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Why You Should Hire a Tax Professional

Source: Photo: dishaw
Source: Photo: dishaw

There was a time when I did my own taxes. I was sole proprietorship with very few itemized deductions. Now, though, I’ve got an LLC, several more deductions and retirement investments on top of savings. My finances are still relatively simple, but they require a lot more paperwork these days — and a lot of time. So I have a tax professional help me as part of my wealth management infrastructure to take care of my tax planning and preparation.

Advantages of using a tax professional

We have a complicated tax code. As your finances become more complicated, so do your taxes. Having a tax professional whose job it is to be on top of changes and to recognize benefits that you might be entitled to can greatly simplify matters. A tax professional may know about a deduction or a credit that you passed over. One of the greatest advantages of utilizing a tax professional is that you can take advantage of his or her specialized knowledge of the tax code.

Another benefit of having a tax professional is that you can plan ahead. Tax planning allows you to work out a plan for your money over the coming year — a plan that can help you manage your money in such a way as to maximize your tax benefits. A tax professional can point you in the right direction and use a certain level of expertise to help you make the most of your cash flow.

Finally, a tax professional can save you time. It used to take me about four hours to prepare my own taxes. I had to read instructions, make sure I did everything properly, and fill out the forms. It was tedious, time-consuming work. My tax professional does the same thing in about an hour. I still have to gather my documents, but since I organize them throughout the year, this really isn’t very difficult. The time savings of three hours is quite valuable to me, and worth the $450 I pay for my tax preparation. Happily, about $350 of that is tax deductible as part of the business expenses associated with preparing taxes for my LLC.

Choosing the right tax professional for you

Just as when choosing a financial planner, if you decide that you want to engage the services of a tax professional, you should be careful about where you turn. My cousin found out that her “tax professional” was lacking some certifications and didn’t really know what he was doing. Make sure that you check up on your tax professional to ensure that s/he has all the proper credentials. Other things to consider when choosing a tax professional include:

  • Local: It can greatly simplify things if your tax professional is local. You can sit down face-to-face with your professional and get to know him or her. It also makes it easier to hold meetings as necessary.
  • Attentive: You want a tax professional that will pay attention to your changing tax circumstances and ask you questions about your situation. You don’t want someone who merely punches last years figures into the computer.
  • Services: Find out what services the tax professional offers. Will s/he represent you in a tax audit? What is the charge for electronic filing? Be wary of “early refund” services, though. In many cases these are actually costly loans against your tax refund amount.
  • Fees: Of course you want to get the best deal. But remember, pay $20 to your buddy, and you get what you pay for. Look for someone who charges something close to the market rate for your area. Call around to get an idea of standard prices from a variety of tax professionals. Also, figure out whether you might be able to benefit from a tax professional that you can hire on retainer. Then match up the services offered with the fees charged to determine the best value.
  • Personality: You want someone you get along with, and whom you trust. Meet with two or three of your top choices for a brief tax planning consultation and to discuss the services and fees. Then choose someone that you like and are comfortable with.

Now is a great time to start looking for a tax professional. Getting your tax professional acquainted with your situation prior to tax season can be very beneficial. Plus, once tax season starts professionals are often too inundated with work to really give their full attention to meeting you. Looking now means that you have the luxury to take your time and make sure that you get the best tax professional for your situation.

6 Responses to Why You Should Hire a Tax Professional

  1. It is crazy to think that you can keep up with tax laws and do a better job than a professional. In my experience, the deductions you will get by using an accountant will outweigh any money you pay them. Not to mention the cost of your time away from your business as opposed to doing what you are an expert at.

    If you don’t feel your accountant is working well for you always feel free to get a second opinion, you might be surprised.

  2. Miranda,
    What are the benefits to using a tax professional compared to yearly tax software? Software (I believe) is cheaper than $450 even for the more complicated fillings and is suppose to automatically find or fill out all of the deductions you are entitled to.

  3. Excellent points, Miranda. Luckily you realized what many have not been able to: that sometimes you just have to give someone else money to do something for you. I never quite understood the hesitation, especially with so many tax laws being implemented as well as expiring recently. Especially when I see so many articles and blogs discussing overlooked deductions, and errors due to inexperience/lack of knowledge it confuses me even more.

    You do bring up some very interesting characteristics that I have always believed were almost as important as education and experience. When it comes down to it, how can you work with the smartest most capable person if they never listen to you, or you simply clash personality wise. That doesn’t make for a very productive working relationship, even if is temporary (which, by the way I don’t think it ever should be a once a year relationship. Your accountant/preparer should communicate with you periodically throughout the year to keep abreast of your current situation and to help steer you in a positive direction no matter what month it may be)

  4. @Jason – You are correct about the pricing, but the tax software is only useful as an after-the-fact tool. The software, nor the developers, are available to provide support year-round, and they also are not as intuitive as a live, experienced professional. They cannot give you guidance on tax matters throughout the year that may affect your tax standing and they certainly cannot keep you up to date on law changes that will be newly applied.

    An example of the lack of intuition – I did an amended return for a client who used preparation software last year because they received a notice from the IRS stating that they owed additional taxes. What had happened was they had health insurance taken out of their paycheck under a cafeteria plan each period. The software not only accepted the input on the W-2 screen, but also allowed the same figure to be used on the client’s Schedule A as an additional itemized deduction. A seasoned professional would never have allowed the deduction to appear on the return, but the software is not programmed to recognize such mistakes, and therefore allowed the return to be submitted as is.

    Examples of year-round availability – Say real estate taxes are going to be a stretch to pay this year. A professional would know that it can only be deducted on the current year’s return if it was paid in the current year. The professional would be able to advise the client to make every effort to ensure that it is paid in order to take the deduction. Or questions regarding effects of stock sales in the current year, or real estate transactions, or any number of events that could result in either gain or loss of deductions. That is why professionals-at least good ones-get with clients during the 3rd quarter and do projections, so that the clients would be able to make any necessary adjustments in the final few months to out themselves in the most advantageous tax position possible (particularly having to make extra deposits in order to avoid potential underpayment penalties once the year is over)

  5. Thanks for stopping by! @Jason: I agree with Eric that with the software you can get a cheaper tax return filled out. However, I tried it once, and have never been as satisfied with it as with my accountant. This is because as you get more complicated taxes, the version you buy becomes more expensive. My needs, for state and local, plus my home business, cost fairly close to $200 in tax software. Plus, as Eric pointed out, I don’t have the ability to do regular tax planning with the software. In the end, for my situation, it’s worth it to pay the extra. The time it saves, plus the tax planning I get, more than make up for it, in my opinion.

  6. Great post, it will surly help many people to know benefits of tax professional, I totally agree that tax professional will help us to know that tax code.

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