You may not be the best person to do your taxes

By The Advocates

I’m southern. And as such, I’m accustomed to cushion the blow of unwelcome news with something sweet. So, grab some leftover Christmas treats to nosh on while you read this. 

You should start thinking about your taxes now.

And though April 15th seems distant, we all know it’ll be here before you know it.

Really, you should be thinking about your taxes far more regularly. Or you can outsource that work to a professional. If you’re considering it, you may wonder when’s the right time to hire one? And how do you pick a good one?

We are not tax professionals; we are financial planners. Taxes are one of the classic six areas of financial planning and can have a significant impact on your financial health now and in the future. This is one of the reasons we collect and review our clients’ tax information and take your specific tax situation into account when planning for you. We often work in collaboration with a client’s CPA, but we can’t file your taxes.

I asked our advisor, Kurt Box, perhaps for my own benefit, when he thinks a person should hire a tax professional to handle their annual return. In typical Kurt form, he said, “when it takes you more than 20 minutes”.

Knowing that far simpler tasks take me longer than 20 minutes, I press on, “ok, but what else?”

He offers this rule of thumb: if you have income other than a 1099-R for retirement distributions, or W-2 for salary, you should probably outsource to a professional. Message received: if it’s simple and quick he recommends self-preparing using a tax software.

I admit that Kurt is usually right. Nevertheless, this remains a personal decision. Consider the below when deciding to self-prepare or hire a professional:

  • Your own experience and confidence with tax preparation
  • The amount of time you’ll spend preparing and filing
  • The complexity of your situation

How do I know if my situation is complex?

While there is no comprehensive definition of tax complexity for our purposes here, some common complex scenarios include:

  • Self-employment
  • Significant life events like marriage, divorce, inheritance, etc.
  • Owning rental properties
  • Foreign accounts, employment, or investments

There are scarier scenarios that should be considered as well. If you need to file an amended return because of an error or omission, or have the unfortunate experience of being audited, a professional may be the best option for you.

So, you want to hire a tax preparer…

No one’s looking to hire a bad or negligent person to prepare their taxes, but they are out there, and they often look just like the good ones. To reduce your chances of engaging one, try these ideas:

  • Choose someone who holds the Certified Public Accountant (CPA) designation. I can’t speak for all instances, but if your tax preparation company has a sign twirler in front of their location, see the last bullet.
  • Talk to friends and family that you trust. Find out who they use and if they’re happy.
  • Ask your other trusted financial professionals. We’re more than happy to recommend tax professionals who have historically done well for our clients. We don’t take kickbacks, either.
  • Chat with the professional before you engage them. Just a quick call to see if they’re a fit for you. Bonus points if they’re funny or charming.
  • Check their credentials. The IRS keeps a public directory of tax preparer credentials here.

Few people are excited about the prospect of self-preparation or outsourcing. No matter how you decide to handle your taxes, keep these simple recommendations in mind while you weigh what’s best for you and your family.

If you’re a client of The Advocates and are having trouble deciding, please give us a ring. Your advisor will almost certainly have an opinion to share. 

Not a client yet? Schedule a free appointment here.