In an attempt to save money or finally understand every aspect of your finances, you might think that it’s a good idea to prepare your own taxes. Before you do, take this as a word of caution: Taxes can get complicated.
If you make the leap, you could find that you aren’t prepared to tackle all the IRS jargon (like “” and “ “), confusing rules, and yearly changes to our .
If you feel overwhelmed by the thought of preparing and your own returns, you may want to consider hiring a .
What is a tax preparer?
A tax preparer is a qualified professional who is familiar with the tax laws, procedures, and practices associated with filing taxes, as outlined by the Internal Revenue Service (IRS).
Put simply, tax preparers make sure that you are correctly following the tax code.
Since these guidelines can be complex and can change from year to year, experts can also help ensure that you are not inadvertently committing tax fraud.
A tax preparer should always have an IRS-issued Preparer Tax Identification Number (PTIN). Only tax professionals with a PTIN can legally prepare your taxes for compensation and represent you while dealing with the IRS.
Who needs a tax preparer?
Those who wish to itemize their deductions
For some, the standard deduction just doesn’t make sense. Specifically, you might want to itemize your deductions when you’ve spent more on deductible expenses than the value of the standard deduction (currently $12,950 to $25,900, depending on your marital status, for 2022 returns).
If you anticipate exceeding those standard deduction amounts, getting in contact with a tax professional should be part of your tax preparation plan.
Read more: A beginner’s guide to itemized deductions
Self-employed folks & business owners
These could include small business owners, consultants, and full-time freelancers — all of whom may have to pay self-employment taxes.
A preparer will not only help you figure out your self-employment taxes but also make sure that you take advantage of the many deductions and write-offs available to you.
So, unless you are particularly tax-savvy, virtually every small business owner or freelancer should look into hiring a tax professional.
Read more: 10 deductions you didn’t know you could take as a business owner
Those buying or selling their home
Buying or selling a home can introduce a slew of tax issues, like capital gains (or losses) and even deductions for certain homeowner-related expenses.
If you’re nervous about your sale’s tax implications, you should engage the help of a competent tax preparer familiar with the tax effects of real estate transactions.
Those preparing a sale of stocks, business holdings, or other large assets
The sale or exchange of stocks, securities, bonds, or any other investments is classified as a capital asset transaction.
The phrases capital assets and capital gains tax make a lot of people nervous, but they’re not that scary. Capital transactions are actually taxed at a lower rate than your ordinary income, but handling capital transactions can get tricky.
The bottom line? If you need to report capital asset transactions on your tax return, hire a professional tax preparer or accountant.
Read more: Gains and losses — What will be taxed and what can I claim?
Those who provide financial support to someone
If you support someone financially, nine times out of ten that person counts as a dependent and you can claim them on your taxes.
The exception? If you support a friend or a relative who isn’t your direct descendant, you might not be able to claim them. This is basically the government’s way of preventing freeloading.
For example, if a friend of yours has a job, but still needs extra financial assistance that you provide, there is a good chance you won’t be able to claim them on your taxes. If you’re uncertain, check with a professional preparer or accountant.
Those who are short on time or generally overwhelmed by taxes
Just like Superman has his kryptonite, some of us just can’t wrap our minds around the U.S. tax system.
If you don’t have enough time in your busy schedule to study the tax code, or you’ve tried and still can’t seem to grasp it, hiring a tax preparer might be the right move for you.
That said, if you have a fairly simple tax situation — i.e., you’re an employee with relatively minimal freelance income and you plan to take the standard deduction — there’s a more affordable alternative that can still cut down your headache come tax time.
Tax preparation software offers a middle-ground alternative to hiring a tax preparer or filing taxes entirely on your own. The software interviews you to determine your tax filing needs and prompts you to submit the information required by the IRS.
The best tax prep platforms are very secure and updated according to recent tax law changes. Plus, many offer a free version perfect for those with simple tax returns.
How much does a tax preparer cost?
The fees charged by tax preparers can vary depending on a handful of factors, including:
- How simple or complex your tax situation is
- The type of return(s) that you need prepared (federal tax returns, state tax returns, or both)
- The credentials of the tax preparer that you hire. Are they an enrolled agent (aka certified by the IRS, a CPA, or a qualified tax attorney)?
Types of tax professionals
There are different kinds of tax professionals specializing in different tax issues. You’ll want to work with someone familiar with the special tax treatment necessary for your unique circumstances.
Enrolled agents must pass a comprehensive three-part test that focuses on business laws and representation issues. Enrolled agents have unlimited practice rights, and can handle a range of tax issues — especially for businesses.
Certified Public Accountants (CPAs)
A (CPA) is a tax professional that has studied accounting at the university level and has passed the CPA exam. They are licensed by a state board and must undergo continuing education to maintain their CPA credentials.
Many CPAs specialize in tax planning and preparation.
Tax attorneys have a law degree and have passed a state bar exam.
Working with a tax attorney would be overkill for the average taxpayer. That said, they can be helpful if you find yourself in need of assistance with complicated tax planning, preparation, or even remediation.
Where can you find a tax preparer?
Referrals from trusted family and friends
One of the best places to start when in search of a preparer is within your own network. Ask your family and friends for referrals to proven tax preparers and then research each for yourself.
Some independent preparers may even offer discounts for referrals through family and friends, so you may be helping your loved one score a little bonus cash.
You can easily find tax preparers in your area through local listings on Google, Yelp, or Facebook.
One of the best parts of finding a preparer this way is that they usually have ratings and reviews. These can help you decide if they are a good fit for your needs.
Franchised tax preparation services
If you won’t be working with an independent enrolled agent, CPA, or tax attorney, you can still find a skilled tax pro via a franchised tax preparation service. Think companies like H&R Block or Jackson Hewitt.
These services can be economical as well as convenient. Since they exist throughout the country and are fully staffed around tax time, getting an appointment at one should be as easy as calling or visiting their website.
If you’re at all concerned about preparing your taxes, chances are you could benefit from a tax preparer. But, if you have a simple return, consider filing your taxes yourself, possibly with the aid of tax software.
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