Tax time is just around the corner. It’s time for the annual debate on whether you should do your own taxes or if you should hire a tax professional.
Of course, there’s never an easy answer… It always depends on your situation.
Let’s look into your situation and find out what you should do!
SIMPLE VS. COMPLICATED
Is your return simple or complicated?
Don’t know? No problem.
What forms do you get at tax time?
If you get just a few basic forms, like a W-2 or 1099-INT, then you’re better off just using online software to file your return for free or at least less than paying a pro.
Hiring a professional can cost anywhere from $185 to $500.
So, if you (and your spouse) are only receiving W-2s and a couple of other basic forms then it makes more sense for you to file yourself.
There are a few options for you to file online.
- The IRS has a Free File Program to file your federal return for free through IRS partner sites.
- FreeTaxUSA offers a free federal return and $14.99 to file your state return. This software is very user-friendly. It’s one of my favorite online tax filing software.
- TurboTax is also user-friendly and has several different pricing options to fit your situation. If your return is super easy, then you can file for free on federal and state returns.
Now let’s see what a complicated return looks like.
COMPLICATED RETURNS
In general, you are considered a complicated return (as far as filing yourself) if any of the following apply to you:
- You are self-employed
- You had a major life event happen in this tax year, like –
- Getting married
- Getting divorced
- Selling a home
- Receiving inheritance
- Moving to a different state
- You own rental property
- You have foreign accounts
- You are an active stock trader
In these situations, you should hire a tax professional to file your return.
Here’s why –
SAVES MONEY
In most cases, if you have a complicated return, a tax professional can potentially uncover tax savings that may not be recognized by the online software options mentioned earlier.
Sure, you may be spending more on the filing costs by using a professional, but the tax savings that a professional can provide will, in many cases, outweigh your preparation bill.
SAVES TIME
Let’s face it when you file your annual tax return you’re only working on it once a year.
So, it’s probably safe to say that this is a stressful task for you, and not to mention time-consuming.
Whereas a tax professional files several returns every year. They are familiar with it and can spend half the amount of time that you would be trying to relearn the tax software and then file the return.
Would you rather spend hours trying to file your own return, or pay someone to complete it in half the time that you can?
That just depends on what your time is worth to you.
PEACE OF MIND
Last but definitely not least, is the peace of mind that a tax professional can offer you.
Knowing that your return is filed correctly, is such a huge weight off your shoulders.
Of course, it’s always good to understand your tax return to a certain extent. You don’t want to be completely oblivious to what is going on.
But not having the burden of keeping up on tax laws and filing requirements is what makes hiring a pro totally worth it.
HOW TO FIND A PRO
Finding the right tax professional can seem like a difficult task.
Getting referrals from people you trust is a good way to find a tax preparer with a great reputation.
But if you want to do your own research, the IRS has a public directory of PTIN holders. If you’re unfamiliar with that term, a PTIN is what tax preparers need to file tax returns.
And it’s kind of hard to believe, but just about anyone can become a paid tax preparer by applying for a PTIN (Preparer Tax Identification Number) from the IRS website. You do not need to have any credentials to have a PTIN or file tax returns.
In the IRS public directory, you can filter your search with your zip code and the distance you’d be willing to travel to.
You can also filter the search by credentials.
The credential options are:
- Attorney
- Certified Public Accountant
- Enrolled Agent
- Enrolled Actuary
- Enrolled Retirement Plan Agent
- Annual Filing Season Program Participant
Credentials provide an extra layer of trust if you are hiring a professional that you don’t know much about.
Of course, Enrolled Agents and Certified Public Accountants are typically your tax experts. These two credentials require extensive testing by passing an examination before receiving the credential. A Certified Public Accountant is licensed by state boards of accountancy, while Enrolled Agents are federally licensed by the IRS directly. While both credentials can be tax professionals, Enrolled Agents are specifically licensed as tax professionals and can represent any state since it’s a federal license. Both licenses provide unlimited representation with the IRS on behalf of their clients.
There is another section that requires extra continuing tax education for PTIN holders without any licensing. Which is the Annual Filing Season Program (AFSP). The Annual Filing Season Program is a voluntary program that recognizes the efforts of preparers that are not generally attorneys, CPAs, or EAs. Annual Filing Season Program participants must complete a certain number of continuing education hours and a comprehensive test for an Annual Federal Tax Refresher (AFTR). However, this credential has limited representation rights with the IRS on behalf of their clients.
Tax preparers with only a PTIN and no other credentials are not allowed to represent clients before the IRS. Therefore, if you hire a tax preparer with only a PTIN, and you get audited, they cannot represent you.
Whereas attorneys, CPAs, EAs, and Annual Filing Season Program participants can represent you if you get audited. However, AFSP participants can only represent clients that they actually prepared the return for. The others can represent anyone regardless if they prepared the return.
So, it is beneficial to check on the public directory to be sure that the person you hire has a credential or certificate that allows them to represent you if you ever get audited or have any IRS/state tax issues.
If you want to hire a tax professional for this upcoming tax year, don’t put off your search. Start as soon as possible so you can guarantee your spot on their tax season client list!
Follow along for more tax tips!
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