“In this world, nothing is certain but death and taxes,” according to Benjamin Franklin back in 1789. While this is still basically true today, does that mean everyone needs to hire a tax professional to file their taxes for them? Not always. When determining whether or not you need that extra help, it is important to consider the level of complication within your particular circumstances.
Several online “do-it-yourself” tax-preparation software packages can be more than sufficient for those simply reporting earned income from W-2 employment and taking the Standard Deduction. These services are easy to use and relatively inexpensive – sometimes even free. Filing a tax return isn’t too complicated for individuals or for married couples without children filing a joint tax return. For those with these types of run-of-the-mill circumstances, the IRS website even maintains a list of service providers participating in their IRS File Free program.
Whether you are an individual or are married and filing jointly, simply add your personal information, upload the information from your W-2s, select the Standard Deduction and the software program takes care of the all the calculations. Most programs will walk you through several other possible scenarios to make sure you get all the benefits you are entitled to in order to reduce your tax payment. You can find the best online tax-preparation service providers here.
Do-it-yourself tax-preparation becomes a little dicey when there are additional assets that have produced reportable income throughout the tax year or were sold during the year. Ownership of or transactions in stocks, bonds or real estate are prime examples circumstances that can cause a tax return to become more complicated. In addition, reporting income from tax-qualified retirement plans and social security can complicate matters as well. For example, Social Security payments are only partially taxed. Children or dependents add another dimension to tax-preparation especially when trying to calculate Child-Tax Credits or Education Tax Credits given both have phaseouts at different income levels. When adding together all these extra considerations, it doesn’t take much to quickly find yourself in need of tax advice from a qualified tax professional. The cost of missing out on any credits or deductions to you can be much greater than the cost of a professional’s service fee. Even if the tax professional isn’t able to reduce your tax liability in any given year, you will at least know you haven’t over-paid in taxes.
When looking for a tax professional to prepare and file your tax returns, look for someone who is a CPA or Enrolled Agent that specializes in tax circumstances similar to your own. Don’t choose a tax professional that specializes in corporate tax to do your personal tax work. Make sure the tax-preparer’s firm is large enough to handle the additional work they will be taking on with your business. And certainly, make sure you have asked them about their fee structure, what you get for the fee you pay and who is responsible for each step in the filing process.
Brad Lyons, CFP®