Tax season is upon us in the United States and it’s time to decide if you are going to prepare your taxes yourself or hire a tax professional.
For the first five years of our marriage, we did our taxes using Turbo Tax. This was a good option for us at the time because we didn’t have much to worry about. We had our W2’s from our employers, student loan interest, and mortgage interest. There wasn’t too much we could mess up.
Then we opened a business, took on side hustles, bought and sold property etc and things started to look a little messy. This is when we decided to hire a tax professional to work with us to ensure everything was accounted for.
If your tax situation sounds like ours a few years ago then you can probably use Turbo Tax to file your own taxes. The software will walk you through the process and help you navigate your taxes (both federal and state).
If your tax situation is a bit messier, like mine currently is, you may want to hire a tax professional. If you do not currently have a tax professional do not wait until April to contact one. Many tax professionals are booked well in advance and may not be able to take on new customers. You will want to ask your family and friends for referrals and call as soon as possible to make an appointment.
What is a Tax Professional?
Tax professionals need to be a Federally Authorized Tax Practitioner (FATP) to represent you when dealing with the IRS.
The three common tax professionals are enrolled agents, CPAs, and Tax attorneys.
Enrolled Agents must pass a certification exam or have qualifying experience as a former IRS employee.
Certified Public Accountants or CPAs have extensive education and experience requirements and must continue their education
Tax Attorneys handle complicated tax issues such as business partnerships, tax violations and more
You’ll most likely work with an enrolled agent or CPA for your personal taxes unless you have a very complicated tax situation and need an attorney.
3 Things to Consider when Hiring a Tax Professional
If you are confused about your taxes or have a lot of questions to ask it is wise to hire a tax professional. A tax professional will guide you through the process of having the correct documents, finding every deduction possible, and will also have your back in case of an audit. Hiring a tax professional will give you peace of mind that your taxes are done correctly.
A good tax professional understands the language of the IRS and can help you navigate many different tax situations.
Do you understand the tax process and tax codes?
If you have knowledge of the tax process, tax codes, and everything that was updated for this tax year then you may be able to file your taxes yourself.
Most of us do not have this knowledge and do not study the tax codes enough to fully understand the ins and outs of it all.
Then there are credits and deductions that you can take based on your current situation. These credits and deductions reduce your tax liability but you need to ensure that you are eligible for a deduction.
If you are not sure what credits and deductions you are eligible for or you don’t understand the tax process then it is time to hire a tax professional.
Do you have Freelance or Consulting Income?
A side hustle and owning a small business is a wonderful thing and can be very beneficial to your family. However, it can make taxes a bit messy.
As a freelancer or consultant, you are normally not employed by one particular company. You are considered self-employed and will most likely receive a tax form called the 1099-Misc. This is for any miscellaneous income you received throughout the year.
You will be required to pay both federal income tax as well as self-employment taxes. The self-employment tax goes to both Social Security and Medicare.
As a freelancer or consultant there are also business expenses that you can deduct to help your tax situation. While you can find information on this online, asking a tax professional is one of the easiest ways to ensure that you are deducting everything possible.
If you are doing freelance or consulting work on a regular basis you may want to talk to a tax professional about paying quarterly taxes in coming years to help the tax burden.
If you are not sure how much you should be paying for self-employment taxes and are confused by forms you have received then it is time to hire a tax professional.
Do you have a Rental Property?
Rental property can be a blessing but also a headache especially when it comes to tax time.
Hiring a tax professional can save you money.
A tax professional can save you money in the long run. A tax professional is trained to look at your taxes different than just software. There may be deductions you missed with software or different tax strategies that you can use to get the biggest bang for your buck.
You may end up with a bigger refund (or owing less money) than you originally thought! Personally, I run the numbers through software and compare it to my accountant. My accountant always comes out with a better return than I had. He is definitely worth the investment to do our taxes each year.
The best part of working with a tax professional is the protection you gain in case of an audit. A tax professional will walk you through an audit and will ensure their work was done the best of their knowledge.
Be prepared to pay for a tax professional. While purchasing software is relatively cheap (normally less than $50) a tax professional can be a bigger investment. The price will vary by region as well as your specific tax situation.