Finding an Accountant Can Lead to Big Tax Savings
If you’re like most Americans you probably have a good handle on completing your taxes on your own. Over the years it has become incredibly easy for anyone with a computer thanks to Tax software for the home office to file your own taxes. For those of you with relatively simple tax circumstances, this is the ideal way to go. But what about those with slightly more complex financial situations? Sure, there are more robust versions of tax software available such as TurboTax’s Home & Business, Property Manager, and so on. These solutions go into greater depth to help you, but is it the best choice for you?
True Tax Story
As soon as John was on his own, he began using tax software to do his own taxes. He used both TurboTax and H&R Block’s software many times and both got the job done great. For a few years during college his finances were simple and his income and deductions were trivial. Those were the good ol’ days. As time went on his finances started to get a little more complicated. For a few years he was a member of an LLC in addition to working part-time. This created a few unique scenarios that made doing his taxes a little more complicated, yet he was still comfortable in handling it on his own. As the years went on he moved on to where he and his wife had regular salary jobs, no house, no kids, no odd circumstances, so doing his taxes again became as easy as sitting down at the computer for an hour and plugging in a few numbers.
Then, things started to change as John started to dabble in freelance work and other self-employment ventures. The first few years were easy because it was more of a hobby and the income and expenses generated from the freelance work were trivial. As time went on, more sources of income started coming in, and additional expenses started adding up, his tax returns became more of a nightmare. Sure, the software could still handle it, but he was spending more time tracking down documents, receipts, and trying to find deductions because the tax bill at the end of the year was growing significantly. One year after plugging in all of the data into the tax software, it said he owed the IRS nearly $4,000. That’s impossible, John thought. He had as much taken out of their paychecks as possible through work, and was paying estimated quarterly taxes, and was itemizing deductions so that he could deduct as much as possible. There had to be a glitch in the software or he was missing something, so he plugged the numbers in over and over for about a week straight only to come to the same result.
With that, John knew it was time to seek professional help. He asked around with some friends and co-workers about CPAs that specialize in small businesses and self-employed taxpayers, and made a few calls around and interviewed a few of them. So, he set up an appointment with us. After sitting down with a Rink & Robinson staff member for about an hour discussing his situation, looking over some numbers, and doing some calculations we knew we could help John. A few days later John was thrilled when he received a call from our office that he only owed $2,500. So at the end of the arduous process, Rink & Robinson, PLLC saved John $1,500. Sure, the cost of having us do his taxes cost $300 at a savings of $1,200. John says, “This is the best money~ he’s ever spent” Rink & Robinson will continue to do John’s work.
We shared this story just to give you one scenario where making the move to hire a professional can be a good decision. John was a savvy guy when it came to finances, but admits that sometimes the professionals need to be part of the equation because of all the changes that occur year after year. Most people think that they have enough knowledge with the assistance of tax preparation software to get the job done correctly, but clearly someone who does this stuff for a living can still do a better job in the long run. Generally it is more cost effective to hire a professional in their field to seek out services than to try to attempt it on your own. If you have a leak, you call a plumber. If you have an electrical problem, you call an electrician- so forth and so on. While it was the right decision for John it may or may not be the right decision for you.
When Should You Consider Hiring an Accountant For Your Taxes?
There is a difference between an accountant and just a tax preparer. As tax season kicks into gear you’ll begin to see advertisements pop up with tax preparers in your area who will do your taxes for you at a cost. Keep in mind that when dealing with one of these places you probably aren’t going to get a full-blown accountant or CPA. Instead, you’ll likely have someone who is qualified to handle returns, but they will likely do little more than ask you the same questions that software you buy on your own does and then plug in the numbers. While it’s nice to get some one-on-one time with someone, you also want to keep in mind that this person is more or less just trying to get your taxes done, not assess your financial situation and help you put together tax strategies going forward. So remember, there are accountants that do taxes, and there are people who do taxes that aren’t accountants.
Here are a few scenarios when it might make sense to start looking for professional tax help:
- You own a business.
Self-employed individuals stand to see the greatest return when hiring an accountant. Running a business presents a lot of unique situations that can have a significant impact on your taxes. Being self-employed also opens the door for a new world of deductions, credits, and retirement account planning that you may not be used to. While you can certainly find this information online, having someone who does this for a living will save you time and maybe even some money. In addition to just helping you find all the available deductions and paying the IRS as little as possible an accountant can be tremendously helpful in working with you to structure your business as best as possible, putting together a plan for the future to help you take advantage of tax breaks in the coming year, and being there for you if you encounter problems down the road.
- Going through a major life change.
If you’ve been plugging alone for the past few years with basically the same financial situation there’s obviously little need to pay someone to do what you’re already comfortable doing. But when you encounter a major life-changing event in the middle of a tax year it could lead to an unpleasant surprise come tax time. Getting married, divorced, changing jobs, having children, receiving an inheritance, preparing to retire, etc. These are the things that can change your financial situation in a heartbeat and if you aren’t prepared it could end up costing you dearly.
- Real estate or taxable investment dealings.
Do you own a rental property? If so, an accountant will be your best friend. Owning a rental opens up a lot of special tax situations that you’ll surely want to take advantage of and make sure you aren’t making any mistakes. The same thing can go for just buying and selling a home or other real estate. While the laws are pretty straightforward, it’s usually a large transaction in terms of dollars so you want to make sure you’re doing everything properly. Finally, let’s not forget tracking gains and losses on taxable investments. If you buy and sell stocks, bonds, mutual funds, or anything else throughout the year in a taxable account you’re going to have a lot of things to consider. Long-term vs. short-term gains and losses, dividends taxed at a different rate, cost basis, the wash rule, and so on. Sure, you can do this on your own, but how much time will it take and are you sure you’ll catch everything? The time saved by hiring a professional alone may pay for itself.
Don’t Be Afraid to Get Help
For people who like to and are proud of doing things themselves it can be difficult to make the decision to seek outside help. Don’t let that get in the way of doing what’s best for your finances. Sure, the majority of people will be just fine doing their own taxes. If that’s you, grab the latest edition of TurboTax or H&R Block At Home. It’s still the easiest and cheapest way to do your taxes. But for those of you who may have finances that are a little more complex, are self-employed, or would otherwise just like to outsource your tax preparation don’t be afraid to get a professional to help. At most it will probably only cost a couple hundred dollars compared to buying software and e-filing yourself, and chances are you save that much or more on deductions and tax strategies you overlooked by doing it on your own. Whatever you do, make sure you get an early start so you don’t miss the tax filing deadline!
Rink & Robinson, PLLC can give you a free consultation to help determine whether or not you need a professional to do your taxes. We are available Monday thru Friday 9am to 5pm and Saturdays during tax season.