When You Should Hire a Tax Preparer
Whether you're taking advantage of the extended deadline to file your 2019 tax return or are thinking ahead to your 2020 return, here are some considerations.
Regardless of the outcome, each taxpayer must decide how they’ll file their taxes. Although online tax software can make doing your own taxes fairly simple, it’s not a one-size-fits-all solution.
Here are some scenarios to help you decide whether you should do your own taxes or hire a tax professional.
When it makes sense to do your own taxes
The U.S. tax code often leaves taxpayers feeling intimidated by its ever-changing nature and complexity. But if you have a straightforward tax situation, doing your own taxes may be easier than you think.
There are many free or affordable tax software programs online that make filing a tax return simple and convenient. These programs turn the process into a simple data entry exercise instead of a complex mathematical and administrative beast.
Some tax software programs make income tax preparation even faster now by providing a tool that automatically populates important information from an uploaded photo of each form.
Here are some scenarios that may indicate you have a simple tax return that can be filed on your own:
You’re employed in a traditional wage-earning job. If you only have income from one or two W-2 forms, your taxes will be fairly simple. You’ll just transfer data from the forms into the tax software as prompted.
You’re claiming the standard deduction. By claiming the standard deduction, you won’t have to go through the hassle of itemizing deductions. For the 2019 tax year, the standard deduction increased to $12,200 for individuals and $24,400 for married couples who are under the age of 65 and filing jointly.
You don’t have any significant changes from the previous tax year. If you haven’t had any major life changes — like getting married or divorced, expanding your family size or losing your job — you can use last year’s return as a guide. Your results should be similar, although it varies based on changes to the tax code.
Fortunately, for those who choose to file on their own, most tax software programs offer online support to help answer common questions. You can also upgrade your filing product and gain access to experts who can answer your specific questions and review your tax return for accuracy.
When you should consider hiring a tax professional
Do-it-yourself taxes aren't for everyone though. Many individuals are faced with a more stressful tax situation that requires navigating multiple income forms, tracking business expenses and accounting for a wide variety of investment activity.
Consider hiring a tax preparer if:
You own a small business. There are many common small business tax write-offs that you can claim, and some you may not even be aware of. For example, the 2017 Tax Cuts and Jobs Act allows small business owners to deduct up to 20% of their qualified business income (QBI). A professional can help evaluate each deduction and ensure you have proper documentation to claim it.
You’re an independent contractor or freelancer. Self-employed individuals often have many clients, which can translate to multiple 1099 forms. And in some cases, you won’t receive a 1099 — which can make things confusing because you’ll still need to report the earned income. A tax professional can help review your sources of income and weed through your expenses to maximize your self-employment tax deductions.
You have complex investments. Do you have rental property? Have you sold or bought stock? Do you have investment holdings outside of the country? These are just a few of the scenarios that can quickly make filing your own taxes more complicated.
Keep in mind that you’re responsible for the accuracy of all information provided on your tax return — even if you hire someone to prepare it.
Before filing your tax return, do a complete review for any typos and ensure all information and documentation is complete and accurate to your knowledge. Be sure to keep all related records for at least three years in case you’re selected to be audited by the Internal Revenue Service (IRS).
Filing options
Be aware that you may be able to take advantage of free tax software, even if you have a more complicated tax situation. If your adjusted gross income (AGI) is $69,000 or lower, you may qualify for free filing options through partnerships with the IRS.
But even if you’re capable of figuring out your own taxes, you may want to outsource the task to save time, avoid mistakes and skip the overall headache that comes with filing your own taxes.
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