If you’re like me, you likely started off using a CPA in a single-owner office, who does a pretty good job every year at tax time. Let me tell you why this could be a big, costly mistake – especially as your investment portfolio expands and becomes more complex.

Learning Experience

Like many of you, I had gone with a CPA who was the sole-proprietor of her business. She did a pretty good job for me for a long time, until my portfolio demanded I consider talking to an accounting firm. Now, a good local accounting firm will often review your taxes for the last three years or so, and look for any mistakes your current (or previous) CPA may have made. Of course they do this to entice you to do business with them, which is your choice. What did I learn? I learned that due to my sole-proprietor CPA forgetting one very important rule in my line of work, that instead of owing $15,000 I was actually going to get a $15,000 refund! That was a $30,000 turn-around, from negative to positive, because I checked with an accounting firm.

Sole-Proprietor CPAs and Mistakes

I’ve also heard from some of my investors, who’ve received just plain inaccurate information from their one-person shop CPAs. Example: A CPA told some investors they can’t take the losses from a new deal and cover over the gains from a deal we sold together in the same calendar year. Spoiler alert! That turned out to be untrue and I connected them with my accounting firm. Another example: a different investor’s sole-proprietor CPA told him he owed additional state taxes here in Indiana, because of the way we took our bonus depreciation on the asset. Again, I put him in contact with my accounting firm and it turned out that they were done incorrectly.

The Problem

Although these one-man/one-woman shops are capable and do a good job with the basics, once your portfolio grows and gets more complex you likely have:

A business
Investments (like with me)
Real estate investments
Private equity
Stocks, bonds, mutual funds

So you have all these different asset classes, and a tax environment that is constantly changing: new incentives, disincentives, benefits, and entirely new rules -like what happened earlier this year with the Trump Tax plan.

How an Accounting Firm Can Help

Basically, while a sole-proprietor CPA can do the basics, as your wealth grows you really need a team and an accounting firm has that deep bench. This is a team sport! While yes, you will pay more for their services, the benefit of utilizing an accounting firm is they have accountants who specialize in real estate, in physicians’ portfolio investments, operating companies, and more. Having more accountants means more people and more dedicated bandwidth to getting down into the weeds if necessary and staying on top of new tax law; in fact, they usually have a tax law attorney on staff. This stuff isn’t that black and white, so having a dedicated team can be invaluable…and can save you from some very costly mistakes.