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When Does Professional Tax Preparation Make Sense?

June 15, 20205 minute read

5 times when it’s best to go to a pro

The uncertainty of tax time can be stressful. Will you owe? Will you get a refund? Have you filed correctly? What happens if you get audited? 

If your taxes are simple and straightforward — you work for an employer, don’t own property and have no dependents — doing your own taxes online through the IRS website or tax preparation software can be quick and inexpensive, or even free.

But if your life is a bit more complex, or you just want to hand off the time and worry of doing taxes, consider hiring a tax preparation professional. Here are five situations when it might make sense.

House with a sold sign

1. You sold your home.

Home sales can be complicated, but the tax consequences could be even more daunting. Now that your home has sold, you’ll be dealing with things like cost basis, the price of improvements and difficult capital gains calculations.

If you get this wrong, you could end up overpaying on your taxes. Compared to the potential cost of even a small error, the price you pay for professional tax preparation will be money well spent.>

2. You’re dealing with a large inheritance.

Inheriting assets can seriously complicate your tax situation, but a pro can help you sort things out. If you inherited an individual retirement account (IRA), a stock portfolio, real estate or anything else of value, you’ll need to calculate the cost basis, establish value and make lots of complicated calculations.

Most tax prep software is not set up for such arcane calculations. You may get some basic help with your inheritance, but it can be difficult to tell whether those numbers are correct. If you find yourself in such a situation, reaching out to a tax preparation expert could be the right thing to do.

3. You run a small business.

Running a small business is tough, and chances are you’re not a tax expert. Depending on how you handle it, your small business ownership could yield a wealth of valuable deductions — or a huge tax bill.

Man smiling while working at coffe shop

Unless your small business is a CPA firm, it probably makes sense to hire a professional to prepare your return. A tax pro can help with everything from how to structure your business to which deductions you’re entitled to. In the end, the cost of tax preparation could be far less than the money you save.

4. You got married — or divorced.

Getting married is exciting, but it creates financial consequences. Combining households means comingling your finances, and that can add a level of complexity to your first tax return as a couple.

Divorce can also complicate your tax return, and seeking professional help makes sense in this situation. Even a small mistake on a post-divorce tax return could cost you thousands, far more than the price of a professionally completed return.

5. There were problems with a previous tax return.

If you received a letter or audit notice from the IRS based on errors on a previous return, you can’t afford to take any chances. Even an inadvertent error or transposed number could invite further scrutiny — and subject you to additional taxes and penalties.

It makes sense to hire a tax pro if you were previously audited, or if you made serious mistakes on your past returns. At the very least, you’ll have a second set of eyes on your return, and having a CPA or tax expert standing behind the numbers will give you extra confidence and peace of mind.

Woman and man talking while looking at piece of paper

Choosing a tax preparer

If you’ve decided to hire a professional to do your taxes, you have another decision. Whom to trust with this important task? Not all tax professionals are created equal.

Any preparer with an IRS Preparer Tax Identification Number is authorized to fill out tax returns. But, as the Washington State Attorney General’s Office (AGO) notes, only attorneys, CPAs and IRS-enrolled agents can represent taxpayers before the IRS during audits. Consider if you want this level of support.

Other advice the Washington AGO offers is to ask friends for recommendations and look for preparers who are affiliated with reputable professional organizations. Find out the fees upfront. And when using a preparer, be sure to review the return carefully before you sign — and never sign a blank or partially completed form.

This little bit of legwork can bring even more peace of mind if you decide to hire a professional to prepare your taxes.

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