Figuratively speaking, tax preparers come in all shapes and sizes. Sure, accountants, bookkeepers, tax attorneys, CPAs, and so on provide overlapping services, but you and your needs are vastly different than their next client. So how do you know when to choose without overpaying or not getting any value from their service? Here, we’ll talk about knowing when to choose to get the most bang for your dollar and needs fully satisfied.
Do you Own and Operate a Business?
There’s nothing better than pursuing the American Dream. Owning a business is a novelty and a great way to create a better life and earn a great living for you and your family. However, the accounting side of it might be a bit tricky if you don’t know what you’re doing. Most owners can manager their bookkeeping with QuickBooks and Xero Accounting software but do not have the foundation of accounting principles. This lack of understanding could overstate income or understate expenses which in turn could affect your ability to report your financial statements and taxes correctly.
If you are someone with a limited knowledge of accounting and bookkeeping then it’s highly recommended to hire a bookkeeper for your daily bookkeeping needs and a CPA to handle preparing your taxes. Remember, your first-year tax elections can impact your business's tax filings in future years, so it pays to start things on the right foot and grow from there, even if you're a sole proprietor . A bookkeeper will ensure your accounting books are correct and a CPA or accountant will ensure your taxes are prepared correctly; eligible deductions and expenses are fully captured, and help prepare business financial statements if needed for a bank loan. If you can’t afford a CPA then a certified tax preparer or representative from H&R Block would be a great substitute.
Decide How Complicated You Are
If you are a W2 employee (like most), have a few common deductions such as state and local taxes, mortgage interest, and exemptions, you could probably get away with using Do-It-Yourself tax software that H&R Block and Turbo Tax offer. Why? Because they are fairly cheap and hold your hand (virtually) through the process of filing your taxes so it could potentially help you save money.
Now, these programs will do a great job of taking complicated tax topics and translate them to English for you but an accountant or tax preparer might uncover tax savings that you could potentially be eligible to claim.
If your tax situation has not changed much year after year then you shouldn’t have to worry about missing out on deductions and credits unless a new program was signed into law. In that case it’s best to inquire.
Some other points to consider are how much time do you have devoted to your taxes and how comfortable are you walking away from them once you’re done. Since 2001, Congress has made nearly 5,000 changes to the Tax Code: that’s more than a change per day so understanding changes for common deductions and exemptions will take time to interpret . Also, consider how comfortable you’ll feel once they’re completed. Remember that, barring fraud or underreporting income, there is a three year statute of limitations for federal income tax returns for an individual; that means that the IRS may challenge what you've reported for up to three years after the date of filing or Tax Day (whichever come later) .
When to ALWAYS Use a Professional with Your Taxes
Sometimes there are situations that arise which require a professional to handle our needs whether you have a budget for it or not.
- Your Tax Situation is Rather Complex
If you are someone with rental property, a sole proprietor who deduct expenses on your personal tax return, claim medical expenses for another person, or claiming parents as exemptions who do not live with you would more than likely qualify as a tax situation that need to be reviewed thoroughly.
If you happen to receive a letter from the IRS regarding an audit then it’s best to contact the person who prepared your return or a CPA, an Enrolled Agent (EA) with the IRS, or Tax Attorney to assist with your situation. Taking matters into your own hands might make the situation worse and cost you more money.
What if your marriage is headed for divorce? You could be responsible to pay alimony or become the recipient of it so it’s always best to consult a tax preparer to ensure you’re claiming it correctly.
Living financially sound can lift a huge burden off your shoulders when it comes time to putting food on the table and paying for college. Kiplinger reports that IRS statistics show an increased likelihood of IRS audits once your household income passes $200,000, and even more so if you earn over $1 million annually .
Another point to consider is, after a certain income threshold, exemptions and deductions begin to phase out meaning you won’t be able to claim a full deduction or exemption because you make too much money.
- When You are Not Sure or Comfortable
Whether or not you own a business, have a difficult tax return, or even feel uncomfortable preparing and filing your own taxes then it’s always recommended to look for help. Sure it could get pricey for their services but ensuring your business records are up to date and accurate, tax return is prepared and filed accurately, and you’re getting every dollar you’re eligible to claim from the government then it might be money well spent.