When tax season rolls around, it’s easy to entertain the idea of hiring someone to do your tax return for you. Rather than spending a frustrating afternoon filling out forms and trying to wrap your head around complex tax terminology, how nice would it be to hire an accountant this tax season and call it a day?
While you certainly could do that — and if you have the money, I won’t try to stop you — there’s a good chance that hiring an accountant to do fill out your tax return would be like hiring a construction crew to help you build a dog house. In other words, you’d be wasting your money.
But there are circumstances — like when you need tax preparation for your business taxes or when you have failed to file your taxes in a previous year — where hiring a tax accountant isn’t just a smart idea – it could actually save you hundreds and even thousands by having a pro prepare your taxes. In that case, working with an accountant, instead of using tax prep or accounting software is actually the frugal choice.
Here’s what you need to know about when it makes sense to hire an accountant to file your taxes.
When you don’t need an accountant
The truth is, most of you probably don’t need to hire an accountant to file your taxes. If you have a traditional job that sends a W2 and you don’t itemize deductions, hiring an accountant would probably be overkill and you can file taxes for yourself.
Software like TurboTax or TaxAct should be more than adequate to handle a tax return for an individual or couple with only the basic tax forms. This type of software also tends to be much more affordable than a professional accountant when it comes to filing to pay income tax, which can cost between $200 and $500 on average. Software usually costs less than $60. If you earn under a certain amount, you may even get it for free.
If you can’t afford tax software or still want to talk to someone one-on-one about your taxes, you can often find free help. Many local libraries offer free tax assistance from qualified volunteers. It’s also important to remember that tax laws vary by state and if your return is complicated you may want to hire a CPA who can also help with tax planning.
When you should hire an accountant
Hiring an accountant is worth the extra cost when you run your own business, itemize deductions, own a rental property or have another complicated situation. Anyone who went through a divorce adopted a child or sold a business within the past year may have a radically different tax situation than most. This is where an accountant can help.
Some people say using tax software is the same as an accountant because the tax software will use the same deductions. The difference is that an accountant will poke around and ask questions to figure out which deductions you’re eligible for. The tax software assumes you know which deductions apply to you.
Even though accountants can be expensive upfront, hiring one could save you hundreds or even thousands of dollars. This is one instance where paying a premium is well worth the cost.
Here are some situations an accountant could help you with:
If you’re a business owner
Consumers who are self-employed or run their own small business should hire an accountant to avoid missing out on key deductions. For example, if you’re a yoga instructor, you may not realize you can deduct mileage to the yoga studio. This is just one example of many significant deductions you could be overlooking.
A qualified accountant will know how to ask the right questions. If you rent out a room on Airbnb, the accountant may ask if you buy cleaning supplies, extra sheets or toiletries just for that room.
These may be items you’d never think to include on a tax return.
Even if your business is only a side hustle, you may still benefit from hiring an accountant.
If you own rental property
Landlords will also benefit from a professional accountant. There are several deductions applicable to those who own real estate, and an accountant can help you identify which deductions apply to you.
An accountant may also recommend different ways to structure your rental property to maximize your tax deductions and add more legal protections. This will benefit you not just for this tax season, but for every tax season to come.
If you itemize deductions
About 30% of taxpayers in 2016 itemized their taxes, according to the Tax Policy Center. Itemizing taxes mostly applies to high earners or those with unusual circumstances.
If you’re having trouble deciding between itemizing or taking the standard deduction, a professional can help you choose the best course of action. If you do itemize, you want to make sure it’s done correctly.
If you want audit protection
The IRS audits about 1 in 140 people. The more money you make, the more at risk you are of getting audited. If you and your spouse make more than $500,000 a year, it may be worthwhile to hire an accountant just for the audit protection.
Audit protection means the accountant or the accounting firm will pay for any fees and interest owed if you’re audited by the IRS. They’ll also represent you in talking to the IRS about the audit.
This will be an extra cost on top of preparing your return, so make sure to buy audit protection before the accountant is done preparing your taxes. Most accountants won’t let you buy audit protection once they’ve submitted your return.
How to hire an accountant
The key to hiring an accountant is to find someone with experience in your particular area who can help with federal and state tax preparation as well as things that may apply to you including the self-employment tax. Whether you’re a business owner, a landlord with 10 properties or someone who recently inherited a large estate, you should be able to find an accountant who specializes in people like you. They’ll be more qualified to find the right deductions that apply to your specific circumstances.
Ask other people in your industry or those in a similar situation for their accountant or CPA recommendations. If they don’t have any recommendations, find an organization or association related to your occupation, and email them. They may have a list of referrals or a forum where you can pose the question and get the help you need in filing taxes to maximize your tax refund.
Before you decide on an accountant or firm, do some research of your own and schedule a phone call or in-person meeting. You want to be completely confident in your choice, and even something like a clash of personalities can make the experience more stressful than it has to be.
–By Zina Kumok