Deep Dives
Should I Hire a CPA?

Did you know there are people out there who enjoy filing their taxes? I promise, it’s real. Someone I know considers it, and I quote, a “fun game to try to lower my tax bill.” What?! Then there’s the rest of us, who just want our annual April torture ritual to end. 

Should I Hire a CPA?
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July 5, 2022

Did you know there are people out there who enjoy filing their taxes? I promise, it’s real. Someone I know considers it, and I quote, a “fun game to try to lower my tax bill.” What?! Then there’s the rest of us, who just want our annual April torture ritual to end. 

Whether you enjoy it or not, when should you get help with your taxes? When considering if you need to hire a CPA, the complexity of your situation plays as large a part as your desire to be hands-on. 

When You Should Do Your Own Taxes

When deciding if you should prepare your own return there are a few considerations. If your investment vehicles are relatively simple and your retirement plans consist of your 401k or IRA, you should be able to complete your tax returns on your own. Also, the best candidates for DIY tax preparation are people that typically use the standard deduction as opposed to itemizing deductions. If you do not own a business and have few dependents, you may also find preparing your return is more cost effective than hiring a professional.

If you are well described by the above, your needs will most likely be met by something inexpensive and simple like TurboTax or even IRS.gov. These programs will reduce errors and guide you through the tax filing process, as well as suggest relevant deductions and credits so you pay the least amount in taxes. The price is also right (or free in some cases like Credit Karma and the IRS). 

It is worth noting that self-preparing can be time-consuming. The total estimated process (including gathering documents and completing your filing) will take approximately 7 hours on average. So, if you are doing this on your own, take your time and try working on it in smaller blocks of time. Another disadvantage of preparing your returns yourself are errors and unintentional omissions. These errors can sometimes be costly, so make sure that you check and recheck your return before submitting.

When You Should Hire a Professional

Once you start getting into more complex situations- investment income, rental properties, owning a business, etc., or you don’t feel comfortable doing it yourself, you might need to work with a professional who specializes in tax preparation. For example, do you know all the relevant credits and deductions that might apply to you? Can you run scenarios to optimize your situation? To help you with these questions, a tax professional will be critical. 

Although a professional typically reduces your exposure to errors and omissions, it is significantly more expensive than doing it yourself. Costs for preparing a Form 1040 can cost hundreds of dollars depending on the complexity of your return and how diligent you have been in organizing your supporting documentation.

How complicated is “too complicated” for me to do myself?

Don’t worry, we have a list! Here are some of the situations where you should strongly consider getting a professional to help you:

  1. You have RSUs or employee stock options
  2. You have paid AMT (alternative minimum tax) in the past or will this year
  3. You aren’t sure when to sell what to minimize your taxes (you need scenarios run)
  4. You have rental property
  5. You have a small business, side hustle, or other income coming in
  6. You are making a big change (retiring, sending a kid to college, buying into a partnership, etc.)
  7. You earn income throughout the year where taxes aren’t withheld and need help calculating quarterly estimated tax payments

How to Select a Professional

If you decide to get assistance in preparing your return, here are some tips to think about when looking for the right professional:

Make sure your professional has a PTIN (Preparer Tax Identification Number). The IRS requires anyone who prepares or assists in preparing tax returns for compensation to have a PTIN. They will need to include this information on your tax return. They will also need this information to represent you in the event of an audit, appeal, or payment issues.

Look for a professional designation. While the CPA designation tends to be the gold standard, you can also have your taxes prepared by a licensed attorney or enrolled agent. These professionals usually complete varying amounts of education and examinations proving their competency. They also typically complete the Annual Filing Season program hosted by the IRS which further demonstrates their ability to prepare your returns ethically and accurately.

When possible, selecting a professional that is a member of a professional organization can add further evidence to support their capabilities. Organizations such as the National Association of Tax Professionals or the American Institute of Certified Public Accountants maintain codes of ethics and professional conduct requirements that must be adhered to in order to remain in good standing.

Comparing Fees

When selecting a tax professional, you should not be afraid to compare prices among providers.  Prices can vary depending on the professional. Typically, most tax professionals charge by the hour. If you find a preparer who has alternative methods, you may want to keep shopping. The average cost for an itemized 1040 preparation with a state return by a CPA was $273 in 2020.  

Tax prep can bring about a certain level of anxiety. As smart as the robots are becoming, sometimes you still need a human brain to chart the best course of action for you. A CPA could charge a few hundred dollars to do your taxes, but you could miss out on thousands of dollars by filing incorrectly, so it could easily more than make up for the cost. If you do need the help of a professional be sure to hire someone that is capable, ethical, and reasonably priced to assist you with your tax preparation.

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