Should you work with a tax accountant or do your own taxes?
We love working with all different types of clients, but some do benefit more than others when it comes to taking advantage of our services. Here are some examples of situations in which we believe you should always with an accountant:
If your primary source of income is from anything other than a W2. This includes all independent contractors, freelancers, sole proprietors, business owners with a “single member LLC”, partners in a partnership, or major shareholders in an S-Corporation. With these types of income sources, you’re allowed you to deduct all “ordinary and necessary” expenses, so you want to ensure everything is accounted for.
If you have investments in and sell stocks. The document your brokerage firm provides each year can be very lengthy. It’s easy to miss something on there that could lead to underreporting of your income and ultimately, a penalty. It’s also easy to mess up entering all the transactions into whatever tax software you’re using, which could lead to your income being reported incorrectly.
If you have investments in real estate. The years in which you buy a rental property, place a rental property into service, or sell a rental property can be a nightmare to navigate. The term “depreciation” is confusing to most and if it’s not accounted for properly in year 1 it could throw off your taxes each year you continue to rent out the unit.
If you “itemize” deductions. Now that there are limits on deducting state and property taxes it is more advantageous for most individuals and families to take the “standard” deduction. However, those with significant mortgage interest (greater than $15,000), donations to charity, or out-of-pocket medical expenses can still benefit from “itemizing” on Schedule A.
If you are getting married or are expecting a child. The IRS considers you married for the entire tax year if you are married on the last day of the calendar year. The same goes for the birth of your child. You are entitled to the same deductions for having a December baby as you would for a baby born at the beginning of the year. We always recommend planning ahead by adjusting the amount of taxes withheld from your paycheck at the beginning of the year so there is no sticker shock when you file.
If you move to a different state. Allocation of non-W2 income in a year where you are a part-year resident can be tricky. And if you move, there’s a good chance you either bought a home or sold a home, which means you likely have 2 Mortgage Interest Statements (Form 1098), adjustments for real estate taxes paid, and perhaps a gain on the home sale itself. It’s a lot to sort out!
If you change jobs. The single most important factor in whether you’ll get a refund or owe money is the way you fill out Form W4, “Employee’s Withholding Certificate”. It’s been redesigned for the 2020 tax year, so you’ll probably be unfamiliar with the new set-up. It is intended to be a little less confusing, but it’s always smart to have a professional give it a review prior to submitting to your new employer.
That’s not to say you shouldn’t with a tax accountant if none of the above situations apply. We work with plenty of individuals who have rather straightforward returns but either don’t have the time to do it themselves or would just prefer an expert handle it for them.