There are times when you can do your taxes yourself, and there are times when it’s prudent to hire someone to help you.  It comes down to how complicated your taxes are and your comfort level in dealing with them.

With a tax code as complex as the federal government created, there are more times you should ask for help than you realize. Today's tax software is intuitive enough to get you a little farther with typical tax situations. However, there are still plenty of times when another person with deep knowledge of the federal tax code can keep you out of trouble and, maybe, even find some money for you.

So, when should you DIY, and when do you need a tax professional?

When to DIY Your Taxes

Most young adults and quite a few more mature ones can do their own taxes if their lives remain simple enough.

Someone with a simple, single income source who doesn’t owe back taxes is a good candidate. They usually have just a few forms like a W-2 or 1099-INT to deal with.

Tax filing software often asks good, jargon-free questions that can get you through a relatively straightforward return. If you’re still not sure, ask yourself these questions:

• Has my tax situation changed?
• Do I plan to itemize or take the standard deduction?
• Do I own a business?
• Did I organize my tax documents so I can prepare my taxes efficiently?

Getting married or having a child complicates your tax situation, as does owning a business. Itemizing can get some people in trouble as they try to determine whether what they want to claim is allowable. 

If your paperwork is a hot mess, you might need someone to tell you what’s missing from your shoebox of receipts.

Further Considerations on DIY vs. a Tax Expert

The IRS estimates it can take non-business tax filers with no income from a business, rental, pass-through business, or farm about eight hours, on average, to do their taxes. That’s:

• Three hours for recordkeeping
• One hour for planning
• Three hours for completing and submitting the form
• One hour for miscellaneous tasks, like collecting documents or downloading software

Uncle Sam increases that estimated time to 21 hours for anyone with business, rental, farm, or pass-through income. Eleven of those hours are spent on recordkeeping.

If you’re hesitant to see professional services, consider that paying for tax prep is better than owing penalties and fees to Uncle Sam if you make a mistake.

Finally, consider your level of comfort in preparing your taxes. If you and math have an adversarial relationship or looking at the simplest tax form makes your eyes roll back in your head, maybe you’d better look into hiring someone to help.

When to Hire a Tax Professional

There are several tax situations where hiring a tax professional is the better part of valor.

You Are Self-Employed, a Freelancer, or You Own a Business

In all these situations, you do not have an employer withholding payroll taxes for you. You are responsible for tracking your income and deductible expenses. You need to understand and apply depreciation, inventory accounting, and deductions such as those for a home office, business meals, travel, and vehicle use.

Oh, and did we mention that taking deductions for home offices, business meals, travel, and vehicle use are red flags to the IRS for an audit?

On top of all that, you need to calculate and pay estimated quarterly taxes. Hiring a pro can help avoid any issues.

You Have a Major Life Event

Several significant life changes can change your tax situation. Some examples include:

• You got married or divorced
• Your spouse died
• You had a child (or adopted one)
• You bought or sold investment property
• You received an inheritance
• You moved to a different state or resided or worked in more than one state

Once you’re married, you need to decide whether it’s more advantageous to file separately or jointly. If you are going through a divorce, you might decide to file separately to avoid being stalked by the IRS for your ex-spouse’s unpaid tax liabilities during the three-year lookback period. 

Spouses are exempt from federal estate taxes on assets from a deceased partner. Still, you may need to determine how the change impacts your future tax strategy. 

However, if you receive an inheritance from anyone else, the tax law is different. Fortunately, the federal estate tax exemption caps out at $5.45 million, so there’s that.

Having or adopting a child brings with it the child tax deduction. If you adopt, the IRS actually offers a tax credit for eligible adoption expenses. 

If you moved to a different state last year or worked in more than one state, your tax situation gets more complicated. For example, you may live in Kansas City, KS but work in Kansas City, MO. Your federal and state taxes become more complex.

You Have Foreign Accounts, Income, or Actively Trade Stocks

Foreign accounts trigger other filing requirements, even if you don’t receive any income from them. The penalties for not following the IRS rules can result in a fine of up to $60,000 plus potential criminal penalties for not disclosing and filing. 

You need a tax professional with expertise in foreign accounts if:

• You have a financial interest in a foreign account
• You are an authorized signatory on a foreign account
• You earn money from a foreign country

Be sure to specify that you need a tax professional with this expertise, as not every tax preparer may not have the knowledge to handle this.

You Owe Back Taxes or Are Under Audit

If you didn’t hire a tax professional when you received your audit notice, hire one immediately. Find someone who knows how to work with the IRS. If you owe back taxes, this same professional can advise you on your options for payment.

Maybe you made what you feel is a simple error. If you catch it before the IRS, file an amended return, and all will be well. If the IRS sees it, you may owe penalties and fees on top of back taxes. 

However, the IRS can make mistakes, too. A tax professional can help confirm the IRS assessment and help you respond appropriately.

Other Situations

You may require a tax professional if you are:

• Caring for elderly parents
• Paying a grandchild’s college tuition
• You own rental property
• You expect to itemize instead of taking the standard deduction

In short, when your taxes become more complex than you feel comfortable handling, contact a tax professional. Do your research to determine if you need a CPA, an Enrolled Agent (EA), or a tax attorney.

Final Word of Caution

The majority of tax professionals deal in good faith. Still, do your due diligence, and check their work as best you can. Once you sign your tax return, you are responsible for everything in it, even if someone else prepared it.

Contact Top Tax Defenders if you have any questions.