It’s tax time again. In your rush to get your taxes done, don’t make these six mistakes.
Josmar Taveras, USA TODAY
Tax season so far has been full of surprises, as Americans navigate the biggest tax code changes in decades.
Most who have a simpler tax return will manage just fine with the tax preparation software available. But others – with more complicated situations – may want to turn to a professional.
But it’s not free. Services can run from around $150 to a few hundred dollars, depending on how complex your returns are. These fees are no longer deductible either, an elimination by the new tax law.
Still, in the unlikely event that you’re audited by the Internal Revenue Service, a tax professional can deal with the IRS on your behalf and reduce your anxiety. A tax pro can offer other services, such as helping you adjust your paycheck withholdings or advise on other taxable events that occur outside of tax filing time.
Waiting for your tax return? How long should it take?
“They know your particular tax situation, your retirement goals, how many children you have,” says Mike Savage, a certified public accountant (CPA) and CEO of 1-800Accountant. “It helps to have that familiarity with someone who you can call at any time.”
Here’s when and when not to consider a tax pro, and what to look for:
When tax software is enough
Most Americans probably can handle filing their own taxes, thanks largely to tax software that makes it easier. If you’re return consists of W-2s, 1099 form from banks, simple investments and your mortgage lender, you likely fine on your own.
“If your tax return is basically a data dump into tax software, you don’t need a tax expert,” says Logan Allec, a CPA and owner of the personal finance site Money Done Right.
Even if you hit a snag or become confused while using the software, most of the providers offer some hand-holding from tax professionals for a small fee. TaxSlayer has its premium or self-employed package that gives you access to a tax professor, CPA or enrolled agent.
“If you get stuck or don’t feel comfortable, we have that level of support to fall back on,” says Seth Babb, director of consumer products at TaxSlayer.
H&R Block provides three tiers of help for online customers, from an online chat with a tax expert to handing off your unfinished returns to a pro to complete. TurboTax offers a live online function that puts you in touch with a CPA who can answer questions and review, sign and file for you.
Another chicken recall?: Why are chicken nuggets, other poultry products recalled?
Retirement tips:: These are the best places to retire in every state
When to find a tax pro
Sometimes an online chat isn’t enough to get complicated returns done. But how do you know if you should seek out professional guidance? Here are four instances when you may want professional advice.
Small business: An independent contractor who receives 1099-MISC forms instead of W-2s may want a second pair of eyes on their returns. “Congratulations, you’re now a small business owner in the eyes of the IRS,” says Allec. “There may be special deductions available for you that maybe you’re not aware of.”
The new qualified business income (QBI) deduction is one of them. Part of the new tax law changes, the QBI allows owners of sole proprietorships, partnerships and S-corporations to deduct up to 20 percent of their business income. The final rules for the deduction – which are complicated – came out only in January, so it makes sense to have a CPA help you out.
Real estate investor: If you’re a new landlord or property investor, you should consider a tax pro, at least for the first year. “I work with a lot of real estate investors and many miscalculate their depreciation deduction and amortization deduction,” Allec says. “Some don’t even know about the amortization!”
Unique investments: If you dabbled – or more – in buying and selling cryptocurrency, seek out a tax professional to help calculate your gains and losses. Many of the cryptocurrency exchanges don’t provide consistent tax reporting, so it’s up to you to figure this out.
If you also have any private foreign investments – such as a passive foreign investment company (PFIC), partnerships or foreign trust – consult with a tax professional, says Ryan Losi, a CPA. “The U.S. rules are dramatically complex regarding disclosures and taxes,” he says. “You need a CPA hands down.”
Family issues: Family changes might trigger the need for extra help, such as divorce or death. If your ex- or deceased spouse took care of the taxes, you might want a pro to help you get the hang of it, at least the first time around.
A couple whose divorce isn’t finalized may want to use a tax preparer – especially since filing jointly is usually a better outcome. The preparer can act as an intermediary in this delicate situation.
Beneficiaries of a sizable trust and executors of an estate may also want help, especially since trusts and estates can qualify for the new qualified business income deduction.
How to find a tax preparer
Designations: For filing your returns, you’re looking for a Certified Public Accountant (CPA) or Enrolled Agent (EA) to help with taxes. Check with your state’s board of accountancy to make sure a person’s CPA license/registration is still active. You can email the IRS to verify an EA license.
They also must have a valid preparer tax identification number (PTIN) for 2019 to prepare tax returns.
Directories:Start with the directory provided by the IRS to narrow down your search. Cross reference your results with industry association directories from the Association of International Certified Professional Accountants, National Society of Accountants and the National Association of Enrolled Agents.
Specialties: Check a tax preparer’s website or call their office to find out if they specialize in your specific situation. For instance, small business owners want to seek out professionals knowledgeable about their industry because some deductions can be industry-specific, Savage says.
Consultation: Many tax professionals will offer a free consultation in person or over the phone. This is a good chance to feel out the professional before handing over your personal tax information.
Know the fee: Before going forward, make sure you understand how you will be charged. There are varied fee structures, such as by the hour, by the form or a flat fee.
Red flags for bogus tax experts
Promising too much: “If they start the conversation saying: ‘I’m going to get you the biggest refund you’ve ever had,’ they might get you in trouble,” says Savage. You don’t want a tax pro who will cut corners to get that bigger refund, only to result in an audit down the road.
Contingency pay: If a professional’s fee is based on the refund amount they can get you, walk away. This is not allowed by the IRS or Treasury Department, says Allec.
Refund deposit: Small tax shops asking to have your refund deposited in their account, so they can make a loan to you, can be shady. “I would trust the H&R Blocks of the world for refund loans, but not pop-up shops,” Allec says.
Asking for signature: If your tax person wants you to sign incomplete forms, don’t. Then, get another tax pro. Some scammers posing as tax experts will turn in your real return with the correct refund amount and give you a dummy return with a lesser amount. They, then, pocket the difference.
Lawsuits: If a license search of a CPA on your state’s board of accountancy site turns up any complaints, settlements or litigation, it’s time to look for someone else.
“If they have a lawsuit, stay away,” says Losi. “CPAs rarely get sued, and when they do, it’s big.”
Tax filing season is here, and the overhaul of tax laws means some potentially big changes for your budget. Did you get refund, or do you owe the IRS?
Josmar Taveras, USA TODAY
Read or Share this story: https://www.usatoday.com/story/money/2019/02/22/tax-refund-should-i-hire-cpa-to-file-returns/2948676002/