Should You Hire a Tax Preparer?
Hiring a professional to do your taxes, particularly a certified public accountant (CPA), who specializes in tax, can cost significantly more than preparing your own tax return. However, the benefits of working with a tax professional may offset their fee.
Review the following criteria to see if hiring a professional might make sense for you.
Do you have multiple income streams?
How much you owe in income tax largely depends on your total income. Each income stream comes with its own paperwork.
For instance:
- Form W-2 from your employer to report your wages or salary for the year, as well as the total tax withheld—this includes Social Security and Medicare taxes and any income tax withholdings.
- Form 1099s apply to most miscellaneous income. If you’re an independent contractor or consultant, you should receive a Form 1099 from any company that paid you. You should also receive Form 1099s documenting any investment earnings.
- Form W-2G documents any gambling winnings.
Do you own a business?
How you pay taxes as a business owner depends on how your business is structured.
For instance, sole proprietors and single-owner LLCs simply file personal income tax returns using their Social Security numbers. The owners of S Corporations or C Corporations must pay personal income tax, plus the company must file an independent tax return.
Different business structures impact the paperwork, too, including which forms you need to file and the deadlines to do so.
An accountant can help you understand what you need to report and when. They can also help you evaluate whether your current business structure is tax efficient; sometimes, reclassifying your business can lower your tax bill.
Finally, businesses qualify for far more tax deductions than taxpayers filing as individuals or as families. While many expenses are tax deductible, the IRS has several rules that are narrow in scope.
It’s important you follow these guidelines closely to avoid potential issues if you ever face an audit.
How complex are your finances?
IRS rules around tax deductions and credits can be complicated; they are also subject to change from year to year. If any of the following apply to you, a tax professional may be able to help you minimize your tax liability, file the proper paperwork, and create a plan to minimize your taxes in the future.
- Are you repaying student loans?
- Are you contributing to a retirement account?
- Have you taken money out of a retirement account? (This is particularly important if you are younger than 59½.)
- Do you have significant out-of-pocket expenses tied to your job?
- Do you pay or receive alimony?
- Do you use the Health Insurance Marketplace for medical or dental insurance?
- Do you have a mortgage?
- Have you moved in the past year?
- Have you had a financial or medical emergency in the past year?
- Were you impacted by a natural disaster?
- Did you make (or lose) any money investing?
With so many variables affecting your potential tax liability, filing an accurate return can be challenging. Minimizing what you owe (or boosting your refund) can be even more complicated.
This is by no means an exhaustive list. However, these questions highlight some of the many areas where a tax preparer may be able to help you find and apply certain credits and deductions available.
Not all tax preparers are created equal
Choosing a tax preparer with specific credentials can help you get the best results. Certified public accountants (CPAs) are a great place to start, though it’s a good idea to look for a CPA that specializes in tax. You can also look for IRS Enrolled Agents.
Finally, consider location. Since taxes have a significant state and even local component, you may get better results if you find a tax preparer who understands state tax law as well as IRS guidelines.
Bogart Wealth Advisors are always happy to coordinate with other members of your financial team and may be able to help you decide whether a tax professional might make sense, based on your individual circumstances. Contact us to learn more.
