With last week's validation of Albert Einstein's 100-year old prediction of Gravitational Waves, it is clearer than ever he was one of the most brilliant men that ever lived. So what were his views on income taxes? Well, let me tell you.
Einstein said to his Tax Pro, "The hardest thing in the world to understand is the income tax," yet he predicted 100 years ago that one day we would be able to prove Gravitational Waves. Therefore, it's no wonder that the average taxpayer might struggle through filing their taxes. Furthermore, if you believe the adage that "time is money," another reason to consider hiring a tax pro is that IRS estimates the average taxpayer needs about 22 hours to prepare their 1040 return; maybe a few less hours if you are Einstein-like. Based on that IRS estimate, you can kiss that extra day this month goodbye if you plan to do your own taxes. Also, remember that estimate doesn't include locating and organizing all your paperwork or finding, loading, and learning to use that software if you do it yourself, and then there is hunting down all the deductions and credits you are eligible to take. If you have a tax question or issue arise, add that time on too. Moreover, since your income taxes are likely the largest financial transaction you will have this year, they probably deserve some expert attention. And all that said it's also no wonder that many very smart people hire a tax pro these days. So how do you know if you need a tax pro or if your situation is "so simple" that you can go it all alone?
- What is your income-level? Lower or moderate income can lead to a host of tax benefits that you are eligible for. However, if you have high income or a complex tax situation, there are many areas where the deductions or credits you might qualify for may be limited.
- Do you own your own business or do contract work? Filing a Schedule C, which is required for most businesses, can be complicated. Combine that with assets that can be depreciated or expensed and you may want to find a tax pro that specializes in small business. A tax pro can also help you find all the write-offs if you are self-employed.
- Do you have investment income or loss? Stocks, bonds, and rental property are nice to have, but the tax implications can be very complicated. Different tax rates may apply and different reporting procedures may be involved based on whether the income is considered ordinary or a capital gain. Determining your basis in the assets so you can calculate your gain or loss is another area of complexity.
- Did you experience a life change, like getting married, buying a house, or moving, this year? There are many tax opportunities generated by these life changes and it can be easy to miss one, which can cost you to leave money on the table. Moreover, if you have health insurance through the marketplace then life changes may change the coverage or savings you are eligible for.
- Have you received a letter from the IRS concerning any previous years? If you haven't filed a return in a while, owe the IRS, or received a letter about last year's return, then don't delay -- contact a tax pro right away. A good tax pro can help you file previous returns, make arrangements to pay what you owe, and explain any letters the IRS has sent and help you get back on track as quickly as possible.
- Do you have the time, information, and inclination to prepare your own return? If you are already overwhelmed with your daily schedule, then adding hours of tax preparation work probably isn't worth the stress. Rushing to complete your tax return may lead to overlooked deductions or missed benefits and trust me the IRS is not going to find them and send you extra money.
Reducing your single largest financial transaction of the year to five minutes on a cell phone makes for a great TV commercial and is kinda funny, but in reality you deserve better and your finances deserve more consideration than that.
I am not saying every tax return needs a tax pro every time, but you certainly should consider hiring one if your situation warrants it. A good tax pro should offer a free consultation, listen to and answer your questions, and be able to build a rapport with you. The best tip for hiring the right tax pro for you is to suggest you interview at least two people that you are referred to -- and not your aunt or brother-in-law, unless they are in fact a tax professional. That way, if the time comes that you have complex tax questions or the IRS contacts you, you already have a tax pro in your contact list.
The IRS page Choose Your Tax Preparer Wisely offers some tips and great resources that can also help you.