Sometimes, doing taxes can become overwhelming — and fast. While you may have a W-2 from one job, you may also have a collection of 1099s and write-offs to contend with. But how do you know
when you need a professional’s help with taxes? After all, you don’t want to make any mistakes if you decide to do your own taxes.
“A lot of times, choosing whether to use online tax software or hiring a professional comes down to how comfortable you feel doing your taxes yourself,”
Andrea Coombes, NerdWallet’s tax specialist, tells Bustle. “The best online software these days will really guide you through the process, so there’s a good chance you can do your taxes using one of the top-rated software packages.” Plus, many of them also give you access to professionals to help you out.
Since there’s still about a month until taxes are due, you can always try doing them on your own before seeking an expert’s help. However, Coombes says that, even so, you still may feel better hiring a specialist, especially given all the
new tax changes this year. Better safe than sorry, right? And the money you invest in a professional may get you a bigger return in the end. In case you’re not sure if you need a tax adviser or not, below, experts chime in on when you may need one.
If You Have Any Freelance Income, A Side Hustle, Or Are Running Your Own Business
You may have heard that there are some big changes regarding taxes this year, such as the
Tax Cuts and Jobs Act, particularly if you’re a freelancer or have your own business. “People with self-employment income are likely to qualify for a 20 percent deduction on that income, but it’s a really complicated new tax benefit, so hiring a pro makes sense if you think you might qualify,” Coombes says.
David Cawley, certified public accountant (CPA) and CFO of
Fraim CPA, tells Bustle that sole proprietorships of all sizes could benefit from the guidance of a CPA. “It doesn’t matter if you’re making six figures or have a little bit of income from a side job, like driving for Uber or Lyft,” he says.
Speaking of side hustles, you may not think you need to consult a tax expert, but it may be best. “If you have a regular 9-5 but also
have a side hustle, get a professional’s help,” Ellie Thompson, CEO of Money Therapy, tells Bustle. “Turbo Tax is a great tool if you have an uncomplicated financial situation, but a CPA can really help find tax breaks for you.”
If You Have A Rental Property
Cawley suggests seeing a tax professional if you have a rental property. “There are
several deductible rental expenses that your everyday taxpayer is unaware of,” he says. “Using a CPA can provide peace of mind when it comes to depreciation schedules, selling/deposing of any rental properties, and so on.”
If You’ve Flipped A Property
Logan Allec, CPA and owner of the personal finance site
Money Done Right, tells Bustle that the only tax documents you’ll likely receive after you’ve flipped a home is a 1098 (if there was a mortgage on the property) and a 1099-S showing your proceeds on the sale. However, there’s more to it than just paying the mortgage and selling the property, he says. “Because there are a lot of transactions occurring between the time a house is purchased and when it is sold, I recommend hiring a professional tax preparer to prepare your return if you flipped a home during the year,” Allec says.
Taxpayers that have investments can benefit from seeing a tax expert. “This is not primarily on the execution on the tax return itself, but on tax planning throughout the year,” Cawley says. “Oftentimes, we’ll get new clients whose previous CPA didn’t do any planning with them throughout the prior year, and they’re surprised that the maneuverability is gone when we sit down to do their returns.” He says that taxpayers who have enough invested could benefit by working with a CPA that’s proactive throughout the year, so you get the best benefit come tax time.
If You Have Experienced A Life Change, Such As A Move Or Divorce
Kathy Pickering, the executive director of the
Tax Institute at H&R Block, tells Bustle that another indicator that you may want to seek out a tax professional is if you’ve experience a major life change. “If you’ve graduated, gotten married or divorced, had a child, moved, or started or lost a new job, chances are, your situation is more complex and it could impact your return and refund,” she says. This way, you can learn about the tax benefits you may — or may not — qualify for, as well as other tax strategies to minimize your tax liability and maximize your refund.
Regarding divorce, Allec points out that married taxpayers who file jointly with each other are jointly and severally liable for all taxes owed on their joint return. “This means that even if Spouse A is a doctor making $400,000 per year, and Spouse B is an administrative assistant making $40,000 per year, both spouses are equally liable for the taxes owed on their joint tax return,” he says.
If You And/Or Your Spouse Have Student Loans
Allec says that, for most married taxpayers, the “married filing jointly” tax filing status often results in the lowest tax liability since married taxpayers filing separately lose the ability to take certain deductions. “However, even though it may not be the best ‘tax answer,’ there are some circumstances in which it might make sense for a married couple to file their returns separately from each other,” he says.
One of the most common reasons has to do with student loans. “Many federal
student loan borrowers are eligible for an income-based repayment plan in which a borrower’s monthly payment amount is determined based on their income,” Allec says. “And, under some circumstances, your unpaid student loan balance will be forgiven after a certain number of years while on an income-based repayment plan.” So, it may help if you file your tax return separately from your spouse. “For this reason, it’s important for you to sit down with a CPA to figure out exactly what the tax impact of filing taxes separately from your spouse would be,” Allec says. Africa Studio/Shutterstock
Allec says that about a third of states offer some kind of adoption tax incentive via an adoption tax credit. “If you adopted a child or are thinking of doing so, be sure to discuss your situation with a tax adviser to make sure that you maximize the credit,” he says. “Also, the IRS keeps a close eye on taxpayers who claim the adoption tax credit — their audit risk is significantly higher than it would be otherwise — so you really want to make sure you have a tax professional in your corner when going through the adoption process.”
If You Make More Than $200,000 Per Year
Riley Adams, CPA and founder of the personal finance blog
Young and the Invested, tells Bustle that when you are a high-income tax earner, you are more likely be the target of the IRS for possible audits. “This isn’t because you necessarily did anything wrong or made claims on tax deductions or tax credits incorrectly, but there is a lot of money at risk and the government wants to ensure they aren’t being cheated,” he says. “IRS statistics show an increased likelihood of being audited once your taxable income surpasses $200,000.” He says these odds increase as your income does.
If You Have Sold Stock Via Stock Options Through Your Employer
Sebastian Gauert/Shutterstock Eric Bronnenkant, head of tax at Betterment, tells Bustle that if you have exercised and sold stock via stock options through your employer, you should see a tax professional. “It is very likely that your 1099 cost basis will be inaccurate, and special adjustments need to made to avoid double taxation,” he says.
If You Have Any Foreign Assets
Taxes are complicated enough when dealing with U.S. earnings and assets, but if you have foreign assets, too, it’s wise to consult a tax expert. “If you have any foreign assets at all — such as bank accounts, retirement accounts, investments, property — you want to sit down with a tax professional to determine what you have to report to the IRS,” Allec says. “The IRS has taken a keen interest in getting a better picture of taxpayers’ offshore assets and accounts — and it imposes steep penalties for noncompliance.”
If You Worked In Multiple States
If you did work in more than one state, your taxes may get complicated, so you may want to see a specialist. “It is very common to see over or under taxation, as allocating the appropriate mix of income to resident and nonresident states is very difficult,” Bronnenkant says. In this case, a professional will know the best course of action to take.
If You Had Tax Issues In The Past
Perhaps you’ve missed filing taxes a previous year or were audited. In these cases, or others wherein you had to interact with the IRS about your tax return, you may want to get an expert’s help. “According to the IRS, 43 percent of taxpayers have to interact with the IRS outside of
filing a tax return,” Pickering says. “For example, if you must respond to an audit or notice, catch up on back taxes, or make a payment agreement, you might consider getting a qualified tax expert to help out to ensure you understand the issue, have the documents needed to respond, and have representation from a professional before the IRS.”
If You Want To Save Time
Aside from the fact that an expert can help guide you through the tax-filing process, hiring out will also save you time, Pickering says. “According to the IRS, the average taxpayer spends 13 hours on their taxes,” she says. “Consider using a professional tax preparer or a tool like
Tax Pro Go to simply upload tax documents from a phone or computer, and then a tax pro does the rest.”
If You Want Peace Of Mind
Maybe you’re used to filing taxes yourself each year, but since you have three years to amend tax returns from previous years, you may want to try a professional this time around. “The IRS allows you to file or amend tax returns from the previous three years to claim a missed refund, so it’s worthwhile to work with a pro to find unclaimed refunds or correct a mistake from as far back as 2015,” Pickering says.
As you can see, there are several valid reasons for hiring a professional to help you file your taxes. The good news is, you still have a few weeks until April 15, so you can figure out what will work best for you.