• You’re self-employed.
• You’ve experienced a major life event, such as getting married or divorced, buying a home, receiving an inheritance, or moving to a different state.
• You own rental property.
• You have foreign accounts or investments or are an active stock trader. 

When you should hire a tax professional

If you don’t have a lot of time to spend on tax preparation or your situation is complicated, hiring a tax professional is generally the way to go. But what exactly makes a tax return complex? Here are a few scenarios that could make preparing your tax return a little tougher.

You’re self-employed

When you own a business, you don’t have an employer withholding taxes from your paycheck each month. You’re responsible for tracking income coming in and deductible expenses going out, as well as for making estimated tax payments every quarter.

If you don’t have a good understanding of estimated taxes, deductible expenses, depreciation, and accounting for inventory, you should probably hire a professional who does.

You’ve had a big life event

Major life events such as getting married or divorced, having a child, moving out of state, starting a business, buying or selling a home or investment property, or receiving an inheritance can have a significant impact on your tax situation. These events can affect your filing status, the number or type of deductions and credits you can claim, and the forms you need to attach to your return. These are good times to seek out expert advice.

You own rental property

A tax return with rental income can get tricky. Special rules govern depreciating rental property and claiming losses from rental activities. A tax pro can help you claim your rightful deductions.

You have foreign bank accounts, investments, or income

Foreign bank accounts and investments can trigger more tax-filing requirements, even if you don’t earn any income from the accounts.

Plus, the penalties for not following the rules are stiff—up to $60,000, plus potential criminal penalties for failing to disclose and file.

If you have a financial interest in a foreign financial account, are an authorized signer on a foreign account, or earn money from a foreign country, it’s a good idea to work with a tax professional who has expertise in handling these situations.

You made mistakes on a prior-year return or are being audited

With today’s ultra-complicated tax rules, anyone can make a mistake on a return. If you notice the error before the IRS does, you can fix your mistake by filing an amended return using Form 1040-X.

If it was a simple error, you might feel comfortable filing the amended return on your own using tax-filing software if you used said software to file your return initially and it has retained your information.

However, if the IRS caught your mistake and is charging you back taxes and penalties or selects your return for an audit, you might want to talk to a professional. Even the IRS makes mistakes, so a tax pro will confirm whether the IRS’s assessment is correct and help you respond appropriately.

You want to save money (potentially)

We’ve already mentioned the cost of hiring a tax professional. But what if hiring a tax pro can save you money?

Anyone can drop numbers into tax-filing software, but a qualified tax professional can analyze your situation, look for tax-planning opportunities, and help you plan for next year.

That’s a lesson Matthew Ross, COO of the e-commerce website The Slumber Yard, learned the hard way. Ross refused to hire a tax professional for years, assuming that paying someone else to prepare his return would be a waste of money.

“Last year, I finally broke down and hired a local CPA because I was super busy around tax time,” Ross said. “Well, it turned out I was overlooking all sorts of deductions and strategies for years, and it cost me big.... My accountant estimates I paid over $100,000 in taxes that I actually didn’t need to pay.”

Your opportunities for saving on your taxes will depend on your situation and how complex it is. If your main tax concerns are your job’s income and the interest on a savings account, you probably don’t have many opportunities to save.

But if your situation is more complicated, working with a professional who has intimate knowledge of the tax code could result in serious savings.

A good tax pro can do more than beef up your bottom line. By building a relationship with your accountant, you can help your accountant get to know you and your unique situation. In turn, they can take charge of small tasks, such as prompting you to send in relevant documentation for a deduction, or remind you to adjust your withholdings. Having an expert look out for you during tax season and beyond can give you priceless peace of mind.

Original Article: https://www.nytimes.com/wirecutter/reviews/should-you-hire-a-cpa/

Posted on: January 17th, 2022

With such a daunting tax code, many financial professionals recommend paying a tax pro to prepare tax returns. It’s so easy to miss a deduction or worse, make a mistake. Due to ease of use, software programs like TurboTax and H&R Block have gained popularity in recent years.

Though cheaper, it’s still quite the time commitment and many are left wondering whether they are leaving money on the table. These factors lead many to fork over some cash in exchange for a professionally prepared filing. Once that decision is made, who do you choose? Your choices are normally your senior citizen neighbor who is doing them for $50, a higher end accounting firm, or an H&R Block type franchise. For the financially untrained, this is not an easy decision.

We’d like to share some tips on how and why you should choose a tax professional.

How and Why To Hire a Tax Professional

Why pay a Tax Professional? I can do it myself!

Anyone can answer the multiple choice questions posed by aforementioned software, which then spits out some numbers on a form. The reason you should pay a tax preparer is to take an aggressive position. I’m not saying you should embellish or lie on your return, far from it. I’m merely suggesting to take advantage of the many grey areas our great tax code has to offer.

A good tax guy will know what issues are trending in the eyes of the IRS. They best way to explain this is that certain areas aren’t even known or enforced as other areas. You’d never know this information if you’re preparing merely one tax return year.   

Whether aggressive or conservative, every tax position should be substantiated with a strong opinion/reasoning for doing so. Sure! You can do it yourself but you don’t have a client base to draw experience from. For example, if none of your clients have received a noticed to check the price regarding their home office deduction in 20 years of practice, you may be able to conclude the IRS isn’t focusing their resources on that issue. On the contrary, if you had 6 clients receive notices about a specific deduction or issue, you’ll need a stronger opinion than normal before sending out your paperwork.

Bottom line is: Don’t hire a number inputter, hire an experienced professional!

Referrals

The best place to start is to ask your peers who they file their return with. The important thing to know is why they are happy with the service provided. If they reply “because they gave me a large refund,” that’s a bad answer. Don’t EVER judge an accountant by who can give you a bigger refund!

Sound, honest financial practices will sometimes say a bigger refund is giving the government an interest free loan they didn’t apply for. Judge their quality of work by timeliness, availability for questions, and detail they put into your return. One indicator of detail is by the questions they ask you. Then — go with your gut feeling!  

Avoid national tax franchises

Honestly, I don’t want to make this a bashing session on H&R Block or Jackson Hewitt, because I’ve used both and it was okay. The truth is that there aren’t too many barriers to entry in becoming a tax preparer. Companies like these put their employees through a quick training course and their on your way.

That’s not what you want. Especially as your taxes become more complicated, you don’t want your tax return to be somebody’s side hustle. Make sure the town plumber isn’t moonlighting as your tax accountant. Plumbers deserve as much respect as the next guy but they aren’t hired for their knowledge of Form 1040. H&R Block’s average tax return fee was $273 as of 2014. Seems like an awful lot to pay for someone who doesn’t do this full time.    

Experience

Ideally, you’d want your accountant to have some public accounting experience. Public accounting is typically known as a CPA firm. If you go with this choice, you almost certainly will pay a higher fee but it will be worth it. The penalties and interest of a misstated return can be very costly, not to mention stressful. One workaround is to look for and hire someone who has recently left the tax industry for their new freelance tax job. (Same field.) There’s a chance these individuals may have a lower fee because they won’t have employees or rent to pay. Most likely, they’ll be doing returns out of their house.  

Make sure the tax preparation person was on the tax side of the business for at least 3 years. I say this because many accountants have never touched the sort of tax return you need, as their career may have been specialized in a different area of accounting. Three years is enough time for them to have seen hundreds of clients. Unless you have some sort of complicated business, they’ll be able to handle what you’re bringing to the table.  

If you’re a business owner, you’ll want to verify that they have some experience dealing with your industry. For instance, restaurants and manufacturing type establishments may require specialized knowledge. Service industries may not need as much extra tax knowledge because many areas in service have clear-cut allowable deductions, possibly making their financial statements less complicated in some areas (not to say they are easy by any stretch of the imagination).

Now you know how to pick a winner! By following the advice above, you’ll steer clear of the basic roadblocks to choosing the right professional. Still — remember — choose wisely!   

Original Article: https://due.com/blog/hire-tax-professional/#