A struggle that many people experience at tax time is deciding whether to do their own taxes or hire a tax pro. To reach the correct decision – and make this tax time a less stressful experience – it’s important to understand the different types of tax professionals, and the pro’s and con’s each one brings to tax preparation. We’ll explore when it may make sense to do your own taxes, and then look at situations when you should strongly consider hiring a professional. Making an informed decision simply makes good financial sense.
Convenience, time, cost, and the degree of complexity in a person’s tax situation are the primary factors that need to be considered when choosing whether to do your own taxes or hire a pro. The lowest cost option, of course, is always doing it yourself -whether it’s pen and paper or using a tax prep software product. The downside is that you’ll end up spending several hours of your time on the task. Furthermore, dealing with today’s complex tax code on your own means you run the risk of making a mistake that could adversely affect how much taxes you’ll end up paying. Equally important, you also may not recognize a tax savings or beneficial financial opportunity. On the other side of the coin, a good tax professional – for a fee- almost always saves a person both time and effort and can potentially offer advice and expertise that can reduce one’s tax obligations.
Types of Tax Professionals
Tax professionals, generally speaking, can be lumped into Tax Advisors four main categories: retail tax preparers (such as H&R Block), certified public accounts, enrolled agents, and tax attorneys. An Enrolled Agent is someone who is federally licensed to prepared taxes and is considered an expert in the field of taxation. Tax attorney’s, being the most expensive of the professionals, are used commonly in situations where the taxes are highly complex, such as tax shelters. Retail tax preparers may be an enrolled agent or a CPA, or (as is most common) neither of the two. Statistics show that 60% of all Americans have their taxes done by a professional.
Hiring a Tax Pro – the Argument For
The greatest value in using a tax professional is in their expertise. Navigating through all the complex tax rules and regulations requires a knowledge and skill most people simply do not possess. A good tax advisor will ask the right questions, dig into your financial picture, and come up with the optimal result for your tax scenario. Additionally, tax experts should be able to provide sound financial advice – especially in the areas of IRA’s, capital gains, and tax shelter. For some of us, using a tax professional is appealing if only for the time savings and not having to endure the headache of preparing the forms ourselves. But one caveat to always keep in mind – not all tax advisors are created equal. Hire a bad tax advisor and you can expect to have bad things happen. Be sure to actively engage a prospective tax advisor with questions, ask your friends or family for referrals, and always double check the math to ensure a correct tax return. Whether using a tax professional or doing your own taxes you are ultimately responsible for what is reported on your tax returns.