Every year during tax season, many people consider whether they should hire a tax professional. They try to weigh the costs (money out of their pocket, time to travel to the preparer's office, etc) and the benefits (assurance that their tax return was done correctly, time saved by not having to conduct research, etc).
Below you will find a list of questions which you must ask yourself when you consider to hire a tax professional. Let me get this “disclaimer” out of the way now: I am a professional tax preparer. However, I will not let that influence what I say here one bit. Now I feel better!
Questions To Ask Yourself If You Don't Plan To Hire A Tax Professional
Do You Understand Taxes?
I'm not asking if you have a deep enough understanding of the tax code to open your own full time tax preparation practice! However, in order to prepare your taxes, you should still have a basic understanding of your tax situation.
Do you know what forms you are to expect based on your tax situation? If you work for someone as a contractor, do you know that you must wait for a 1099? If you are one who rushes to file your taxes before gathering all of the necessary forms (like that 1098 from your student loan), then you need to hire a tax professional.
You should understand the basics of how your various sources of income, debt, and investments (including a simple savings account) affect your tax situation. If you are just doing data entry into TurboTax or some other software, then maybe you should consider a tax professional.
If you only have one source of income, no investments, no business on the side, and no non-credit card debt, then you may be fine with filing your taxes yourself. However, even in these cases, it pays to understand your tax situation!
Did You Have Any Major Changes In Your Life?
If there have been major “tax events” that happened to you during the last year, then you may want to hire a tax professional. If you purchased a home using the homebuyer tax credit, adopted a child, paid tuition, began to pay back a student loan, or any other major life event, then your tax return may look dramatically different than it did in the previous year.
If you do not feel comfortable that you will not overlook a deduction or credit, or fail to consider how your tax event affected other areas (such as raising or lowering a limit), then you should hire a tax professional.
Do You Have Time To Conduct Research?
In my opinion, the IRS has done an excellent job of making information available to the general public. They offer email updates for a number of different taxpayer situations (tax exempt organizations, employers, small business owners, tax preparers, general taxpayers, etc.), all of their publications are available online, and they even catalog their press releases.
So, it is possible to find a lot of information on your particular tax situation. However, if you are not willing to take the time to properly research these items, please hire a tax professional. Because once you find information regarding your question, you still have to understand how to apply it to your unique tax situation. There are a number of circumstances for which there are multiple IRS publications and guides. It is not easy to search though all of this data to find the one sentence that applies to you.
If you hire a tax professional, odds are he's come across your situation before and either knows the answer right away, has the reference material in his own personal files, or will at least be able to dig though the data much fast than you.
- Do you prepare your own taxes? If so, how much time would you estimate that you spend on the task?
- For those who hire a tax professional, do you think it is worth the cost?