Paying taxes is painful enough. Why fork over even more of your hard-earned money to pay someone to prepare your tax return?
You probably don’t need to if your tax situation is straightforward. You can prepare your return on your own or with the help of tax software. But for some taxpayers, it’s worth spending the money to get professional help. “For people who have complex taxes and don’t want to do them, there’s a tax pro out there waiting for you,” said Dave Du Val, chief customer advocacy officer at tax audit defense firm TaxAudit.
You Don’t Have the Time or Patience
Most taxpayers can handle filling out a tax return on their own, especially those who only have one source of income from a job. “Truly, taxes aren’t rocket science or brain surgery,” Du Val said. But the process can be intimidating and time-consuming.
“If you don’t have time or patience, that’s why there are tax pros,” Du Val said. Take your reluctance to tackle your return as a sign that you should have a professional do it for you — if you’re willing to pay, that is.
Just make sure you hire someone who has the proper qualifications and credentials. Only four states require testing and certification to be a tax professional, Du Val said. “You can hang out a shingle in most states and say, ‘I’m a tax pro.’” To be safe, look for someone who is an enrolled agent or certified public accountant, or check the IRS directory of federal tax return preparers.
You’re Going to Have a Major Life Event
One of the key times in your life when you should get professional tax help is when you have a life-changing event such as a marriage, birth of a child or even a new job. But don’t wait until after the fact. “Speak to a professional before a major life event so you know the possibilities going forward,” said Eric Nisall, an accountant and creator of Bookkeeping for Bloggers.
For example, if you get married, an accountant might advise you to fill out a new W-4 Form with your employer to adjust your tax withholding for your new tax filing status. If you’re expecting any life changes during the year, schedule a consultation with a tax pro in advance to make a plan, Nisall said. Then you won’t make any tax mistakes that can’t be undone when you file your return.
You Started a Business
If you start a business, you should hire a tax accountant to help you file your first return as a business owner. “It gives you that base — a foundation to follow,” Nisall said. The next year, you’ll have a professionally prepared return as a reference if you want to tackle your return on your own, he said.
A tax professional will help ensure you get all of the deductions you deserve and avoid writing off expenses you can’t actually claim. “If you’re new to the business you’re doing, you’re not going to know all of the nuances,” Nisall said. You don’t want to end up accidentally committing tax fraud.
For example, if you’re a blogger and are sent free products from companies in exchange for writing reviews about them, you have to report those freebies as income, Nisall said. An accountant will know to address these matters, whereas they might get overlooked if you prepare your return on your own or with the help of software.
You Work in the Gig Economy
If you got a side gig to boost your income, you might find yourself in over your head at tax time. “In this current environment, we have a lot of people starting a new business without realizing they’ve started a business,” said Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting. “They sign up with Uber or Airbnb. At the end of the year, they get a tax form and don’t know what they’ve gotten themselves into.”
That unfamiliar tax form is a 1099-MISC, which is what companies use to report income paid to contract workers. You have to report this income on your tax return. Chances are if you’re new to the gig economy, you didn’t make estimated tax payments on that income during the year. And you didn’t keep track of expenses related to your gig that you could deduct at tax time. A tax pro can help you sort this out at tax time and help you get the deductions you deserve, Luscombe said.
You Have to File More Than One State Return
Moving from one state to another is a transition that most tax software can handle with ease, said Megan Brinsfield, a CPA and director of financial planning for Motley Fool Wealth Management. But there are situations where you might not realize you have to file a return in more than one state.
“Let’s say you own a pass-through business that operates in more than one state, you invest in MLPs (master limited partnerships) or you travel from state to state for work,” Brinsfield said. “Things can get complicated quickly, knowing which state has the right to tax your income.”
If you fail to file a tax return in a state where you owe income tax, that state has an unlimited amount of time to audit you, Brinsfield said. “So it’s better to hire a pro to do all the filings properly the first time around.”
You Bought or Sold a Home
If you prepare your tax return or use tax software, you might miss out on valuable deductions if you bought or sold a home during the year. That’s why you should consider hiring a tax accountant or using a tax preparation service.
“When you buy a home there can be valuable deductions hidden in the closing statement that wouldn’t be reported on the 1098 you get from your mortgage company,” Brinsfield said. “Most people that prepare their own taxes wouldn’t know where to look for those deductions, or what they are looking for.”
If you sold a home for a profit, you want to minimize the taxable gain. You can exclude up to $250,000 of your home sale gain from your income — or $500,000 if you’re married filing jointly — if you lived in the house two out of the five years prior to the sale. “Once you are over that threshold, you will want to have a pro take a look at all possible deductions to which you are entitled,” Brinsfield said. There are tax loopholes that can save you thousands.
You Have Rental Property or Invest in Real Estate
You probably should get tax preparation help if you’re new to real estate investing. “There are specific tax laws that real estate investors should be aware of when it comes to depreciation, asset management and special tax deductions,” said Tai Stewart, an accountant and owner of Saidia Financial Solutions. “That’s whether you open up an Airbnb or buy an apartment complex.”
Tax pros will make sure you’re aware of the credits and deductions you qualify for as a real estate investor, she said. And they’ll help you avoid making costly mistakes when filing your return.
You Have a Lot of Financial Accounts
If you have several brokerage or financial accounts and receive tax forms from all of them, hiring a pro can help you sort through them and report that investment income properly, Nisall said. It could be time-consuming and frustrating if you do it on your own. “You’ll just spin your wheels,” he said.
Tax pros can speed up the process with their expertise and specialized software. “Sometimes it’s just easier to pay someone else to deal with it,” Nisall said.
You Got Divorced
Getting divorced is one of those life events that could signal it’s time to get professional help with your tax return, especially if you have children. It can be confusing figuring out who gets to claim the kids as dependents when you’re divorced, Du Val said. “That is always a problem.”
In fact, the tax audit defense firm where he works — TaxAudit — sees a lot of audits of divorced taxpayers improperly claiming dependents. It can get confusing establishing which parent has primary custody for tax purposes when parents have joint custody. “You may want to get a tax pro to help you get started,” Du Val said.
You Have a Nanny or Household Help
Having a nanny or household help can make filing your tax return complicated. Ideally, you should get help from a tax pro before tax filing season, Du Val said. That’s because there are things you need to do during the year to avoid facing penalties when you file your return.
You might need to get an employer identification number, withhold and pay Social Security and Medicare taxes for your employee, pay state unemployment tax and file a W-2. At tax time, you have to file a special form — a Schedule H — with your tax return to report wages you paid to a household employee and note whether you withheld federal income tax. A tax pro can walk you through what forms you need to file, records you need to keep and taxes you need to pay.
The post 10 Signs You Really Do Need Professional Help Filing Your Taxes appeared first on GoBankingRates and is written by Cameron Huddleston
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