- February 22, 2018
- Posted by: Laura Royer
- Category: Money, Taxes
It’s that time of the year where people are filing their taxes. While you may look forward to it because you know you’ll be getting a refund, most dread doing them because it can be overwhelming. As a financial coach, I often get asked if you should hire a tax professional to do your taxes and my answer is, it really depends on your specific situation. Here are some things to consider when deciding if you should hire someone.
How complex is your tax file? If you don’t have anything to itemize, will take the standard deductions, have few investments, then your tax file should be straightforward, and a tax software program should work just fine. However, if you have children, own a home, rent out space, have a small business, multiple incomes or investments, etc. it may be a good idea to hire a professional. While most software programs will walk you through these items, the more add to the list, the more complex it becomes. In addition, the more potential errors you may have and risk for being audited or even losing money.
How much time do you have? The IRS estimates it takes about 16 hours to complete a 1040 (this includes gathering all the paperwork, filling it out and submitting it). If you have a lot of claims or deductions, multiple income streams, own a business, etc., it is going to take you time to sift through the paperwork. While there are software programs out there that walk you through it step-by-step, it can still be confusing on whether certain things apply to you. If you do not have a lot of time to research or read up on each tax break or law that may apply to you, having someone who knows the tax law will come in handy. Now if your taxes are super easy and straight forward, then using the forms or software should be a breeze and straightforward.
How tech savvy are you? The fastest and easiest way to do your own taxes is using software. There are some good ones out there that will literally guide you through the forms and pull it all together for you. However, if you’re not very tech savvy you may feel a little intimidated by the process. This means you will need to do your taxes by paper form and submit it by mail.
What is your budget? If you have the budget to hire an expert tax preparer, it really can be ideal because they help you itemized your deductions and claim the right exemptions for your situation. In fact, by having them do the taxes, the money they save you could help you pay for the service. If you do not prepare your taxes correctly, you run the risk of being auditing by the IRS and no one wants that. The IRS can go back 3 years to audit any tax file. By hiring someone, you are less likely to get audited because your return should be prepared correctly. The average cost for doing personal taxes run about $300 and $450 for a small business. It is possible that you may qualify for free tax preparation through a local VITA site or even using the software for free online. Click here to learn more.
Have there been any major event changes? If you have made any major purchases like buying a home, a boat, car or sold any of these things you need to be sure you address it correctly on your taxes. Also, if you got married, divorced, or are recently widowed that will change the way you’ll need to file your taxes. There are many scenarios and questions you may need answered to help you save the most money or complete your taxes correctly. Having a professional working on your file can help navigate you through that and set up your current withholdings to account for those changes going forward.Here are some events that may have occurred that will change the way and how you file your taxes:
- Married, single, divorced or widowed
- Number of dependents changed
- Foreign assets
- Starting a business
- Gifting money (ie. paying a grandchild’s college tuition)
- Residency or employment in multiple states or even foreign countries
- Purchase or sale of real estate
- Caring for elderly parents
Are you comfortable dealing with the IRS? By signing your tax return, you are responsible for all the information contained in your file and that it is correct. And you will be the one the IRS will communicate with if they decide they have questions. When hiring a tax pro, the IRS can be directed to communicate with them concerning their questions and help you submit the correct paperwork.
The decision on the best way for you to file is a personal one. If you feel comfortable doing it and have the time, go for it. However, if you have questions, are unsure if you are doing it correctly or want to maximize your return, hire someone who knows what they are doing to help you get the best results.
Laura Royer is a financial coach, trainer and founder of Catch Your Money. She can be reached at Laura@CatchYourMoney.com