When Should You Hire a Tax Professional?
With all the buzz around “tax reform” and changes to the tax code in the last several months, you may be wondering, should I still prepare my own taxes? Or is it time to consult with a tax professional?
Don’t get me wrong; when it comes to getting my hands dirty and trying some new craft, I am all about the “DIY” (do-it-yourself) mentality. There’s just something that gets me excited about the challenge of a new project! However, when it comes to personal finances, and especially taxes, the “DIY” model may not always be a good strategy. For one thing, if you miss completing a required form (such as Schedule D for capital gains because you sold some mutual funds or stocks), you may get a notice from the IRS stating you owe taxes. Who will you go to when you get this notice? Or, will you simply pay the full amount without questioning it? (Not advised).
Let’s take a look at some considerations to help you determine if you should hire a tax professional to prepare your taxes.
I think we can all agree that cost is one of the driving factors behind hiring a professional. If you could repair your car for less than $50, why would you pay someone $500?
Another big factor is time. How much time do you have, and how much time will it take you to complete the repair versus the professional? The price you are willing to spend for your tax preparer comes with other benefits as well. Some tax professionals will give you a “base” fee and then up-charge you for other services (e.g., helping you with an IRS notice and responding to the IRS on your behalf). Some software programs come in packages and the more you spend, the more you have available (e.g., Schedule C for a business or Schedule E for a rental property).
Knowing what you are willing to spend can help you shop around for the level of service you need.
Along with the cost, you may be asking yourself, “Do I really know and understand all the latest tax laws?” and “How am I going to keep up-to-date with all the changes?” If you only hear headlines and snippets from the news, you could be missing out on a lot of tax strategies.
This is where a tax professional comes in handy. Tax professionals are required to obtain continuing education credits throughout the year to stay current on all the latest laws and how they impact you. A tax professional has the breadth of knowledge from seeing a multitude of cases and scenarios to help you with the best tax strategies. Plus, having them on your side can help in the event of an IRS notice or audit.
For some people, the topic of tax preparation is complex enough that they would rather hire a professional than have to deal with the nuances of filing their own tax return.
For others, the following questions may persuade them to hire a tax professional (or consider using a tax software such as Turbo Tax or Tax Slayer):
- How complex are your taxes?
- What sources of income do you have (wages, self-employment, pass-through income, investment earnings, retirement income, alimony)?
- Are you a landlord?
- What if you have a vacation rental (think “Air BnB”)?
- Do you have any dependents?
- What deductions are available to you?
- Will you itemize deductions or take the standard deduction?
- Are you eligible for tax credits?
- What other forms or schedules do you need to file (e.g., Net investment income tax, additional Medicare surtax)?
- Are you required to file a tax return in multiple states?
Depending on the level of complexity, you may consider first using tax software such as Turbo Tax, Tax Slayer, or Tax Act to assist you; however, beware! These software programs are only as good as the information entered. Certain deductions or credits could be missed by the untrained eye.
Questions to Ask Your Tax Professional
If you’ve stayed with me up to this point, you probably have decided that you should at least consult with a tax professional to see what they have to offer. Some questions to bring to your tax preparer include:
- What services are included in the fees (e.g., any assistance with notices and/or audits, tax planning throughout the year)?
- What certifications (e.g., CPA, JD, EA) do you have?
- What is your expertise?
- How do you stay abreast of current tax laws?
- Have you filed in a given state before? (if you have multiple state filing requirements)
- What information will you need from me to file my tax returns timely?
- Can I file for an extension?
Prepare Your Own Taxes Or Hire a Tax Professional?
Preparing your own tax return can be a daunting task. Make sure you give the proper amount of thought to this decision. Consult with your financial advisor as to the best options for your situation.
Source: Forbes: 11 Questions To Ask When Hiring A Tax Preparer
This is intended for informational purposes only and should not be construed as personalized tax or financial advice. Please consult your tax and financial professionals regarding your specific circumstances.