At what point in my career/life does it make sense to get a professional to help with my taxes?
I'm a 26-year old professional with no real estate and not much (that I know of) to report on my yearly taxes beyond my salary, some small capital gains, and interest income. It has seemed fairly straight forward with TurboTax the last few years.
I'm wondering when folks think it would make sense to get professional help on my taxes (if ever). Is it when I have some more complicated stock option/exercise factors? Real estate? No longer filing as single? What factors make it useful?
Good Answers (2)
David M
CPA and Business Valuation Analyst at Wicks Emmett Hatfield & Chappell, LLP, CPAs
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Tax professionals offer a wide array of services in addition to tax preparation, such as tax planning, audit representation, et al. TurboTax can't represent you during an IRS audit or before the courts. You should go see a tax professional if you have opportunities to save money on your taxes by doing something before the end of the year - Is the AMT going to bite you? What can you do to prevent it? You should also go see a tax pro if you think that a position you want to take on your tax return has a chance of getting audited - Did you win a lawsuit with arrangements that could be construed as lost wages? You should definitely see a tax pro when it costs you more in terms of time and money when you do it yourself - How much did the box cost? How much time are you spending at the computer entering the information and what else could you have done with that time? Did you miss some nuance of the tax law that could have saved you some more money?
Stock options are difficult to do on your own because an ISO isn't taxed when exercised for regular tax purposes, but is ordinary income for AMT purposes. This really hit home many years ago during the tech boom with the people who got hit with huge AMT tax bills because they exercised their ISOs and then the stock was sold at a loss a few years later - Merlo, Tax Court, April 25, 2006.
Real estate can be tricky because if buying and selling land is your job then the land counts as inventory and any gain would be ordinary income subject to self employment taxes if you file a schedule C. If you hold onto land as an investment then it is a capital gain. But what if the land also includes a house? What is the value of the house versus the value of the land? Is it your primary residence? Is it a rental? Did it switch from a rental to your primary residence? Do you want to figure out the depreciation every year? What would the depreciation be?
When you have more questions than answers for a particular area of the tax return, you should see a tax professional.
David McGinnis, CPA
davidm@wicksemmett.com
Links:
Greg B
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I started using an accountant soon after having kids. Not that kids changed my financial position so drastically (love those little tax deductions, love 'em to death!) but because I simply didn't have time for it.
You'll find that hiring a preparer is a wash, kind of. You still have to gather and understand your documentation, which takes time.
That said, sticking with a good one means you'll start to see a consistency in the work, you'll notice deduction opportunities throughout the year, and you'll rest assured that (in most cases), a pro will be aggressive on your behalf without being nutty.
I would never go back, for one. My tax guy runs me about $350 a year (deductible as well) but it's absolutely worth both my time and the satisfaction of knowing it's done right and to my advantage.
More Answers (12)
Running your own business or doing a majority of business as a contractor or freelance person usually leads to needing a good tax professional, however turbo tax will serve fairly well for traditional income even into married life.
Reese O also suggests this expert on this topic:
It is very tempting to answer: never too early.
You may be very surprised what you can claim that you are not, and that is likely to more that offset the cost. It is also good to build a relationship.
A key other factor, however, is the country to coutnry differences.. in Australia you would be mad not to go to an accountant for income tax (and GST for small businesses). In the US a personal tax return on a low-middle income is a lot less likely to be worth it.
The best person to speak to is your bank manager. He will know enough of your financial situation to give you a rough yes or no
Eugene R
CEO
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Whenever you feel that the taxes you pay could be reduced with the help of a tax advisor.
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Alison R
author, "Diary of A Real Estate Rookie"
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Not a tax pro, but it sounds like you are filing just schedule B (interest income) and schedule D (capital gains).
The fun really starts when you are filing schedule C (to report freelance income) and/or schedule A (to itemize deductions, usually because you've bought real estate and are paying mortgage interest and property taxes).
Until then, I wouldn't worry about it.
Alison Rogers
author, "Diary of a Real Estate Rookie"
Insider Real Estate Tips with a Twist of Humor: http://tinyurl.com/2ag28z
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Brian D
Owner of Lifeline Financial Partners
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For me, when the time I'd invest would be better spent elsewhere on my own career or life, then I hire a professional, because with taxes like financial planning, what you don't know can cause all sorts of problems.
I gave up changing the oil in my car, I gave up tuning it up, and I gave up doing my own dental work ;), because I don't want to invest in the tools and value my time.
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Hey Jack,
What folks are saying here is pretty much right on and it sounds like you're doing all the right things. TurboTax is pretty useful and will serve you well for a while.
My tax guy has been great since I went into contracting. I'd be happy to introduce you to him when you're ready for an accountant.
James C Brandon J
Owner, JCB Capital Performance - Personal Wealth Management, Asset Manager, Financial Planner, Financial Adviser
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Hi Jack,
If you are working with TurboTax you are ahead of many Americans who simply throw up their hands and asks someone else to provide tax preparation.
There are advantages to understanding how Congress has written the law - credits, tax deductions, incentives etc.
If you ever 1) start a business or 2) your non-qualified investments become complicated you may choose to seek help. Also, if you simply 3) don't want to spend a couple hours on TurboTax.
irs.gov has become much friendlier (than 20 years ago) - you can search a topic and download a pdf (better written today).
I would recommend a general understanding of the code so that if you choose a tax preparer you can discuss with them what they are doing.
JC Brandon
jcbcapital.com
Jerry E
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The day you decide that your money is better off in your bank account than Uncle Sam's.
Robert R
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I don't know David McGinnis, but his response is unquestionably the best answer. It always amazes me how many questions there are on LinkedIn which amount to the same theme--people wanting to know how they can avoid paying for professional services.
If you are ever audited, an event I sincerely hope does not transpire, you will thank the Good Lord if an experienced CPA did your return rather than a computer program.
I'm a lawyer. I use a CPA firm. That's all I need to say.
Liz Z
Owner, British American Tax, Accountant
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I concur with McGinnis. When your questions can no longer be answered by looking it up on the web or in a JK Lasser's tax guide, that's when you need to pay for advice.
Get someone who can answer questions, not simply fill in the forms. Get someone who asks you questions like, "what are your long-term investment goals?" " where do you see yourself in five years" and so forth.
Tim J
Digital Retail Specialist - United Steel Products / Owner at Develop Horizons
I will always use a tax advisor, even if they are a low-cost one. The way I see it, they retain the filing portion of the liability, and you get a great deal of time back. What is your time worth to you? Also, they are current with every change in tax law, whereas if you forget to check the box in Turbotax, you may be in error.
Richard J
Wealth Manager, Philanthropic Advisor, Social Entrepreneur, Toplinked, 6500+ Connections
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Jack,
I like Brian's answer. Generally, even if you are capable of doing your own taxes, it doesn't mean you should. I tell people i'm certainly capable of ironing my own shirts (although my wife may disagree with me), but it's not a task I particularly enjoy doing and I would much rather spend my time doing things that are more productive. I'm happy to pay someone to do that job for me.
An hourly financial planner could look at your overall financial picture and tell you where you could take advantage of taxes more effectively, and how you could get ahead. In many cases, paying someone to help you look ahead and plan for taxes can be better than paying someone to process what already happened.
