Yahoo Finance How to Get the Most Value From Hiring a Tax Preparer
It's that time of the year again: tax season. People are collecting their W-2s and 1099s, looking at IRS publications, filling out forms, sending checks and hoping to receive checks, too.
Filing taxes can be a complicated process, and because of that complexity, many people choose to hire some kind of assistance. Some select tax-filing software, while others hire a person to help them with their tax preparation.
Which option is right for you? And how can you get the most value out of that choice? Here are some tax-filing options to consider.
[See: Answers to 7 Burning Tax Questions.]
Consider whether you need professional help at all. First, if your tax situation just involves getting a small number of W-2s and 1099 forms in the mail, you're probably better off without a tax preparer at all. Filing your taxes when your financial life is simple is easy. The IRS offers online forms that you can fill out on your computer by simply copying numbers from your W-2s and your 1099 form. If your state has tax returns, it likely offers the same services. You can see how easy it is and what the IRS has to offer by visiting the E-File Options page.
Consider tax preparation software. If you're technically savvy, tax preparation software is probably a cheaper and more reliable option than a tax preparer, too. Quite often, tax preparers merely use some tax preparation software package to file your taxes for you anyway, so if you're not afraid of installing a software package and typing in the numbers yourself, you should just use a package like TurboTax. The software essentially walks you through a questionnaire, telling you where to find all the answers that you need, then fills out the tax forms correctly as you type in the numbers. Again, if your tax situation is relatively simple -- typical W-2s and 1099s and no complex business arrangements -- filing it yourself with the aid of software that makes it easy is probably a better choice.
The time to call in a tax preparer is when things are a bit more complicated, such as when you've bought and sold a number of investments or have business holdings or business income, or if you've received money from a trust or other atypical sources. While software can still guide you through these situations, it doesn't always find the best way to organize them and file them, and the eye of a knowledgeable tax preparer can really make the difference here.
[See: 7 Most-Missed Tax Deductions and Credits.]
Visit a storefront service. Who should you hire? There are several options to consider. One option is to simply go with a storefront service like H&R Block. This is probably the best option for someone with a fairly simple return who wants to be cautious or is uncertain about using software on their own to file. Storefront services typically use their own tax preparation software, but instead of you answering a questionnaire on a computer screen, you walk through those questions face-to-face with that preparer.
Hire a tax preparer. Another option is to hire your own independent tax preparer, but in many states, literally anyone can claim to be a tax preparer. If you're hiring someone, you want the value of a watchful eye, so consider an enrolled agent. An enrolled agent is a person who has gone through a licensing program or has previously been employed by the IRS for five years or more and has gone through an extensive background check. That person is qualified to represent you with the federal government. If you're choosing to hire a tax preparer, consider an enrolled agent. You can find these professionals through the National Association of Enrolled Agents.
[See: 10 Smart Ways to Spend Your Tax Refund.]
Hire a certified public accountant. Typically, this is going to be the most expensive option, but they're the best choice if you have a high income and want to consider tax strategies that will reduce your long-term tax burden, or if you have complex business arrangements or a large portfolio of investments. Handling these kinds of things can be really burdensome with over-the-counter tax software, and even an enrolled agent may not want to deal with some sticky situations. However, a CPA is typically more expensive. It really only makes sense to use a CPA for taxes if you've got a very complex situation and want to do lots of long-term tax planning.
Different tax preparation solutions will work best for different people. If you're in doubt, try a simpler solution for yourself and see if it works. You can always move up to a more robust solution if the original strategy doesn't work for you. And if the simpler solution works, then you've saved a great deal of money.
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