If you had a child or got married this year, it might be time to talk to a tax professional. (Getty Images)
Knowing when to seek out a professional’s help when filing your taxes can be tricky. First of all, it’s not exactly cheap. The average fee for professional help with preparing and submitting individual tax returns ranges from $176 to $457, depending on the complexity and forms filed, according to the National Society of Accountants. With a growing number of affordable and relatively easy-to-use tax software options on the market, it’s never been easier to take the do-it-yourself route. In fact, some 30 million taxpayers filed their taxes from their home computer in 2016, a 3.85 percent increase year over year, according to Internal Revenue Service data.
But there are times when a good accountant can be worth her weight in gold. How do you know when it’s better to tap an accountant for help? Here are a few signs that you need to call in the tax pros.
1. You earn $200,000 or more. The odds of getting audited are not quite as high as you might think. Just a sliver of individual income tax returns were audited in 2015 (0.8 percent), according to the latest IRS data. But the likelihood that you’ll be audited rises with your income level. For example, taxpayers who earned between $200,000 and $1 million were audited at a rate of 1.8 percent, while people earning $1 million or more were audited at a whopping 9.6 percent rate.
2. You’ve recently started freelancing or become self-employed. A freelancer’s first year in business is always one of the trickiest times. There is a huge learning curve when it comes to filing taxes as an entrepreneur versus filing taxes as a standard employee. You have to predict how much you’ll need to pay in taxes well ahead of time and come up with a plan to set taxes aside throughout the year. There are other complications, too. If you’re using a home office, it can be hard to determine which expenses are deductible on your return. Freelancers who work multiple gigs throughout the year will have to be sure that their earnings match up exactly with the payments reported by their clients. If your reported income doesn’t jibe with the payments your clients report to the IRS, you could find yourself in a pickle. An accountant with experience working with freelancers or entrepreneurs can be invaluable in helping you navigate new territory unscathed.
3. You got a huge tax bill last year. If you owed a lot more to Uncle Sam than you think you should have last year, but you can’t figure out why, it’s not a bad idea to contact an accountant to help you backtrack. An experienced accountant, or even a standard tax preparer, can take a look at your tax return to find the cause of errors or discrepancies. You are able to file an amended tax return from two to three years after the date you filed your original return.
4. You had a major household or income change in the last tax year. Life changes can seriously throw your tax strategy out of whack. If your household changed in size during the tax year for which you’re filing (for example, you had a child, got married or got divorced) or you experienced a major change in income (a big promotion, unexpected bonus or job loss) filing taxes can be a nightmare. An accountant will be sure that you’re reporting your taxes correctly and help you come up with a strategy if – in the worst case scenario – you wind up owing more taxes than you anticipated. Ideally, you should seek help from a pro well in advance of any major life changes, so that they can help you plan ahead.
5. You receive part of your income from rental properties. Investing in a rental property can be an excellent way to earn passive income and boost your net worth. But it can also seriously complicate your tax picture. You may expect to pay more taxes since you’re bringing in more income, but bringing an experienced accountant on board can help you minimize your taxes. You might be able to deduct things like repairs to the home or even part of your purchase price.
Tip: Know the difference between a tax preparer and a CPA. A tax preparer or enrolled agent is someone who can simply file your taxes for you without offering ongoing support. Think of them as the human form of basic tax software. You may feel a bit better having spoken to a human when filing your taxes, but they likely won’t go much deeper than that (on the plus side, they tend to charge less than CPAs).
A certified public accountant, on the other hand, can offer support year-round, answering questions that crop up before it’s time to file and, of course, supporting you when it’s time to file your taxes. A CPA’s experience can vary. Be sure to find a CPA who has experience with the types of services you need. If you run a small business, find a CPA who works with small business owners. If you’re an individual, make sure you’re working with a CPA experienced in handling individual tax returns, and so on.