When Should You Hire a Professional to Do Your Taxes?
Navigate tax complexities with confidence. Discover when professional assistance is beneficial and how to select the ideal expert for your unique financial needs.
When tax season arrives, many individuals face a common decision: should they prepare their own taxes or seek assistance from a professional? This choice often depends on the complexity of their financial situation and their comfort level with tax regulations. Understanding the key considerations and specific situations that might warrant professional help can alleviate stress and ensure accurate tax filings.
Understanding When to Seek Professional Tax Help
Professional assistance becomes a valuable investment when tax preparation is complicated by certain life events and financial complexities. Major personal changes, such as marriage, divorce, the birth or adoption of a child, or the purchase or sale of a home, introduce new tax implications that a professional can help navigate. These events often involve new deductions, credits, or reporting requirements that might be overlooked by an individual preparing their own return.
Beyond personal milestones, various income streams and financial activities can add layers of complexity. Individuals with self-employment income, gig economy earnings, or those owning a business often deal with specific forms like Schedule C (Profit or Loss from Business) and Schedule SE (Self-Employment Tax), along with managing deductible business expenses. Investment income, including earnings from stocks, bonds, cryptocurrency, or rental properties, also complicates returns, requiring detailed reporting on forms like Schedule D (Capital Gains and Losses), Form 1099-DIV (Dividends), and Form 1099-INT (Interest Income). Foreign income or assets, complex deductions or credits, or receiving an inheritance often require expert guidance. These areas involve intricate tax laws and potential reporting obligations that may not be apparent to the average taxpayer.
Exploring Types of Tax Preparers
When considering professional tax help, understanding the different types of tax preparers available is helpful.
Certified Public Accountants (CPAs) are licensed by state boards of accountancy and possess broad expertise in accounting and tax matters. They complete extensive education, pass a rigorous examination, and meet experience requirements, offering services that range from tax preparation and planning to financial statement audits and business consulting.
Enrolled Agents (EAs) are federally licensed tax practitioners specializing exclusively in taxation and are authorized to represent taxpayers before the IRS. They pass a comprehensive three-part Special Enrollment Examination covering federal tax planning, individual and business tax return preparation, and representation.
Tax Attorneys are lawyers specializing in tax law, licensed by state courts. They handle complex legal tax issues, disputes, and can represent clients in court, which CPAs and EAs generally cannot do.
Non-credentialed preparers or tax preparation services also exist. While they can prepare returns, they may not hold specific professional licenses or have the same representation rights as CPAs, EAs, or Tax Attorneys. All paid tax preparers must have a Preparer Tax Identification Number (PTIN) issued by the IRS.
Gathering Your Tax Information
Before engaging with a tax professional, organizing all necessary documents and information is a crucial preparatory step. This proactive approach saves time and contributes to the accuracy of your tax return.
Key documents include:
- Wage and Tax Statements (Form W-2)
- Various Forms 1099 for other income sources (e.g., 1099-NEC, 1099-MISC, 1099-DIV, 1099-INT)
- Form 1099-B for brokerage transactions
- Form 1099-R for retirement distributions
- SSA-1099 for Social Security benefits
- Form 1098 for mortgage interest paid
- Form 1098-E for student loan interest
- Health insurance statements (e.g., Forms 1095-A, 1095-B, or 1095-C)
- Records of property taxes paid and charitable contributions
- Detailed business income and expense records for self-employed individuals or business owners
Copies of previous year’s tax returns provide valuable historical context and can help identify recurring deductions or credits.
Choosing the Right Tax Professional
Selecting an appropriate tax professional involves evaluating several factors to ensure their expertise aligns with individual needs.
Begin by verifying their credentials and licensing. CPAs can be checked through state boards of accountancy or CPAverify.org, while Enrolled Agents and their PTINs can be verified via the IRS Directory of Federal Tax Return Preparers.
Confirm that the professional has experience with specific tax situations relevant to your financial profile, such as self-employment income, investment activities, or rental properties.
Clarity regarding the fee structure is also important, as some professionals charge a flat fee, while others bill hourly. Avoid preparers who base their fees on a percentage of your refund.
Assess their communication style and availability, ensuring they can be reached for questions even after the tax filing deadline.
Reputable professionals often have positive online reviews and may be members of professional organizations. Referrals from trusted sources can also be a reliable way to find a qualified tax professional.