Filing your taxes can be a hassle, depending on your situation. If you're just an individual filling out a W-2, you can likely handle that yourself. But when your return is more complex, you might find it's worth hiring a professional — someone who can save you not only time and stress but also money.
Mark Kohler, CPA tax attorney and senior adviser at TaxSlayer, says there are plenty of good reasons to consider asking for help. Here are five scenarios, for example, in which it might be worth it to bring in a professional.
1. You have a small business or side-hustle
If you own your own business, there are many possible tax write-offs, and a professional has the expertise to help you navigate them.
Likewise, if you're doing significant work in the gig economy, driving Uber, selling products on sites like Etsy or racing horses, for example, you might need help with your 1099s.
2. The IRS contacts you
Even if the IRS reaches out asking for something as simple as substantiation of expenses related to a car you bought, Kohler recommends looping in a professional. "It could be a seemingly benign or innocuous letter," he says. "But, if you handle it incorrectly, it can turn into a big deal quickly."
You don't, after all, want to give the IRS the wrong or irrelevant information. "There's an art to playing poker, and it's not that you're trying to deceive the IRS, but you don't want to show too much of your hand," says Kohler. "It's not that you're cheating."
"A good CPA or tax professional understands the language of the IRS," he adds.
3. You're planning for your kids to go to college
If you have a child heading to college and you're planning on filling out the Free Application for Federal Student Aid (FAFSA), assistance could be helpful.
You want to make sure you don't have unwanted assets or income in your child's name, for example. That "can actually hurt them for financial aid, although it might be good for tax planning," says Kohler.
So if your child has a 529 plan or Coverdell ESA, or even if they're a part-owner of your business, it could benefit you to hear from someone who speaks FAFSA.
4. You own a rental property
A return on a real estate investment can get tricky, and a professional can help you figure out what kinds of deductions you may be entitled to.
"At least the first year of owning a rental property," says Kohler, "you should get some advice."
5. You're self-directing your retirement
Your Roth IRA or 401(k) is not limited to traditional investments in stocks, bonds and mutual funds. You can also use retirement vehicles to invest in alternatives such as bitcoin and real estate. That's self-directing.
Filing your return on these investment can get murky, and Kohler says it might be useful to seek help.
There are generally four types of professionals who can assist you with your taxes: Registered Tax Return Preparers (RTRPs), Enrolled Agents (EAs), Certified Public Accountants (CPAs) and attorneys. Many attorneys are also CPAs but may hold a more advanced legal degree as well. When deciding whom to hire, you should consider how complicated your return is.
These are essentially tiers, according to Kohler. If your tax return is simple, an RTRP is fine, but if you need someone who can handle more complexity, hiring a CPA might be smart.
There is so much a good CPA can do to increase your refund or have a more strategic tax return.Mark KohlerCPA, tax attorney and senior adviser at TaxSlayer
"So many people think a tax return is what it is," says Kohler. "That is far from the truth. There is so much a good CPA can do to increase your refund or have a more strategic tax return."
He suggests thinking of a tax return like remodeling your kitchen. Two contractors could have very different designs even though they both still pass code.
As for the rates, they can vary widely. A CPA might charge close to $400 for a return, or a few times the cost of an RTRP, but in some cases spending more might be well worth it. After all, as Kohler puts it, "you get what you pay for."
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