.
The Professional Assistance Can Reduce Stress
Doing your own accounting can be a source of additional tension. Keeping track of deadlines for tax returns, among other things, can become a daunting challenge that interferes with your everyday pleasure. When you deal with an accountant, they will be able to do most of this work on your behalf.
Their assistance helps you to focus your attention on less demanding circumstances.
Can Help Plan Your Retirement
A personal accountant can help you plan your retirement and also withdrawl. They can help you manage your sequence of returns risk to ensure that you don’t run out of money. Knowing an effective withdrawl rate and the risks of low returns in a portfolio can be managed by your accountant.
It Aids in the Creation of Your Professional Image
Getting a personal accountant lends an air of professionalism to entrepreneurs seeking to develop themselves. Other professionals and companies view it as more respectable if they approach others on financial issues rather than contacting your personal line.
Additionally, an accountant’s promptness and organization can help you boost your reputation.
The Cons of Hiring a Personal Accountant
While hiring a personal accountant will help your finances, there are several drawbacks to consider. Although specific individuals do not need an accountant if they are especially adept at record-keeping, it is still wise to consult an accountant.
I’ll discuss some of the pitfalls of employing an accountant below.
Personal Accountants Are Costly
The salary of an accountant varies according to the type of job, but you can expect to pay at least $35 per hour. Additionally, you must pay accountants for tasks performed outside of their scheduled hours.
If you do not keep track of your service fees, having a personal accountant can be detrimental to your financial situation.
Human Error Is a Possibility
Another major disadvantage to accountants is their inclination for error. Although hiring an accountant reduces the likelihood of filing inaccurate paperwork, it does not entirely remove the possibility of human error affecting the tax return.
It would be beneficial to review all of the accountant’s submissions. Additionally, you can check with them to verify the accuracy of the figures.
You’ll Have To Disclose Personal Information
Your accountant would almost always be someone with which you have no personal relations. As a result, the financial records will be open to unfamiliar witnesses.
However, since accountants are not lawfully permitted to distribute the records, they are typically safe. To further safeguard the files, some accountants use encrypted cloud storage platforms, such as Dropbox, to keep them safe from unauthorized users.
When Do You Hire an Accountant?
The majority of citizens do not need the services of an accountant. However, there are certain instances where individuals can profit from their expertise. If you are anticipating the following, then you should consider hiring an accountant:
- Plan on establishing a business
- Are self-employed (section 8 landlord)
- Earn more than six figures
- Receive K-1s
- Have a plan to leave your children an inheritance
- Possess residential property
- Earn foreign source income
- Anticipate a sizable capital gain
Simply put, an accountant can assist you with financial situations that the average person encounters but cannot successfully handle on their own. They even know the answer to is a federal tax refund taxable?
How To Choose the Right Personal Accountant
While there are many pros and cons of hiring a personal accountant, you have to know how to choose one. The first step in locating a competent personal accountant is determining your requirements. You should check your accounts and transactions before making a selection to decide the amount of assistance you need.
You ideally want to have an accountant that can meet your expectations without charging excessively.
Select a Certified Accountant
Accountants are supervised in several countries by professional associations that oversee accounting education and ensure high professional standards. Professional accountants are referred to as Certified Public Accountants or Chartered Accountants, depending on the region.
In any case, these titles denote highly trained graduates who have earned a bachelor’s degree and gained work experience.
To ensure the health of your accounts, a certified accountant is the best bet due to their qualifications. Although it is possible to hire non-certified accountants, this could be a risky business decision.
Choose an Accountant With Relevant Experience
You’ll want to hire someone who has expertise in writing tax reports and financial statements for individuals with comparable incomes. A personal accountant with appropriate expertise will assist you in determining your specific financial requirements.
Additionally, the accountant of your choosing should have no difficulty accessing your financial documents. Suppose you store your financial documents electronically. In that case, you should seek out an accountant with cloud computing expertise. Even if you get a mortgage loan from a foreign bank, the right accountant will know how to help you.
You may request a contact list that includes details about their previous or current employers. Investigate their clients’ growth and development over time to determine if they’ll be able to meet your changing needs.
Verify Their Reputation and Licensing Information
Since the accountant would have access to all of your private records, it is crucial to invest time in interviewing people to ascertain their trustworthiness.
You should check the accountant’s references and contact their previous clients to ascertain if they were happy with their experience dealing with your potential choice.
If the accountant is new to the industry and has no prior clients, check their educational background and analyze their school. It would be beneficial to inquire into any field work they might have been involved in during their schooling. This information will assist you in narrowing down your selection.
Additionally, try contacting your country’s board of accountancy to verify the accountant’s license status and ascertain if the accountant has faced any disciplinary action.
Confirm Their Services and Availability
Numerous accountants provide various services, including bookkeeping, tax management, and market consultancy. You should confirm that the prospective applicant is capable of providing the services you need. Maybe you make a living by trading forex and need an accountant versed in such matters.
Equally important is knowing how convenient it would be to contact the accountant if you have concerns or need financial advice. It’s best to choose an accountant with a manageable client list so they can devote sufficient time to your accounts and inquiries.
Always Pick Someone You Like
You should feel secure in your selection. You and your accountant must be able to communicate, which means you must have a sort of connection and tolerance with one another.
Before you hire a new accountant, ensure that you can see yourself working for this person for several years to come. Changing accountants can be challenging and can serve as a diversion from your efforts to advance yourself and your finances.
If you choose to select your accountant from a firm, verify that the individual you encounter is the one who will also handle your accounting. In certain accounting companies, some associates manage sales while others take on direct accounting tasks.
Confirm That They Share Your Risk Tolerance
Your accountant should be able to take calculated risks while being innovative. It is impossible to match your risk threshold exactly, but they can come near. If they are unable to be versatile, try hiring a different accountant.
Keep in mind that you should also be willing to listen to their opinion regarding the potential risk.
Questions To Ask a Potential Personal Accountant
There are several topics you’ll want to discuss with prospective applicants during the interview process. Ultimately, the critical questions would be those that are more relevant to your requirements.
Nonetheless, the accountant should be able to offer favorable responses to the following questions:
- How many years of experience with individual taxes?
- What permits do they possess?
- Do they have a graduate degree?
- Can they serve you in the event of an audit?
- Can they do a complimentary analysis of your prior tax returns?
- What rates are they going to charge?
- Is there anything you can do to keep your payments as low as possible?
- What is their background with the tax authorities of your country?
- Are they available during the year?
- How are they going to bill you for your services?
- Is there anything that you should be mindful of in terms of service charges?
- How are their reports delivered?
Alternatives to Hiring a Personal Accountant
Some of the alternatives to hiring a personal accountant include:
Doing all the bookkeeping yourself
This could be a viable option if you are organized, disciplined, and earn enough money to pay your taxes fully on time. Knowing Quicken vs. QuickBooks for personal finance will be important if you will be doing the bookkeeping yourself.
If you decide to manage your books yourself, you should make sure that you have the right tools and software to use. Using Quickbooks for personal finance will be an essential tool to use.
Semi-automation is handling some tasks yourself and letting an accountant finish the rest. You can receive support from accountants of different types, employing them for only certain aspects of tax preparation.
Outsourcing all accounting duties to a third party or service online
If you don’t want to hire an individual accountant, this may be another alternative for you. You can opt to work with a company of accountants, who offer the same services as individuals.
Should You Use an Accountant if You Have Foreign Income?
If you have foreign income, you should absolutely use an accountant. Foreign money is a whole new world that most accountants are not well-versed in if they do not have foreign clients. Some highest paying welding jobs are overseas. Accountants who handle overseas matters on the regular will be able to answer your questions effectively and help you with your tax returns.
Top Accounting Firms That Handle Foreign Income Clients:
- Deloitte LLP
- BDO International Limited
How Much Should an Account Charge You?
Personal accountants charge anywhere from $50 per hour to $750 per hour, depending on how busy they are. It is also based on the country you are in. In developing countries, accountants charge less than experienced accountants in wealthy nations, while hourly fees tend to be higher for developing-country professionals.
Most people spend about 10 hours a month arranging and overseeing their finances. If you assume that your accountant will work at least four hours every month, figure that your personal accountant would cost you approximately $200 per month (or $2400 per year.)
How to Know if You Should Hire a CPA or Accountant?
Knowing whether you need a CPA or an accountant is essential. CPAs, or Certified Public Accountants, are licensed, which confers them with additional powers. In comparison, accountants aren’t certified to do your taxes after passing their exams and receiving their credentials.
A CPA can aid in taxes while also providing clients with non-tax services such as auditing and financial advising. On the other hand, accountants may be good at arranging your books but not qualified to advise you on spending your money applicable to current tax law.
If you choose to hire a CPA over an accountant:
You should expect higher fees than those charged by accountants because you will have to pay a premium for the CPAs licensing in addition to the fees for tax preparations, tax advice, and other services.
CPA Professional Credentials:
The state licenses a Certified Public Accountant (CPA) after passing strict financial exams and meeting predetermined accounting, auditing, and taxation law competencies. The title “Certified” refers to the license that must be obtained before practicing public accounting. Most states require passing a Uniform Certified Public Accountant Examination or an equivalent exam and meeting specific experience requirements. Once certified, CPAs become members of their state association of CPAs and obtain additional continuing education credits annually.
Final Thoughts on Hiring an Accountant
There are many pros and cons of hiring a personal accountant. Modern accountants are ideally positioned to offer critical financial guidance such as saving money or investing which is more important in your situation. Accountants also have familiarity with financial monitoring, which they will use to help you change your spending habits and eventually maximize your earnings.
A personal accountant is an operational asset. Consequently, like all commodities, they need financial investment, which is their primary drawback. However, you don’t need to wonder do Amish pay taxes because good accountants know the answer.
In summary, accountants can help you manage your cash flow, reduce costs and improve investments, but only if you have the money to hire one.