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Mailbag:
The Art of Negotiation
From the Mailbag:
"I have a problem that I would like your comments on. I now have a second tax accountant who charges me an additional $50 for each K-1 for my tax statement preparation. With that kind of charge, the 7% goes negative for the number of shares I own of Energy Transfer Partners LP (NYSE: ETP). Any thoughts or comments on owning stocks that issue K-1s?"
Before I tell you it doesn't make much sense to keep an asset in your income portfolio that, in reality, is an expense, I have a question to ask you. Have you ever thought about negotiating?
When you hire a professional services provider, like an accountant, their fees are rarely, if ever, set in stone. In fact, a friend of mine is an accountant and has actually taken classes in fee negotiation!
So I asked her about your situation and here is what she had to say: "There is nothing wrong with talking to your accountant and telling them you simply can't afford $50 per K-1."
She said the first step to negotiating with an accountant is to get organized. Make sure you have all of your tax records, including K-1s, together before you send them to your accountant. It doesn't hurt to ask your accountant what you need ahead of time. Most firms have a standard list of required documents they are more than happy to send their clients. Remember, the less time your accountant spends asking you for missing documents, the less time it will take preparing your return. This makes it easier to justify lowering your fees.
My advice to you is to keep in mind that negotiation is all about give and take. Offering to refer their services to your friends and relatives, considering them for future work, and offering to serve as a reference to prospective clients are all low cost to you, but value-added benefits for your accountant. Your accountant might be more willing to reduce your fees in exchange for business referrals, which cost you virtually nothing at all.
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Negotiation is not a zero-sum game. There is no reason you and your accountant cannot find a win-win solution for both of you.
If you still aren't satisfied, shop around. Get estimates from other firms to ensure you are receiving a fair rate. Just make sure you are comparing apples to apples and not apples to oranges.
By that, I mean different accountants use different pricing methods. They may charge per item, per form or per hour, or a combination of all three. In order to obtain a proper comparison, you may have to dig a bit deeper into each accountant's estimates. For example, if you receive an hourly estimate, ask the accountant the average amount of time it takes to prepare your K-1.
It's too late to do anything this year. But it's not too early to start planning for next year's fees.
Also, keep in mind, pricing isn't the only consideration when choosing an accountant. But pricing can have a significant impact on your investment returns. Many investors choose master limited partnerships (MLPs), like Energy Transfer Partners, that issue K-1 tax forms for their tax advantages. However, if you determine your tax preparation fees negate these benefits, it probably makes sense to look at other income-generating vehicles.
That being said, I still think the right MLPs are a great addition to most income portfolios. Yes, investors are forced to deal with pesky K-1s at tax time. But as they say, "There's no such thing as a free lunch."
Most qualified tax preparers are familiar with K-1s and many tax preparation software packages actually allow investors to input K-1s themselves.
I believe with a little negotiation and comparison shopping, you should find that the benefits of high current income and tax deferral outweigh the tax-time headaches and preparation fees. A wealthy retirement is dependent on what you keep, not what you make.
Good investing,
Kristin
P.S. Have more questions? I want to hear from you today. Simply write to us using the comment link below. Or, if you'd prefer to contact us privately, click here.
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